Short-term policies are responsible -for many of Pakistan’s current economic ills

Policymakers tend to ignore factors critical to long-term economic health.
This has been a feature of successive Pakistani governments in recent years
By Kaleem Omar

Not for nothing is it said that Rome wasn’t built in a day. However, it is also said that a journey of a thousand miles begins with a single step. These may be clichés, but clichés are clichés because empirical evidence has shown that they are usually true. Churchill. I think, put it best when he said in a speech during World War II: “This is not the beginning of the end. It is, however, the end of the beginning.”

By that he meant, of course, that though the tide of war had not yet turned in favour of Britain and that there was still a long way to go before the Axis Powers were defeated, it could perhaps be said that a moment in time had come that marked the end of Britain’s initial fledgling efforts to cope with the Nazi offensive. In other words, it was a moment in time when Britain was no longer bogged down in a permanent defensive mode but was getting ready to go on the offensive.

His optimism may have been a bit premature in terms of the ground realities of the time, but it did wonders for the morale of the beleaguered British people. It lifted their spirits and gave them hope that their side would eventually prevail. And prevail it did, of course, after the United States of America entered the war, following the Japanese attack on Pearl Harbour.

I mention all this by way of illustrating the idea that one should not lose hope and throw in the towel, no matter how adverse the circumstances may be. At the end of the war, the German and Japanese economies lay in ruins and people thought it would take decades for them to recover. Yet within the space of a few short years, they were on the road to becoming economic powerhouses again.

The latter half of the 1950s saw a period in Germany that came to be known as the “German Economic Miracle.” Japan followed suit less than a decade later and “Made in Japan” goods began to flood world markets. Indeed, by the 1970s it looked, in economic terms, as if it was Germany and Japan that had ‘won’ the war – much to the chagrin of the British who saw themselves being derisively referred to as “Little England” instead of “Great Britain.”

Japanese appliance and automobile industries led the world in innovative design and manufacturing techniques, while Germany rose from the ashes to become the world’s second-biggest exporter of a whole range of industrial goods. Today, both countries are amongst the most prosperous and highly developed in the world.

This brings one to examining the traditional quest of economic policymakers, which is to increase the amount of goods and services their nations produce. This type of thinking, however, could mean that many policymakers ignore factors that are critical to the long-term health of their nations’ economies, especially the economies of developing countries.

The problem is that most governments, by their very nature, tend to adopt policies that are based on short-term political expediencies linked to the duration of their own term in office, whereas successfully managing a nation’s economy in today’s highly competitive world requires policies that can look ahead ten or twenty years down the road.

China has been able to do this very successfully. The result is an economy that has been the fastest growing in the world since 1980 – an average of a scorching 9 per cent or more a year. If present growth rates continue, the Chinese economy is expected to overtake the United States as the world’s biggest economy in another 25 years.

Many other developing nations, however, have not been so successful. Caught in the nutcracker of low economic growth, on the one hand, and high population growth on the other, developing countries like India, Bangladesh, Pakistan and many others have been unable to get out of the poverty trap.

India is the worst off in this respect. The emergence of a large middle class in India has made little difference to the overall poverty picture. All the hype about the so-called Indian “software revolution” notwithstanding, India remains a very poor country. It has by far the largest concentration of impoverished people in the world, with some 350 million people living on less than a dollar a day and another 350 million that are not much better off.

Adequate housing in India is in chronic short supply and tens of millions of people in the cities sleep in the streets. Calcutta is the biggest slum in the world, and even Bombay (India’s richest city) is now becoming almost as bad – with swanky hotels living cheek-by-jowl with impoverished shantytowns. The state of the roads is very bad. Much of the huge railway network is falling apart and deadly accidents are common. Hundreds of thousands of villages are still without electricity. Loss of forest cover and poaching has wiped out most wildlife. Many rivers and streams are choked with toxic waste and other pollutants. Delhi is now reckoned to be the most polluted city in the world and air pollution has even damaged the marble facade of the Taj Mahal.  

