The third way

Published: May 20, 2014
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The writer is the Executive Editor of The Express Tribune

The writer is the Executive Editor of The Express Tribune

One of Pakistan’s renowned economists, Dr Nawab Haider Naqvi, once told me perhaps, in the mid-1980s that capitalism, as we had understood it, had collapsed soon after the Second World War as socialism started vigorously knocking on the doors of Western Europe. Dr Naqvi, as director of Pakistan Institute of Development Economics (January 1979-July 1995) used to openly criticise the economic policies of the then finance minister, Ghulam Ishaq Khan.

It was about this time (mid-1980s) that former US president Reagan and former British prime minister Margaret Thatcher reintroduced laissez-faire market capitalism in their respective countries with vengeance. However, it took me almost two decades to really fathom what Dr Naqvi had meant then and that, too, after having closely observed the pathetic failure of the Washington Consensus to help Pakistan’s economy come out of the rut it had landed itself into by the mid-1960s.

During former president Ayub Khan’s ‘Decade of Development’, Pakistan’s economy grew at an average annual rate of over six per cent. It was the same during former president Ziaul Haq’s 11-year rule. And this was repeated a third time during President Musharraf’s nine-year-long regime. However, since the edifice was erected on all three occasions on generous concessional borrowing from multilateral and bilateral sources, rather than growth driven by indigenous economic reasons, by the time the three went home, the country’s economy on each occasion went into a tailspin. In the case of Ayub, the better half broke away into Bangladesh. In the case of Zia, we found ourselves holding the empty sack while the country was submerged in a sea of guns, drugs and religious fanatics impersonating as jihadis. In the case of Musharraf, the economy had simply keeled over while non-state actors were seen challenging the state itself.

All three had wasted billions of borrowed dollars on consumption, on buying military toys of no lasting value and on purchasing political support from wherever they could at whatever political, social and economic price while criminally neglecting all social and productive sectors. For them, the education and health sectors of the nation ranked at the lowest rung. And they wasted costly borrowed resources on providing the private sector, having no entrepreneurial talent or skills, with a protective environment to promote inefficient import substitution industries to the complete neglect of agriculture in which we had a clear comparative advantage. They practised the trickle-down theory religiously causing the gap between the haves and have-nots to keep widening by the day.

Even during the 1990s, when the establishment had confined itself to pulling the strings from behind, the story was the same but with one difference: the annual average growth rate had slumped to almost nothing. The last five years of former president Zardari were no different. And the way current Finance Minister Ishaq Dar is going about trying to revive the economy, it seems, he, too, has put all his faith in the redundant Washington Consensus. And by the time he ends up doing his bit of damage to our economy in the next four years or so we are likely to be worse off.

What is the way out? As I tried to find out what exactly did Dr Naqvi meant when he said that the capitalism that we understood in the decades leading up to the Second World War had collapsed by 1947, I stumbled on what I would like to call the Adenauer way. The German chancellor named it the social market economy. His party, the Christian Democratic Union, introduced it in West Germany in 1949. The social market economy is a form of market capitalism combined with social policy.

According to Google, it was designed to be a third way between what is being called a Washington Consensus economy and a planned social economy. The social market economy refrains from attempts to plan and guide production, the workforce, or sales, but it does support planned efforts to influence the economy through the organic means of a comprehensive economic policy coupled with flexible adaptation to the market. Effectively combining monetary, credit, trade, tax, customs, investment and social policies, as well as other measures, this type of economic policy creates an economy that serves the welfare and the needs of the entire population.

Published in The Express Tribune, May 21st, 2014.

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Reader Comments (3)

  • jun
    May 21, 2014 - 12:06AM

    nordic model is also in same lines of Social Market economy

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  • Rex Minor
    May 21, 2014 - 2:11AM

    You are on the right track sir! Ludwig Erhard is the name of the Chancellor of Germany, who is known as the father of the social Marktwirtschaft wonder, which brought West Germany at the time from the ruins of the WW2, when millions and millions of refugees and unemployment conditions plagued the republic, into the most competent of Nations in Europe.. A liberal trade policy with encouragement to competition, supported by well organised Unions and a work force which cohabitates with company management.
    German economic stregnth today is second to none and pivotal for the Euro currency.

    Rex Minor

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  • Rex Minor
    May 23, 2014 - 10:58PM

    One of the main control mechanism that we have in our economic policy is that of INFLATION, which is directly related to performance. Low inflation requires control on wage increase and increase in productivity, together this makes german products competitive in the world markets.The prerequisite ofcourse is to educate the work force and provide opportunites for their training and devloment in specific professions. Free education at the university level has been the policy of regional Governments. The social security system operates on employee and the employer contributions..

    Rex Minor

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