Myth buster: Debunking the clichés in economic policy making

No policy framework can succeed until it moves beyond populist economic thinking.

Ali Salman July 18, 2011



The Planning Commission’s Framework for Economic Growth, launched formally last week in an international conference, sets a radical agenda of market-oriented reforms in our economic policies as well as governance structure.


It is too early to predict its impact on our business and bureaucratic conduct, however, its influence on the public sphere — in the realm of ideas — will be important.

The most important challenge for this framework is to question, and shatter, the myths and clichés in populist economic thinking that inhibit creative policy making. Once our economic policy is free from these myths, the policy will become a tool for the ultimate aim of growth - wealth creation.

Government should provide everything or at the very least, it should engineer society just like the East Asian Model.

This myth attaches extraordinary expectations from the government, both as service provider or as a patron announcing incentives for favorite sectors. Instead the government should just be an umpire making sure that rules are being enforced.

The economic dynamism of a society is too complex to be understood, and impossible to be coordinated. Thus the economic policy should define only one role for the government: a neutral umpire.

Make poverty reduction an end in itself, or adopt inclusive growth, lest the poor will be left out.

This cliché originates from the human development centric theories of economic development that call for designing massive development intervention program, like Social Action Programs. The real question is not that growth is inclusive or not, the real question is that the growth is sustainable or not, as aptly put by a Malaysian delegate during the Planning Commission conference.

The economic policy should seriously ponder on whether a growth strategy adopted is sustainable - the ability to outlive its creators and sustain political instabilities - or not. This calls for consistent regime of economic ideas.

As Pakistan suffers from a low skilled workforce, it continues to suffer from low productivity which is often quoted as a rationale of more investment in education. Aptly put by Nadeemul Haque, education crisis in Pakistan is not due to any investment deficit rather due to governance deficit.

While Pakistani workforce, including managers, is certainly below international benchmarks, the solution is not more education. The best practical solution is bringing international managers across economic spectrum in the country. Perhaps Pakistani workforce needs new supervisors, not more education.

Control corruption and the entire country will set on a path of prosperity.

This cliché is a result of wrong diagnosis and has therefore often resulted in wrong prognosis. Corruption cannot be controlled by administrative or judicial measures except in a few high profile cases.

However the process of wealth creation in a society raising life standards and average income will certainly bring a dent in the corruption. Wealth creation following rules will create a new citizenry who will be vanguard of an open and responsible society.

Nothing is more important for a political government than building new infrastructure.

This is a classic Keynesian myth which leads to a policy of investment in physical infrastructure by the government even by deficit financing. The assumption is as the government spends money in roads and dams, it generates jobs which increases average income.

However, if the government has to heavily depend on loans, or worse, printing money, to finance its infrastructure spending, the situation is worse off. Citizens become debt-ridden and face the threat of increasing inflation and an erosion in their purchasing power even as their nominal income may rise.

These five myths and clichés discourage creative economic policy and inhibit spontaneous wealth creation, which is only possible through open markets. The Economic Growth Framework does a commendable job by mostly staying away from these clichés and now it faces a bigger challenge- the intellectual legitimacy.

Without influencing climate of opinions, which ultimately drive politics, the new framework will fail to come out of the neatly designed covers. For this, it must engage proactively with free market friendly think tanks, research bodies, media as well as business community. Without building an intellectual constituency, the Planning Commission cannot win over its political constituency.

The writer is an economic consultant and is Executive Director at the Alternate Solutions Institute, a free market think tank based in Lahore.

Published in The Express Tribune, July 18th, 2011.

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COMMENTS (4)

Ali Salman | 8 years ago | Reply | Recommend

@Asad Zaman Sahib, Thank you for your insightful comments. Indeed there is no guarantee that one can claim universal truth- not at least economists- however there are certain time and place tested and I dare say universal principles of economics to which I have alluded to. But the hallmark of an open society is to be able to reflect and accept mistakes, and I hope together we can create such a society.

Asad Zaman | 8 years ago | Reply | Recommend

In "Seven Sins of Economic Planning," Mahbubul Haq exposed seven myths of 1968, many of which continue to be advocated and followed. The author has "exposed" another five myths, and offered alternatives. Given that planners and theorists have so often been wrong, how can we be sure that these alternatives will not be debunked as myths after a long and expensive trial?

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