My thoughts, views, and stories ....

What needs to be done

2011-01-10T17:09:00.000+05:00

The News on Sunday | Political Economy Section| January 09, 2011
Zubair Faisal Abbasi

Despite having some robust economic growth spurts of 6 percent to 9 percent, Pakistan can hardly be portrayed as a good example either of consistent rapid growth or enviable advances in human development and social protection.

In fact, the country needs to seriously consider overhauling and reengineering of social protection and human security machinery, which is both inadequately oiled and badly designed.

The economy, at present, cannot enable the state or vice versa to ensure people’s right to life with dignity, let alone build capabilities of society to function in a desirable fashion.

Some basic statistics make a case for policy interventions in the direction of increased social protection. Comparatively speaking, despite having better growth rates between 1990 to 2009 than Bangladesh, Nepal and Maldives, Pakistan could add 5 more years in life expectancy at birth while these countries added 13, 12, and 11 years respectively.

It must not be surprising that Pakistan is the lowest on social protection spending with 1.6 percent of GDP in South Asia while offering social protection to around 5 percent of its population who are mostly working in formal sector. In comparison, Sri Lanka is the highest 5.7 percent of GDP utilised for the purpose.

Pakistan, however, has shown some progress in decreasing gender disparity in net enrolment rate but disaggregated data shows much of the progress concentrated in Punjab with Sindh and Balochistan getting worse off while Khyber Pakhtunkhwa shows no major change. Such skewed developments for whatever reasons create disparities in the short run and conflicts in the longer run.

On another account, taking a global picture, the effects of Washington Consensus approaches religiously followed during last many years have not benefited a sizable majority of wage earners.

The share of incomes from labour has actually declined. Pakistan’s economy seems to be consistent with global trends of economic growth which have disproportionately benefited owners of land and capital more than owners of labour.

Even in the US, as in many parts of the world, the income share of labour has gone down relative to the productivity gains in the economy. Some analysts like Michael Lim Mah-Hui in his latest book, Nowhere to Hide have claimed that these trends have played a significant role in global economic and financial meltdown.

In Pakistan, while the industrial fortunes have not really created a robust turnaround for more jobs in the formal manufacturing sector, the plight of home-based workers has increased many folds.

Apart from inflation and increasing poverty, the 8.2 million poor women who are working as home-based workers have much to worry about in their lives. They are not recognised as workers so they do not qualify for formal social protection mechanisms.

Many of home-based roast pine nuts, stitch footballs, cut, trim, and stitch garments, make shoes and prepare fancy clothing. While they form 65 percent of total women workforce, they are the least paid and most exploited in the value chain of production processes being in an extremely disadvantageous social and cultural positions.

Likewise, a recent research by Pakistan Institute of Development Economics claims that trade liberalisation in Pakistan has adversely affected women in relatively poor households by increasing their workload, deteriorating capabilities, and increasing relative income poverty.

Talking of inequality generating effect, it claims that the effects remained gender neutral or favoured women in the richest group of households. Such researches ask policy makers to emerge out of the dream world of neo-liberal orthodoxy, which claims that free trade and free-markets can ensure the welfare function of economy by making everyone better off.

The above-mentioned examples argue that the government should try to build a national social protection arc by bringing together employers, workers, civil society organisations and government departments.

The monsters of disease, inadequate housing, poor water and sanitation, and expensive education and transportation all collectively put a premium on our national economic growth. We need to seriously address such issues. We should realise that national security lies in ensuring human security at the local and individual level and from such foundation emerges a successful and cohesive nation state.

Source: http://www.jang.com.pk/thenews/jan2011-weekly/nos-09-01-2011/pol1.htm#8

Pakistan’s economy — in need of an ideology

2010-11-29T11:29:00.001+05:00

The Express Tribune| November 29, 2010 | OpEd

Zubair Faisal Abbasi

It is argued that Pakistan’s economy was on the right track till 2007 and is now paralysed, like a healthy person dying of a sudden heart attack. It is argued that public policy changes were pushing the economy towards a welfare enhancing equilibrium whereas the current government has converted Pakistan into a beggar state. Such claims need to be reassessed.

Alternative views argue that the economy was performing well in dimensions not relevant for a less-developed economy. In fact, it did not fulfil the requirements of a real turnaround in the economy. This view doubts the longer term growth impacts of increase in portfolio investment and highly concentrated foreign direct investments in a few sectors, such as oil and gas and telecom. Rather, it emphasises the importance of the role of the state in governing markets and regulating investments in the direction of the development needs of society.

Another view argues that, for an economy to take a steady growth path, it needs to look into ‘imbalances’ which go beyond traditional macro-economic imbalances, emphasising that equalities such as income and assets must be taken into account for the robust development of the buying capacity of as many people as possible. It must be noted that imbalances in income and wealth are serious issues for longer term economic growth and development — the global financial crisis has shown this to the world.
Looking at the economic performance of Pakistan over the years, it seems the distribution side of the economy became weaker with a worsening tax-to-GDP ratio which caused imbalances, including a fiscal deficit, over the years. However, while the economy started faltering during 2007, the tax base was not expanded. Instead, simmering problems, such as regulatory capture by special interests, were handed over to the new regime, though the managers remained the same — neoliberals. The argument was simple: to increase the pie, downward distribution of welfare gains of economy must be put on hold. But for how long? No one knew.

Alternative perspectives also argue that the economy has never been triggered to catch GDP growth from increasing innovation in products and processes. At best, it has tried to utilise more land, capital, and labour as sources of increase in production of goods and services. The result is that the economy never became an enviable enterprise in international trade and industrial competitiveness, while integration in the global economy did not expand its range of products.

To fix the economy, as the alternative perspective says, we need to reorganise our economy which goes beyond Washington Consensus type policy prescriptions. We need to build the capacity of the state to function — it needs reforms in entitlements as well as possession of assets and skills of the bottom 40 per cent. In fact, Pakistan needs to create a new economic ideology and restructure its public finance.

Source: Express Tribune

Free trade, anyone?

2010-11-28T10:06:00.003+05:00

The News on Sunday| November 28, 2010| Political Economy Section

>> Provisions in the US’s FTAs rob countries of their sovereign right to give preference to local firms <<

By Zubair Faisal Abbasi

In Pakistan, there is no dearth of people who believe that integration in global economy through removal of protective tariffs and dismantling of regulatory regimes, meaning free trade and free markets, can create a turnaround in economy. They argue that having integrated with bigger economies such as US and EU through Free Trade Agreements (FTAs) will do us a number of favours. They say, firstly, it will increase foreign direct investment (FDI), secondly, it will ward off fears of isolation through trade diplomacy and, thirdly, it will give a push to exports from agriculture and industrial outputs.

Such perceptions have been promoted by international development policy experts through donors from outside as well as ambitious national policy makers who seek attractive jobs with international financial institutions. However, there is a need to look into the international experience before jumping onto conclusions and start making efforts to sign an FTA with any country.

There is a need to go for a comprehensive evaluation of FTAs which Pakistan has signed with China, Sri Lanka, Malaysia and the ones it is trying to negotiate with other countries and regions such as the US and EU. The figures shown on balance of payment accounts give us a number of reasons to dig deep into the realities of international trade and see how Pakistan can actually use trade and industrial policy instruments to move up the ladder of value chains and global production networks.

Research studies around bilateral and regional trade agreements, specially the ones undertaken by the Third World Network show that there is no conclusive evidence that FTAs cause an increase in foreign direct investment, especially investment for new projects called green field FDI. The dynamics of FDI are much complex, which range from geo-strategic reasons to the availability of locational and cost-reduction advantages. In the case of Pakistan, there seems to be an interesting relationship between change in geostrategic situations and increase in flow of funds alongside regime changes from civil to military.

Most of the FTAs show that agreements carry WTO-plus provisions such as Singapore Issues (i.e., government procurement, investment, and competition) which were dropped from the WTO agenda during the Doha Round. In fact, countries seeking FTA are subjected to full reciprocity and national treatment (no discrimination between local and foreign firm).

One can imagine how a developing country such as Pakistan can compete with firms from the US without getting out of business. In addition, the state is made unable to regulate the investment patterns of foreign firms making much of investment a footloose enterprise. The provisions in the US-FTAs also rob countries of their sovereign right to give preference to local firms which employ local people under government procurement. This has serious implications of countries such as Pakistan which need to generate growth stimulus by government procurement in backward regions such as in Balochistan and Southern Punjab.

A drastic feature of FTAs relate to dispute settlement in which foreign firms can take the state to dispute resolution in international courts of justice sending ‘chill effects’ in the government of less-developed countries.

On exports, there is no conclusive evidence that exports actually increase from less-developed economies to the more-developed ones. There are many reasons for this tendency. Primarily, agricultural commodities are heavily subsidised in the rich regions of EU and the US. Negotiations under FTAs, on removal of such subsidies from agriculture are not possible owing to political factors in big economies. Ultimately, most of the products from less-developed countries cannot compete for increased market access owing to price differentials.

As a result of this, subsidised products from the US and EU enter the markets of less-developed countries which causes decline in prices (consumer welfare?) and people in less-developed countries go out of business. For example, after NAFTA, about 2 million rural jobs in Mexico have gone while serious import surge (in some cases 500 percent) has been witnessed.

After having seen the international experience, it is important that parliamentary oversight is increased in Pakistan. The Standing Committees on trade and commerce, both in the lower and upper houses of the parliament, should pay serious heed to the vision and ideology which officials in ministries are following. Pakistan People’s Party and coalition partners should not fall a prey to the jargon of those neo-liberals who are entrenched in their ranks. They should make concerted efforts to safeguard interests of the people working in farms, industries, and services sector of Pakistan.

Source: The News on Sunday http://tinyurl.com/2u5ue4e

Financing Education for Economic Uplift

2010-10-04T09:17:00.004+05:00

By Zubair Faisal Abbasi

Monday, 04 Oct, 2010 | 01:29 AM PST | DAWN: Economic and Business Review

BOTH theory and practice of development policy establish the fact that education plays a significant role in the economic development.

The New Growth Theory espouses that technological capability and innovation emanate as a result of planned and strategic investments in research and development activities.

Specialists in national innovation systems also claim that successful and competitive firms do not seek profit maximising strategies but try to build competitive edge in research for new products, techniques of production and business processes.

One important point which runs through the whole argument is the importance of education in building human capital to catch fish in the higher ends of the market.

Pakistan over the years had paid lip service to the idea of national innovation system and is still following the same thinking while financing for higher education is collapsing under structural adjustments of the economy.

As the Planning Commission announced cuts in expenditure, the teachers organised strikes which led to ‘amicable resolution of the issue’.

The resolution was more fascinating than the decision to impose reduction in financial outlays. Who lost in the resolution? These were the students who, though being important stakeholders, were neither in the process of dialogue nor in agenda setting. As expected, the axe fell on scholarships for next year and promising students suffered ultimately.

Two factors were important in getting this undemocratic outcome of the dialogue. One, the absence of organised student bodies and the second a sheer fall in academic standards which do not require students to be acquainted with national policy and planning, let alone critically think and examine issues which affect them.

The system, to a large extent, has degenerated into helping students mug up powerpoint presentations and reproduce them in exams, produce plagiarised essays and get inflated scores with no or little contribution to body of academic literature. This is a very serious situation both in the private and public sector universities.

Therefore, higher education is largely in a state of serious turmoil despite monetary (though insufficient) injections in the past. This is primarily not because of availability of large open spaces in public universities which must be handed over to the private sector for some business activity. The issue is not that accumulation in private hands in itself generates growth momentums which the current leadership in the Planning Commission tends to believe. In fact this is a bad diagnosis and will lead to administration of bad medicine.

In essence, it is due to a general lack of regulatory capacity in the institutions of the state which could link up the banking, government, universities, and industry for development of research and development for rapid economic growth. Economic managers might be dreaming about some invisible hand coming in to develop such linkages as a result of supply and demand operations in the market.

The empirical evidence from the UK, US, Germany, Japan and other East Asian economies shows that the state has to play a very important role in risk socialisation for investment in research and development which helps economies to take sustained growth path – a path which starts from horse shoemaking to textile to computer hardware to biotechnology and helps develop a robust system of national defence as well.

The Planning Commission needs to think in terms of planning and coordination mechanisms rather than just playing as monetarists manipulating supply of money and leaving everything to the imperfect markets. The current policy and direction of the Planning Commission is bound to play not only bad politics but also bad economics to the detriment of the current democratic regime.

Source: http://tinyurl.com/3acwjx5

http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/in-paper-magazine/economic-and-business/financing-education-for-economic-uplift-400

Floods: inequality and social protection

2010-09-25T15:21:00.002+05:00

DAWN: Economic and Business Weakly | Monday 20, 2010
By Zubair Faisal Abbasi

THE devastation caused by the floods is enormous and of catastrophic proportions.

A truly representative data is still being collected but apparently more than one-fifth of the country is bracing itself with the erosion of basic public and private infrastructure.

Hundreds of kilometres of roads, railway lines, tube wells, crops, electricity transmitters, bridges, cars, cattle, and carts, houses and schools have been damaged apart from 1500 persons dead and 20 million displaced. Around 400 children are missing while nearly eight hundred thousand people remain stranded in flood waters.

The economic cost of the disaster is enormous. Apparently, the economy having lost around $43 billion will either show a zero or a paltry one to two per cent growth with increase in unemployment and poverty. The reconstruction and rehabilitation cost will lead to a higher fiscal deficit (6-7 per cent ) with inflation rising over the next couple of years.

Economists call such a phenomena in which the economy melts down and then possibly recovers as V-shaped process. However, the point is that the bottom of the possible V-shaped recovery is something which can make or break the state-society relationship for which the democratic set-up has to be very careful. The catch lies in here.

Practically speaking, disasters do at least three things: First, they challenge the resilience of social and physical infrastructure. Second, they cause destruction of both physical and social capital, and the third, they provide opportunities to reconstruct the lost capital stock. The current floods carry all these three elements. Leaving the engineering and forecasting side of the physical infrastructure aside, it appears that the disaster has unequivocally unearthed vulnerabilities in the social and economic infrastructure.

One set of vulnerabilities have been induced with deliberate creation of economic, political, and social inequalities. In the name of industrial development, regional, functional, and sectoral inequalities were created which were never removed in an effective way. Such policies helped fleece the agriculture and rural development sector without any enviable improvement in high-productivity industrial sector. The second set of inequalities was dragged in when economic policy was designed on a near-religious belief in neck-breaking liberalisation.

Under the influence of such policies, economic managers are still prepared to scarify socially desirable outcomes of economic growth to the faulty neo-liberal logic of efficiency. As a result, many equality-enhancing programmes have never been given a serious thought let alone a consistent development and execution.

Looking at the gini-coefficient data which is a measure of income inequality amongst individuals, one sees that inequality in rural areas has actually increased. From being 0.31 in 1979 this indicators stood at 0.40 for the rural areas in 1998-99. Interestingly it was 0.27 in 1969-70.

Making situation worse off in the social sense, inequality has also increased amongst the different regions of the country as well as social groups. This type of inequality has somehow created a situation in which identity politics has gained momentum and played its role in laying foundations for militancy.

Much of the macro-economic pictures painted in the past are at best craftsmanship of enlightened hypocrisies. Why certain parts of the country were inundated more than others must raise some eyebrows prompting us to think beyond the dictates of hydrology. There is a definite pattern in the political economy of flooding behind it. It is apparent that the current economic situation requires re-envisioning of economic development doctrine.

In fact, the state needs to seriously rethink the distribution side of growth and economic development strategy even more than singularly focusing on inflation-targeting. The public finance system requires a robust overhaul with emphasis on restructuring the taxation system. The institutions of the state must rethink that the market does not always know the best about human welfare but a well-coordinated public action helps. We must be aware that markets must be governed to create jobs.

In addition, there is a need to develop a strong and systematic social protection framework as well, a framework which enables people to access health, education, and basic incomes so that they can enjoy freedom to move on the ladder of social hierarchy with respect. These basic enabling factors actually ensure durable democracy with citizens having enlightened understanding of issues of national importance.

The disaster affected people and the country at large need such corrections, otherwise a spiral of socio-political upheavals may follow.

Source: http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/in-paper-magazine/economic-and-business/floods-inequality-and-social-protection-090

Being Untrustworthy in Crisis

2010-08-29T17:04:00.002+05:00

The News on Sunday|Sunday 29, 2010| Political Economy Section

>> Foreign assistance does not respond to development needs but to arbitrary decisions and strategic alliances <<

By Zubair Faisal Abbasi

International development organisations recently conveyed us a message that the government in Pakistan is untrustworthy and, therefore, humanitarian aid in desirable quantity is hard to arrange. Many of us accepted the argument and started divulging additional reasons on international donors being right in avoiding a direly-needed bout of foreign assistance.

We should try to be critical about such claims which primarily blame the victim. This is especially important because India, which seems to be in the driving seat in efforts to isolating Pakistan, has offered monetary assistance to fight flood and food insecurity.

The international community calls us untrustworthy and, therefore, refuses to cough up some money and wants us to face unprecedented calamity on our own. You call our state institutions untrustworthy. You call us untrustworthy because we got a bigger cheque from the US and refused the communists. Had we accepted the smaller cheque and fought the imposed war against you then what we were supposed to be? Traitors?

But we accepted the cheque and remained trustworthy till the time cheap gun fodder was needed. The transaction was simple and persuasive. We, the untrustworthy, joined the most 'truthful' arrangements like SEATO/CENTO and remained the most allied nation outside the NATO and fought as frontline state -- we remained trustworthy.

Now, once the war-machine appears to be tired, exhausted, and needs oiling we become untrustworthy, corrupt, and extortionists. In fact, we were trustworthy for the expansion of military-industrial complex and now when we need humanitarian assistance we are untrustworthy. Our fragile democracy and a civil government is corrupt and badly-elected by the illiterate and ignorant voters.

Let us be clear, the option for Pakistan is not to drift away from democracy towards military. The country can lapse into the quagmire of militancy. If the current regimes and international community fails in relief, recovery, and rehabilitation, there are chances of unprecedented social and political upheavals.

However, we should have the courage to call a spade a spade. Let us be very clear that a significant part of foreign aid is a high political and strategic drama played on the world stage.

It follows the logic of strategic alignments not poverty or inequality or under-development. Foreign aid in practice is not always a true reflection of global humanitarian deployment but very meticulously designed matrix to keep strategic alliances.

A simple question: how much foreign aid is given to Palestinians who are suffering from poverty and exclusion and how much is given to the other side of the divide? Let us have a look at the World Development Indicators issued by the World Bank in 2001. It shows that South Asia received US $3 per person where around 50 percent of the world's poor live while Europe and Central Asia received US $23 per person of foreign assistance. Sub-Saharan Africa got US $20 while the Middle East which has more than five times higher income than South Asia received US $18 per person.

Development literature shows that foreign assistance does not respond to development needs but to arbitrary decisions and strategic alliances. Therefore, we should be very clear about such patterns before naming Pakistanis an untrustworthy nation.

While aid has been political, much of it has actually been used to tease out the desired kind of 'leadership' from the less-developed yet strategically placed countries. Let us ask ourselves, what kind of regimes have been supported in Chile, Pakistan, Afghanistan and a host of other countries. It appears that the main idea was to support a dictator but he should be 'our' dictator.

The 'trustworthy' governments were installed which suited the vested interests and such installed regimes could thrive only when they captured state resources and diverted them to be aligned with the war-machine of a particular brand.

In fact, we are crafty. We know how to engage and disengage. We know how to save our skin and keep our hands clean. We know how to civilise the world with missionary zeal by keeping people in prisons without a fair trial. Here the reference is not to Guantanamo Bay but to the father of Barak Obama who was kept like this in Kenya by Churchill's empire.

We know the art of blaming the victim. We intervene with financial and military might, we change the whole power structure, get our work done, and leave the corrupt, extortionist, and deceitful governments behind with the people struggling for 'democracy and justice'. Right? But trust me, I am not untrustworthy, these are the powers on the world stage which co-opt with the 'trustworthy' local elites and ultimately I suffer if something goes wrong between you and the comprador class.

Source: http://www.jang.com.pk/thenews/aug2010-weekly/nos-29-08-2010/pol1.htm#8

Democracy, Growth and Governance

2010-07-04T08:57:00.003+05:00

Pakistan as a democratic federation must think how people react if they are not being treated equally by the state>>
The News on Sunday|July 4, 2010 | Political Economy Section

By Zubair Faisal Abbasi

Populist rhetoric of politicians aside, one often hears a question whether democracy can be expected to generate equitable economic growth and impartial governance. The answers range from democracy being singled out as an external idea, and the state and society unprepared to practice a democratic polity. The current phase of economic crisis and stories of friction between the executive and the judiciary has brought this question on our national political scene once again.

