Growth through equity
The consequence of this elite-based growth process is that high GDP growth takes place only in spurts during periods when foreign aid is provided to fill both the savings and foreign exchange gaps. At the same time, an extremely unequal distribution of productive assets in both manufacturing and agriculture has resulted in growing income inequality during the high growth periods, thereby constraining the capacity of growth for poverty reduction. If growth is to be sustained and poverty is to be overcome quickly, a shift in the paradigm for understanding both the determinants of growth as well as the nature of poverty is required. Recent research on development shows that the most important determinant of sustained growth is the institutional structure within which it occurs. I have argued in a forthcoming book that if Pakistan is to embark on a path of sustained growth it would be necessary to establish an institutional structure for inclusive growth. Such a growth process would provide the economic basis for sustaining democracy. The institutional structure of inclusive growth would enable all citizens rather than merely the elite, to participate as subjects of economic growth as well as the recipients of its fruits.
In addressing the structural basis of poverty, it can be proposed that neither handouts to the poor nor the trickle down effects of the conventional unequal growth process can resolve the poverty problem. This is because the poor are locked into a nexus of power within an institutional structure that gives them insufficient access to productive assets and to health, skill development and education through which they could develop their human potential. They also lack access over justice and over governance decisions that affect their immediate social, economic and environmental conditions.
A new approach to inclusive growth could be adopted by establishing an institutional framework for the provision of productive assets to the poor, as well as the capacity to utilise these assets efficiently. In this way, the poor could become the active subjects of economic growth rather than recipients of an uncertain ‘trickle down’ effect. Inclusive growth so defined can become both the means and the end of GDP growth.
The institutional framework of such an inclusive growth could have four broad dimensions: (1) A process of localised capital accumulation through Participatory Development. participatory development. This involves facilitating the emergence of autonomous organisations of the poor at the village and mohallah levels, through which they can get access over credit for investment, training to increase their productivity, and equitable access over markets for their output. This can begin a grassroots process of savings, investment and income growth by the poor which can contribute significantly to overall GDP growth; (2) A small and medium farmer strategy for accelerated agriculture growth through the provision of ownership rights over state land to the landless peasants. This could be backed up with institutionalised support for improved technology, quality inputs and marketing. This could enable small farmers to acquire both the capacity and the incentive for increasing yields; (3) Accelerated growth of small and medium-scale industrial enterprises through an institutional framework for increasing the production and export of high-value added products in the light engineering and automotive sectors, and also agro-based industries such as milk, milk products and livestock; (4) An institutional framework for providing productive assets to the poor through equity stakes in large corporations owned by the poor and managed by professionals.
Such a growth process would be both sustainable and achieve rapid poverty reduction: it would be growth for the people and by the people.
Published in The Express Tribune, October 24th, 2011.
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As Hassan Nisar says, no one talks about Pakistan's exponential population growth. Maybe it is unIslamic to do so. Regrettably we have already crossed the tipping point. Even if we do manage to legislate some sort of control, the population will continue to grow for the next two decades, and so will our problems.
Whatever this economist is proposing is already obsolete in a month because of the 10% birth rate of the population growth. Regretfully our civilian administration is either incompetent or too well provided for to think progressively. We must think in terms of a Regional martial law under a progressive authority and develop "profit centers" for those who still want to work.
There is nothing more that I will agree with you. As a matter of fact when I started reading your piece, the first thing that crossed my mind was “politics of exclusion” and growing elite-mass gap. But you did an excellent job phrasing it as “inclusive growth.” I am looking forward to read your book. If you remember back in 1970s and 1980s, the people associated with the New Left Review as well proponents of dependency were arguing that infiltration form the western markets was the major cause of underdevelopment, large-scale unemployment as the machine-produced imports have destroyed the indigenous know-how, and outpaced the indigenous workforce thus adding to the massive unemployment on the one hand and discouraging the indigenous initiative on the other hand. Your four-prong approach, if taken seriously by the godfathers of the Pakistani state, can certainly help in boosting the economy. Just a short footnote to you your well argued and articulated article; Pakistan also needs to work on its population growth. It is this growth that diminishes any accomplishment and creates elite-mass dependence.