Economic planning: Government needs to take a back seat

When it comes to devising economic strategy, politicians need to stay out.

In the first two parts of this article, we had reached the conclusion that the government is not good at choosing winners. What it is good at is in setting enabling conditions and environment out of which winners can emerge. And we also looked at the conditions that need to be put on the ground, so that these winners can emerge.

In the concluding part, we take a look at what the government needs to do, so that it can play the role demanded of it.

Such is the philosophy behind the pronouncements you hear which call for government to provide a secure, credible, non-obstructing, and non-confiscatory business environment to attract investment, more trade, and transfer of knowledge and best practices from developed nations. This is why, in the New Development Approach, proposed by Pakistan’s Planning Commission, the role of the state is to facilitate the market system by protecting liberties, enforcing property and contract rights, policing, providing infrastructure, a monetary system, etc. and perhaps providing a subtle coordination role.

Can our government play a positive role as a coordinator, facilitator and a fair umpire to make such an economic “computer program” run? It is my conviction that when a government starts talking seriously about protecting property rights it is a truly important turning point and defining moment in the fortunes of the nation. This is what happened in Chile in the early 1970’s. Chile is in a way almost a mirror for our own. Chile has alternated between military and civil rule. The objective of the military and later of elected politicians was first and foremost to secure property rights. For what is a society without secure property but an assemblage of people at conflict and war with each other? Here is what the English philosopher Hobbes had to say on the matter of absence of property rights “In such condition there is no place for industry, because the fruit thereof is uncertain and consequently no culture of the earth; no navigation, nor use of the commodities that may be imported by sea; no commodious building; no instruments of moving and removing such things as require much force; no knowledge of the face of the earth; no account of time; no arts; no letters; no society; and which is worst of all, continual fear, and danger of violent death; and the life of man: solitary, poor, nasty, brutish, and short.”

Under the New Development Approach (NDA), the current planning system has to be gradually dismantled and replaced with a market based society. This is a revolution in the way we think of organising our society. It means taking power out of government hands and allowing Pakistani citizens (who are more knowledgeable about their own interests, environments and conditions than the bureaucrats, politicians and policy-makers) and to make their own decisions about their future.

Sustained growth is a process of continual transformation. Economic progress that has occurred since the Industrial Revolution would not have been possible if people and nations had not undergone wrenching changes. Economies that do not transform themselves fall off the golden path of economic growth, which generates prosperity and alleviates poverty. Our challenge is to wean ourselves away from the central planning mentality that has affected us since the 1940’s when Stalinist five year plans seemed the best way to go for developing economies. There are no plans government can make. The only thing government can do is set the conditions, hopefully set them right. The rest is up to us, the citizens, acting individually and collectively through communities. And for us, the citizens, to accept that after all that has been exchanged in public debate over the last 50 years, it all starts with a revolution in thought and then with thousands of independent experimentations.

The author, holds a PhD from the University of Chicago and is the Chief Economist of the Planning Commission

Published in The Express Tribune, April 18^th,  2011.