Some argue that self-interest seeking politicians do not make a strong case for democratic governance in Pakistan. Therefore, in order to qualify for a democratic polity, a society needs to fulfil some prerequisites first. In our part of the world, a patronising support from the non-elected institutional arrangements is provided to shake off the non-qualification trap. It ventures to develop 'basic democracy' during the 1960s, fiddle with 'Islamic democracy' during the 1980s, and find pathways for 'sustainable democracy' in 2000s.

Though adjectives before the word democracy are changed in every decade, the debate somehow neglects the central question: what democracy itself envisions for the well-being of society? No doubt, the sphere of democracy encompasses much more than free and fair elections and equality in voting rights. According to Amartya Sen, establishing 'freedoms' which increase both human and systemic capabilities to function is central to the idea of democracy. It is about enabling people, without any discrimination on the basis of caste, creed, religion, gender, and colour to enjoy a full life in the legal, social, economic, and political dimensions.

We need to have a critical look at what democracy can actually help a society to achieve. Despite democracy being a system of immense social value, many researches do not support the argument that democracy necessarily leads to robust economic growth. Empirical evidence, on the contrary, shows that equitable economic growth leads to improvement in the provision of goods and services which create a public demand for improvement in the quality of government and hence an inclusionary democracy. Inequity in distribution despite growth, however, can create a low-trust society drowning in social conflicts. Pakistan has had enough cleavages in the past and still carries wounds from the past.

The point here is not to suggest that since democracy has not been a means of robust economic growth so Pakistan should seek an authoritarian and militarised version of government. Military dictatorships in Pakistan have been highly partisan, failing to establish autonomy of the state structures.

Instead, there is a need to rationalise expectations from democracy and focus more on how to improve prospects of economic development and the quality of government. Such a focus will make democracy and political participation more meaningful for the people of Pakistan.

In reality, democracy has to travel in two divergent directions. In the first phase, it has to tread upon the path of 'partisanship' to ensure that the aspirants who are chosen by the majority of voters hold public offices. In this process, the political contests create divisive camps. The second phase demands 'impartiality' in the process of implementing rules and regulations by the office holders. Institutional arrangements of the state need to learn how to seamlessly make a transition from 'partisanship' to 'impartiality'. Democracy to be successful as a statecraft, which aims at securing people's trust and respect, must build state institutions as autonomous structures but socially and politically embedded in society.

The embedded autonomy, as Peter Evans calls it, has been a critical component in robust economic growth, especially in East Asian miracle economies. For Pakistan, the point is that despite having democracy, there is no guarantee that an equitable economic development will take root. For a successful turnaround in the financial conditions of state-owned enterprises like the Steel Mills and Railways, such a vision of the state is absolutely necessary. Researches also show that 'big governments' are not necessarily 'bad governments'. The only important point is that whether a government is effective or hostage to special interests.

Forms of institutions matter in democratic polity. However, what matters most is the functionality of institutional arrangements. It is possible to create a replica of the executive (and armed forces), the judiciary, the legislature which are present in the developed world, but becoming a state strong enough to regulate their functioning requires more 'credible commitments'. Such commitments are manifested in low incidence of corruption, the rule of law, accountability, and bureaucratic efficiency along with the ability to guard property and human rights for all citizens without discrimination.

Last but not least, Pakistan as a democratic federation must think how people feel and possibly react if they are not being treated equally and fairly by the state -- neither in economic development nor in systems of governance.

Source: http://www.jang.com.pk/thenews/jul2010-weekly/nos-04-07-2010/pol1.htm#9

The State and Economic Development

2010-06-08T09:07:00.002+05:00

The Express Tribune | June 8, 2010 |OpEd
by Zubair Faisal Abbasi

US President Barack Obama in his 2009 inaugural address argued that the key question today was no longer whether a government was too big or too small, but whether it worked. Quality of government matters in economic growth and much can be learnt from this in Pakistan. Rapid economic development is a mixture of capital accumulation and productive investment. Decisions regarding who, where, and how require an entrepreneurial vision of the state.

However, resource allocations and re-allocations are not free of disputes and conflicts. An entrepreneurial state requires the capacity to resolve and manage conflicts amongst diverse interest articulations. The adviser on finance in his budget speech has argued that the importance of the budget should not be over-emphasised since managing an economy is an ever-changing phenomenon.

However, it is also true that Pakistan has been consistently following the Washington Consensus approaches since the late 1980s without attaining a sustained economic growth path. Economic managers trying to impose neoliberal economic policies are never tired of ‘privatising’ to stop the ‘bleeding’ in the economy. Being trained in the art of handing over capital accumulation from the public to the private sector, they are rarely interested in executing progressive reforms in State Owned Enterprises. They argue that in a failed state like Pakistan this is not possible. But research shows that in less developed countries the private sector can perform better when the government contributes socially competent personnel.

When economic managers are not politically and socially embedded in society, budget-making becomes undemocratic. According to the Centre for Peace and Development Initiatives there have been few meaningful civil society engagements in decisions on social sector budget allocations. This must be a matter of concern for the democratic forces in the country. The taxation system even under the reformed GST is designed to fill the coffers of the rich. Health, education and food are exempt but while establishments such as universities are exempt, labour in these universities will have to be under diverse kind of tax deductions. How can a state which overlooks inequities in the distributive side of the economy generate equitable growth?

Last but not least, the current ‘post-martial law regime’ shows an interesting similarity with the previous one. Musharraf handcuffed Sharif in 1999 when external debt was at $32 billion and handed over a $42 billion debt to the new government in 2007-08; this regime has taken it to $54 billion. The change of base years to show favourable economic growth scenario is an effective tool serving both the regimes. Perhaps the magic show of creative accounting does not lie in figures but in the team of experts who must be inherited without any guilt. How figures can change the real face and character of the state also remains a moot point.

Published in the Express Tribune, June 8th, 2010.

Source: http://tribune.com.pk/story/19513/the-state-and-economic-development/

A Tool for Helping the Poor

2010-06-02T14:58:00.003+05:00

The Express Tribune | June 4, 2010 |OpEd
by Zubair Faisal Abbasi

Economics has a principle, ‘there is no such thing as a free lunch’, someone has to pay for it. A component of literature on political economy tries to analyse who foots the bill and who takes away the lunch. Ideally, there must be equity in distribution and no free riders. Economic planning and annual budgets are efforts by the state and its planners to create a society in which productive assets are effectively utilised and welfare gains are distributed in a fair and equitable manner.

The situation that Pakistan currently finds itself in is not enviable by any stretch of the imagination and it is passing through a phase where its resources are being stretched between various competing wants, and cuts and sacrifices have to be made. Unfortunately when this happens, we often find that ordinary people have to bear the brunt. This means that those not well off have to suffer further losses in their standard of living. Furthermore, any accompanying rise in poverty and unemployment affects this segment of the population disproportionately.

From the government and policy-making point of view, those earning wages have to be taxed as well as those who want to expand their commodity-producing capacity — the last must be ready to pay more interest on loans and inputs or go out of business. So the measures that one can expect to see in the budget for next year (which is to be presented in parliament on June 5) would be an increase in tax for small businesses from 20 to 25 per cent, bringing 122 categories under the value added tax (VAT) net and removal of an existing subsidy on electricity of some Rs60 billion.

Clearly, our participation in the war on terror is a drain on the resource pie and is hampering the ability of the government to generate an environment conducive for economic growth. Persistent inflation is a problem as well and this is a symptom of the fiscal deficit, which needs to be slashed to 4.1 per cent of GDP.

Presently, without seriously re-aligning the system of public finance for growth that is pro-poor, all that our economic managers are doing is akin to superficial surgery and the result seems to be a reduction of the public sector development programme by at least 30 per cent. The other measure is an increase in domestic resource mobilisation which seems an ambitious target give that growth during the last fiscal year was a mere 1.2 per cent. How such measures will stimulate growth so that it rises to over four per cent – the level that the government would like it to be for the economy to stabilise – is still under question.

For this purpose, Pakistan needs to give industrialisation of agriculture and manufacturing sector a serious try under a well-thought out economic ideology for development.

So far, without having a coherent vision for economic development since the early 1980s, the structure of economic growth has increased horizontal inequalities in Pakistan. During the first decade of this century many geographical regions were able to achieve faster growth rate, in particular central Punjab, while others such as parts of Balochistan witnessed an increase in poverty levels and a marked slowdown in growth. The social and political implications of the structure of economic growth need to be addressed in a quicker way so that patterns of inclusive growth for diverse social groups are mainstreamed. The budget is a tool to plan for such transformations but the question is that when will this be done?

The neoliberal ideology of ‘rolling back the state’ has actually resulted in a deterioration of the institutional arrangements that carry out the economic vision of the state — and these have been rendered dysfunctional. As a result, the quality of the government has suffered. And research has shown that this in turn affects the ability of the government to enact policies that make people not only materially well-off but also happy, because they can promote entrepreneurial spirit, administer social protection, generate employment-led growth, and design resources for conflict management. Our budget may need to address this wider systemic question as well.

Source: http://tribune.com.pk/story/18484/a-tool-for-helping-the-poor/

Intolerant Myopia

2010-05-21T12:27:00.008+05:00

The Friday Times | VOL XXII, No. 15 | May 28-June 3, 2010

By Zubair Faisal Abbasi

Internet is an open social and political space - a park, where anyone can start a blog, make a profile page on facebook, post status updates on twitter, add photos to flicker, or add information and knowledge content on Wikipedia. However, these websites have rules and regulations. Provisions pertaining to restriction of online content are implemented through complaints that are filed by affected parties. Furthermore, the major websites regulate plagiarism and copyright issues that arise from any post or upload on the internet. The removal of such content is an easy hassle free process, but if not complaint against, can let offensive material stay online for a long period of time.

The challenge of effectively governing cyberspace in real time, when the content is being uploaded is still a question in the realm of internet. Keeping track of hundreds and thousands of pages and a huge bulk of unmanageable data in multiple languages, mirrored at more than one place is an enormous task. At times, this task seems to be ungovernable, which requires huge investments into artificial intelligence and global systems of internet governance.

On the orders of the Lahore High Court, the Pakistan Telecommunication Authority banned all websites that are used either for pictures-sharing, social networking or for searching information and knowledge. Further they are tools for advertising in small business and encourage the exchange of ideas. These websites are neither villains nor heroes for any class, creed, religion or gender. Ironically, a segment of our society has made them out to be weapons of the West and against "our religion".

It appears that the way we have handled the situation is equivalent to killing a friend to show our outrage to an enemy. We have taken out the eyes and ears of our own people to 'register protest' with whom? The Court might have been very effective had they asked the Government to speak to the owner of the page on facebook or it could have used more effective ways instead of creating panic throughout the country and depriving the people their right to information as mentioned in Article 19 of the Constitution. It appears that the voice of a group with political ambitions to grab power are amplified, while the voices which speak of strengthening democratic governance are sent to the zones of silence.

The continuation of democratic safeguards and civic rights must be appropriately addressed. Pakistani state was was created by the visionary students of Aligarh University under the tutelage and leadership of Quaid-e-Azam Mohammad Ali Jinnah. The state should not be bogged down by those who want to impose their myopic ideology of hate and 'war against all'. These political forces are simply after political mileage and capturing power within the state. This intent is most visible in Islamabad where posters appealing to the 'Ummah' are seen encouraging people to react against the state. They are looking to topple the state structure in oreder to establish their own governance systems. Major analysts today see the facebook-YouTube issues as a stepping stone towards Talibanisation in the mainstream society.

Protecting the rights of citizens to access alternative sources of information to build enlightened understanding is essential for the democratic development of the country. In fact, the constitutional provisions are social contacts and Islam emphasises the importance of Iffa-e-Ahed (keeping the promise even in difficult situations). In this respect, a practice which plagues Pakistan today is that the right option is only chosen as the last option. Without wasting much time, the Supreme Court should take a suo motu action and protect the constitutional rights of the citizens of Pakistan. The Government could be asked to lodge protest with the concerned authorities who regulate the derogatory websites. We should not portray Pakistan as a nation that is intolerant; instead we should work towards making Pakistan a progressive society.

Doing it differently

2010-03-19T09:09:00.006+05:00

The News on Sunday | March 28, 2010 | Political Economy Section - II Policy

<<>>

By Zubair Faisal Abbasi

The last two years have been witness to a decline in the industrial and trade development fortunes in Pakistan with wide ranging implications for economic growth and poverty eradication. During the last fiscal year, large scale manufacturing witnessed negative growth of 7% while value of imports increased to almost double of the export. The phenomena, however, has a history of policy orientation behind it. In fact, as predicted by a number of experts on trade and industrial development, the rapid liberalization of trade regimes along with dismantling of industrial policy during the 1990s and 2000s, there has been progressive increase in the trade gap and unsatisfactory performance in attainment of a sustainable industrial competitiveness and development.

Historically speaking, many researchers argue that Pakistan was unable to craft and implement a planned scheme of industrial development and up-gradation leaving continued absence of a national system of innovation. It failed to facilitate and execute inter-sectoral linkages amongst trade, industry, banking, and education sectors which could design the required social infrastructure for sustained economic development. On another account, unlike many late industrializers of East Asia, the role of the state in Pakistan remained questionable in allocation of resources for rapid industrialization and modernization of economy. As mentioned by Dr. Asad Sayeed, the regulatory and financial systems served on the basis of political alignments with the regime instead of creating a genuine entrepreneurial class.

However, after wasting the 1980s despite having massive ‘big push’ by the public sector from the 1970s, the 1990s were strangulated under structural adjustment programmes. It must be noted that during 1990s, there have been frequent settling and unsettling of political regimes with interim governments playing a big role in the management of economy. During this time, a serious effort for implementation of the Washington Consensus approaches wedded to the policies of ‘liberalization, stabilization, and privatization’. It focused more on what is called 3D approach e.g., Dismantle the state, Dis-empower the worker, and Depend on market. The trend continued and the economic management of Pakistan took a slow but sure turn from being predominantly developmental to neoliberal idea system.

Notwithstanding, despite having a structurally adjusted economy, the fortunes of industrial sector have not flourished. The economic management acumen could not bring the required social infrastructure which is essential for pro-poor growth in industrial and commercial capital. There is no exaggeration that this is the industrial and manufacturing sector which helps create valuable items for exports as well as generates employment and labour utilization potential in an economy. Empirical evidence from many countries including from East Asia and China shows that poverty can be rapidly and substantially be reduced only in those economies which can create a flourishing industrial sector and modernize the agriculture segment.

If we look at Pakistan, during the period between 1999-00 to 2007-08, the growth rate of the banking and finance sector was higher than the industrial and agriculture sector. The commodity and electricity shortages that were witnessed later in 2007-09, are not a product of one or two years rather some critical issues in availability were resolved during the democratic government.

According to Rashid Amjad, Chief Economist of Pakistan, the economic growth in Pakistan has largely been contributed by increased use of factors of production rather than improvement in quality in techniques of using the inputs i.e., increase in total factor productivity (TFP). Improvement in TFP which is possible only when economic planning for labour, technology, and business generation follows a coherent vision for modernization of both industry and agriculture. In the absence of a coherent economic development vision, empirical evidence tells a boom-burst scenario that despite having a peak growth (19%) in 2004-05, the subsequent years 2007-08 could see industrial sector growth nose-diving to 4.8% which reached -7.7% in 2008-09.

It appears that the current economic management needs a politically embedded role of the state to create vision for economic management and follow up the vision with developing appropriate institutional arrangements. Pakistan, despite having vast resources for material progress was not able to create a turn around and catch-up with the industrial world let alone that it could have made a strategy for forging ahead. Historically speaking, there were acts of omission and commission which failed the state to enable itself in playing a more constructive role in trade and industrial development of Pakistan.

In the international development context one can argue that Pakistan needs to go beyond the Millennium Development Goals (NDGs) approach. While these goals emphasize poverty eradication by 2015 does not mention the processes of industrialization and growth of manufacturing sector which can help generate potential for labour utilization. One can suspect that despite being structurally adjusted, many developing countries will not be able to create jobs and upgrade their industrial structures for improvement in trade gaps through value additions. The economic managers (read masters) of Pakistan, need to pay heed to this fact while developing the next five year plan. This is heartening to see that the impending new five year plan has the vision of ‘investing in people’ which was also the theme of international conference organized by the Pakistan Institute of Development Economists in Islamabad recently. How much of such a plan can be successful, if we keep ‘rolling back the state’, is a million dollar question?

Under the circumstances, the democratic Pakistan needs to seriously revisit the trade and industrial development vision if it wishes to develop a high-quality pro-poor economic development which reduces incidence of poverty. Pakistan should learn to manage competition and build inter-sectoral cooperation. Rather than believing in the neoliberal religion of ‘level playing field’ in which the stronger player perforce wins, Pakistan, borrowing wisdom from Prof. Ha-Joon Chang, needs to understand the analogy of a boxing match. There are different weight categories for different players so that the week has also the chance of winning a game while playing against an opponent of the same category. The industrial sector of Pakistan can become competitive in international trade if the banking, government, education, and business sector follow a sensible industrial policy backed by suitable institutional arrangements. Democratic Pakistan would need to deliver on this account for successful poverty eradication – a poverty eradication which rests on increases in capabilities of social infrastructure to provide employment and social assets beyond basic needs.

Source: http://www.jang.com.pk/thenews/mar2010-weekly/nos-28-03-2010/pol1.htm#7

[End]

Facilitating Domestic Commerce

2009-08-17T02:29:00.002+06:00

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.
[ends]
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

2009-08-12T07:24:00.005+06:00

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

Trade Secrets

2009-08-09T13:01:00.004+06:00

The News On Sunday|August 9, 2009] Political Economy IV

<<< What Pakistan needs is a facilitating social and physical infrastructure for economic development since trade is a collective action of an economy >>>

By Zubair Faisal Abbasi

The Strategic Trade Policy Framework 2009-11 has recently been announced by the Ministry of Commerce. Initial reactions about the trade policy are mixed. Some analysts and stakeholders have termed the framework a welcome step which shows a medium term perspective for a structural transformation of the economy. However, there are others who claim that the framework is anything but strategic since it does not show a radical break from the past. It still carries the baggage of export-led growth of previous Rapid Export Growth Strategy (REGS) followed by the Ministry and did not prove to be successful.

The biggest danger, some experts argue, lies in not accepting the scale of the problems that both the global and Pakistan's economy faces at the moment. While there is a global recession and consumption is not picking up to the scale which can recreate 'trade an engine of growth' for developing countries, too much emphasis on external trade than domestic commerce is being criticised. It has been mentioned that the economy needs to focus on increasing the size of domestic demand market through expansion of wages (i.e., creating more buyers for consumption of local brands) and sectoral articulation for backward and forward linkages of local small scale and large scale industrial set-ups.

Notwithstanding, in the trade policy, the Ministry has set the export growth target of 6 percent for 2009-10 and 10 and 13 percent for each of the successive years. A casual look at the results of REGS makes it clear that Pakistan has actually seen growth in imports much faster than exports which is manifested in the increasing trade deficit. At a certain level, the basic assumption of trade strategy, which the officials of the Ministry of Commerce have been following, stands challenged. They based their big-bang tariff liberalisation strategy along with kicking away the industrial policy design on the assumption that in order to increase export Pakistan needs to remove import barriers and become a neoliberal economy. This assumption needs a thorough revision with the help of growth and development theory rather than trade theory.

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 but raised import growth more, 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, including non-tariff barriers, and exchange rate distortions, liberalisation raised export growth by some 2 percent and import growth by 6 percent with the result that trade balance worsened by 2 percent of GDP. Most astonishingly, their research finds that this has constrained the growth of output and living standards. This means that the findings have important implications for the sequencing and degree of liberalisation for Pakistan as well.

If we look at economic liberalisation processes in Pakistan, then the average tariffs seem to have fallen sharply during the last two decades. These were 120 percent in 1985 and now stand at around 12 percent in 2007-08. The reduction in tariffs also coincides with increase in trade deficit. For example, as compared to the trade deficit being at US $ 1.2 billion in 2001-02, it has reached around US$14 billion in 2008-09. Therefore, it seems that Pakistan has to rely more on private income flows to finance the deficits since reallocation of human, financial, land, and technological resources is not easy and cannot be abrupt. However, other than the remittances, there is a slowdown in foreign capital inflows and investment as well. The total investment fell from 22.5% of GDP in 2006/07 to 19.7% of GDP in 2008/09. In fact, private investment has fallen each year since 2004/05, from 15.7% of GDP in 2004/05 to 13.2% of GDP in 2008/09. These indictors put a question mark before many targets of the trade policy.

In addition, if we look at the growth prospects, the government forecasts that the economy will grow by 3.3% in 2009/10, with growth rising to 4% by 2010/11. While, the agricultural sector is expected to grow by 3.8% in 2009/10, the manufacturing sector by just 1.8% and the services sector by 3.9%, the prospects of a turn-around in production for exports seem not very promising.

According to the Economist Intelligence Unit report on Pakistan, though there has been some form of product diversification in Pakistan with 25% increase in food exports and good performance on cement sector; textile exports continued to decline, falling by 9% year on year. However, rice has shown around 8.2% increase in exports. An interesting development is that engineering sector exports have shown increase of around 26.1%. Therefore, emphasis of the trade policy on engineering sector revitalisation and support must be welcomed though performance monitoring has to go side by side. The use of Pakistan Institute of Trade and Development resources is a good sign of linking research with policy and planning.

