Is equalised poverty the answer to unequal prosperity?
The Planning Commission’s “Framework for Economic Growth” (FEG) has been received with intellectual scepticism. Two leading economists of the country have questioned the conceptual foundations of the growth framework.
One of the key architects of economic policy during the Musharraf regime, Dr Ashfaque H Khan, has said that the strategy was not ‘new.’ In his article published in The News on July 19, Dr Khan accused the Planning Commission of intellectual piracy as the ‘new’ growth strategy was, according to him, built on the ‘old’ Poverty Reduction Strategy Paper-II, which was released in 2007.
The basic question is: do we see any paradigm shift in our growth strategy? On the basis of historical and documented evidence, I would answer in the affirmative.
The most obvious difference between PRSP-II and FEG is their relative emphasis on poverty and growth. According to PSRP-II, “To steer Pakistan back on the path of sustained and broad-based economic growth and to create jobs and reduce poverty, Pakistan requires … consistently transparent policies that place poverty reduction at the centre of the country’s overall economic policies” (page 16).
That PRSP-II builds its entire strategy on poverty reduction is very clear here.
The new growth strategy clearly departs from the myth of development economics of making poverty the centre of economic development - something still fashionable in Pakistan.
No country in the world has eradicated poverty by focusing on poverty itself. As the examples of China and India suggest, poverty is alleviated by wealth creation, whose pivotal point is free enterprise.
Another major difference between the two documents is of the focus: PRSP-II focuses on macro-economic dimensions and FEG focuses on micro-economics dimensions.
According to PSRP-II, “Three main structural weaknesses can be identified for the current economic difficulty: government spending in excess of revenue (fiscal deficit); imports in excess of exports (trade deficit); and inadequate social services to allow the poor and the vulnerable to fully participate in times of economic stability and prosperity and be protected during shocks.”
On the other hand, FEG states that “The essence of the 10th plan strategy is that it pinpoints the microeconomic foundations that will lower the cost of doing business and make markets more flexible. This will create incentives for businesses to expand, therefore, endogenising the reasons for higher investment.”
The departure from an exogenous focus on macro-economic stability to an endogenous emphasis on micro-economic reforms could not have been clearer -- and timelier.
Commenting on FEG, another economist, Dr Akmal Hussain, in his article published in this newspaper on July 25, has raised concerns over its conceptual framework.
Dr Hussain has argued that this document is built on new institutional economics (NIE), yet ignores its basic postulates of the institutional and political compulsions under which the market is bound to operate.
The conceptual attribution of the growth framework to NIE is imaginative and unwarranted, not least because the growth framework makes such a claim neither explicitly nor implicitly.
If there is a conceptual foundation of the framework, it may be found in the new growth literature. The institutional relativism to which Dr Hussain has referred as a precondition for efficient markets invites a lot of social engineering, which is a pretext for state failure.
Open and free markets, where it is easy for businesses to enter and exit, overrule the power hierarchies and create a new class of wealthy entrepreneurs. Economic reforms should not be postponed till our society’s power structure is reformed.
Obviously, the path towards an open economy is not smooth. But ultimately, it will be a win-win scenario.
The new growth strategy represents a paradigm shift in our economic planning. Its emphasis on competition, reducing government interventions, innovation, entrepreneurship and domestic commerce represents a pragmatic way forward to achieve prosperity.
We will face rising inequality as we move on according to the new growth pattern, something about which FEG is silent. But this is perhaps the tested development path. The alternative to unequal prosperity is, unfortunately, equalised poverty.
The writer is executive director of Alternate Solutions Institute, a free-market think tank based in Lahore.
Published in The Express Tribune, August 29th, 2011.
COMMENTS (8)
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Dr. Meekal, you want numbers, and you know how numbers were jacked up by all the regimes.
We need growth more than ever, and reforms is the key. Youth programing for instance is not a fancy thing. In all the roits and conflicts across Pakistan, you will see youth becoming fully involved. Market, City and governance reofrms will create more jobs and by the way who will benefit? Youth, no brainer, as they comprise majority of the population.
