Economics in Pakistan
Growth does not happen ‘just like that’.
The writer served as deputy chairman of the Planning Commission from 2010 to 2013
The tragedy with economics is that everyone is an economist. At gatherings, there are several people who are pontificating on how the economy would pick up if only we would make sure that everything works well. Economics to these people is just wishing — just say all that you wish should happen and expect it will.
Such speakers will say in one breath, build the Bhasha, Kalabagh and several other dams and several coal-based plants and then import LNG, educate all, export more, expand industry and agriculture, especially horticulture, develop more infrastructure. But to make these happen, we must think of processes to make them happen.
There is another group of economic pontificators who only think fiscal deficit and stabilisation. For them, every speech/column is lamenting the fiscal situation and presenting a single item remedy — increase taxes. They seem to have confused economics with accounting. Expenditure minus taxes is the fiscal deficit. Since the deficit has gone up and they feel that expenditure should not be cut down, let us collect more taxes. Simple arithmetic.
Economics is not mere accounting or arithmetic. Nor is it wishes. Nor is it static, stuck in the ’60s. Nor is it all known. Anyone who followed the global financial crisis will be stuck with the complexity of the problem.
What people need to understand is that economics is most importantly concerned with understanding human behaviour at the individual and group level. People individually or in some collective, develop responses to their environment to maximise their own, their family’s or their group’s welfare. The environment is largely the man-made frameworks of laws, regulations, systems of governance and market organisations that humans operate every day. The varieties of these responses make up what we know as the Gross Domestic Product (GDP) in the economy.
If GDP grows, it lifts not only welfare in general it also gives the government more operating room allowing space for more debt and deficits, while also inducing more tax revenue. Most economies think of ways to increase growth for good things to happen. But our accountant/economists are focused merely on stabilisation, accounting and arithmetic.
Those who want growth cannot have growth through wishing for all good things. If only we could trade regionally from China to Kazakhstan to Sri Lanka. If only we could build a solar station on mars and give all manner of subsidy to industry and exporters. Growth does not happen ‘just like that’.
No one can claim to know what is it that needs to be done. We can now all start researching and learning and see how we can create the winning institutional/incentive system. It will have to be a slow learning process and one that we will have to continually research and tweak for this system is high maintenance and needs constant attention.
This is why I have been writing for over two decades on why and where our economic system needs change. Which is why serious economists argue, the government should stop chasing money, wish lists, false targets and yesterday’s models. Instead, it should focus on economic reform to make a system of incentives and property rights that is conducive to economic growth. But this cannot be done while thinking that we know all and that we can be mere monkeys mimicking some distant country.
Instead, this will mean serious research, serious debate, serious humility at every level — bureaucracy, politicians and thinkers — an acceptance of our ignorance.
Serious economists in their speeches and columns should discard the outmoded method and start developing ideas on understanding our economic system and educate the rest of society on how to think afresh on the economy.
Published in The Express Tribune, January 5th, 2014.
Such speakers will say in one breath, build the Bhasha, Kalabagh and several other dams and several coal-based plants and then import LNG, educate all, export more, expand industry and agriculture, especially horticulture, develop more infrastructure. But to make these happen, we must think of processes to make them happen.
There is another group of economic pontificators who only think fiscal deficit and stabilisation. For them, every speech/column is lamenting the fiscal situation and presenting a single item remedy — increase taxes. They seem to have confused economics with accounting. Expenditure minus taxes is the fiscal deficit. Since the deficit has gone up and they feel that expenditure should not be cut down, let us collect more taxes. Simple arithmetic.
Economics is not mere accounting or arithmetic. Nor is it wishes. Nor is it static, stuck in the ’60s. Nor is it all known. Anyone who followed the global financial crisis will be stuck with the complexity of the problem.
What people need to understand is that economics is most importantly concerned with understanding human behaviour at the individual and group level. People individually or in some collective, develop responses to their environment to maximise their own, their family’s or their group’s welfare. The environment is largely the man-made frameworks of laws, regulations, systems of governance and market organisations that humans operate every day. The varieties of these responses make up what we know as the Gross Domestic Product (GDP) in the economy.
If GDP grows, it lifts not only welfare in general it also gives the government more operating room allowing space for more debt and deficits, while also inducing more tax revenue. Most economies think of ways to increase growth for good things to happen. But our accountant/economists are focused merely on stabilisation, accounting and arithmetic.
Those who want growth cannot have growth through wishing for all good things. If only we could trade regionally from China to Kazakhstan to Sri Lanka. If only we could build a solar station on mars and give all manner of subsidy to industry and exporters. Growth does not happen ‘just like that’.
No one can claim to know what is it that needs to be done. We can now all start researching and learning and see how we can create the winning institutional/incentive system. It will have to be a slow learning process and one that we will have to continually research and tweak for this system is high maintenance and needs constant attention.
This is why I have been writing for over two decades on why and where our economic system needs change. Which is why serious economists argue, the government should stop chasing money, wish lists, false targets and yesterday’s models. Instead, it should focus on economic reform to make a system of incentives and property rights that is conducive to economic growth. But this cannot be done while thinking that we know all and that we can be mere monkeys mimicking some distant country.
Instead, this will mean serious research, serious debate, serious humility at every level — bureaucracy, politicians and thinkers — an acceptance of our ignorance.
Serious economists in their speeches and columns should discard the outmoded method and start developing ideas on understanding our economic system and educate the rest of society on how to think afresh on the economy.
Published in The Express Tribune, January 5th, 2014.