Bangladesh, long considered an international “basket case,” has, in recent years, managed to improve some of its economic and social fundamentals, including boosting garment exports to $ 2.5 billion a year, raising the literacy rate to over 50 per cent and reducing the population growth rate to below 2 per cent.

But Bangladesh remains one of the poorest countries in the world, with a per capita GDP of only about $ 250. Its railway and road networks are not only highly inadequate but also in a poor state of maintenance. Inland waterways, which are an important means of transport, are insufficiently developed. Energy consumption is very low at less than 50 kilograms of coal equivalent per capita per year, and only about 10 per cent of the villages have access to electricity.

Pakistan, too, has been struggling to pull itself out of poverty by its bootstraps. Again, however, high population growth rates and low GDP growth (especially in the 1990s, when growth averaged less than 4 per cent) have led to a sharp rise in poverty, with an estimated 34 per cent of the population now living below the poverty line, up from only 17 per cent in the early 1980s.

Pakistan’s infrastructure, too, though in relatively better shape than India’s or Bangladesh’s, needs a lot of upgrading. The railways have been losing money for years and the quality of train services has deteriorated sharply in the last two decades. The railway authorities say that that is now changing, with the induction of new engines and rolling stock, track upgrading and other improvements. But the pace of change is still very slow and needs to be speeded up.

Some 96,000 villages in Pakistan have been electrified since 1958, but 30,000 others are still without electricity and the rural electrification programme needs to be accelerated to keep pace with population growth. Billions of rupees have been spent on expensive motorway projects in the last fifteen years, but thousands of kilometres of other roads are in a poor state and need to be urgently upgraded. More than 200 million gallons a day of untreated sewage flows into Karachi harbour and the Lyari River now enjoys the dubious distinction of being the most polluted river in the world – having taken over the top spot from England’s Mersey River twelve years ago.

Four factors should be included in evaluating a nation’s wealth: 1. Natural Capital – the value of land, water, minerals, timber and other natural resources. 2. Physical Capital – the value of machinery, buildings and public works. 3. Human Capital – the productive value of people. 4. Social Capital – the value of families, communities and various organisations that glue a society together.

A nation that ignores or fails adequately to upgrade and invest in any of these areas confronts the risk of weakening the long-term health of its economy in favour of short-term gains. In 1995, the World Bank recalculated wealth to include a nation’s natural capital, physical capital, human capital and social capital. Using this system, the conventional rankings of the wealth of nations changed.

The main objective for developing countries is to raise the level of GDP per capita by stimulating economic growth so that poverty is reduced and material standards of living are improved. A pattern of broad-based economic growth should focus on uplifting the growth of income levels of “target’ poverty groups that are the vast majority segments of populations. If this principle is ignored, the result is a highly skewed pattern of economic and social development, with highly unequal levels of income between various groups.

Take Pakistan, for example. On the one hand, we have Karachi, Pakistan’s richest city, which, with a population of 12 million, or 8.57 per cent of the country’s total population, contributes more than 15 per cent of the nation’s GDP and over 60 per cent of all federal revenue. On the other hand, right next door to Karachi, across the Hub River, in Balochistan, we have places that are amongst the poorest regions in the country.

One such region is Kanrach, where there has been no economic development of any kind since Pakistan came into being 53 years ago. The government’s devolution plan talks of giving taxation powers to the new elected district councils to allow them to generate revenue for their region’s development. But how much revenue can impoverished regions like Kanrach generate through taxation when there is no industrial or commercial activity there that can be taxed?

Coupled with pursuing higher economic growth, Pakistan should seek to improve its international competitiveness. Among other things, this involves boosting productivity and product quality, expanding the range of value-added goods produced for export, and strengthening access to global markets, capital flows and technology transfer.

Internally, Pakistan should seek a high level of employment and stable price levels. It should also seek to produce high quality goods and services to be available and distributed across all population classes. Boosting GDP growth is not enough by itself; it has to be accompanied by policies aimed at promoting economic and social distributive justice. Only through a combination of such policies can Pakistan move towards becoming a more just, more humane and more egalitarian society.

Source: The News, 29/9/2008

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