However, areas of concern lie in shift of the textile sector to lower value-added production. Data shows that exports of raw cotton grew by 40%, but exports of readymade garments fell by 14%. This deterioration of competitiveness should raise some eyebrows somewhere and such downside risks have implications for longer-term stability of the balance-of-payments position, argues the report by the Economist. India, a major competitor of Pakistan in the textile market, is providing subsidies on textile exports with massive incentives and as a result the Indian textile sector growth rate is 11.6% while Pakistan circles around 3 to 3.5%. The argument is not that Pakistan should also provide subsidies but actually it needs to conduct serious research earmarking priority sectors for product differentiation and also on how the use of subsidies and other incentives should be monitored leading to both production and productivity growth. The need to improve practices and vigilance regarding Afghan Transit Trade is as important as ever for the lifeline of our textile sector.

It is worthwhile to mention that Pakistan has slipped 9 points downwards on the Global Competitiveness Index which listing 134 countries and Pakistan stands at 101 now. The deterioration has been in all of 12 indicators which the index uses to analyse performance showing financial market losing much more. It also shows that the country is poor in higher education and training where it stands at 123 in the comity of 134 nation-states and not so surprisingly the labour market efficiency is low also with standing at rank 121.

While establishing new indicators for performance for monitoring, the strategic framework claims that "by 2012 the competitiveness ranking of Pakistan will improve from 101 to 75". This is easier said than done while looking at the absence of a 'national system of innovation' which connects the triad of education, industry, and policy.

Last but not least, apart from being a strategic ally and a good friend, Pakistan should learn from China and the USA. Looking at the global recession and fall in global consumption which has impacted the trade balance of China as well, the countries are stimulating local production and consumption. 'Buy America' is one instance. In fact, the 7.9% increase in GDP for China will come from increase in domestic consumption which means that it is seriously increasing linkages between local production and consumption. What Pakistan needs is, to make the framework as success, focus much more on domestic commerce and build local brands, wages, production, consumption – in a nutshell a facilitating social and physical infrastructure for economic development since trade is a collective action of an economy and not only about tariff and subsidy manipulations.
Source: http://www.jang.com.pk/thenews/aug2009-weekly/nos-09-08-2009/pol1.htm#3

Trade Policy: The human development perspective

2009-07-20T00:19:00.005+06:00

<<< 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

The Security Continuum

2009-07-14T08:21:00.002+06:00

By Zubair Faisal Abbasi
Tuesday, 14 Jul, 2009 | The DAWN

<<< Security is the absence of anxiety upon which the fulfilled life depends. — Cicero >>>

MEASURES for security emanate from threat perceptions. In many instances, military-risk assessments provide the lens for analysing the capability and resilience of the security apparatus.

At times threat perceptions necessitate having a sufficient number of guards, guns and gun power wrapped in diverse packing, in addition to joining regional or international alliances.

A question arises here: is this sufficient to impart a sense of ‘security’ to the people in whose name the whole cobweb is woven?

The answer to this question may be ‘no’ since a sense of security rests on a continuum. The security continuum spreads across total security on the one hand and total insecurity on the other. At the total insecurity end, the lowest possible level of physical and territorial security accompanies the lowest ebb of human security indicators, coupled with an extreme sense of hopelessness and gloom.

On the other side of the continuum lies an upbeat combination of physical, territorial and human security beaming with hope and happiness. Pakistan keeps sailing somewhere between the two extremes in the continuum with greater reliance on the territorial security apparatus.

As a result of this reliance, amongst other factors, social enemies such as illiteracy and unemployment, poverty and inequality, and disasters and displacements have entrenched themselves as pervasive risks. Pervasive risks are the factors which remain dormant but become destructive guerrillas at a time of crisis. Some analysts argue that the war against terrorism, which supplanted the war against communism, and the global financial meltdown have only unveiled the human insecurity ensemble in Pakistan.

It can be argued that pervasive-risk factors keep Pakistan’s socio-political nerves tense in the absence of serious and consistent recourse to social protection mechanisms. The sketchy social protection mechanisms which do exist target transient poverty, leaving hardened terrorists such as chronic poverty and inequality unhurt. Research on intra-state violence and conflict alludes to horizontal inequalities within groups as critical factors in the nexus between socio-political vulnerabilities, adverse incorporation and violence.

The presence of pervasive-risk factors somehow explains why more than six per cent of average growth in GDP in a decade does not compensate for the absence of human security. Interestingly, during the GDP surges of the 1960s as well as the new millennium comprehensive security remained an illusion and territorial insecurity emerged as the enemy. This is no accident.

In fact, social and political factors such as presence or absence of democratic freedoms, freedom from fear and want, and life with or without dignity make or break a security apparatus from within. In addition, a democratic dispensation constantly struggling to create equity and empowerment amongst the masses serves as insurance against any downside risks and helps ensure continuity of comprehensive security. Ultimately, in the political milieu, the question must be asked: whose security are we talking about? Pakistan needs to find answers to such questions.

Along the continuum of security, technological capability is another important factor. It is reflected not only in the armament industry but also in the international competitiveness of industrial products. Currently, the pervasive-risk factors linked to industrial decline, job losses and energy insecurity may torpedo human security in the medium to longer terms.

The reasons for our failure to acquire technological capability are many. It appears that during the last 20 years, the country has lost touch with the economics of a rational economy — an economy which can govern changes in strategy as well as aid the technological and industrial development objectives of the state. Such objectives need a strategic deployment of economic resources, creating a balance between defence and education.Looking at it from this angle, according to the Human Development in South Asia 2005 report of the Mahbub ul Haq Development Centre, India spends around $23 per capita on education which is almost double its defence spending outlay. Pakistan, meanwhile, spends roughly $21 per capita on defence which is almost twice the budget for education. Despite differences in population and size, it is clear which country has been more successful in at least aiming for that delicate balance between territorial and human security.

On the security continuum, two more factors are important. One is the ideological dimension and the second is governance. Researchers argue that owing to the pursuit of certain types of ideological commitments and governance mechanisms such as low emphasis on provision of justice, Pakistan has drifted towards the insecurity end of the continuum. In fact, a sizeable portion of the NWFP population is experiencing a decline in its natural, infrastructural, financial, physical and social capital stock. Such situations breed chronic poverty. Breaking the vicious inter-generational cycle of chronic poverty demand much-fortified variants of the territorial and human security apparatus.

Last but not least, to come out of the current life-threatening situation the state needs to readjust the strategic intent for comprehensive security. Along with the national judicial policy, the country needs changes in the legislative and the executive branches. This is also a time when civil society organisations must become the harbingers of human security in Pakistan.

Social Capability for Economic Progress

2009-06-08T09:25:00.005+06:00

By Zubair Faisal Abbasi

DAWN - Economic and Business Review - June 1-7, 2009 P.V

<<< THE policy makers need to revisit economic growth and development strategies to promote military-industrial and technological advancement. >>>

The geo-strategic and economic situation requires some rethinking from a longer term perspective. Advances in technological capability are also urgently needed for a fast- track precision military operation to target militants.

Despite having made high-technology nuclear weapons and its carriers, the existence of national system of innovation which supports a sustained and cutting edge military-industrial development, is rudimentary or at least highly concentrated.

Since its inception, Pakistan has been trying to build industrial and technological capability for structural transformation of economy (at least till the early 80’s) but building of competitive advantage in high-technology capital goods sectors is still in a prolonged infancy.

In the absence of a well-coordinated industry, trade, and technology policy environment, our technological capability in manufacturing of consumer goods is concentrated in textile, garments, sports and surgical goods. Even development of this sort occurred before our development policy degenerated into export-led growth mantra.

This mantra has ultimately led to an increase in exports of raw and semi-processed items such as rice and cotton yarn. There would be no exaggeration if one argues that despite sizable increase in consumption of telecom products, no local or international manufacturer has been able to locate a viable efficiency advantage in the local mobile phone manufacturing.

The loss of interest in high-technology manufacturing or ‘falling behind’ is not an accident. In fact, the state has failed to develop a coherent vision for industrial and technological advancement supported by viable institutional arrangements to coordinate resource re-allocations for ‘catching up’ with the developed economies.

The state has not been able to generate social capabilities for technological innovation and assimilation, resulting in failure to develop a diversified and technologically competent industrial manufacturing sector.

Moses Abramovitz, in one of his essays has rightly emphasised the role of ‘social capability’ - meaning development of political, financial, commercial, educational, and management-related institutional arrangements for industrial and technological advancement. This situation warrants a serious re-thinking by predominantly neo-liberal economic managers.

The policy makers need to formulate and implement a fundamental shift in the economic change strategy for inclusive growth and economic development.

For the wheels of economy to move with equity, the shift has to ensure neo-liberal polices moving towards a developmental state-type strategy.

Essentially it would mean creatively emulating policy designs of the East Asian economies including China and India rather than blindly following the prescriptions of the international finance institutions. In fact, having been structurally adjusted during the last 30 years with much less success in local technological capability, a strategic rethinking is needed.

Over the last 30 years, Pakistan has religiously followed two types of strategic orientations. These orientations have put the country into a quagmire: one that of ‘friendly’ religious fundamentalism-- both within and without Pakistan in some shape and form----is a necessary condition for survival and seen as a strategic asset.

Second, neo-liberalism (free-trade free-market fundamentalism) is a necessary and perhaps sufficient condition for economic survival.

Both kinds of orientations --- essentially geo-strategic constructs - are lethal and suicidal. They are so because they stand on fallacious assumptions about the consequences of free-circulation of strategic assets, be that a fundamentalist Maulvi or de-regulation of industry, trade, and technology regimes.

Both kinds of fundamentalism if not ‘governed’ by a responsible state through viable institutional arrangements can create a situation of skewed growth, notorious inequality, and entrenched socio-economic exclusion.

Though under such situation, jubilation over possible reforms may occur but that is of socially undesirable elements and sectors which create systems of disempowerment, inequity, and obscurantism.

Most noteworthy aspect is that both the types of fundamentalism create a system of accumulation of power and pelf (economic inequality) without accompanying productive investment in a large body of society. Major causality is that of the state itself which is rolled-back under structural adjustments rather than reformed for a neo-developmental role.

A closer look should reveal that the state as an independent structural arrangement has to be much more of a balancing, poor-centred, and equity-generating factor. In fact, failure of a state to function as an ‘entrepreneur and conflict manager’, ultimately destabilises the entire polity in which Taliban can become socially competent in comparison with the apparatus of the state.?

[Source: http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/in-paper-magazine/economic-and-business/social-capability-for-economic-progress-169]

Dealing with IDPs

2009-06-01T08:16:00.001+06:00

The News: Monday, June 01, 2009

Zubair Faisal Abbasi

Displacement is too insufficient and perhaps even meaningless a word to convey the traumatic experience of physical dislocation. Sudden dislocation under warlike situations carries the feeling of uncertainty looming large for the terrorised souls. Today, the north-western part of Pakistan is witness to such an excruciating social-psychological trauma. It also sees an unprecedented resilience of local social capital.

In a real Kafkaesque situation, the internally displaced people do not know the crime whose punishment they have been condemned to bear. They do not know when their predicament will cease so that they can safely return, and with viable livelihood options. Perhaps the only worthwhile tool in the survival kit is hope. It is said: Prepare for the worst and hope for the best. Preparations for the worst are useless and inadequate when there are mostly inappropriate shelters and health facilities in many camps with limited or no food. The state of helplessness is painful. Many displaced persons have their wheat crop ready for harvesting but expensive and extremely dangerous return journeys put limit to their social wellbeing.

Knowing the situation, the United Nations has asked for $440 million as immediate assistance for the people who have been uprooted during the war on terror. Beyond the immediate relief, early recovery needs much more than money. It puts the local social capital under a stringent test, along with the administrative capability of the state. In the absence of an explicit social policy, the most tested and bankable asset in Pakistan is the local social capital expressed through a magnificent show of solidarity with the people of Swat, Dir and Malakand. In fact, social capital is the Achilles’ heel of our social body which Talibanisation seeks to attack while creating political and social cleavages between and within the state and the society in the name of religion and sharia.

The ghost of physical displacements keeps visiting Pakistan periodically. We met it in 1947, 1965, 1971 and 2005. Therefore, the experience of witnessing displacements is rich. What is inadequate is that level of administrative response, coordination, and information handling capacity which should have by now significantly strengthened. However, as an economist one can argue that Pakistan still needs to achieve a level of sustained economic growth which gives birth to social and political resilience in society and creates multiple levels of preventive capacity in the institutional arrangements of the state.

However, as social policy experts argue, creating social protection and social development infrastructure has not been an activist-like concern of the state in Pakistan. It can be argued that lack of collectivist state-level concern disempowers societies and robs them of possible growth opportunities in managerial and technical capabilities to cope with both the natural and man-made disasters.

The linkage between the welfare or developmental orientation of statecraft and availability of scientific information about people for targeting is simple. Theoretically, a government is accountable to the taxpayer. Money has to be utilised in a monitorable way. The target and processes must be transparent and activity result oriented. Therefore, person and location must be known both for public education and health. We lack this orientation in Pakistan.

The ramifications of a lack of social security and protection polices and functional institutional arrangements are serious. For example, instead of mobilising educational and health departments for registration, the government of Sindh has been reported to start relying on the police. Without entering into a dispute over the need of registration, the politics of choice of office is the case in point. A commonsensical approach can inform that using police stations for registration of internally displaced persons will be harmful and create ethnic distensions in humanitarian work. Despite all good intentions, the regulation of displaced persons can degenerate into highhanded activity of law-enforcement agencies rather than a response of provincial social protection system.

In the current disaster situation, the social capital or social capability which compensates for ineffectiveness of the state through charity and philanthropy is a valuable asset. In fact, under the circumstances, every penny counts and must be shared. The social arsenal of the nation must be well-quipped and efficiently deployed.

Political society in Pakistan, while accommodating IDPs, should try to further build and enrich social capital rather than sabotaging it with political myopia. One good way of building social capital is to develop well-targeted disaster response capacity through the use of meticulously collected health and education data for development in normal times. This will add meaningful functional vitality to existing institutional arrangements such as NDMA and PDMAs. We should not forget that in disaster management it does matter whether you recognise 1.2 million or 2.2 million as displaced and scattered target population. In the longer term, social protection and security designed with precision is difficult but not impossible.

[Source: http://thenews.com.pk/daily_detail.asp?id=180597]

From Emergency to Opportunity

2009-05-31T09:56:00.002+06:00

<<< Each year, Pakistan spends Rs900 per capita in Fata, while the average for the rest of the country is Rs2,000. Doesn't this explain all? >>>

By Zubair Faisal Abbasi

Pakistan is currently faced with a large-scale human displacement; the largest since 1947. Therefore, the country is witnessing an extraordinary political, social and economic situation that will have a serious impact on its social development. In the short term, the contingency will impact the budgetary allocations; while in the medium to long term, the issue of employment and poverty will resurface.

In this situation, the state has to stretch itself an extra mile for civil-military surge to fill the vacuum of governance in the Taliban-infected areas. Disinfection of fundamentalist toxicity needs both time and resources. It has been reported in the media that during the last six years, around $35 billion had been eaten by counter-insurgency measures, while $5 to $8 billion might be consumed annually on this account without an immediate end in sight. This is an enormous cost for a state that has shown suboptimal performance in governing both growth and poverty in a pro-poor fashion, let alone in a poor-centred way.

However, at the same time, the state has committed to a number of measures under the International Monetary Fund (IMF)-sponsored (read monitored) structural adjustment of the economy, which includes contractionary monetary policy, withdrawal of subsidies from electricity and cut in public sector development expenditure. Directly or indirectly, these measures will reduce growth, and increase unemployment and poverty. Allowing a slight increase in the budget deficit is the only measure of relaxation granted by the IMF for the fiscal year 2009-10 (FY10).

Standing between the devil and the deep sea, Pakistan's economy needs an extraordinary response by the leadership, which needs to make correct estimates of human misery, escalation in transaction costs due to increase in insurance premiums and other input factors. It also needs to pay heed to the requirements and management of diversion of public finance from development to maintenance of law and order.

While the current unrest in the Federally Administered Tribal Areas (Fata) and NWFP has already increased both the direct and indirect costs of running the economy, the massive outflow of internally displace persons (IDPs) is much bigger a challenge for the country than is being estimated at the moment. Most of the reports on the financial outlay for Fata show disparity in development budget allocation in comparison with the rest of the country. It has been reported that Pakistan spends about Rs900 per capita in Fata, while the average for the rest of the country is around Rs2,000.

Beyond immediate relief and early recovery, rehabilitation of the IDPs in their areas or elsewhere in Pakistan is an issue that would become, if not tackled with a long term vision, monstrous sooner or later. It is feared that most of the IDPs would slide into chronic and persistent poverty, because they will lose vital forms of their capital stock. Some of them would lose human capital, especially breadwinners; while others would lose financial capital, because their savings will be spent on transportation to escape the death traps of the war zone. Still other IDPs would have less social capital left with them, manly due to social dispersion. Many of them would also lose physical capital, such as households, and access to natural capital, which could have been available in their usual habitat.

Leaving aside disparities in development expenditures between the terrorism-infected areas and the rest of Pakistan, the loss of capital stock or assets is actually a destruction of whatever developmental gains were achieved in those areas. As argued by Prof David Hulme, an expert on chronic poverty, during and post-conflict situation, the disaster-affected persons perforce look at themselves more critically in diachronic way -- comparing their past and present -- and also synchronically while looking at others. Therefore, as a result, the issue of both absolute and relative poverty as well as inequality will resurface in Pakistan.

In the beginning of this article, it was argued that the state is trapped in the type of economic management that assumes monetarists' vision of containing inflation and fiscal deficit. This orientation does not adequately look at the developmental needs of an economy, as well as social efficiencies of public sector investments. Interestingly, for such a management, poverty reduction strategy is more about targeting the 'transient poor', rather than the 'chronic poor'. Hence, the approach emphasises the building of social safety nets.

It has been argued by experts that social safety net approach does not compensate for the absence of a well-structured social policy, and social protection mechanisms that can ensure that both the markets and public action care for the poor. In fact, such detailed mechanisms revolve around a different set of socioeconomic values. Such arrangements realise that there are different types of poverties to be attacked with different policies. The point is, with the business as usual approach, Pakistan's development orientation will fail to effectively respond to the socioeconomic and political challenges it currently faces.

It is believed that a sizable number of the IDPs may lapse into 'chronic poverty' due to destruction of their capital stock. What is needed, therefore, is a different type of social development policy framework, not only for the terror-infected areas but also for the other parts of Pakistan. Trying to control the situation with money-supply will be insufficient and risk-prone, because it will not respond to the central question of socioeconomic vulnerabilities in a long-term perspective.

In this direction of development for eradication of chronic poverty, renowned economists Prof David Hulme and Amartya Sen both emphasise the importance of poor-centred asset building, especially those assets that are resilient and show high economic returns. Admittedly, the unit cost of such a poverty eradication strategy along with targeting is high, but it is worth pursuing a goal. At this moment, Pakistan is facing a complex political and economic situation.

The unfolding spiral of poverty and inequality needs serious attention from the state. It is very important that while responding to emergencies, the central question of capability deprivation is answered. The forthcoming federal budget, to be presented on June 13, must have something to offer, so that at least the first step in this direction could be taken.

[source: The News on Sunday available at http://jang.com.pk/thenews/may2009-weekly/nos-31-05-2009/pol1.htm#6]

The Missing Link

2009-05-05T09:36:00.005+06:00

<<< Poor countries are facing conditionalities that demand monetary solutions to much more complex problems of development >>>

By Zubair Faisal Abbasi

A lot of debate has been generated in Pakistan and elsewhere in the world around the social and environmental impacts of climate change. Scientific estimates and frightening stories of increased flooding, irregular rains, shortening winter and long periods of drought make a string case for climate change mitigation and adaptation strategies. The advocacy for the success of such measures ranges from outright denunciation of economic growth and modernity to escalating development of technological solutions for green-development.

The current thrust of 'growth stimulus' packages in the United Kingdom and United States appears to be tilted in favour of building technological solutions for low carbon intensity development path, without paying much head to the agenda of de-growth politics. However, the situation of the least-developed countries (LDCs) and developing countries in the context of these climate change debates is interesting.

In fact, the LDCs and developing countries are caught in layers of 'triple injustices'. Sajay Vishist, representing Centre for Trade and Development (Centad), argues that firstly, they are not responsible for a large part of carbon emissions; secondly, they are the worst affected (especially the people living in tropical and sub-tropical zones); and thirdly, they have the least capability to engineer and execute adaptation- and mitigation-based development models.

