Policies for growth

How did the world come to be this way? Can we change things for the better? These questions and the urge to ‘do something about it’ arise naturally to sensitive and compassionate people.

Asad Zaman April 28, 2010
Policies for growth

The World Bank data for 2008 shows that incomes in Norway are about 400 times more than those in Congo.

Statistics cannot convey what journalist Kevin Carter showed with a photo of a vulture waiting for a starving child to die. Haunted by vivid memories of starving children, Kevin committed suicide three months later.

At the same time, the rich buy crocodile skin briefcases worth $20,000. How did the world come to be this way? Can we change things for the better? These questions and the urge to ‘do something about it’ arise naturally to sensitive and compassionate people.

Theories of how modernisation, industrialisation and development could be achieved were created in the post-colonial era. The dismal record of such theories has been recorded in several books like the Failure of Economic Development.

In Pakistan, we have firsthand experience of this failure. The first and second Five Year Plans were drafted by economic experts from Harvard, who also created academic and bureaucratic institutions like the Pakistan Institute of Development Economics, the Planning Commission and the Central Statistical Organisation, among others that were required for this process.

Mahbubul-Haq, one of the chief architects and executors of the Harvard group’s economic policies, was disillusioned by the outcomes of the much touted “Decade of Development.” In 1968, Dr Haq said that 22 family groups “controlled, about twothirds of the industrial assets, 80 per cent of banking, and 70 per cent of insurance in Pakistan.”

He expressed his dissatisfaction as follows: “In blunt terms, Pakistan’s capitalistic system is still one of the most primitive in the world. It is a system in which economic feudalism prevails. Post-World War II, first generation policies for economic development designed by expert economists led to similar outcomes throughout the world.

Widespread failures, and changing political climate, led to the development of second generation development policies, this time based on free markets. The IMF and the World Bank created the ‘Washington Consensus,’ a list of ten universally applicable economic policies for growth. Despite substantial differences this ‘new’ approach to development has led to outcomes similar to those observed in Pakistan: increases in concentration of wealth, income inequalities, poverty and unemployment.

Social tensions caused by these policies have frequently resulted in political and economic crises. Some economists have argued that much of the poverty we see around the world is due to the global imposition of these flawed policies for growth. Many people associated with the Washington Consensus policies have acknowledged their failure.

Oliver Williamson, who coined the term ‘Washington Consensus,’ has summarised the overall results as "disappointing, to say the least." Despite this acknowledged failure, Williamson, and others continue to tout third generation reformed and sophisticated versions of these policies, as cures for low income.

They attribute second generation failures to institutional weaknesses, flaws in execution and sequencing, corruption, and other factors. In fact, these policies and their background theories are fundamentally flawed.

To prove this, Dani Rodrik of Harvard has pointed out that the general economic policies of China and India remained the exact opposite to the Washington Consensus' main recommendations, which were to “stabilise, liberalise and privatise.”Both had high levels of protectionism, no privatisation, extensive industrial policies planning, and lax fiscal and financial policies through the 1990s. However, they have been highly successful in achieving income growth and poverty reduction.

The writer is a professor of economics at the International Islamic University, Islamabad (asad.zaman@tribune.com.pk)


humaira ahmmed | 13 years ago | Reply polices make by and make for the comprador class...policy makers are form the instituations are where they learn to make ploices that are only for hte interst of that coprador class of in the interst of those who are invisibally ruling us...mahbubl-haq make the statment that 2/3 of the population living below..poverty increasing day by day...policey makers are making polices while sleeping..they make polices on fake information and by false data...while for development truth is condusive..the main reason for lacking behind is curropt Govt...if you see the ground realities science 1960 no plane was reach to its fullfilment..every Govt make planes digest and distribute the Grants amoung themselves..its harsh reality but all is going on and on..
Asad Zaman | 14 years ago | Reply My source for history was Stephen Lewis, 1970, Pakistan: Trade and Industrial Policy. However details of who exactly did the planning are irrelevant to the theme of my article. Harvard experts and Yale-trained Mahbubul Haq based policies on the same flawed understanding of growth as simply the accumulation of capital. Mahbubul Haq later renounced the sordid process of exploiting laborers to build capital for growth. Hard won lessons of his own bitter experiences led him to the human development approach. This understanding, also formulated in "Development as Freedom" by Amartya Sen, has not percolated through to economists as a whole. Apart from bells and whistles, planning for growth continues to concentrate of accumulation of wealth instead of focusing on human development. LUMS economist Faisal Bari has written a very nice article on the development and changes in thinking of Mahbubul Haq (to appear in Lahore Journal of Economics; draft available from my website sites.google.com/site/aznews0). This should be required reading for planners, since they continue to base policies on failed models of growth, instead of benefiting from the experiences of those who have gone before them. Asad Zaman
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