What the Nobel laureates could teach Pakistan

This year's Nobel Prize for Economics went to three economists for their work on innovation and its role in determining growth in an economy. It is worth looking at some of their ideas and explore possible implications for Pakistan,

One of the three laureates, Joel Mokyr, takes a historic approach and shows how a continual flow of innovations is necessary for growth. But creating and sustaining such a flow in innovations needs simultaneous work on two pillars. The first is what he calls "prescriptive knowledge" — practical skills about how to build or fix things. These may be contained in manuals or drawings or instructions, or simply passed on from one skilled artisan to another.

In Pakistan we have much prescriptive knowledge — skilled workmen can fix your car or mobile phone; build your house; or duplicate a piece of equipment or machinery. Usually such knowledge is passed on in workshops where a highly skilled artisan (ustaad) works with a group of young apprentices.

However, according to Mokyr, prescriptive knowledge is not enough to create a flow of innovation. We also need what he calls "propositional knowledge" — theoretical knowledge about how and why things work as they do. Without such theoretical knowledge we cannot build on, or improve, the technology we have. A skilled technician can fix a car or mobile phone but cannot design an improved version.

Propositional knowledge requires education in the natural and computer sciences, as well as in in analytical subjects such as mathematics and philosophy, and in creative topics such as art and literature. In Pakistan, such knowledge is in short supply and a major effort is needed to increase the supply manifold. This requires massive investments in upgrading our education systems, research institutions and think tanks. This needs to be done primarily through improving the quality of education and training and not, as has sometimes been done in the past, by building new institutions.

However, we also need to overcome a culture gap. Often those who have good theoretical knowledge fail to engage with the skilled artisans and craftsmen who have practical knowledge. There are of course exceptions — for example, it is not unusual to see graduates from our agricultural universities working with farmers or technicians in rural areas to improve a piece of machinery. However, it would be a miracle to see a graduate in mathematics sitting in a car repair shop or a physicist in a phone repair shop engaging with the workers there; or for a farmer or livestock breeder to be asked to spend time in an agriculture research center sharing his knowledge of what works and what does not. This needs to change.

For Mokyr, another factor for sustained innovation and growth is that society, and in particular the powerful elites, is not resistant to technological change. Change creates winners but also losers. It is the duty of our leaders in Pakistan to ensure that introduction of new technologies is not met with resistance from established interest groups who feel their privileges are threatened.

The other two Nobel laureates, Philippe Aghion and Peter Howitt, constructed a mathematical economic model that shows how technological advancement and growth depend on a series on macroeconomic factors such as household savings rate, the interest rate and growth rate of the economy. Depending on these macro variables, as well as on other factors, private investment in innovation may be below or above an optimal level.

In Pakistan, the low rate of technological change strongly suggests underinvestment in R&D. However, the government's response has mostly been to supplement private research through establishment of public institutions. Although public sector involvement is critical, particularly for basic and fundamental research, our public research institutions are ridden with inefficiencies. Most of their expenditures go on salaries of support staff and maintenance of buildings; there is overlap in their work and mandate; and little coherence, focus and coordination in their activities.

Maybe more attention needs to be given to the alternative suggested by Aghion and Howitt - that is to use some public funds to support private sector R&D, particularly in areas related to sustainability, environment and resilience to climate change.

Their work also reinforces that of Mokyr's, highlighting that innovation is a process of "creative destruction" that has both winners and losers. In order for the process to proceed, it is important that society not only creates conditions conducive to innovators and entrepreneurs, but also puts in place mechanisms to help workers who lose their jobs to re-train and re-skill.

In Pakistan, the largest pool of low productivity workers is in the agriculture sector. Earnings are low, poverty is rampant and services such as education and health are often non-existent. Countries such as China and Vietnam have improved technology in agriculture and have rapidly increased yields. Much has been the result of mechanisation — a perfect case of creative destruction as it raises earnings but destroys jobs. However, these countries have also successfully moved large numbers of workers from rural areas to better paying jobs in urban areas. Pakistan needs to do the same.

Currently these are several excellent initiatives to help retrain young boys and girls from rural areas, as well as from poor urban areas, and provide the skills to become mechanics, builders, plumbers or beauticians. These need to be supported and expanded.

Also, what is missing is a drive to identify top talent in our rural areas and in poor urban areas. As in any society, the distribution of the "genius gene" is a random process and very likely there are plenty of potential Nobel laureates in Pakistan who have never had a chance to see the inside of the school, let alone have an inspiring teacher or mentor that can help and encourage them.

We know what needs to be done to create a prosperous Pakistan. And it does not need more money or resources. All it needs is some courageous decision-making.