While there is an acceptance of global equity principle under the United Nations Framework Convention on Climate Change, which calls for common but differentiated responsibilities, the thrust of global commitments is far removed from any meaningful commitment by developed countries. In fact, emissions of green-house gases have been reduced in transition economies, but major developed countries have shown an increase in emissions. The US, Canada, New Zealand, Japan and the Netherlands stand in the line of environment culprits.

In the LDCs and developing countries, the debate around climate change is dominated by de-growth environmentalists. For them, the processes of industrialisation-based economic growth did a huge disservice to the world; development in the sense of economic prosperity is an illusion, and beyond the carrying capacity and fragile ecosystems of the Earth. These arguments, however, do not take the agenda of economic change vis-a-vis climate change too far in the context of the LDCs and developing countries.

In fact, the LDCs and developing countries need a sustained economic growth path and technological capability to ensure success of adaptation strategies, both at the local community and corporate industrial levels. In other words, the agenda of climate change adaptation and mitigation needs both improved governance of economic change strategies as well as strengthening of institutional arrangements for technological capability acquisition. Such an important area of strategic intervention should not be left only to de-growth anti-modernity environmentalists.

The case in point is to mainstream climate change adaptation and mitigation strategies while developing industry, trade and technology (ITT) polices. In Pakistan, this issue is not mainstreamed as economic change and development strategies, though it can ultimately build sustainable national capacities to adapt and mitigate adverse impacts of climate change. Predominantly, these are neoliberal policies with strong liking for structural adjustment based on liberalisation, privatisation and stabilisation.

The debate around the role of the state in technological capability acquisition, which formed the core of industrial development strategy, has been set aside. Interestingly, when the UK, France, Germany, Japan and the US were at comparable levels of economic development, they were using all the 'bad policies' of infant industry protection, subsidies and investment management for human and physical asset building of local technological capability development. Most of these ladders of development have now been denied to the developing countries with imposition of conditionalities that demand monetary solutions to much more complex problems of development.

As a result, a major casualty in the LDCs and developing countries are public sector development programmes, which are central to the development push in these countries. For example, rather than increasing and streamlining opportunities of relevant human capital formation through state action, funds for the Higher Education Commission (HEC) have recently been reduced in Pakistan. In short, a strong resolve by the state has been the missing link since the country started experimenting with structural adjustment programmes (SAPs) about three decades ago.

In direct contrast to the 'dictated' approach of the LDCs and developing countries, US President Barack Obama advised his economic managers to "think of what's happening in countries like Spain, Germany and Japan, where they're making real investments in renewable energy." He argued that "they're surging ahead of us, poised to take the lead in these new industries. This is not because they are smarter than us, or work harder than us, or are more innovative than we are. It is because their governments have harnessed their people's hard work and ingenuity with bold investments -- investments that are paying off in good, high-wage jobs."

Similarly, the Center for American Progress, a think-tank with close ties to the Obama administration, called last year for the government to spend $100 billion on various green initiatives. The reward, it calculated, would be two million jobs. In a sharp contrast, even conservative estimates claim that the current SAPs in Pakistan will render at least two million people jobless or below the poverty line in the next couple of years.

In a bid to reduce fiscal deficit, the International Monetary Fund (IMF) has asked the Pakistani government to restrain public expenditures, the burden of which will naturally fall on the poor. It has asked for reduction in the country's fiscal deficit from 7.4 percent of gross domestic product (GDP) to 4.2 percent, through lowering public expenditure, gradually eliminating energy subsidies, raising electricity tariffs by 18 percent and eliminating tax exemptions. Similarly, in Hungary, the IMF has targeted fiscal deficit reductions from 3.4 percent of GDP to 2.5 percent through a fiscal consolidation plan, which involves freezing public sector wages, placing a cap on pension payments and postponing social benefits.

Dr Ha-Joon Chang, in his recent articles in the Guardian, has clearly identified this approach as "economics of hypocrisy"; in the US, the state has nationalised the 'sick' banking industry while providing 'growth stimulus' under protectionist 'Buy America' policy. Such measures will increase the fiscal deficit of the US to about 5 percent of GDP. These are primarily 'bad policies', forbidden for the LDCs and developing countries. The same were also denied to East Asian countries during the 1997-98 economic crisis, when they were asked to keep surplus budgets and let their banks go down the drain.

The IMF claims to have increased social safety nets under a new SAP in Pakistan. However, Bhumika Muchhala, who works with the Third World Network, argues that "in Pakistan the cumulative increase in social spending is 0.3 percent of GDP, whereas the reduction in public spending amounts to 3.2 percent of GDP. While the IMF can accurately say that social safety spending is being doubled in Pakistan, from 0.3 percent to 0.6 percent of GDP, it is overshadowed by the fiscal deficit reduction required by the IMF, from 7.4 percent to 4.2 percent of GDP."

Considering economic change strategies with weak (and skewed) public sector development programmes, increasing poverty and lack of an independent ITT policy, the chances that the state and society will be able to respond effectively to the challenges of climate change are rather bleak. However, the dark forces of 'triple injustices' mentioned above can be converted into opportunities if governments in the LDCs and developing countries invest in the development of technology acquisition platforms for green technological capabilities under climate change adaptation and mitigation strategies, because a way to go beyond de-growth environmentalism is also embedded in this approach.

(The write is visiting faculty at Sustainable Development Policy Institute and Iqra University, Islamabad.

Email: abbasi.zubair@gmail.com)

Source: http://jang.com.pk/thenews/may2009-weekly/nos-03-05-2009/pol1.htm#5

Need for inclusive development

2009-04-23T20:14:00.001+06:00

By Zubair Faisal Abbasi
<<< The scary tale of impending climate change-induced disasters does not make social sense, nor is it politically relevant >>>>

The concept of economic growth and development has been at the centre of planning in both developed and developing countries since World War II. The idea of increasing peoples' choices and social well-being through physical infrastructure and human development forms the core of development interventions. However, the economic growth and development thinking can be divided in two distinct periods, each resulting in different outcomes.

The period between the early1950s and early 1980s is called the 'golden age of capitalism'. During this period, there was significant economic growth and development in most of the developing world. Many countries in different regions of the world made significant progress in industrialising and modernising their economies. East Asian economies later became symbols of growth with equity and inclusive development.

Later, after the oil crisis of the mid-1970s, many countries ran into financial problems and a new economic system, called 'neo-liberalism', overtook the reigns of 'development policy'. Under the ideological supremacy of the neo-liberals, Prof Colin Kirkpatric argues that the economic growth has been divergent, not convergent. Divergent means that some countries were developing fast and had high rates of growth, while many developing countries were languishing behind in the scale of economic development despite implementing the neo-liberal policies.

In the 1990s, Latin America virtually stopped growing, while sub-Saharan Africa witnessed negative growth. According to Prof Jeffery Henderson, in sub-Saharan Africa per capital gross domestic product (GDP) fell by 15 percent during 1980-2000, after having grown by 34 percent during 1960-80. Similarly, in South Asia, high levels of poverty and hunger persist with three-fourths of the region's population living below $2 a day – perching on weak and debilitated physical infrastructures, lack of sustained accumulation of human and financial capital, and ultimately multiple levels of social and economic exclusions.

The purpose of this introduction is to set the stage for the main argument: the growth divergence and a general lack of inclusive development strategies during the last 30 years at the global and regional levels have created a situation in which developing countries will suffer more under the climate change conditions. They will suffer more due to lack of access to technological, financial and human resources for developing adaptation and mitigation strategies. They will suffer more due to huge gaps in development-oriented state-society synergies at the national and local levels, which signals the need for reforming the systems of governance and institutional effectiveness. Moreover, they will suffer more due to a global and national lack of unambiguous resolve to create situations of 'climate justice', which can result in 'poor-centred development' – one step ahead of the 'pro-poor development'.

Under these circumstances, Prof Antony Giddens insists in one of his recent books that the climate change is so serious a threat that it goes beyond the traditional arguments of 'green lobbyists' and anti-modernisation activists. It needs skilful planning and action, while balancing the need for development of resilient infrastructure and national levels of carbon emissions.

In fact, developing countries need to modernise their economies, which entails technological and infrastructural upgrading. In addition, they need environmental share in the global pie for equitable economic growth and development. Therefore, the main idea – without looking into climate change as an issue of economic justice and inclusive development – is that the scary tale of impending climate change-induced disasters does not make social sense, nor is it politically relevant.
As argued by many experts – including Qazi Kholiquzzaman Ahmad, Sperling and Klein – the idea of 'climate justice and inclusive development' has to be made part of Millennium Development Goals (MDGs) and Official Development Assistance (ODA). They have emphasised that support for sustainable livelihood, equitable growth and governance must make the centre of climate change adaptation strategies. To them, adaptation projects are basically 'development projects'.

It is being argued by the World Resource Institute, after surveying about 100 adaptation projects, that climate change adaptation is primarily a call for 'good development' that can respond to the needs of response capacity while addressing the drivers of climate change vulnerability in developing countries. In short, the core argument is that at the global, national and local levels, mainstreaming adaptation strategies must be part of development efforts.

The Government of Punjab recently took a serious note of climate change impacts in important geographical areas of industrial and agricultural significance. However, the state in Pakistan must create policy frameworks in which the powerful socioeconomic and political groups do not privately reap benefits of consuming environmental resources, while increasing vulnerabilities of the poor. In South Asia, the failure of governments to control the 'resource capture' has damaged the capacities of the poor to manage their lives.

While South Asia is highly vulnerable to climate change impacts – such as floods, cyclones, tornadoes, storm surges, saline intrusions, droughts and river bank erosions – there is a strong need for the countries in the region to make a comeback and use the 'collective social will' and 'autonomy' of the state institutions to ensure functioning of equitable and poor-centred inclusive development processes. In the modern economy, only a developmental state with entrepreneurial vision can bring such shifts in economic development situations.

Notwithstanding this, the 'functionality' of institutional arrangements is more critical a factor than the 'forms' they take. Developing countries suffer from the 'form-fetish'. They create bodies (forms) without souls (effective functionality). This practice needs to be changed to effectively and adequately respond to the challenges of climate change with the vision of inclusive development.

(The writer is visiting faculty for Sustainable Development Policy Institute and Iqra University, Islamabad.
Email: abbasi.zubair@gmail.com)
source: http://jang.com.pk/thenews/apr2009-weekly/nos-19-04-2009/pol1.htm#7

Need for a U-turn

2009-03-29T08:48:00.002+05:00

Need for a U-turn
<<< Pakistan needs to re-orient its economic change strategy and bring the state back into pro-active action >>>
By Zubair Faisal Abbasi

The underlying economic structure of any economy is of immense significance. Whether the structure is based on industrial manufacturing capability backed by a well-functioning financial and education system or not determines a large portion of success and failure of an economy. What kind of manufacturers it produces for foreign and domestic trade is profoundly important too. This is the crux of political economy of industrial and trade policy which goes beyond the 'export-led growth' mantra of the Ministry of Commerce in Pakistan.
Dani Rodrik, a brilliant economist based in Harvard, while emphasising the importance of manufacturing capability strengthened with export growth and export diversification argues that "what you exports does matter." It does matter whether a country exports potato chips or computer chips. The point is that a successful trade policy has to work in line with the industrial development objective enshrined in a well thought-out industrial policy.

In Pakistan, the reality of economic strategies is perching on an inverse logic. In Pakistan, according to the Economic Survey of Pakistan 2007-08, the over-arching principles of economic change are embedded in Washington Consensus approach claiming privatisation, stabilisation, and liberalisation as ideal panacea. It further claims that Pakistan does not intend to re-discover industrial policy.

Perhaps, economic managers of Pakistan want to prove that the economic development route of the UK and the USA as well as of the late industrialises in East Asia who staged a development miracle was wrong. They must have first liberalised their economies with the state taking a back seat and then see the "invisible hand" churning out "development" through increased competition in markets. In fact, the now-dominant economic managers in Pakistan believe that "planning and coordination" is less superior a strategy as compared to "market and competition."

The results of this economic policy are interesting. While the average tariff has been reduced from 77 percent in 1985 to 17 percent in 2004 and around 10-12 percent now, the share of Pakistan's world exports actually fell from 0.16 percent in 1990 to 0.15 percent in 2004. In addition, the growth of the manufacturing component of GNP has also declined from 6.9 percent in 2002-03 to 5.4 percent in 2007-08, which is showing further decline. These results show that industrial decline in Pakistan actually started much before the current global financial decline. Historical data also suggests that the output growth in manufacturing, in terms of annual averages, was 15.7 percent in 1950-60 and 13.4 percent in 1960-70, which declined to 4.5 percent in the years 1990-01.

Taking note of such strategies, Prof. Deepak Nayyar, has recently argued that economies are like springs. Hard springs (developed economies) when compressed with openness and cut throat competition, bounce back while soft springs (less developed economies) lose their strength and do not bounce back. Is Pakistan proving to be a soft spring? Answering this question may not be too difficult. However, in any case, the elected democratic government should try to avoid being a soft spring pressed too hard with liberalisation, privatisation, and neo-liberal type stabilisation. The solution lies in industrial policy aided by a strategic trade policy, which develops a framework of selective regional and global integration and local industrial capability.

Looking at from this angle, the issue is that the state of Pakistan needs to come back with economic planning for structural transformation of the economy. The planning should be able to develop a coherent industrial policy, which identifies the priority sectors and facilitates the development of relevant industries. The need is to identify those industries, which can have wide effects on the economy and shift gears of the whole economy, rather than a single industry.

In the last trade policy 2007-08, it was promised that industrial cluster development will be encouraged along with reducing the cost of doing business and creating a better business climate so that poverty eradication takes place. These are noble promises; however these ideals are placed in trade policy while most of these must have been part of national industrial development strategy, which the economic managers of Pakistan have simply refused even to initiate. What matters is that industrial development does not emerge automatically from general manipulations of tariffs, tax cuts, and subsidies. In fact, the industrial development, which has successfully reduced poverty in East Asia, China, and India, has emerged from industrial development, planning and coordination aided by strategic trade policies.

This is a historical fact that all of the now-developed countries have used, both the infant industry protection and promotion policies, to economically develop and transform their economy from agrarian to an industrial economic structure in their catch-up periods. In fact, they industrialised their agriculture sector as well. With the resultant productivity growth, while managing efficiency-equity concerns, they could reduce poverty. Pakistan needs to learn some lessons about "how to govern growth and poverty" with industrial and trade policies from the now-developed countries.

In Pakistan, in the absence of an industrial policy, large-scale manufacturing has recorded an overall negative growth as shown by the data from Federal Bureau of Statistics. Press reports show that overall data for July-Dec 2008-09 depicts a decrease of 4.72 percent over July-Dec 2007-08. Some analysts claim that the decrease in large-scale manufacturing is due to increase in interest rate and power outages, which tend to increase the cost of production. This may be partially true.

Partially, in the sense that such analysis does not explain the institutional environment in which the industrial crisis has actually developed. In fact, the energy crisis in itself is a demise of industrial capability and infrastructure in Pakistan. Some enlightened analysts have argued that the decline in effectiveness of the state apparatus, especially the economic bureaucracy in terms of developing vision, establishing coordination mechanisms and accountable institutional arrangements have precipitated the industrial decline. This decline negatively affects the external trade sector, which cannot capture diversified markets with diversified products.

Interestingly, in one of the addresses at The Federation of Pakistan Chambers of Commerce and Industry, (FPCCI) the Secretary Commerce had announced that the Ministry of Commerce and FPCCI would be partners and not clients. This is a noble announcement and must be appreciated. At the same time, it must be realised that the state has to be sufficiently autonomous and sufficiently efficient so that it is not captured by special interests and can execute an equity-efficiency based public policy agenda.

One can learn from others in this direction. For example, the export promotion organisation in South Korea played a central role in making the Export Oriented Industrialisation (not export led growth which plagues Pakistan) a success story. Under the state and private sector arrangement, the protection and subsidisation was very closely monitored by the state. Monthly reporting from industry to the government was one of the key features. Peter Evans calls this feature as "embedded autonomy" of the state institutions meaning that they were autonomous but at the same time embedded in the private sector organisations so that the state could provide administrative guidance and remove information asymmetries needed for business success.

Another key aspect was that the state could control waste of capital accumulation by comprador class and make productive investments in the priority sectors a reality. In the words of Robert Wade, East Asians created "simulated markets" (as opposed to free-markets) and governed them. No doubt, it requires an efficient, effective, and reasonably honest economic bureaucracy. Pakistan sufficiently lacks a viable administrative infrastructure and is trying to plug the hole of economic waste through de-regulation and liberalisation. Recent researches, however, argue that wholesale liberalisation and de-regulation is neither a question nor answer to the trade and industry related problems of developing countries.

While Pakistan has announced that the next trade policy will be for three years,
most of the critics are reluctant to accept the long-term positive effects of such steps. These are at best non-issues, which do not deserve to be headlines. What is required is to develop both the trade and industrial policy jointly with the help of
Planning Commission of Pakistan and bring the hometown of neo-liberalism -- the Ministry of Finance -- on board. The case in point is that the financial system should serve the purposes of industrial development. Interestingly, Pakistan could witness during the last one decade a skewed kind of growth. The financial sector could grow at the rate of around 12-14 percent while industry at around 3-5 percent and agriculture sector at 2-3 percent. These trends necessitate that the economic managers come out of the delirium that services sector such as financial service can take the economy on a long-term growth path. A recent report by the State Bank of Pakistan says services sectors sustainability expands as a result of growth in industrial and manufacturing sector development.

Therefore, the economic managers of Pakistan should try to learn a couple of lessons. First, that an effective and efficient economic bureaucracy and "Weberianness" is required to establish industrial and trade development in developing countries. Second, that trade policy should serve the industrial development objectives of the state and be in line with industrial strategy. Third, that accumulation of capital should not be handed out (privatised) to the comprador class for waste but should be re-invested in a productive way. Last but not least, the state should know that a Washington Consensus based economic growth strategy is not a high road to growth. The state has to come back. Public sector development programmes should be on the forefront to tackle the global recession related issues as well as ensure Pakistan's long-term industrial development capability.

Keynesian economics has many solutions, which are now again being adopted by the US and the UK. Prof Fredrick I Nixson had argued many years ago that neo-liberalism (Washington Consensus) is neither irreversible not irreplaceable. Developed and powerful economies will change the strategies whenever they need. The current "growth stimulus" packages doling out billions of dollars in Europe, China, and the UK, and the US show that the state can come to rescue whenever it is required. It can help induce growth through re-allocation of capital beyond the dictates of free-market and free trade philosophy.

Looking at the past and the present of economic change strategies in Pakistan as well as in other countries, Pakistan's (isolated) trade policy will be inadequate to tackle the issues of export diversification and a sizable increase in both the volume and value of exports. Pakistan needs to re-orient its economic change strategy and bring the state back into pro-active action.

(The writer works with Sustainable Development Policy Institute, Islamabad.
Email: abbasi.zubair@gmail.com)
[Source: The News on Sunday, Political Economy Section. Available at http://jang.com.pk/thenews/mar2009-weekly/nos-29-03-2009/pol1.htm#6. Last accessed March 29, 2009.]

Beyond rhetoric…

2009-03-27T08:07:00.002+05:00

[ The earlier we understand that climate change is more than just a shift in weather conditions, the better]

By Zubair Faisal Abbasi

Popular and policy rhetoric around the challenges posed by climate change calls for concrete steps to implement adaptation strategies in the developing world. The realisation that ‘we did not inherit this Earth from our forefathers, but have borrowed it from our next generations’ has prompted both environmental activists and capitalist industrialists to go ‘green’, in order to save the planet and human beings from an untimely yet avoidable atrophy. However, the story does not end here; it is much more complex.

While images of droughts, hunger, cyclones, melting glaciers, forced migrations and human miseries are used to depict the challenges posed by climate change, the global distribution of resource endowments seldom comes to the fore with a solution. Therefore, if we look at climate change from the perspective of political economy and human development, an interesting scenario emerges. The divergence tendencies in global economic growth and development situations exemplify skewed distribution of already scarce resources for adaptation projects: rich countries have not met the promises they made under the Kyoto Protocol, thus poor countries have received only 10 percent of the committed money.

Another interesting aspect is also related to this inequitable distribution of resources. Under the Global Environment Facility of the United Nations, during the last three years, about $700 million have been doled out to China, India and Brazil, while only under $100 million have been given to 49 poorest countries of the world. In this vein, another comparison also carries weight. While rich countries are showing a declining trend of human casualties due to extreme weather conditions, poor countries are still vulnerable to climate change.

The political economy dimensions of climate change are alarming, mainly because of deteriorating environment, and warnings of rising economic costs by deep-ecology and capitalist discourses on climate change. Thus, it is becoming increasingly difficult to ignore the empirical evidence of one degree Celsius rise in temperature, and its impact on the systems of economic productivity and governance. In fact, there is a need to go beyond interpreting climate change as just a shift in weather conditions. For example, the reversal of industrial fortunes since the 1980s, or decline in economic growth due to malaria and HIV/AIDS, has complicated climate change adaptation in poor countries.