Its about microfundations of macroeconomics which had been ignored in past. What is in there that qualifies new growth strategy as old wine in new bottle? Yeah the basic economic idea is same! meeting both ends meet with limited resources.
Even if I buy the old wine in new bottle argument, then more older it gets, more mature and tasty it is, isn't it! So better un-cork it now - never been time for this. Past regimes kept that wine of reform and deregulation corked and never opened the bottle (impelemented reforms), Just rejoiced at it's sight.
The new strategy is about having the party and inviting all on board to implement much needed reforms - Its open to everyone, but not the gate crashers.
@Ali: With reference to your answer to Meekal Ahmed, I don't see why a growth strategy can't talk "strictly in terms of numbers." That is precisely what it should do. For example, if it postulates that the private sector will lead the way, it should marshal evidence to show that private sector investment has increased or remained steady without the "support" of public investment. The data shows the opposite. Also, the growth strategy has a tremendous emphasis on domestic commerce, or more precisely, urban planning, to release the creative potential in cities. There is little or no evidence in the literature to show that cities (and consequently creative processes) can flourish in the absence of reasonably decent infrastructure provision (which the FEG) discounts entirely). One could go on and on. It is really one of the more nebulous policy documents to emerge out of Pakistan, and it is disappointing that it has received such little scrutiny in the country, or even from donors (all of whom I believe have signed off on it). Or maybe that is indicative of the fact that it really isn't being taken seriously outside a small circle at the Planning Commission
I like large parts of the Nadeem Planning Commission's new growth strategy. For the first time it appears that the micro dimension has been emphasised ---- getting the governance right, the markets to work, and fostering entrepreneurship. It remains to be seen whether all this will be actually implemented!!
Pakistan needs to kick start the economic reform process which has been halted now for over 3 years. One of the key area for reform is to look at the possible ways to reduce corruption in the country and how private sector can play a key role in reducing corruption.
Needless to say that such action can only start by appointing right people at the right level, which requires policitcal will.
Also how corruption at the provincial level can be tackled? Big questions, but currently now answeres!
Very nice article by Ali Salman! While everyone agrees that sustained economic growth and poverty reduction go together, Mr. Salman rightly points out that the Planning Commission's new Framework looks realistically at creating growth, while past strategies have tended to neglect growth in favor of social services.
Mr. Salman's micro-macro distinction highlights the new Framework's point that Pakistan's past policy has emphasized factor accumulation, while growth actually results not from pure expansion of resources but from innovation that increases the productivity of resource use.
The energy sector is currently the poster-child of the old policy: heavy investment in facilities that are left partially idle and whose output is wasted (through line losses etc.) because the "software" of the sector -- its governance -- is so poor. The new Framework says in effect "Get the governance right and the resources will come." This represents a major change from the Planning Commission's traditional bricks-and-mortar project orientation.
While the need for policy reform in Pakistan's energy sector is not a new idea, the new Framework's opening up the dialogue on the sources of innovation at the enterprise level is clearly non-traditional. International studies find that Pakistani firms innovate much less frequently than Indian or Philippine firms do, and that productivity improvements have thus contributed less to Pakistan's growth than in other countries. Pakistani entrepreneur groups and academics have pushed for an innovation policy, and having the Planning Commission on their side could be a big step forward.
I hope Mr. Salman's article stimulates discussion of the new Framework.
Equalized poverty or unequal prosperity let the debate be postponed for a while, will the new economic growth strategy be implemented in its letter and spirit?? Is the Pakistani institutional structure capable of executing truly innovative policies? For me these are the prime questions?
@Meekal, your point is well taken- however it is difficult for a future growth strategy to talk strictly in terms of numbers- but I suppose there is sufficient quantifiable evidence around us to justify the approach of FEG.
My objection to FEG is that this is not the time for fanciful concepts whether borrowed or not. It has been a waste of time and money.
At the end of the day, I want to see the numbers. Where is the quantitative underpinnings of all this mumb-jumbo? I have asked around and all I get is silence.
SHOW ME THE NUMBERS!