Trade Policy: The human development perspective

<<< The new trade policy should not be a mere ritual of tariff and subsidy manipulations but a coherent vision for a structural transformation of the economy.>>>

July 19, 2009 | The News on Sunday - Political Economy Section | pp-IV

By Zubair Faisal Abbasi

Domestic and international trade volumes are the functions of an economy. The whole cobweb of human, financial, technological, industrial, agricultural, and political factors play their role in producing specialised surplus for trade. The structure of an economy and system of resource allocation determines whether a country will export low-end potato-chips or become internationally competitive in high-end computer-chips. Success in gaining competitiveness in international trade is not simply a function of comparative advantage but an expression of a multitude of complex factors which help build competitive advantages in diversified range of products through acquisition of technological capability and human capital.

Despite claims from the trade policy orthodoxy that trade liberalisation results in specialisation and ultimately increases the efficient allocation of scarce resources, the issue of purposefully building competitive advantages is crucial. In the words of Albert Hirschman, identification of those products and processes which can create a 'multidimensional conspiracy for development' is of fundamental importance for any national economy which strives to gain from international exposure. Unleashing such potentials is a function of public and private sector synergy working to progressively grow from being 'infants industries' to highly competitive adults.
How can one assess the success of trade policy in Pakistan which shows following liberalisation modalities?

Liberalization, despite the rhetoric of orthodoxy, does not necessarily create a level playing field. It creates a relatively open arena for those who have become stronger and can penetrate foreign markets or can defend domestic share of the market with relative ease. The rest are either cornered or eliminated from the market. Therefore, who gains and who loses is of prime importance under liberalisation. In other words, who, how, and how much will be accumulated, produced and consumed makes a perfect sense for heterodox economic thinking which advocates social efficiency along with economic efficiency of resource allocations.

According to a human development perspective, the analysis of a trade policy has to be undertaken to assess whether the policy has actually increased employment or not other than its impact on economic growth and trade to GDP ratio. Researchers argue that the impact of trade policy on 'sustainability' in terms of environment and other social factors such as health and education, 'empowerment' in terms of employment creation, 'equity' in terms of distribution of opportunities and wealth, and 'productivity' in terms of human capital must be assessed. Such an assessment is conspicuous by its absence in Pakistan.

Though Pakistan is set to announce another trade policy, evaluation of trade policy regimes from a human development perspective is still a hope against hope.
What Pakistan is bracing itself during these times, is a fall in trade to GDP ratio and progressive erosion of competitiveness in key sectors despite 20 odd years of liberalisation and other neoliberal reforms. During this fiscal year 2008-09, Pakistan witnessed exports of US $17.78 billion against the target of $22.1 billion while the imports stood at $34. 82 billion against last year's imports of $ 39.96 billion. Looking at these basic figures on international trade, experts emphasise that Pakistan needs to increase its exports, identify and target new markets, and develop diversified products.

This is however easier said than done in a state which has forgotten to govern both the markets and economic growth. In addition to the declining capacity of the state, an appetite suppressant tight monetary policy is there to reduce aggregate demand in the economy.

As mentioned above, the role of the state is vital in economic change. It is vital in creating an environment for trade benefiting the people and is actually embedded in, apart from providing a stable macro-economic framework, the ability to envision, develop, and execute industry, trade, and technology (ITT) policies which are in sync with the larger economic development objectives of the state. Many experts who approach trade policy from a human and industrial development perspective argue that for an economy to function at optimal level, the state needs to focus on the domestic market expansion as well. They argue that creating backward and forward linkages through inter-sectoral articulation (developing domestic commerce) and wage and skill increases through social articulation are keys for economic success with equity.

Famous trade economist, Dani Rodrik, argues that economic growth can come from three sources. One is from foreign borrowing (Pakistan is one of the examples), the other one is from commodity boom in international market, and the third one comes from economic restructuring and diversification into new products. For Pakistan, during the next couple of years, despite ongoing stabilisation programme, a conscious decision is required to divert administrative and financial resources for diversification of products and destinations.

To do this, what Pakistan needs is to focus on ITT policies and have an active labour policy. Pakistan needs to indentify a mix of products which are can generate higher proportion of increasing returns to scale. A good starting point for such thinking would be to focus on a combination of industrial, agricultural, and livestock sector. For example, Sahiwal and Sargodha are the areas in which 'dairy development cluster' can be most successful. However, for such programmes, governments need to change resource allocations in a big way. For example, in total Rs150 billion has been earmarked for Public Secctor Development Programme in Punjab. Out of this, around Rs30 billion will be spent on the Ring Road in Lahore. Lahore indeed is important for many commercial and political reasons but Sargodha and Sahiwal can also create more conducive situation for local market and human development (Kemal, 2009).

Another good proposal could be to earmark research and development subsidies for agro-food industries. However, these subsidies only make rich people more rich if these are not reciprocal to the performance firms show in the domestic and international markets. With successful research and development efforts and as a result of both product and process innovations, Pakistani firms can join global value chains and global production networks in a better way.

While a new trade policy is in the offing, it would not be wrong to suggest that it should not be a mere ritual of tariff and subsidy manipulations but a coherent vision for a structural transformation of the economy. The importance of inter-linkages between industry, trade, technology, and social policies have to be carved out if Pakistan wants to be a successful globaliser dissociating itself to be a laggard.
The writer is independent development consultant based in Islamabad. www.idi.org.pk

Source:
http://jang.com.pk/thenews/jul2009-weekly/nos-19-07-2009/pol1.htm#3