In fact, the political economy of success or failure of global climate change management – sprouting out of the history of global growth divergence – can be more intense for the developing world than for the developed one. In a way, ‘climate change impacts’ re-narrate the story associated with underdevelopment, inequitable growth distribution and ill-conceived economic change strategies; they may involve mindless and arrogant uprooting of people, loss of livelihoods, destruction of stable social structures and increase in crime. Yet another dimension is a protracting and lingering ‘war on terror’ perching on poverty and deprivation of masses already affected by climate change.

For now-developed countries, climate change may mean developing carbon markets or ‘green industrialisation and smart infrastructure’ for growth stimulus (as in the United States), but for developing countries it points to a historical lack of adaptation capability and an emergent collapse of human development. For developing countries like Pakistan, climate change means increased visibility of the failure in modernising public infrastructure (transport, health, education, water management, etc); more stress on the state to diversify industrial and agricultural systems of production; and, most importantly, increased need for equitable distribution of natural resources (for example, water) among diverse range of economic and political agents.

Due to persistent economic divergence tendencies – meaning that fruits of global economic growth are being inequitably distributed among countries – and capability divergences – meaning gaps in technological and institutional capabilities – the political economy of climate change shows an interesting pattern. As common sense may also accept, it has been argued in recent researches that the political economy impacts of climate change will be different for developed and developing countries.

After having evaluated half a century of data, it is estimated that one degree Celsius increase in temperature will stifle global economic growth. There will be reduction in both agricultural and industrial value-added products. It can also be safely assumed that there will be decline in both the subsistence level production of agriculture and tradable surplus. For developing countries, the impact of climate change will not only be confined to habitats and livelihoods; foreign direct investment (FDI) to them will also decline due to factors like erosion of domestic growth capability.

The decline in agriculture, industry and investment will be devastating for democracies as well. The National Bureau of Economic Research in the US estimates that the incidences of social unrest due to climate change may result in increased frequency of ‘irregular regime changes’, including military coups. In short, climate change is much bigger a threat to be left only to environmental cheerleaders and moral turpitude of rich countries.

Climate change demands looking back at the basics of the political economy of development and underdevelopment, as well as of global distribution of resources and capabilities, and going beyond the rhetoric of ‘going green’. Climate change adaptation strategies and projects must create another wave of resilient and ‘smart’ public infrastructure development in developing countries.

This time, however, the state needs to be more active and be prepared to take the agenda of climate change adaptation at the micro-level. It needs to be more active than a macroeconomic incentive-based market-oriented economic change strategy allows; it needs to create state-society and state-individual synergies for climate change adaptation strategies. The governments and public interest organisations attending the Copenhagen Conference on Climate Change (COP 15) in December 2009 must take note that climate change challenges can best be met with advances in equitable economic, human and ‘green’ infrastructural development

processes.

(The writer works with Sustainable Development Policy Institute, Islamabad.
Email: abbasi.zubair@gmail.com)
[http://jang.com.pk/thenews/mar2009-weekly/nos-15-03-2009/pol1.htm#5]

Beyond rhetoric…

2009-03-27T08:07:00.001+05:00

[ The earlier we understand that climate change is more than just a shift in weather conditions, the better]

By Zubair Faisal Abbasi

Popular and policy rhetoric around the challenges posed by climate change calls for concrete steps to implement adaptation strategies in the developing world. The realisation that ‘we did not inherit this Earth from our forefathers, but have borrowed it from our next generations’ has prompted both environmental activists and capitalist industrialists to go ‘green’, in order to save the planet and human beings from an untimely yet avoidable atrophy. However, the story does not end here; it is much more complex.

While images of droughts, hunger, cyclones, melting glaciers, forced migrations and human miseries are used to depict the challenges posed by climate change, the global distribution of resource endowments seldom comes to the fore with a solution. Therefore, if we look at climate change from the perspective of political economy and human development, an interesting scenario emerges. The divergence tendencies in global economic growth and development situations exemplify skewed distribution of already scarce resources for adaptation projects: rich countries have not met the promises they made under the Kyoto Protocol, thus poor countries have received only 10 percent of the committed money.

Another interesting aspect is also related to this inequitable distribution of resources. Under the Global Environment Facility of the United Nations, during the last three years, about $700 million have been doled out to China, India and Brazil, while only under $100 million have been given to 49 poorest countries of the world. In this vein, another comparison also carries weight. While rich countries are showing a declining trend of human casualties due to extreme weather conditions, poor countries are still vulnerable to climate change.

The political economy dimensions of climate change are alarming, mainly because of deteriorating environment, and warnings of rising economic costs by deep-ecology and capitalist discourses on climate change. Thus, it is becoming increasingly difficult to ignore the empirical evidence of one degree Celsius rise in temperature, and its impact on the systems of economic productivity and governance. In fact, there is a need to go beyond interpreting climate change as just a shift in weather conditions. For example, the reversal of industrial fortunes since the 1980s, or decline in economic growth due to malaria and HIV/AIDS, has complicated climate change adaptation in poor countries.

In fact, the political economy of success or failure of global climate change management – sprouting out of the history of global growth divergence – can be more intense for the developing world than for the developed one. In a way, ‘climate change impacts’ re-narrate the story associated with underdevelopment, inequitable growth distribution and ill-conceived economic change strategies; they may involve mindless and arrogant uprooting of people, loss of livelihoods, destruction of stable social structures and increase in crime. Yet another dimension is a protracting and lingering ‘war on terror’ perching on poverty and deprivation of masses already affected by climate change.

For now-developed countries, climate change may mean developing carbon markets or ‘green industrialisation and smart infrastructure’ for growth stimulus (as in the United States), but for developing countries it points to a historical lack of adaptation capability and an emergent collapse of human development. For developing countries like Pakistan, climate change means increased visibility of the failure in modernising public infrastructure (transport, health, education, water management, etc); more stress on the state to diversify industrial and agricultural systems of production; and, most importantly, increased need for equitable distribution of natural resources (for example, water) among diverse range of economic and political agents.

Due to persistent economic divergence tendencies – meaning that fruits of global economic growth are being inequitably distributed among countries – and capability divergences – meaning gaps in technological and institutional capabilities – the political economy of climate change shows an interesting pattern. As common sense may also accept, it has been argued in recent researches that the political economy impacts of climate change will be different for developed and developing countries.

After having evaluated half a century of data, it is estimated that one degree Celsius increase in temperature will stifle global economic growth. There will be reduction in both agricultural and industrial value-added products. It can also be safely assumed that there will be decline in both the subsistence level production of agriculture and tradable surplus. For developing countries, the impact of climate change will not only be confined to habitats and livelihoods; foreign direct investment (FDI) to them will also decline due to factors like erosion of domestic growth capability.

The decline in agriculture, industry and investment will be devastating for democracies as well. The National Bureau of Economic Research in the US estimates that the incidences of social unrest due to climate change may result in increased frequency of ‘irregular regime changes’, including military coups. In short, climate change is much bigger a threat to be left only to environmental cheerleaders and moral turpitude of rich countries.

Climate change demands looking back at the basics of the political economy of development and underdevelopment, as well as of global distribution of resources and capabilities, and going beyond the rhetoric of ‘going green’. Climate change adaptation strategies and projects must create another wave of resilient and ‘smart’ public infrastructure development in developing countries.

This time, however, the state needs to be more active and be prepared to take the agenda of climate change adaptation at the micro-level. It needs to be more active than a macroeconomic incentive-based market-oriented economic change strategy allows; it needs to create state-society and state-individual synergies for climate change adaptation strategies. The governments and public interest organisations attending the Copenhagen Conference on Climate Change (COP 15) in December 2009 must take note that climate change challenges can best be met with advances in equitable economic, human and ‘green’ infrastructural development
processes.

(The writer works with Sustainable Development Policy Institute, Islamabad.
Email: abbasi.zubair@gmail.com)
[http://jang.com.pk/thenews/mar2009-weekly/nos-15-03-2009/pol1.htm#5]

[Privatization] At what cost?

2009-03-08T11:40:00.001+05:00

<< It is difficult not to make a case against privatisation, at least in Pakistan’s context >>

By Zubair Faisal Abbasi

The privatisation of state-owned enterprises (SOEs) is on the rise in Pakistan as part of structural adjustment of the economy. Whatever title one likes to give, such as public-private partnership (PPP), the process is designed along the neo-liberal policy prescriptions that paint a rosy picture of the privatisation process as an ideological commitment rather than making a case for equitable economic development.

To make a convincing case, most of the pro-privatisation data is taken from developed countries and the same policy prescriptions are generalised for developing countries. What is eventually presented are exaggerated claims about the virtues of rolling back the role of the state and importance of market price signals. Both these claims are, however, highly contentious, especially if we look at the development experience of other countries, including the East Asia tiger economies.

Just like other countries, in Pakistan, most of the privatisation-related statements try to make ‘transparency’ of the process a point of prime importance. In fact, public policy blindly and near-religiously (perhaps under advice from the international economic policy establishment) believes in privatisation as a superior kind of economic management that can bring economic prosperity to the country.

It is true that privatisation proceeds have been able to fetch about Rs475 billion since 199, but the state of economy is far from on a steady growth path. The argument here is that even with ensured ‘transparency’ and use of money earned from selling of state assets for poverty alleviation, privatisation may not yield the desired economic gains, because it is essentially a politically, socially and institutionally wasteful exercise. This argument is especially valid where other options are available.

Therefore, in order to understand the political economy of privatisation, an interesting way could be to understand the process of economic development through an industrial policy design framework. Such insights show that economic change is a process of ‘capital accumulation’ and ‘productive investment’. Prof Nixson, who teaches at the University of Manchester, argues that these two processes are logically separate. Agreeing with Prof Ha-Joon Chang of Cambridge University, one may also say successful economic transformation in modern economy needs a developmental state to coordinate these two processes.

Under the International Monetary Fund (IMF) in Pakistan, it is claimed that the so-called ‘free market’ automatically creates situations of capital accumulation and productive investment through ‘right price’ signals. The resultant economic outcome is efficiency gain. However, after looking at the economic growth experience of East Asia, it appears that the role of the state has been more dominant than that acknowledged by the neoliberals. Factually, these economies have not been free market economies, and an embodiment of liberalised and de-regulated system of economic dispensation of society. In fact, the market operations were made to be both socially and politically efficient, and markets were ‘governed’ in a ‘plan rational’ way.

The East Asian economies, an embodiment of developmental state, intervened into the market and altered the processes of capital accumulation and productive investment in line with the needs of priority sectors. During the 1990s, when Pakistan was passing through a rigorous phase of privatisation, China was increasing profit margins of SOEs to facilitate economic growth in a coordinated way. It has been recently reported that China is making adjustments in industrial development plans to fight recession elsewhere, providing policy credit to sunrise industries, and re-allocating human capital in both rural and urban production systems.

Although Pakistan cannot replicate what has happened and is happening in East Asia, as well as in India, a lesson can be drawn to seek other options. It has been argued by many contemporary researches that ‘change of ownership’ does not make much economy-wide positive difference. Comparative analysis between the East Asian and Latin American economies, on the other hand, informs that the state’s ability to control capitalists (now called entrepreneurs) from becoming parasitic ‘comprador’ class is important along with autonomy of the state institutions from regulatory capture. In short, improved economic governance means increased ability of the state to monitor accumulation and investment in the economy.

Considering the politico-economic implications of economic development, what is required as policy is a change in the perception that ‘private’ and ‘public’ sectors are competing enterprises. They should not be made to compete, but cooperate through a coordinating agent called the state under a well-defined industrial policy providing administrative guidance for sectoral capital accumulation and productive investment.

Empirical evidence from many countries, including East Asian ones, tells that industrial policy can create social and economic efficiencies (at the systemic levels), while crowding in the private sector through market expansion with increasing returns to scale. This process is difficult than privatising assets even in the most transparent manner, but it offers a path to sustained economic growth.

It must be noted that in Pakistan, as well as in India, privatisation of the telecom sector has increased the role of the private sector, but an unambiguous empirical argument is still lacking that could establish that the increased scale of investment in this sector has actually created a situation for economy-wide long-term equitable economic growth. The central issue is that our public policy seldom twists the ‘determinants of long-term equitable economic change’. In fact, the state should actively emphasise technological and managerial capability acquisition in the public and private sectors with which the industrial sector improves and innovates both the products and processes.

It is said that investment increases after privatisation. However, using long-term data, many researches now show that after privatisation in developing countries, investment first increases and then decreases. Prof Paul Cook has mentioned that after privatisation, the government reduces investment in that sector and this may result in infrastructural decay. Hence, privatisation is not the solution. It may be a social and political curse rather than a dividend, as argued by many analysts pointing at the unemployment and price-hikes due to privatisation.

It has been proved by research that 71 percent of non-utility sector privatisation results in negative change in employment. Likewise, in Pakistan, evidence suggests that 44 percent of privatised units showed decline in performance, while 34 percent were later closed. Therefore, Pakistan should try to evolve a good industrial policy that aids economic growth strategy, crowding in both the private and public sectors. The solution is to revisit the processes of ‘capital accumulation’ and ‘productive investment’, and explore other options of ensuring equitable economic development.

[ends]

[Source: The News on Sunday, March 8, 2009 p. policy III
http://jang.com.pk/thenews/mar2009-weekly/nos-08-03-2009/pol1.htm#7]

Meeting Climate Change Challenge: Rhetoric and Beyond

2009-02-25T08:43:00.003+05:00

Zubair Faisal Abbasi

Popular and policy rhetoric around the challenges of climate change is asking for concrete steps to implement adaptation strategies in the developing world. Realization that we did not inherit this planet from our ancestors but have borrowed from our next generations is also prompting both environmental activists and capitalist industrialist to go ‘green’ in order to save the planet and human beings from an untimely yet avoidable atrophy. The story is little longer and complex.

While images of droughts, hunger, cyclones, melting glaciers, forced migrations and human miseries make a popular picture of climate change challenges, the global distribution of resource endowments seldom come to the fore as an unresolved question of global economic development. Looking at the climate change from a political economy and human development perspective, an interesting picture emerges.

In fact, with climate change debate, the history of divergence tendencies in global economic growth and development situations again stands out as an ugly face of skewed distribution of scarce resources for adaptation projects. While the rich countries have not met the promises they made under Kyoto negotiation, the poor developing countries have received only 10% of the committed money (Vidal, 2009).

There is another interesting aspect of this inequitable distribution. Under the Global Environment Facility of the United Nations, during the previous three years, around US $ 700 million have been doled out to China, India, and Brazil and less than US $ 100 million been given to 49 poorest countries of the world (Vidal, 2009). In this line of thought, another comparison also carries weight. While the rich countries show a declining trend of human casualties due to extreme weather conditions, a country like Haiti which was worst hit by storms in 2004, is still being deforested, stands extremely vulnerable and ill-prepared for climate change. The country having only 22 member staff in its nation-wide Directorate of Civil Protection should not be a surprise to any member of the development establishment (Carvajal, 2007, p. 6).

Looking at the problems from another angle, amid deteriorating environment and rising economic costs warnings by the deep-ecology and environmental capitalist discourses on climate change, the political economy dimensions are quite alarming. It is becoming increasingly difficult to ignore the critique and empirical evidence of one degree Celsius rise in temperature and its impact on the systems of economic productivity and governance. As a matter of fact, there is a need to go beyond interpreting climate change as a shift in weather conditions. For example, the history of genocide, reversal of industrial fortunes since 1980s, and waste of economic growth due to Malaria and HIV/AIDS, does complicate the story in Africa.

In fact, the political economy of success or failure of global climate change management, sprouting out of the history of global growth divergence, can be more excruciatingly intense for the developing countries than the developed ones. It can be argued that ‘climate change impacts’ narrate the same story which is associated with under-development, inequitable growth and development failure, and ill-conceived economic change strategies. Such stories mean (mindless and arrogant) uprooting of people, loss of livelihoods, destruction of stable social structures, ill-prepared governments and increase in crime (Nixson, 2006). Yet another dimension is - if not won or lost – a protracting and lingering ‘war on terror’ perching on poverty and deprivation of masses affected by climate change.

For now-developed countries, climate change may mean developing carbon markets, it may mean ‘green industrialization and smart infrastructure’ for growth stimulus (as in the USA) but for developing countries it points towards a historical lack of adaptation capability and an emergent collapse of human development. For developing countries like Pakistan, climate change means increased visibility of failure in modernizing public infrastructure (e.g., transport, health, education, water management), stress on the state to diversify industrial and agricultural system of production and locations, and most importantly increased need for equitable distribution of natural resources (e.g., water) amongst diverse range of economic and political agents.

Therefore, persistent economic divergence tendencies meaning that fruits of global economic growth are being inequitably distributed amongst countries (Ocampo et al., 2007), and capability divergences meaning gaps in technological and institutional capabilities, the political economy of climate change will show an interesting pattern. As common sense may accept, it has been argued in recent researches that the political economy impacts of climate change will be different for the developed and developing countries.

After having evaluated half a century of data, it is estimated that one degree Celsius increase in temperature will stifle economic growth at the global levels. There would be reduction in both the agricultural and industrial value added. It can be assumed that there would be decline both in the subsistence level production of agriculture as well as tradable surplus. For developing countries, the impact of climate change will not only be confined to habitat and livelihood options but also in terms of decline in foreign direct investment due to actors such as erosion of domestic growth capability and factor endowments. The political economy situation of decline in agriculture, industry, and investment will be quite devastating for democracies as well. A research at National Bureau of Economic Research in the USA estimates that the incidences of social unrest due to climate change may result in frequency of ‘irregular regime changes’ which includes military coups (Dell et al., 2008).

In fact, climate change is much bigger a force to be left to environmental cheerleaders and moral turpitude of rich countries. Climate change asks to look back at the basics of the political economy of development and under-development, global distribution of resources and capabilities, and go beyond mere moral rhetoric of ‘going green’. The climate change adaptation strategies and projects must create another wave for resilient public infrastructure development in developing countries. This time, there is a need for the state to be more activist and be prepared to take the agenda of climate change adaptation at the micro-level. The state needs to be more activist than a mere macro-economic incentive-based market-oriented economic change strategy can permit (Skocpol, 1985). The state needs to create state-society and state-individual synergies for adaptation strategies.

To cut a long story short, climate change challenges must be taken as an opportunity for equitable economic and human development.

References:

Carvajal, L. (2007) 'Impacts of Climate Change on Human Development', Occasional Paper, Human Development Report Office, New York.

Dell, M., Jones, B. F. & Olken, B. A. (2008) 'Climate Change and Economic Growth: Evidence from the Last Half Century', National Bureau of Economic Research: Working Paper 14132, Vol. n.a., No. n.a., pp. 1-46.

Nixson, F. (2006) 'Rethinking The Political Economy of Development: Back to Basics and Beyond', Journal of International Development, Vol. 18, No. 7, pp. 967-981.

Ocampo, J. A., Jomo, K. S. & Vos, R. (2007) 'Explaining Growth Divergences', in Growth Divergences: Explaining Differences in Economic Performance, Ocampo, J. A., Jomo, K. S. & Vos, R. (Eds.), Zed Books, London, pp. 1-24.

Skocpol, T. (1985) 'Bringing the State Back In: Strategies of Analysis in Current Research', in Bringing the State Back In, Evans, P. B., Rueschemeyer, D. & Skocpol, T. (Eds.), Cambridge University Press, Cambridge, pp. 03-37.

Vidal, J. (2009) 'Climate Pledges', The DAWN [Karachi], 22 Feb., p. 6

SDPI Seminar: Re-Locating the State: Industrial Policy for Growth and Poverty Reduction

2009-02-19T15:39:00.007+05:00

Industrial development in Pakistan has long been a cherished agenda of economic change. Wading through a number of policies and planning exercises, the Vision 2030 (PC, 2007) also envisions Pakistan to become a modern industrialized economy. Perhaps to catch-up with an inherently moving target of national industrialization amid the comity of successful global industrial players, Pakistan needs to refocus the activities of the central actor i.e., the state.

Interestingly, Pakistan’s economic change orientation shows signs of interesting drifts and shifts in strategies for industrialization. However, in most instances, the main instruments deployed for industrial development have been trade policy interventions (Kemal, 1999) instead of an East Asian-type, elaborate and well-coordinated, industrial policy (Hasan, 1998).

In fact, during the early phase, Pakistan’s strategy for economic change wanted to convert a predominantly subsistence agriculture economy into an industrialized manufacturing based economy. In pursuit of the aims of industrial capability, merchant capital was progressively converted into industrial capital while accumulation for investments was made possible through the state as well as big business houses. The state played a significant (and yet controversial) role in managing accumulation of capital, rent creation, and (spatial and sectoral) distribution of productive investments through various policy instruments including exchange rate policies (Ahmed and Amjad, 1984; Khan, 2000; Zaidi, 2005).

Since the early 1990s, however, as in many other countries under structural adjustment programmes and the Washington Consensus approach, the strategy for economic change towards industrialization changed. The state was required to pull out, liberalize, de-regulate, and privatize with an explicit indication not to re-discover industrial policy interventions (MOF, 2007).

