Facilitating Domestic Commerce

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

Identities and conflicts

By Zubair Faisal Abbasi
The DAWN Op-Ed| Wednesday, 12 Aug, 2009 |

THE issue of identity and conflict is complex and puzzling. What prompts human beings to re-prioritise identities and re-adjust group affiliations which seek to redress grievances against a distinct other? There may be a diverse range of answers to this question.

These could range from cultural and ideological to political and socio-psychological perspectives. Such questions and answers are important. They may not only help identify the reasons behind group conflict, they could also help design policy prescriptions.

In fact, Pakistan itself is a product of a profound reconstruction of identity which attempted to create internal socio-political cohesiveness in a group while engaging with the question of grievances and inequality. Such grievances emanated from deprivations and a lack of access to opportunities for social and economic wellbeing. Ironically though, after having an administrative solution carved out of United India, the palaces and places of power in Pakistan progressively became an unwise system of controls.

With partition (1947), dismemberment (1971) and other geostrategic situations in the background, dominant interests have tried to control identity construction with what Amartya Sen calls “singular-affiliation” i.e. a person belongs to only one group. Paradoxically, however, the search for national security in the context of a singular identity, and disregard and sometimes the suppression/exclusion of other identities, has caused more harm than given stability to national cohesiveness.

In a way, the sought-after singular identity became an act of whistling in the dark in what was East Pakistan. Many analysts argue, albeit with some exaggeration, that a similar situation is seen in other parts of Pakistan including Balochistan. In both cases, the grasshoppers repeating the mantra of national aggregate economic growth were not able to gauge the risks and vulnerabilities which created a shortage of social capital in multiethnic societies.

Misunderstandings have led to a democratic deficit in development. The deficit indicates gaps in non-discriminatory “development by the people (participation in economic growth), for the people (gains in social welfare through public services) and of the people (increase in capabilities and empowerment)”. Literature on inter-group disparities categorises them as “horizontal inequalities”.

Public policymakers are often simplistic when it comes to believing in the effectiveness of growth and investment as a panacea for social disequilibrium. They are caught in a situation called growth-investment optimism. Such optimism cannot generate a critical analysis and is a deficient guide when it comes to a politically viable public policy. It is misleading because the indicators of increase in growth and investment do not reveal inter-group grievances and multidimensional deprivations.

Interestingly, recent research on the geography of poverty especially in Punjab shows that there is a significant differential in sharing the welfare gains of economic growth. For example, it has been demonstrated that poverty is concentrated and severe in the southern and western parts of Punjab and more so in the rural areas of the concerned districts. One can understand why southern Punjab which has a distinct language and culture demands the devolution of not only administrative but also developmental authority in the shape of a Seraiki province. This creates a sense of identity for the people of the area and makes economic sense.

Another example of horizontal inequality that fuels conflict despite an increase in growth and modernisation, investment, and job creation can be seen in China. The people identified as Uighur and Han Chinese in Urumqi were recently engaged in violence. Many investigative reports show that the Uighur population claims that the lion’s share of development dividends, a consequence of China’s miraculous growth and investment, have been pocketed by the Han Chinese. For the Uighurs, the disparity in developmental gains has created fears of being culturally eliminated and cornered as cultural minors.

A question that needs to be answered is why some areas of Pakistan with genuine grievances have only partially succeeded in creating a powerful social and political movement. Literature on horizontal inequalities informs us that social groups which have grievances against other groups but higher levels of inequalities within the group cannot easily develop a democratic leadership that could demand equality on behalf of the masses it is meant to represent. Therefore, intra-group inequality becomes a binding constraint on the creation of an internally cohesive social movement that aims to end horizontal inequalities. Is this not the situation in Balochistan and southern Punjab?

Last but not least, it is often emphasised that an increase in investment and witnessing growth in volatile parts of the country does not end political strife. This needs thorough re-examination. A solution depends on the social efficiency and effectiveness of growth and investment which is accommodative of ethnic dimensions. The prescription is to avoid imposing the ‘singular-affiliation’ idea system and understand that identities are inherently plural, make economic sense, and are not always against the collective and long-term security of the state. In fact, there are examples found in many parts of the world including the EU where diversity is considered a social strength.

source: http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/the-newspaper/editorial/identities-and-conflicts-289