Why the macro-economic fetish?

Published: January 12, 2012

The writer, a former chief economist of the Planning Commission, is at present based at Cambridge in the UK [email protected]

One does not want to minimise its importance but, macroeconomics is not all that there is to an economy. Failed reformers have been telling ordinary citizens stretched to the limits of economic survival, ad nauseam, that the fiscal deficit is the mother of all ills. And that the high price of both meat and vegetables, the acute shortage of gas and electricity, the abysmally low quality of education and healthcare are its consequences. The Steel Mills, PIA and the Pakistan Railways fail to perform because of it. Recent presentations by the finance minister, the State Bank governor and the finance secretary before two committees of parliament also focused on this point.

The macro-micro dichotomy appears in its worst form in estimating energy demand. Energy-related ministries have no idea how to go about on the matter. At the Planning Commission, energy is a technical section while economic sections are concerned with macroeconomics, and never do the two work together to estimate the country’s long-term energy demand. This macroeconomic fetishism is not the monopoly of the official economic team. The media pays more attention to macroeconomic perspectives than microeconomic issues. Partly, the bias results from the compulsion of most reporters to report accurately what policymakers have to say. Editorial writers not trained in economics fall into the same trap, unwittingly allowing officials to set up the economic agenda.

But the media does not have access to alternative economic views. Economists outside the government suffer even more from macroeconomic fetishism. The Pakistan Institute of Development Economics (PIDE), the country’s pre-eminent research body, has recently published abstracts of its research during 2007–2010. Out of 119 pages, only a few pages pertain to microeconomic issues of ailing public enterprises, energy, education and health.

The situation is not very different if one carries out a topical analysis of recent annual conferences organised by the PIDE and the Lahore School of Economics. Public enterprises, for instance, are routinely viewed as a subsidy burden on the public exchequer, grossly mismanaged and corrupt, with the usual policy prescription that they be privatised. It is forgotten that PTCL, never a burden on the government, was also privatised. In fact, the stated purpose of privatisation to support the budget and build foreign exchange reserves has suffered from the dilatory tactics of the managements of privatised concerns in paying the government for the change in ownership. The KESC has the potential to be the best case study of failed privatisation.

And no serious study exists on the decline of the railways at a time when it is expanding everywhere else in the world. Critical factors like the pre-emption of freight by the National Logistics Cell, the love of politicians for roads and the lobbies of automobile assemblers and importers and a general lack of concern for energy conservation do not find any mention in the stock-in-trade stories of corruption and bad governance.

The neglect of microeconomics, especially in its application as a tool to the understanding of Pakistan’s economy, starts in the universities. At the postgraduate level, instead of mainstreaming Pakistan into various courses of economics, the economy of Pakistan should be taught as a separate course altogether. This is true of even those programmes that are billed as degrees in applied economics. There is neither student interest, nor supervisory capability for writing, say, MPhil theses on subjects such as runaway household demand for natural gas. The microeconomic foundations of macroeconomics are thus, extremely weak.

Published in The Express Tribune, January 13th, 2012.

Reader Comments (7)

  • Ali Tanoli,
    Jan 12, 2012 - 11:16PM

    In the time British Raj peoples in England were living a luxery life style and cheap prices but
    in india every one of us were dying with hunger only Namak Halal of Raj were happy and stomach full and still after 65 years of Azadi we are the same hungery we have
    every thing like we does that time and now we still litsen some one and dont wanna get oil from iran and dont wanna devolep Thar coal they are shame less peoples.Recommend

  • Syed Umair Javed
    Jan 12, 2012 - 11:45PM

    PTCL itself is an example of mucked up privitization

    Recommend

  • John B
    Jan 12, 2012 - 11:59PM

    In PAK microeconomics are campaign platform but macroeconomics are the policy milking cow in borrowing from financial markets to subsidize the campaign promises.

    Focus on microeconomics involve long term commitment and investments, adaptability of the policy towards the set goal regardless of politics. One party favoring Sindh and another party favoring Punjab will undo the microeconomic gain of the past.

    Who are invited in PAK media to discuss the economic matters; economists?

    Recommend

  • Falcon
    Jan 13, 2012 - 2:35AM

    It is my understanding that this is a common theme adopted by most of the economists across the globe. I guess the perspective is that if macro-economic policy making is done correctly, micro-economic systems will fall in place. However, it creates many blind spots instead. As a whole, it is an issue of top-down thinking vs. bottom-up thinking where latter is a more complex thought process building on rigorous abstraction (something a lot of people are neither comfortable with nor trained for). As for Pakistan, until businesses are truly represented in policy making decisions, the issue is likely to continue.

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  • Benish
    Jan 13, 2012 - 10:19AM

    Research on macroeconomics issues is less tedious as compare to microeconomics issues. Research publications requirements by HEC during past few years has further led econmists to land into easy areas where they can get more papers published in lesser time with lesser effort. Sadly, this is the case not only for acedemicians who are comppelled to write papers for thier career but policy makers who primarily work with the issues like education, public enterprizes, energy and health do not pay enough attention to dig deeply.

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  • Umer
    Jan 13, 2012 - 4:52PM

    Sir, point well taken. However, my opinion on privatization and restructuring of PSEs is somewhat different. Failed privatizations or not, strategic or not, policy prescription or not, at least these privatized entities (barring KESC) are not being blindly supported by enormous subsidies destabilizing national budgets and undisciplined lending at the expense of entrepreneurs. The opportunity cost has been HUGE. To put this into perspective, the numbers run into billions. I’m taking about billions in subsidies to public sector enterprises (~Rs850 billion in the last three years), billions in lending to public sector enterprises (~Rs275 billion on net basis in the last three years), billions in bad loans of public sector commercial banks (~Rs 110 billion of incremental gross bad loans in last three years). Simply put, the rapid drain of national resources has to be plugged. Pakistan should sell loss making PSEs (PIA, Pakistan Railways, et cetera) or initiate a public-private partnership program to bring in competent disciplined managements. Pakistan Railways has the potential of becoming a very efficient revenue mobilization system. If administrators focus on at least improving the commercial freight arm of Pakistan Railways, freight handling volumes lost to other modes of transportation (e.g. trucks) can be recaptured and cost of inland transportation can be brought down. If the survival or profitability of a company is dependent on subsidies or support from the government then the principals would have an incentive to promote the current culture in making sure that status quo is maintained in their favor. In the end, it all boils down to whether Pakistan has the political will to implement unpopulist measures?

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  • EHM
    Jan 14, 2012 - 8:40PM

    I second you sir. Also in addition to what Benish has mentioned, the other problem with micro date studies could be the unavailability of financial resources for collection of data. Even if the students are willing and there is a supervisory capabilities, the difficulty and delay in the getting the financial resources for surveys may restrain such studies. Moreover, it also sometimes difficult to obtained micro level data from institutions such as WAPDA. At least it is almost impossible for students.

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