
By Zubair Faisal Abbasi
Monday, 17 Aug, 2009 | DAWN: Economic and Business Review |
FOREIGN trade is important to provide a vent to production while domestic trade is essential to develop both the capacity to produce and to have production surplus for exchange. Here export-led growth is a case in point.
One may ask: what is strategically different in the current Strategic Trade Policy Framework from the previous strategy of Rapid Export Growth Strategy (REGS) which has little success to boast of?
In capitalist economies, a combination of the state and entrepreneurs undertake ‘development’ and create conditions for sustained economic growth. The engine of growth happens to be manufacturing sector, supported by technology, industrial, and labour policies along with other flanking social policies to allocate resources.
In this way, many researchers argue that developing countries adjust prices to meet the developmental objectives and use the multidimensional approaches to engineer competitive advantages. Such a developmental orientation of combining the state and the capital resources has been obvious only because of its absence.
Interestingly, the synergy between the civil-military bureaucracy and the merchant-feudal-capitalist class of using capital for economic growth and development has mostly been in political patronage.
Free trade and free market were assumed to be a panacea for economic development. It received support and advice along with favourable conditionalities from international finance institutions. In short, a subsistence level agrarian economy which was to be turned into a modern industrial economy could not have the support of a successful developmental state.
A question arise: has the free-trade really delivered when the state is rolled back and economy put at the mercy of free-market fundamentalism? Here we take the example from international trade. Pakistan is witnessing an increasing trade deficit despite following an export-led growth strategy and having divorced other flanking policies such as industrial policy called ‘interventions’ which distort markets through tariffs and subsidies.
During the last two decades, trade liberalisation has been the policy. The average tariff has fallen quite sharply and in a WTO-plus fashion. These were 120 per cent in 1985 and stood at around 12 per cent in 2007-08. However, the reduction in tariffs coincides with increase in trade deficit. As compared to the trade deficit being at $1.2 billion in 2001-02, it has reached around $14 billion in 2008-09.
In fact, the trade deficit, which Pakistan is witnessing has similarities elsewhere as well. A recent study by famous economists Amelia Santos and A.P. Thirwall shows that liberalisation in 22 developing countries stimulated export growth and raised import growth also, leading to a worsening of the balance of trade and payments. They argue that despite taking all measures such as removing anti-export-bias, import control, non-tariff barriers, and exchange rate distortions, liberalisation raised export growth less than imports. Most astonishingly, they reveal that this has constrained the growth of output and living standards. May be Pakistan’s economic managers need to interpret the trade experience and analyse a sharp decline in industrial output which has shown negative 7.7 per cent growth in a more comprehensive fashion.
It is worthwhile to mention that Pakistan has slipped nine points downwards on the Global Competitiveness Index which lists 134 countries and stands at 101. The deterioration has been in all of 12 indicators.
The Strategic Trade Policy Framework 2009-2012, claims that ‘by 2012 the competitiveness ranking of Pakistan will improve from 101 to 75’. In the absence of a viable national system of innovation which can connect the triad of education, industry/business and policy governance, the target seems to be far removed from reality.
Last but not the least, Pakistan should learn from some policy experiences from China and the US. Looking at the global recession and fall in global consumption which have impacted the trade balance of China as well, the countries are stimulating local production and consumption. ‘Buy America’ is one measure for a growth stimulus. In fact, it is estimated that 7.9 per cent increase in China’s GDP will actually come from domestic consumption due to increasing linkages between local production and consumption.
In the context of strategic trade policy, breaking away from the past, Pakistan needs to focus more on domestic commerce and give a (big) push to local brands, wages, production, consumption – in a nutshell develop a facilitating social and physical infrastructure for economic development.
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Source: http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/in-paper-magazine/economic-and-business/facilitating-domestic-commerce-789

