Is equalised poverty the answer to unequal prosperity?

New growth strategy needs a paradigm shift.

Ali Salman August 28, 2011
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.


Yasin Janjua | 12 years ago | Reply

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.

Safiya Aftab | 12 years ago | Reply

@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

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