The state and economic development

Zubair Faisal Abbasi June 07, 2010

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.


Zubair Faisal Abbasi | 12 years ago | Reply Thank you very much for the comments. I am not surprised to see that unemployment in Pakistan was 5.37% in 1995 and reached 8% during 2002-03 while it was 5.8% in 1999. It was brought down (sharply) and in 2007-08 it was hardly to the level of 1995. Despite 9% GDP growth rate in 2003-04 (by changing the base year to 2000 when growth rate was 2% down from 4.9 of 1990s-II and 6% of 1980s), the economy has not created much jobs during the military junta's 'right policies'. Interesting isn't it?
Meekal Ahmed | 12 years ago | Reply In the early days of the present government when Mr Ishaq Dar was in Finance (I think he was Finance Minister) he accused the Musharaff government of cooking the books. He started an investigation. But he left the government and the issue was shelved. The Musharaff years and the tall economic claims that were made, including completing for the first time in our history a 3-year IMF Poverty Reduction and Growth Facility (PRGF) must be subject to critical scrutiny. Some of the data churned out by the government's spokesperson are simply too good to be true -- like halving poverty in seven years (the Asian Tigers took three decades to bring poverty levels down to the teens). I continue to harbor grave doubts over the completion of the PRGF. A sleigh of hand? Most certainly. The fiscal side, in particular, is a tempting target for deft manipulation. We have done it before and we are probably still doing it. There is a lot of (unknown) spending off-budget, some of it defense-related. Since that is import-intensive, it means our import figures are under-stated. Where does the financing come from? No one knows. What is the debt service being generated by these off-budget spending? No one knows. And, yes, Mr. Azad, I have done my homework and will continue to do so until we get closer to the truth.
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