Many researchers argue that following the departure from specific industrial policy acumen as part of neo-liberal reforms, there is an unambiguous decline in industrial fortunes in Pakistan (Khan, 1999; Nadvi and Sayyed, 2004). In the same way, some researchers have recently also argued to re-assess, re-configure, and re-introduce state interventions through strategically designed industrial policy for economic change (Burki, 2008; Chang, 1996; Skocpol, 1985)

In this context, a debate must be re-introduced. Some questions emerge in our mind: What role the state can play in making industrial policy a success story? What changes in the state’s institutional arrangements and vision for industrial development should be brought about? Should Pakistan not look at industrial development as a main driving force for agricultural productivity growth? Can industrial policy be designed in a way that industrial growth remains relevant for poverty reduction and employment creation?

These apparently simple questions do not have simple answers. They require serious research and brainstorming especially in the era of globalization in which national policy space has arguably been reduced but many options are still open (Amsden, 2005). Therefore, to start a debate on these issues, amid a number of lingering issues related to our economic change strategy, SDPI is organizing a seminar titled ‘Re-locating the State: Industrial Policy for Growth and Poverty Reduction’.

References:

Ahmed, V. & Amjad, R. (1984) 'The Management of Pakistan's Economy 1947-82', Oxford University Press, Karachi.

Amsden, A. H. (2005) 'Promoting Industry under WTO Law', in Gallagher, K. P. (Ed.) Putting Development First: The Importance of Policy Space in the WTO and IFIs, Zed Books, London, pp. 216-232.

Burki, S. J. (2008) 'Industrial Policy: Domestic Challenges, Global Imperatives, and Pakistan's Choices', The Lahore Journal of Economics, Vol. Special Edition, No. n.a., pp. 23-34.
Chang, H.-J. (1996) 'Political Economy of Industrial Policy', St. Martin's Press, New York.

Hasan, P. (1998) 'Pakistan's Economy at the Crossroads: Past Policies and Present Imperatives', Oxford University Press, Karachi.

Kemal, A. R. (1999) 'Patterns and Growth of Pakistan's Industrial Sector', in Khan, S. R. (Ed.) Fifty Years of Pakistan's Economy: Traditional Topics and Contemporary Concerns, Oxford University Press, Karachi, pp. 150-174.

Khan, M. H. (2000) 'Political Economy of Industrial Policy in Pakistan 1947-71', Working Paper Series No. 98, Department of Economics, School of Oriental and African Studies, London, pp. 1-39.

Khan, S. R. (1999) 'Do IMF and World Bank Policies Work?', Macmillan, London.

MOF (2007) 'Economic Survey of Pakistan 2006-07', Ministry of Finance, Government of Pakistan, Islamabad.

Nadvi, K. & Sayyed, A. (2004) 'Drivers of Change - Pakistan: Industrial Capital and Pro-poor Change', Institute for Development Studies, Sussex. Mimeo.

PC (2007) 'Vision 2030: Pakistan in the 21st Century', Planning Commission, Government of Pakistan, Islamabad.

Skocpol, T. (1985) 'Bringing the State Back In: Strategies of Analysis in Current Research', in Evans, P. B., Rueschemeyer, D. & Skocpol, T. (Eds.) Bringing the State Back In, Cambridge University Press, Cambridge, pp. 03-37.

Zaidi, S. A. (2005) 'Issues in Pakistan's Economy', Oxford University Press, Karachi.

Form and Functionality of Institutions

2008-11-30T22:37:00.000+05:00

By Zubair Faisal Abbasi

Bureaucracy is extortionist, politicians are untrustworthy, and the military rule - in connivance with a post-colonial civil administration - has always been an authoritarian and elitist arrangement. Moreover, the civil society is disenfranchised to play any meaningful role in the development, execution, and evaluation of public policy. These are broad contours of a dominant viewpoint on functional aspects of institutional performance in Pakistan.

In this context, this article stresses two points. First that more than the ‘form’ of institutions, ‘functionality’ plays a central role in determining the effectiveness of institutional arrangements for economic development (Chang, 2007). Second that the arguments for institutional catch-up in line with Anglo-American i.e., neo-liberal outlook needs revision of emphasis. The emphasis needs to go well beyond market fundamentalism approach to institutional development and embrace wider public policy agendas (Chang and Grabel, 2005).

In Pakistan as argued by many social scientists, whether the state structures are relatively over-developed vis-á-vis the society or institutional imbalances squander the developmental outcomes, it appears that the state repeatedly fails to perform the functions of an effective conflict manager and a visionary public entrepreneur(Alavi, 1972; Jalal, 1995). Therefore, the state institutions despite having certain modern forms appear to be inherently deficient and low performing enterprises.

Italy in 1870s, at a comparable level of development as that of Pakistan in 2000s, did not have many institutional arrangements which Pakistan had since a long time. The central bank, professional judiciary, and a professionally trained bureaucracy are some examples. The economic development in Italy without the comparable institutional forms provides evidence that functionality of institutional arrangements takes precedence over the forms (Chang, 2007).

In the case of Pakistan, the military interventions to resolve socio-political conflicts and bring sustained economic miracles have shown suboptimal performances. The country has slowly skidded into institutional atrophy (e.g., losing centrality of the planning commission in management of economic change) and institutional traps (e.g., hackneyed system of civil administration perching on weak coordinating mechanisms) rather than venturing into long term sustainable institutional innovations. A sizable portion of underlying reasons, perhaps, can be traced in the ‘governmentality’ of bureaucratic (hierarchical) and feudal (master-slave) cultural ethos of the state and society. This is in sharp contrast to South Korea and Taiwan which also experienced military interventions but designed viable institutional changes to bring in industrial discipline in their once-agrarian economic lives.

Despite assuming modern forms, the functionality of institutional arrangements generates highly unequal, polarized, conflict prone, and non-entrepreneurial socio-economic outcomes in Pakistan. Under the circumstances, in a complex way, the enfeebled state loses administrative autonomy and is captured by special interests who continue to take a lion’s share in income, power, and opportunity distribution systems of the state. The institutional functionality alienates the majority of population from mainstream distribution mechanisms. The alienated population ultimately stops believing in the effectiveness of institutional arrangements to create secure and accessible pubic goods. An elitist, bureaucratic, and feudal cultural ethos perpetuates grip over politico-economic reigns (Hussain, 1976).

Contrary to Pakistan’s experience, another example of institutional change can be Japan which made a socio-institutional innovation of lifetime employment while deciding to steer the economy towards rapid industrialization. The country, along with Switzerland, still executes an active labour policy for human resource allocations. In fact, the functionality aspect of the institutional innovations creates the most robotisized and successful economies of the world (Chang, 2002).

Prof. Ha-Joon Chang argues that key functions of institutions include: coordination and administration; learning and innovation; and income re-distribution and social cohesion (Chang, 2007). In Pakistan, institutional arrangements exhibit extremely weak performance on this account. There can hardly be any recognizable achievement during the last sixty years. An example of almost similar performance may be of Brazil which experienced the so-called economic miracle during mid 1960s and 1970s. Brazil’s industrial strategies like Pakistan have been more ‘industrial-capacity intensive’ than ‘innovation-intensive’ which did not allow the developmental state to take off in the longer run. Moreover, despite an open policy towards foreign investment, the economy did not grow equitably. It mostly served rentier interests while income distribution and economic role of the state faded away from active public policy agenda (Burlamaqui et al., 2007).

In the case of Pakistan, since the late 1980s, a semblance of change in institutional forms comes when the state acts to implement liberalization, deregulation, and privatization in line with ‘getting prices right’ prescriptions of the neoliberal orthodoxy. Such institutional grafting shows that the state responds to market related governance conditionalities more quickly than the needs of institutions for social security. In fact, the idea of social security as developmental ingredient needs to be mainstreamed in institutional growth strategies.

Interestingly, while the need is to capacitate the state in becoming an entrepreneur which can provide vision for future and establish coordination mechanisms, the neoliberal orthodoxy asks to roll back the state. While the need of the state is to provide sufficiently autonomous governance structures to determine and execute public policy agenda, the orthodoxy wants the state to emphasize those institutions which can primarily ensure protection of market interests.

In fact, succumbing to the primacy of ‘free’ markets institutions ultimately incapacitates the state to guide and govern markets in line with the state’s development objectives. In addition, it robs the state of opportunities to intervene for social equity and efficiencies beyond market-based resource allocations. A glaring example is social safety-net approach which does not argue to make social security a cross-cutting and over-arching concern of public policy in Pakistan.

Looking at from another angle, the institutional arrangements prescribed by the neoliberals dismantle policy instruments which can help execute investment coordination and guide foreign direct investment towards specific sectors. Under Trade Related Investment Measures (TRIMS) and Structural Adjustment Programmes, the policy orientation is to remain divorced from specific industrial policy, and investment coordination and prioritizing mechanisms. However, empirical evidence shows that historically almost all the now-developed countries including the USA, the UK, South Korea, and Japan have used diverse mechanisms to manage FDI with state interventions ranging from out-right restrictions in selected sectors to administrative guidance (Chang, 2003). The basic idea was to promote industrial development in strategic sectors using the legitimate interventions by the state. For Pakistan, the need to guide FDI beyond Oil and Gas and Telecom sector is the case in point.

To conclude, for viable institutional development both in form and functionality, Pakistan needs to think beyond neoliberal orthodoxy. It should seriously strengthen and utilize the capacity of the state structures to influence the social outcomes of economic transformation. The democratic government has the required political and legal legitimacy for such interventions. A well-coordinated change in public policy orientation and institutional functionality will inevitably reduce possibilities of social waste and long term economic meltdown.

============

Alavi, H. (1972), 'The State in Post-colonial Societies: Pakistan and Bangladesh', New Left Review, Vol. 74, No. n.a., pp. 59-81.

Burlamaqui, L., Souza, J. A. P. d. & Barbosa-Filho, N. H. (2007), 'The Rise and Halt of Economic Development in Brazil, 1945-2004: Industrial Catching Up, Institutional Innovation, and Financial Fragility', in Chang, H.-J. (Ed.) Institutional Change and Economic Development, United Nations University Press, New York, pp. 239-259.

Chang, H.-J. (2002), 'The Role of Social Policy in Economic Development: Some Theoretical Reflections and Lessons from East Asia', United Nations Research Institute for Social Development (UNRISD), Geneva.

Chang, H.-J. (2003), 'Regulation of Foreign Investment in Historical Perspective', United Nations University, Institute of New Technologies, Discussion Paper Series, # 2003-12, Maastricht.

Chang, H.-J. (2007), 'Understanding the Relationship between Institutions and Economic Development', in Chang, H.-J. (Ed.) Institutional Change and Economic Development, United Nations University Press, New York, pp. 17-34.

Chang, H.-J. & Grabel, I. (2005), 'Reclaiming Development from the Washington Consensus', Journal of Post Keynesian Economics, Vol. 27, No. 2, pp. 273-291.

Hussain, A. (1976), 'Elites and Political Development in Pakistan', The Developing Economics, Vol. 14, No. 3, pp. 224-238.

Jalal, A. (1995), 'Democracy and Authoritarianism in South Asia: A Comparative and Historical Perspective', Cambridge University Press, Cambridge

The State and Industrial Development: A Question of Coordination

2008-10-05T23:33:00.000+06:00

By Zubair Faisal Abbasi

‘A major economic transformation in (or towards) modern economy requires a state which can effectively perform the roles of the ultimate entrepreneur and the conflict manager.’ (Chang and Rowthorn, 1995).

The role of the state in economic transformation has historically been central including in the now-developed countries of the West and newly industrialized entrepreneurial states of East Asia. There are many reasons for a central role but the reasons associated with investment coordination, technological capability enhancement and up-gradation along with provision of viable governance and social security structures form the core of the state functions. The fact mentioned by Abramovitz that ‘the capital stock is interdependent in use but independent in ownership’ also provides a convincing argument for the state to provide coordination mechanisms (Abramovitz, 1986).

In Pakistan, the state has also played a significant role in determining resource allocations and deploying policy instruments to support economic transformation. However, in doing so the state has exhibited suboptimal performance as entrepreneur and conflict manager. As a result, the industrial growth and development in Pakistan is painfully slow. In comparison with South Korea, the rate of growth lags behind though both the countries started with low performing agriculture and almost non-existent industrial base.
Interestingly, both the countries had military coups in the late 1950s and early 1960s respectively while the state remained authoritarian, directive, and sometimes market-stifling. But the results of the role of the state in industrial development are significantly divergent. The state arguably stood stranded in polarized socio-economic realities in Pakistan while it had been effective and provided ladders for industrial growth and development both for the private and public sector in South Korea. Pakistan, with the passage of time, seems to have reached a point where the state must try to understand economic and industrial decline without losing the sense of history, institutions, and social and political processes.

At this point, a question emerges that what makes a state to emerge victorious in redeploying resources for modernization of economy without increasing deprivations and resultant social upheavals?

To answer this question, a look on Pakistan’s economic history can be rewarding. Pakistan decided to industrialize and transform the economy soon after coming into existence. The main strategy for economic change in Pakistan has been over-stretched import substitution industrialization without a convincing penchant for and success in consistently upgrading export oriented industrialization from primary to tertiary sectors. Most of the time, the state relied on tariffs, exchange rate, and subsidy related manipulations without deploying an elaborate system of visionary industrial policy frameworks to design coordination mechanisms backed by viable institutional arrangements to implement public policy agenda. Glaring gaps in industrial policy itself and a skewed role of the state negatively affected outcomes of economic transformation interventions.

Precisely, during the first decade the state attempted to generate public sector driven push, in the absence of a sizable private sector, for structural transformation from agriculture to manufacturing sector. The second decade entrenched a never-ending system of political alignments helping to pick players for capital accumulation and investment. Efforts to bridge gaps in political legitimacy of military intervention with dolling out financial and business opportunities ultimately resulted in increased concentration of wealth and regional inequality. Therefore, the role of the state became a source of conflicts in itself with a distorted entrepreneurial acumen in allocating resources to leverage economic transformations.

Responding to the political pressure on the issue of regional economic inequalities, the ‘new state’ brought public sector to prominence through nationalization during 1970s. However, use of public sector for political patronage continued. This trend coincided with the rhetoric of international development policy establishment about ‘government pessimism’. On the other hand, in South Korea, around this time, the entrepreneurial state was directing the public and private resources for heavy industries such as oceangoing ship-building enterprises which were even against the much touted ‘comparative advantage’ of the factor endowments (Chang, 1993).

In 1980s, the authoritarian state remained inefficient and massive resource waste resulted in a near-failure of a possible second round of industrialization after the early 1960s. The 1980s ended with the start of neoliberal ascendency under various forms of Structural Adjustment Programmes in Pakistan. However, contrary to claims of the orthodoxy settled in the commanding heights of economic policy making, no unambiguous breakthrough has been made in the manufacturing sector growth under the export-led growth strategy. In fact, the controversial growth spurt in manufacturing which happened between 2004 and 2006 is fast declining despite dismantling of tariffs, removal of subsidies and other support systems of industrial policy.

In other words, shrinking the role of the state in industrial development, without reforming the state itself, has been counterproductive and empirical evidence provided in the Economic Survey of Pakistan and recent researches by Dr. Khalid Nadvi and Dr. Asad Sayeed show that neoliberal reforms have coincided with decline manufacturing sector output (Nadvi and Sayyed, 2004; MOF, 2008).

It appears that an authoritarian state dominated by the military and civil bureaucracy has failed to act as entrepreneur which could visualize and implement higher levels of equilibrium in economic resource allocations. Alongside, the state has failed to act as a trust worthy conflict manager which could address social, political, and economic grievances of the people. The cost of such failures has been more debilitating in a multi-ethnic state of Pakistan than less-diverse South Korea and Brazil. On account of institutional performance, the meta-institution of participatory democracy and rule of law still needs foundational strengthening to be effective in ‘functions’ beyond the ‘form’ it assumes. In addition, despite highly controversial political economy of fiscal deficit, a well-designed private and public sector investment in the manufacturing sector is still awaited.

In the context of central question we raised earlier, Pakistan urgently needs to look for innovative solutions and interventions beyond the neoliberal prescriptions. The state must focus on the human development aspects of industrialization and actively engage itself in strengthening institutional arrangements especially in the areas of social and labour policy. It should not overlook the distribution side of the economy since the ultimate test of the success of any development strategy lies in social well-being and improvement in the standards of living of its people. However, such improvements cannot be brought about by relying excessively on monetarism. For rapid and equitable economic transformation an important step can be to develop a coherent development vision and industrial policy which must provide the coordination mechanisms. The other policies such as trade, competition, and FDI policy should toe the line of industrial development strategy.

To conclude, it can be said that the state should not only be a facilitative agent for economic transformation, it should move ahead and become an entrepreneurial entity and institution builder which can provide viable governance structures and implement public policy agenda without being captured by the vested interests. In fact, it must capacitate itself to provide vision, institutional arrangements, and coordinate structural transformation for economic transformation especially for industrial growth and development.

References:
Abramovitz, M. (1986), 'Catching Up, Forging Ahead, and Falling Behind', The Journal of Economic History, Vol. 46, No. 2, pp. 385-406.

Chang, H-J. (1993), 'The Political Economy of Industrial Policy in Korea', Cambridge Journal of Economics, Vol. 17, No. 2, pp. 131-157.

Chang, H-J. & Rowthorn, R. (1995), 'Role of the State in Economic Change: Entrepreneurship and Conflict Management', in Chang, H.-J. & Rowthorn, R. (Eds.) The Role the State in Economic Change, Oxford University Press, New York, pp. 31-50.

MOF (2008), 'Economic Survey of Pakistan 2007-08', Ministry of Finance, Government of Pakistan, Islamabad.

Nadvi, K. & Sayyed, A. (2004) 'Drivers of Change - Pakistan: Industrial Capital and Pro-poor Change', Institute for Development Studies, Sussex. Mimeo.

Pie in the sky

2008-07-29T04:21:00.001+06:00

By Zubair Faisal Abbasi

A senior bureaucrat travelling in a chauffeur-driven latest-model Toyota in Islamabad and narrating virtues of autonomous trade liberalisation and receding involvement of state in marketable technology development raises many fears. It appears that a strong grip of neoliberal orthodoxy in Islamabad has somewhere concealed the real success story of Toyota -- a sewing machines-producing company that graduated to make globally competitive automobiles. Similarly, it seems that the economic bureaucracy has decided to forget the history of the Japanese government that kept this inefficient company alive by allowing it to experiment with lean production techniques for many years.

In fact, they have tended to lose the historical perspective of the economic growth strategy of industrialised nations whose comparative advantage was once in primary products, such as silk and rice, than in any industrial product. Knowing the fact that history cannot be repeated -- let alone be replicated -- at any other place, this article assumes that important lessons can still be learnt from institutional arrangements and strategies of the past, especially if a country wishes to reorient trade and industrial growth policy.

Historical and empirical evidence suggests that all major countries of East Asia, some of them now part of the Association of South East Asian Nations (ASEAN), have actually used policy instruments -- such as tariffs, subsidies and investment management -- to become competitive in exportable industrial products. These instruments have been backed by the central role of the state to accumulate and utilise the capital for expansion of export-oriented industrialisation. Therefore, the state-led interventions made the domestic private sector competitive in the global export markets with enormous welfare gains from trade. The strategy, in simple terms, was aimed at economic and sectoral industrial success, followed by strategic integration into the global markets to gain from trade and then reinvest the profit to explore new production possibility frontiers.

Looking from this perspective, the neo-liberal sermons of international development policy establishment ñ the International Monetary Fund (IMF), the World Bank and the World Trade Organization (WTO) -- seems contrary to the historical evidence. While providing assistance to developing countries for economic change, they impose conditionalities to open-up systems of production for international competition, and rescind from any investment coordination and management. One example can be seen in the shape of Trade-Related Investment Measures (TRIMS), which predominantly needs removing state controls over investment management and coordination. This effort basically creates the rights and obligations that favour rich country investors (corporate magnates) in the name of liberalisation of economy.

Prof Ha-Joon Chang of the University of Cambridge argues in his book Bad Samaritans: The Guilty Secrets of Rich Nations and The Threat to Global Prosperity that knowing the fact that a six-year old boy -- without protection, support and a long period of investment by parents -- cannot be competitive in his professional dual with a surgeon makes things clear. At the age of six, if his parents stop making investments in his accumulation of skills, the child will be able to earn some money and use his half-baked human capital. But he will end up as a crude butcher or a good shoe shiner at best.

Though exposed to competition, successfully employed, relatively independent and possibly street-smart, he will never be able to compete in the high end market of surgeons. This apparently simple story tells the logic behind infant industry argument implemented by the US, the UK and almost all developed countries. However, the argument does not ask for feeding the 40-year old as an infant, but definitely requires appropriate trade and industrial strategies for investment and labour management in transitions from sunset to sunrise industries. The role of state as a public entrepreneur is the case in point.

If we look at East Asia and the West in historical perspective, we will understand what went wrong with Pakistan in managing economic change for industrial competitiveness in global markets; the competitiveness about which the father of the nation eloquently spoke in his speeches. Developed countries helped the growth of their industries by using at least three strategies: protection, domestic support and a proactive approach. They could then accumulate critical mass for industrial growth and manage the capitalist class for productive investments, rather than a sheer waste on personal comforts. East Asia could, in addition, redistribute the welfare gain more efficiently as well. The state in Pakistan has miserably failed to play the role of an entrepreneur providing vision and viable institutional arrangements for industrial growth and development to gain from international and domestic trade.

The strategic orientation of trade policy since the late 1980s and more vigorously during the periods of interim governments in the 1990s and then since 2000 has been emphasising liberalisation. Despite knowing the post-liberalisation problems with manufacturing and employment in the neo-liberal poster boy Mexico as well as a host of other countries, such as Ivory Cost and Zimbabwe, our trade and commerce strategy points in diametrically opposite direction. The strategy tries to make Pakistanis believe that tariffs once dismantled, subsidies withdrawn and investment management left to spontaneity of markets, Pakistan will become a liveable and attractive place. In unison with the neo-liberal sermon, they claim that free trade and free market are actually in Pakistan's national interest. They need to think again, for sure.

For Pakistan's economic development, the role of the state is much more critical than the current trade policy envisions. A serious revision of the strategic orientation of the trade policy of Pakistan, especially of those parts that affect the prospects of export-oriented industrialisation, is warranted. It requires rethinking the scale, scope and capacity of the state in developing and executing trade and industrial policy interventions. Though the WTO commitments and structural adjustment programmes have reduced, and are further reducing, the national policy space necessary for developing countries, it can be argued that the state still has a vital role to play.

More than just dismantling vital trade policy instruments in the name of autonomous liberalisation, it is important to create innovative strategies that bring the state back to perform the role of a public entrepreneur. It needs institutional innovations both for support and co-ordination in managing export-oriented industries to execute industrial policy aided by trade and flanking social policies. Merely have industrial clusters established and run by regressive bureaucracy is not going to make any substantial difference to the country's industrial and trade performance.

Therefore, in order to have diversity and quality in industrial production and destination (markets) of the products, the state has to assume the role of developing mechanisms for increasing returns to scale and establishing entrepreneurial rents. However, it needs commitment and political backing that ensures the state is not captured by vested interests (including the neo-liberal orthodoxy) and shows signs of autonomy while being enterprise-friendly rather than extortionist. An extremely difficult but worth pursing task! If not, what else a state must do?

Source: The News on Sunday, Political Economy Section, http://jang.com.pk/thenews/jul2008-weekly/nos-27-07-2008/pol1.htm#5

Against the tide

2008-07-14T18:14:00.001+06:00

By Zubair Faisal Abbasi

Renowned economist Joseph E Stiglitz argues that financial crisis and economic downturns have become so frequent that now they are taken as normal occurrence in human existence. Relying on the remedial efficacy of market fundamentalism, no serious attempt is made to re-evaluate the systemic failures in national and global financial and economic systems. Without recourse to getting institutions and interventions right and innovative, international policy establishment informs that this time around, financial and economic wizards are intellectually more equipped and strategies more sophisticated to handle any crisis.

Old products and remedies are re-introduced without acknowledging that such crises are systemic failures, rather than a product failure. The current economic slowdown in the United States and its possible contagious effects in other parts of the world provide ample proof of such a dependency in financial and economic policy-making. In the last six months, no significant employment has been created in the US. As a result, more people are facing economic problems than in 1999. The system of finance and economics works in such a way that it empowers and enriches the top, such as chief executive officers, without distributing economic gains towards the lower strata of social organisation.

Taking example of the housing sector, the financial system inflates the prices to increase asset value so that huge quantities of credit start pouring in as investments. While the credit and borrowers multiply, the ability to repay either stagnates or grows slowly, which results in increase in the number of people who lose their homes. The financial instruments become a reflection of predatory lending and, as in the United Kingdom, credit crunch follows and bail out efforts for financial sector, using tax-payers' money, set in. Bailouts result in more powers for the financial managers to make more mistakes.

In developing countries such as Pakistan, the mainstream economic and financial situation is not much different from the West, at least in terms of distributional effects. When economic growth occurs, it enriches a certain type or class of people and brings welfare gains in certain regions. The rest of the population can only enjoy development of others, with empty hands and glazed eyes! The elites who accumulate riches in such circumstances tend to strengthen and secure the centre, and weaken the periphery of economic and infrastructure development initiatives. As a result, economy grows but cannot sustain the growth momentum because, as Dani Rodrik claims in one of his researches, "inequality in land and income ownership is negatively correlated with subsequent economic growth."

In developing countries such as Pakistan, in the absence of a responsible, transparent and accountable government to mediate prudently the distribution of economic resources and opportunities, the shock-absorbing capacity of middle and lower economic strata of society diminishes. For instance, though the slogan of roti, kapra aur makan (food, clothing and shelter) stands revived, the mainstream belief in market fundamentalism has prompted the government to withdraw subsidies on fuel and electricity.

The reason is simple: while subsidies are a developmental instrument to adjust prices and allocate resources for long-term economic growth, financial and economic managers in Pakistan claim these as distortions in price mechanisms. They fail to acknowledge the empirical evidence that subsidies have been main instruments of economic growth and development in the economies of the West as well as the East.

It appears that the issue is to realise the importance of the role of government in making subsidies and other support measures work for sustained pro-poor economic development. In South Korea, Alice Amsden claims, subsidies were made reciprocal to economic performance of the recipients, especially for 'real' research in and development of export-oriented industries. The Pakistani government also needs to evaluate seriously the reciprocity of industries, such as the garment sector, to avoid taxpayers' money being transferred to foreign consumers with lowering export prices due to subsidies.

Another set of policy instruments of the government of Pakistan springs from a near-religious belief in the effectiveness of monetarism. While the current economic crisis is due to increase in international prices of fuel and food, and shortages of electricity, the so-called inflation-pursuing tight monetary policy may not deliver the desired results. It may be a recipe for disaster, especially in those cases where availability of cheap credit restrains growth. More than a belief in monetary instruments, Pakistan needs to re-regulate mainstream commodity markets to remove both artificial and real shortages, and bring about stability in supply. It needs to focus on remedial measures regarding information asymmetries and poor investment coordination, which create and entrench bubble-like economies perching on inequality and concentration of wealth.

One of the basic lessons of economics is that there is no free lunch. Focusing on this lesson, the need of transparency and accountability becomes apparent. While the finance minister spoke, in his budget speech, about the need of withdrawing selected subsidies, he did not share any long- or medium term-strategy for equitable economic growth or any credible analysis about how much will be consumed in the name of 'stabilisation'. When the real scale and scope of social and economic costs are not measured, no good strategy can be designed to mitigate the adverse affects of economic change. It seems that Pakistan's economy is designed to take away money from the middle and lower income groups and give it to the rich.

In Pakistan, in line with Stiglitz's viewpoint, the economic managers should re-locate the role of a transparent and accountable government in controlling the current crisis, and simultaneously go beyond short-term inflation targeting and excessively relying on monetary control measures. They are suggested to target the distribution side of the economy for stemming the economic meltdown while getting tax, subsidy and social security related interventions right in the direction of efficiency with equity.

While moving in this direction, the first non-Bhutto PPP regime must know that 'too late, too little and badly designed' policy decisions and interventions cannot equitably spread the fruits of national welfare gains. Equally important is to understand that even a well-targeted Benazir Income Support Programme would at best be a good politics, but the economy requires something more. It requires consistency in efforts and a strong doctrine of state for equity-based full employment, which cannot be substituted by dependency-creating charities in any economy.

Source: The News on Sunday, Political Economy, July 13, 2008, http://jang.com.pk/thenews/jul2008-weekly/nos-13-07-2008/pol1.htm#6

Adressing Inequality

2008-07-09T18:28:00.002+06:00

By Zubair Faisal Abbasi

It is an interesting finding that the economic bureaucracies which initiated rapid economic growth and industrialisation in Japan, South Korea, Taiwan and in Singapore were not crowded by economists or technocrats. In Japan, South Korea and Taiwan, and to a certain extent in Singapore, these were predominantly lawyers who executed economic development policies as the doctrine and vision of the state.

In Pakistan, neither the so-called highly skilled bankers and economists nor well-disciplined institutional arrangements such as the military and civil bureaucracy could implement such a vision of economic growth. In many ways, some analysts argue that the institutional arrangements which were designed to promote equitable growth have found zones of comfort in the private prisons of hard-nosed special interests. One manifestation of the capture is that almost every third or fourth person in Pakistan is illiterate and trapped in the cluster around poverty line.

The situation appears to reflect chronic and persistent inequality and poverty being entrenched as a structural condition of Pakistan's economy.Political rhetoric of various governments aside, the country has manifestly been caged in the hands of those powerful few who could divert economic resources and opportunities towards themselves. While the predominant flow of power and economic resources is bottom-up, the country fails to rapidly expand the number of people who could meaningfully mainstream themselves in systems of economic growth and social well-being. The reason is simple. The affluent minority does not reallocate an optimal level of capital accumulation towards productive investment which can create public and ethical goods for the poor.

Most of the time, they waste the capital on unnecessary luxury and comfort in carefully guarded enclaves both in Pakistan and abroad. The income and consumption remains concentrated in few hands and the economy keeps feeding the elites.Under the circumstances, the state appears to be a toothless entity unable to divert economic resources from being wasted to be utilised for social efficiency gains. It fails to generate a well-coordinated dynamism in investment, education, health, trade, and industrial policies to lift the economic planning from serving the already rich.

It fails to become an entrepreneurial entity to innovate institutional designs which could successfully articulate public and private interests. In other words, the state of Pakistan needs to generate a systemic response to bring in equity in economic resource allocations using both autonomous administrative guidance and systems of incentives and disincentives. The key is to redesign the rights and obligations of the economic players which can generate a viable social compact affecting long term growth prospects. However, without critically assessing the current economic vision of economic policy and planning in Pakistan, the vision of equity which the founding fathers also enunciated will remain a hope against hope.

The economic managers in Islamabad should move on from the belief in neo-liberal orthodoxy that the so-called (read imaginary) free-market and free-trade with scaling down the role of state, is the only viable form of capitalist system. The unfettered and near-religious belief in the primacy of markets as efficient resource allocator must be questioned. It must be noted that there is a wide range of working capitalist systems, apart from the Anglo-Saxon ones in which the state plays an activist and equality generating role and their human development indicators are better than other the so-called neo-liberal economies.In fact, in the not so distant past, a unique feature of Newly Industrialized Countries (NICs) of East Asia was that speedy growth reached the bottom of the economic resource pyramid and substantially increased the income share of the poor.

This way they expanded their domestic markets and involved almost every citizen in economically productive processes. Japan even today implements an active labour policy for development and reallocation of human resources to manage and execute social adjustments in the processes of economic change.In short, the strategy of acquisition, assimilation and deployment of resources for economic development, such as finance, opportunities of accumulation and investment, human resource development, and technological capability, all had a system-wide vision of equity. With improvements in both equity and efficiency, through policy and institutional innovations, East Asia could jump from periphery of economic and industrial development towards the semi-periphery if not the centre.

Pakistan also needs to understand the inadequacies of its growth strategy for reasons of both efficiency and equity. It needs to draw from institutional and policy understandings available both in the West in the shape of welfare state as well as of developmental state in East Asia. These economies are neither anti-private-sector nor anti-market. They, however, take markets as institutions working as a system of rights and obligations.

They embed the social development and equity perspectives in the systems of economic production and exchange. The process of embedding is moderated by the state which shows substantial commitment to tackle the social equilibrium questions upfront.To conclude, it can be mentioned that Pakistan needs to go beyond both the social safety nets minimalist state to tackle issues of poverty and inequality. The safety net approach, in essence, is a combination of residual instruments to address adverse effects of change in resource endowments and allocations in an economy.

The state of Pakistan urgently needs to develop cross-cutting social policy designs which melt down the artificial boundaries between economic growth and social development priorities. All it needs is an identifiable political commitment with the people of Pakistan and rather than the
powerful few. It requires to make Pakistan a socially responsible state and a trust worthy central actor for the long term sustainable human development and economic growth.

Source: The News, Op-Ed, July 7, 2008, http://thenews.com.pk/arc_news.asp?id=9

Warfare or a welfare state?

2008-06-23T21:45:00.001+06:00

By Zubair Faisal Abbasi

THE history of Pakistan’s political economy is a history of underlying hegemonic design in capital accumulation and allocation played in a country with weak state institutions. It does not seem to be absolutely untrue, though a bit unpalatable, that Pakistan has always been in a state of either declared or undeclared war.
To put it differently, the country has always been in a war zone. Whose interests, national or otherwise, these sequentially ever-unfolding war zones have served is an interesting story to narrate. But the state of war has created near-to-total-hegemony of the war machine class or conglomerate in the politics of Pakistan.

Staying either on the frontline or the backyard of armed power struggles, the country has witnessed very effective hegemonic efforts of politico-economic interest groups between the global and local war machine designers, mobilisers, and event-managers. A systematic and ambitious politico-economic ascendancy of the war machine class in Pakistan is a phenomenon which calls for serious deliberations from both anthropological and sociological perspectives since this phenomenon has and will have serious implications for Pakistan’s existence as a state.
Regardless of differences in geographical locale or socio-economic composition, every citizen feels the pinch of the sheer politico-economic inequality between the effective power of the hegemon and the rest. The epi-phenomenon of a momentous change such as the events following Mar 9 evokes at least four ideal types of responses from the people.

Firstly, the images of change bring forth ‘change cheerleaders’ who think that from now onwards Pakistan is going to become a more livable place and the road ahead is a way to heav en, so move forward. These are people who sometimes seem to be more ambitious than what the reality of the change really justifies.

Secondly, the change perception invokes response from ‘change-pessimists’ who think that change in Pakistan is a ‘false-consciousness’, things have never changed during the last sixty years, so how can they now? Stay away and keep yourself to yourself.

Thirdly, changes cuddle the ‘change-watchers’ who think that change is possible but not inevitable. So, they mostly put forward a reform agenda and deliberate on the movement of waves of change while taking some part in the change to make it happen.

Fourthly, the phenomenon of perceptible change also gives prominence to the ‘change averse’ group -- lifting it from lethargic dormancy. Those who belong to this group have entrenched interests in keeping control over politico-economic resources, faces, and forces. These are the people who put every kind of pressure on the agents of change
be they any institution (such as the media), an individual, or a noble principle or idea (such as rule of law).The current judicial crisis, a manifestation of sheer inequality between the departments and organs of the state, still lurking in the corridors of power and protests, has also given rise to similar response pattern.

The trajectory of the argument espoused in this article claims that the above mentioned four response-categories crosscut the traditionally defined classes and justifiably regroups the socio-political expression of society spearheaded by the lawyers and civil society. It goes beyond the urban-elite centric analysis.

Not surprisingly, a majority of the people of Pakistan extend a change-pessimist response to the forces of change. The reason, perhaps, lies with a more potent but latent reality, which has effectively delinked and, according to some experts, de-ideologised the majority in Pakistan. It has made the state of the nation melodrama irrelevant to their sense of social reality. Resultantly, change-pessimists may see a blurry picture of change but might not make an effort to fit it into a socio-political frame, as a display of a desirable image of society.

The point being emphasised is that the de-linking facet of the state — the state hegemonised by the war machine conglomerate -- has robbed most of the people of their creative abilities to articulate their interests in political and public actions for change. People seem to have been sent into exile within their own country and, even, in their own minds.

Some experts claim that the ‘class’ has not only diverted the flow of allocation of capital towards their friendly politico-economic conglomerates but has also systematically decapitalised a vast array of society in terms of its access to opportunities and resources for human capital formation. It is worth mentioning that the quality and quantity of human capital is an important factor which forms the foundations of a stable and consistent social structure guiding the political dimensions of a nation state.

The dialogue and debate on the process of delinking society from the state of the nation has actually created an invisible yet powerful vacuum which drains away the intellectual vigour from the academia, the media, and the political parties. The effect is so debilitating that they sometimes no longer aspire to meaningfully and effectively challenge orthodoxies. One such orthodoxy is ‘country is important – constitution and democracy are not’.

A delinked society, striving for transformation in systems of governance of a state, needs to re-formulate the question about the role of the state in order to challenge the above mentioned orthodoxy. This is one of the essential elements which can potentially re-link society with the country (geography) through the institution of the state (governance of the geographical expression). Challenging this orthodoxy is very important if Pakistan seeks to move on from the current pathologies of politico-economic adverse selection and moral hazard. The role of the investment of politico-economic capital in developing undesirable socio-political industries is reflected in the rise of the war machine class and conglomerates. Without the supremacy of the constitution and rule of law, there can perhaps be a country but not a state.

A state is a noble step forward which gives meaning to a country and sense of belongingness to its inhabitants. If at all a State, without a constitution, exists, it is a predatory or a captured state which loses the credibility and fairness required for administrative autonomy and juridical legitimacy to arbitrate and execute arbitration between different interest groups.
Without respect for the constitution, one may have a class which keeps control of a geographical expanse – call it a country — manages its economic resources and keeps in contact with other like-minded players at the national and international levels. But the class effectively alienates ‘my dear countrymen’ from the state forcing them into exile within the boundaries of a country. The last sixty years of Pakistan have been spent by the country in the state of warfare and sending people into exile to become change-pessimist and strengthening the hands of the change-averse.

The killing phrase is, ‘it can’t happen here’ which we hear most. We need to put forth the question of the role of the state and seek answers while trying to drift away from the war machine dominated militarised ‘warfare’ state to ‘welfare’ (developmental) state. The surest and most effective path towards the ‘developmental state’ is respect for the Constitution, fundamental human rights as enshrined in the Constitution, and allowing the system to work as is envisaged in the Constitution and not destroying it by ‘friendly-fire’.

Source: The DAWN, Op-ed, December 10, 2008
http://epaper.dawn.com/ArticleText.aspx?article=10_12_2007_007_005

A powerful parliament

2008-06-21T17:36:00.002+06:00

By Zubair Faisal Abbasi

The political corridors of Pakistan seem to be resonant with the voices of a fresh and enthusiastic start towards a vibrant political milieu. The parliament is expected to be a leading institutional arrangement to counter multi-faceted challenges to the country of more than 160 million people. Of these, whose power this parliament will use under the Constitution's provisions, a vast majority still lives in zones of silence carefully guarded by a feudal and elitist cultural ethos. How to genuinely empower the parliament itself and the people it represents is a question that needs enormous political acumen, foresight, and a sense of basic commitment to the democratic governance and dispensation.

At the same time, the political economy corridor of the country also deserves a fresh and enthusiastic start. This corridor resonates with the protesting voices of regional and income inequality, both in terms of opportunities and access to productive resources. The voices in this corridor are not new. These are coming from the chambers of an ever-exploitative system of economic governance that systematically generates elitist capital accumulation, while excluding the not-so-rich and the poor alike. The system, by implication, ensures that the fruits of economic growth seldom 'trickle-down' to the people at the lowest level of economic hierarchy.
As a result, the political economy of Pakistan, at this very moment, shows the signs of social polarisation leading to a stalemate -- failing to generate momentum for a long-term equitable economic development. This is a point where Pakistan, despite trying most of the policy instruments earlier employed by East Asian economies, fails to become a tiger economy, being perpetually trapped in a low equilibrium.

In fact, East Asian economies could accumulate, use the accumulation for productive investments and execute structural transformation because of a couple of basic commitments. The commitments included that the state has to be responsible, effective, efficient and autonomous at the same time. Another basic commitment that newly industrialised countries of East Asia always kept was to acknowledge the ethnic diversity and inequality in society, and manage the 'trichotomy' of state-society-market relations in such a way that fruits of economic growth spread equitably. Their commitments delivered.

Look at the challenges of political economy for Pakistan! One can see that such challenges are no longer confined to managing the economic fundamentals and getting short-term results. Perhaps the post-9/11 situation -- which led to increase in inflow of remittances, and also brought some aid and debt-rescheduling, helping Pakistan's economy to re-emerge -- needs reassessment. This re-assessment needs to anatomise, besides using a monetary perspective, the structural causes of rising inflationary pressures, especially related to food items; worsening trade deficit; and the persistent unemployment.

In fact, the real challenges of political economy are structural in composition, and go well beyond reliance on monetary and fiscal policy solutions. They enter the domains of economic governance, asking to review the role of the state in economic change. At the same time, these challenges are related with establishing autonomy of and accountability in the state institutions. Responses to these challenges entail bringing back the state into lived experience of the people -- the experience of welfare-oriented state that was promised by the founding fathers and later enshrined in the 1973 Constitution.

So, the challenges of the political economy are to make the people believe, not by rhetoric but by action, that they can trust the capacity of the state institutions. The primary function of the state institutions is to prevent crisis, as well as protect the citizens in the case of financial and economic downturn, while facilitating people-friendly equitable economic growth and development.

These challenges are not like the ones that can be met by bringing in bankers or military personnel on commanding heights of economic governance, or increasing or decreasing the money supply. These can also not be met with dolling out loans to the elites and writing them off later in the 'supreme national interest'. In fact, the enormity of challenges asks for developing a national development framework that is manifestly in sync with the spirit of the Constitution. At the same time, it is equally important that the state institutional arrangements show basic commitment to pursue the objectives of this framework. Perhaps the economic role of constitutional provisions needs to be brought to the fore while developing any public policy.
In addition, the framework should not be about how to pursue more privatisation, liberalisation and deregulation. The sought-after should target the state institutions, making them fully functional, effective and competent to guide the markets. Pakistan needs a strong but democratic 'doctrine of state' embedded in institutional working that consistently builds social consensus for the kind of developmental policies needed to be pursued.

Interestingly, many empirical studies show that not only the now-developed countries, but also newly-industrialised countries, have had both the state and corporate agencies for industrialisation and economic development. They did it while keeping bureaucracy aligned with basic commitment to equitable development, establishing a reasonable rule of law to prevent non-productive rent-seeking in its ranks. Such economies did not always believed in the so-called virtues of free-market-based resource allocations. They could guide such allocations to create and guide markets in preferred sectors and geographical regions. This type of policy and direct intervention by the state can create room for management of conflicts over economic resources.

At the same time, the new government should realise that Pakistan does not sufficiently and equitably invest in human and infrastructure development -- required to generate and retain highly-skilled workforce to fuel the engines of long-term economic growth. Consistent investment in knowledge and technological capability, in a layperson's language, generates self-perpetuating momentum for a long-term growth. Similarly, increase in skill and knowledge level enables and empowers people to search new avenues to participate in economic development processes. Such investments, with socio-political equity in mind, can also mainstream the neglected regions and people in a society.

To conclude, history shows that the true dynamism for economic growth does not come from prescriptions of economists or international development establishment; the real dynamism comes from leaders. If leadership is able to define the challenges correctly, coordinate the vision and processes for development, and make the state simultaneously autonomous and accountable, then the people of Pakistan can stretch all the production possibility frontiers. The political economy challenge to the new government is enormous, but this is also the right time to respond by mobilising all intellectual and political resources.

Source : http://jang.com.pk/thenews/apr2008-weekly/nos-20-04-2008/pol1.htm#4

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Post-martial law regimes

2008-06-21T17:11:00.002+06:00

By Zubair Faisal Abbasi

A CLOSER look at the prevalent national crisis in Pakistan reveals that behind socio-political and judicial upheavals and struggles for power, there is a cobweb of competing economics of accumulation, allocation, and, to be exact, ‘structural transformation’.The current crisis also reveals that the economics of capital ‘appropriation’ and ‘distribution’ working behind public policy-making and performance-correction is so sticky a force that it does not undergo a process of change despite change in regime through whatever way — martial law or constitutional/extra-constitutional emergency.

It is important to mention that in mainstream political analysis it is often portrayed that martial law once lifted is replaced by ‘democratic regimes’. This is a skewed analysis. The argument in this article is that military regimes, owing to perpetuating ‘systemic and structural rigidities’ do not give way to democratic regimes. They give rise to a unique and distinct phenomenon called ‘post’ martial law regime deeply entangled in the past without being able to make substantial changes in the character of the structure of the economy. This leads to ever-present social-political discontent paving the way for another dose of martial law. This cycle is repeated without letting the country into a phase of democratic economic governance.

The current rulers claim that owing to their economic wizards, the country has made progress in multiple directions especially in terms of a record high growth in GDP. They further claim that poverty has fallen and neo-liberal economics has translated into a boom in the real estate, telecom, stock market capitalisation, and trade-to-GDP ratio. However, some people call such claims a condition of ‘macroeconomic obscurity’ hidden behind aggregates and averages.This condition is best summarised with an example of a man standing with one foot in a bucket of very hot water and the other in very cold water. While putting his foot in two absolutely different levels of temperatures, he claims that he is standing on an averagely normal temperature and it is a pleasure to keep standing like this.

The reality, more than what economic managers of Islamabad speak, is that the economic growth has been sensed as following a ‘divergent’ not ‘convergent’ pattern.This means Pakistan is going through persistent and increasing ‘inequality’ amongst sub-national economies in terms of their stages of development and industrialisation, factor endowments, and the resultant divergent competitive-capability.Ironically, none of the coups or martial laws have been able to generate any ‘socially embedded’ yet ‘autonomous’ institutional response to manage economy for national cohesion and harmony. The military regimes have, in fact, distorted the systems of capital accumulation, allocation, and structural transformation in favour of groups who align themselves with military rule.

Is there any economic explanation of repeated military coups in Pakistan? Yes, there can be many.Recently, some economic experts started theorising about the possible linkage between ‘stages of industrialisation’ in a country and the ‘probability of military coups’. It appears from their propositions that the countries which implemented ‘sterile versions’ of import substitution industrialisation and remained trapped in manufacturing of ‘consumer goods’ (stage-I) catering to the needs of a small affluent class show predilection for repeated military coups. Examples can found in Latin America (Chile, Brazil), South Asia (Pakistan), and South East Asia (Thailand).The proposition is vindicated in another way: those countries which have, at some point in history, escaped the trap (stage-I) and moved onto exploring the frontiers of intermediate (stage-II) and capital goods (stage-III), have actually shut the floodgates of repeated military coups and reduced possibilities of avoidable social upheavals in their countries.Examples can be found in the ‘developmental states’ of East Asia including the Gang of Four.

The stage–I trap in the process of industrialisation has the potential to explain economic underpinnings of a path-dependent continuity in military coups and takeovers in Pakistan on two accounts. Firstly, the production-exchange of consumer goods needs a class of people who can consume local and imported items with financial ease. For this purpose, capital (financial, human, and infrastructural) has to be concentrated in the hands of few — especially those few who do not politically challenge the military regime.

So growth has to be there but need not to be equitable.Secondly, stage–I trap likewise does not necessitate intense diversity in products and processes of manufacturing. So push for industrial-upgrading and use of capital in high-end industrialisation for intermediate and capital goods manufacturing (stage–II and III) is not required. Ultimately, industrialisation remains trapped with abundance of low-skilled, less-educated, less-healthy, relatively poor workers who remain under the control of a small number of ‘elite managers’.The trap brings ‘political relief’ for military regimes from frequent gear-shifting for ‘systemic structural transformations’.

However, on the other hand, the stage-I trap, along with half-hearted attempts by regimes for high-end manufacturing allows an economy to boost about respectable ‘average rate of economic growth’ without creating a semblance of advances in nation-wide ‘technological capability – both industrial and agricultural’. Therefore, inequality despite (divergent) growth perpetuates and becomes a latent source of social and political upheavals starting a process of ‘post’-martial law regime and then again martial law.

A good example of persistence of economic and political reality can be found in an analysis which was undertaken by Wayne Wilcox (1969) in his article “Pakistan: A decade of Ayub” published in Asian Survey, an academic journal. Wilcox said, “……. Pakistan at the end of Ayub’s first decade remains what it was at the beginning: a politically divided, economically poor, and militarily vulnerable state’.While looking at the text for another quote, one reads, ‘……. first time in a decade Pakistanis began asking not only ‘After Ayub, Who? But After Ayub, What?’ Could the writer predict dismemberment of Pakistan in the wake of ‘divergent growth’ between the then East and West Pakistan?Under the current turmoil, London and Washington are concerned about ‘war on terror’ and to some extent about civil liberties and rightly so because they know that martial law and ‘predatory-state’ breeds extremism in many forms.

However, Pakistanis are worried that none of the ‘patriotic coups’ despite sacrificing the ‘Bhuttos’ and the ‘Sharifs’ on the altar of ‘democracy’ have brought ‘systemic structural transformations’ in national economic life.However, the struggle launched by lawyers, civil society, media, political workers suggests that the journey of transformation will eventually start with the primacy of ‘democracy’ and ‘rule of law’ spearheaded by democratic leadership not by dictatorships — militarised systems of economic-interest-articulation cannot prescribe their own annihilation.
http://dawn.com/2007/11/21/op.htm#2

DAWN, November 21, 2007

Poverty Eradication

2008-06-13T15:18:00.003+06:00

By Zubair Faisal Abbasi

THE founding fathers of Pakistan and the Constitution of 1973 envisioned the country as a democratic, developmental and welfare-oriented state. The state was expected to encourage economic growth and spread welfare gains equitably across regions and people.

Such visions have hardly been used as the basis for public and social policy formulation in the country or to create a feeling of fraternity amongst the federating units in the course of economic development. In fact, such visions have been thwarted and the availability of economic, social, political and administrative factors for equality appears to have been crushed by the authoritarian, extortionist, and predatory clutches of the state.

The fact that every fourth Pakistani, despite some claims of poverty reduction since 2001- 02, lives below the poverty line, seriously questions the 60 years of development performance of the state in Pakistan. Statistically speaking, more than 40 per cent of Pakistan’s population which is clustered around the poverty line has become a primary target of negative shocks to their real incomes. And the story does not end here. Under the current downturn of the national economy, this population segment has suffered a devastating blow to its long term capability to sustain the shock and fight back for survival as well.

There are two reasons for this ‘development of underdevelopment’. One reason is that with such dips in purchasing power, the vulnerable fall into the poverty trap and a vicious circle of socio-economic and political deprivations and exclusions sets in. The poor quickly lose access to mainstream economic activities and resources. They definitely have no access to a single rupee of the sixty billion that were given away as bank loans and were written off during 1999 to
2007.

The second reason is rooted in the absence of a developmental and welfare oriented activist state. This ensures that any residual social entitlements to decent public health and education opportunities as well as income and respect vanish like water in a drought. A state consistently failing to plan and execute public-sector development despite its vision of creating equality needs thorough soul-searching.

To be able to cure socio-economic ailments, the state needs to go beyond the social safety net approach and try to formulate trade, industry, investment, education, and health policies which are in sync with egalitarian outcomes of economic growth and development. The state should also know that economic and social inequality becomes an ignition switch that triggers flames of social upheaval, political unrest, and ultimately result in insolvable problems of national unity.

However, on the contrary, at the highest decision and policymaking levels, the ideas of getting institutions and interventions right for egalitarian development have been consistently neglected. The real casualty has been of those possible institutional innovations and cross-cutting interventions which could build economic assets of the poor and attempt to diversify economic growth dynamics.

Pundits of political economy claim that the state’s institutional arrangements now behave more like weapons of the powerful elites to extort riches from the economy than as systems of social protection for the disempowered and poor citizens of Pakistan. It is also claimed that politics of economic liberalisation has helped the wrong people while fundamentally twisting the state’s central role of moderating economic and political rights and obligations for socioeconomic
justice in society.

The Pakistani state has actually deviated from its primary role of being an entrepreneur who coordinates savings and investments and executes structural transformation in economy. The structural transformation that can allocate resources from low to high equilibrium should be fully cognisant of distributional effects of such interventions.

The state has also deviated from a primary role of being an institution builder. By becoming a high quality institution builder, it could have been an effective conflict manager and property rights protector. At this moment, the state cannot look the founding fathers of Pakistan in the eye.

Can such socio-economic injustices be remedied without giving respect to legitimate institutions provided by the Constitution of 1973 namely the judiciary and parliament? The answer is a plain ‘no’ if two manifestations of any civilised society — the rule of law and democracy — still matter in Pakistan.

To further deepen our understanding of the link between the rule of law and egalitarian socioeconomic development, the United Nations’ report Making the Law Work for Everyone can be helpful. The document establishes that the rule of law has a very close connection with poverty eradication, providing secure entitlements, and improving democratic
governance.

The legal empowerment of people, let alone the judiciary under current circumstances, seems to be a pre-condition to get out of the current crisis of food and fuel insecurity. In fact, the failure in establishing a democratic, developmental welfare-oriented state of Pakistan is fundamentally a failure of establishing the rule of law and democracy.

source: DAWN - June 13, 2008 . http://dawn.com/2008/06/13/op.htm#3

Anyone for equity?

2008-06-03T18:51:00.005+06:00

by Zubair Faisal Abbasi

Despite the claim of the previous government of reduction in rural poverty at the time of presentation of the Federal Budget 2007-08, the current economic situation calls for revising optimistic valuations of the effectiveness of basic policy assumptions. If both equity and efficiency matter in economic development, as argued by many economists, it is high time to reorient budgetary allocations.

According to the Budget 2007-08, ending June 30, about 12,700,000 people have come out of the poverty trap in the last five years, while 23.9 percent of the population still lives below the poverty line (BPL). To reduce poverty further, the government allocated Rs520 billion under the Public Sector Development Programme (PSDP), of which 52 percent were to be spent on infrastructure development, and the remaining on the welfare of people and the social sector. The PSDP allocation was termed historic because of its huge size. [snip]

In the Federal Budget 2007-08, along with budgetary allocations, a number of support initiatives -- such as farmers' markets to establish fair prices through direct consumer-producer linkages, 25 percent subsidy on electricity charges for tube-wells and ban on the export of wheat -- were identified to help the agriculture sector. Subsequently, however, there have been food shortages resulting in inflationary pressure on the economy. According to the government's own figures, food inflation -- which was about 11 percent in March 2007 -- is currently around 21 percent, while the gap between the supply and demand of electricity has reached 4,500 megawatts.

Despite the average annual gross domestic product (GDP) growth rate of more than six percent and increase in per capita income in the last few years, Pakistan's economy needs a new vision. The forthcoming federal budget, slated to be announced on June 7, has to be based on this new vision if it is to ensure both high economic growth and equitable development. This new vision is needed not only because Pakistan currently is in an economic mess, but also because we need to understand why the country's economy does not sustain itself at a high level of growth and grow equitably over a longer period of time.

Growing domestic demand -- because of increase in per capita income -- and shortage of local supply are being cited as the major factors behind the current food inflation in Pakistan. It is being increasingly argued, however, that there is a need to re-envision policy designs, interventions and, most importantly, the role of the state in forecasting and managing food shortages.

Pakistan has been the third largest recipient of official development assistance from the developed world between 1960 and 1998, after India and Egypt. In addition, the country maintained an average annual per capita growth rate of 2.2 percent between 1950 and 1999. Despite this, social backwardness is evident in all parts of the country. For instance, the country's social indicators, such as infant mortality and female enrolment rates, are still much below globally accepted levels.

The current state of Pakistan's economy was predicted much earlier by farsighted economists and policy analysts, who argued that economic growth alone was not enough for equitable socio-economic development and well-being of the people had to be an active concern of the state. It also confirms assumptions of those economists and policy analysts who argued against liberalisation and free market policies, initiated under structural adjustment programmes (SAPs). In short, the argument of 'getting prices right' seems to have been questioned seriously with the current high food inflation and rampant food shortages. The argument that getting prices right sometimes enriches wrong people, and diverts scarce resources to socially inefficient and wrong channels appears to hold ground.

In fact, the stance of those who advocated targeted support in agro-industrial production mechanisms, investment in human resource development and competitiveness, and designing of growth strategies with both equity and efficiency in mind seem to have gained prominence. There is also an urgent need for revising the policy of giving subsidies in the budget. If any subsidy has to be given, it has to be targeted, such as food and energy for the poor. At the same time, subsidies should be based on performance and be reciprocal when given to the business sector for research and development for export competitiveness. The examples of South Korea, Japan and Taiwan are worth following in this regard.

The East Asian experience tells us that the government has the central role in economic development. Similarly, in Pakistan, it is important to maintain a balance between the market forces (for example, factors that led to high concentration of investment in the sectors of telecommunications, oil and gas, etc) and pro-poor government interventions (for example, much needed strategic shifts in agricultural and industrial production systems). Unfortunately, Pakistan's economic managers have historically followed policy choices prescribed by the international financial institutions (IFIs) and tried to create hindrances in the way of the state playing its primary role of guiding the market forces. The state in Pakistan, primarily, has been made subservient to the IFIs and becomes active only at the time of 'market failure'.

The current food shortages, fast dwindling real incomes of the poor, and the increasing gap between the rich and the poor offer a clear case of market failure in Pakistan. The government, therefore, urgently needs to play its central role in adjusting the market forces and commodity prices, according to the needs of the people. The role of the state has to be re-envisioned to implement social policy frameworks following which the federal budget should be drafted. In fact, social policy frameworks are designed to improve material welfare of most citizens through economic development.

This calls for going beyond the 'safety net' approach; and adopting an economic model based on the principles of equity, productivity, sustainability and empowerment. In short, it is high time to move on and ensure social efficiency that sustains economic growth for a longer period of time. One good example can be the state's intervention in the housing sector in Singapore. This move generated dynamism in the construction industry and created new jobs. At the same time, the low-cost of housing helped Singapore to maintain low wages to attract both cost-reducing and efficiency-seeking foreign direct investment (FDI). The latter was actually the real gain of intervention in the housing sector.

To conclude, it suffices to say that if Pakistan does not change its meta-framework for policy formulation, the budget will continue to have the rhetoric of being pro-poor and people-friendly, but without delivering much at the end of the financial year.

(Email: abbasi.zubair@gmail.com)

Source: http://jang.com.pk/thenews/jun2008-weekly/nos-01-06-2008/pol1.htm#3

The News on Sunday, June 1, 2008, Political Economy Section.

Reforming Social Security

2008-06-03T18:16:00.003+06:00

by Zubair Faisal Abbasi

An active and vibrant public sector, good governance and social policy frameworks have important linkages and play a significant role in establishing pro-poor national welfare regimes called social security systems. Many social scientists argue that such systems create both equity and efficiency for long-term sustained economic growth. Pakistan, which always witnesses economic growth with increasing inequalities, needs to seriously look at this.

Historically speaking, the structure and performance of public sector came under immense criticism and scrutiny during the late 1970s and early 1980s. The site of investigation was the UK and the US where management reforms based on Reaganomics and Thatcherism took place. Such investigations and implementation of policy prescriptions were called "new public management" in the UK and "reinventing government" in the US. The basic idea behind reforms was to move on from the Weberian model of bureaucratic public administration and embed the elements of a corporate orientation in the public sector functioning. The belief was that markets determine the best solutions to manage public services through competition as well as performance reviews and achievements.

Along with such reforms in the First World, the donor community tied most of the structural adjustment aid to the implementation of similar kind of reforms in other countries. Despite much of the criticism on the push for reforms from historicity of institutional development perspective, many short-lived projects wanted such reforms to happen. The central idea was to minimise the size of administration and structurally adjust the economies rotten with macro-economic imbalances.On the economic reforms front, the role of the state has been scaled down with the acceptance of the primacy of the market as an efficient resource allocation mechanism.

Privatisation, liberalisation and stabilisation have been on top of the reform agenda in developing countries since the late 1980s. In the meantime, the public choice school had already discredited the central claim of bureaucracy (i.e., implementing public law in the public interest) with explanation of bureaucratic behaviour being infected with personal interest aggrandisement and rent-seeking. The governance approach to the public policy making and implementation tried to make it as a multi-stakeholder process which needed the private, government, and civil society (as third sector) to be part of national governance.In the case of Pakistan, the country seems to have been successful in rolling back the government even from the capacity of guiding the markets.

It seems to have systematically getting away from the responsibility of modernising and expanding the system of national social security. Though the PSDP has increased manifold the challenges of managing the public sector for a pro-poor and equitable growth have also increased remarkably.Therefore, a fatal combination of minimalist and inadequately interventionist state along with sheer market failures in Pakistan has created a situation in which a serious revision of economic growth and economic welfare strategy is warranted. Many researchers claim that globalisation has actually increased the responsibilities of states in dealing with vulnerabilities of people.

The fact that liberalisation, though increases trade, also creates winners and losers and resultant diverse kinds of social disequilibrium in societies. In Europe and East Asia such disequilibrium are treated with a coordination of social policy designs integrated into the policies for an active and responsive public sector, provision of health, education, and employment opportunities, and deployment of care services. Ireland and Singapore are good examples of social compacts for economic growth in this regard.In most good governance countries, social security systems or "welfare regimes" are a good combination of social insurance and redistribution mechanisms.

While a social insurance mechanism smoothes the income cycles of the employed population, the re-distribution system goes further. It attacks poverty covering the whole of the vulnerable population with social services programmes and mostly administered by the public administrators.Pakistan needs to look at governance not only because this helps improve economic growth but also because it improves social security outcomes. The main idea is to bring a balance between equity and efficiency because such balance becomes an irrigation system for further economic growth. To conclude, without good and pro-poor governance neither a public sector nor an employer-union based social security system can deliver.

There has to be a policy vision to deepen and spread the role of state in attacking poverty going well beyond a social safety net approach to build a modern and entrepreneurial social security system.

Email: abbasi.zubair@gmail.com

Source:The News International, June 07, 2007), Op-ed, www.thenews.com.pk