Economics in Pakistan
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. So fix the economy and all will be well is the usual
prescription I hear. Our education system has not taught them
tautologies!
Such speakers will say in one breath,
build 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.
These speakers will not stop for a minute to think that most of these
are objectives or wishes of things to happen. To make these happen,
we must think of processes on how to make them happen, the
instruments that we have at hand if any to make them happen,
financing if required, and most important of all the human skills and
incentives that will make them happen. But unlike economists,
speakers and columnists of this variety will assume that instruments,
capacity and financing for their wish lists exist.
There is another group of economic
pontificators who only think fiscal deficit and stabilization. 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.
Column after column, speech after
speech this arithmetic is repeated. If you ask a few questions like
fundamentalists they turn on you to shout out a defense of their
arithmetic. Why not cut expenditures? Can you not see that social
sector spending is so low, public investment is so low, debt
servicing is high! More arithmetic!
Of course the slightly more erudite
will very cleverly argue, “How will you finance your deficit?”
Print more and you will increase your inflation rate and we do not
want inflation. More debt is not possible since we are already way
beyond our self-imposed debt limit. Still in arithmetic mode.
And of course there is the constant
reminder of our reserves and declining BOP situation. More
arithmetic.
Then of course there are those who will
vociferously argue for subsidies to industry and exports after all
there can be no growth without this. Is that not what East Asia did?
This is the model of the sixties that these people are clinging on to
without realizing that the world has changed. Nor do they know that
each country’s path to development is unique and mimicry wins
nothing.
There is another tiresome refrain, “we
know all the solutions and all we need is implementation.” When you
ask them what is it that you know they will hand you there wish list
and ask for its implementation. It is like wishing to be a Wimbledon
champion and asking someone to implement your wish.
Economics is not mere accounting or
arithmetic. Nor is it wishes. Nor is it static, stuck in the sixties.
Nor is all known. Anyone who is following the global crisis will be
stuck with the complexity of the problem. The best minds of the world
are involved and solutions are far from obvious. So a little humility
is in order. But not our know-it-alls!
Without research, thought and reading
to claim that we know all is very dangerous and should be shunned.
What these people need to understand is
that economics is most importantly concerned with understanding human
behavior at the individual and group level. People individually or in
some collective develop responses to their environment to maximize
their own, their family’s or their groups welfare. The environment
is largely the manmade frameworks of laws, regulations, systems of
governance, market organizations that humans operate in every day.
The varieties of these responses make up what we know as GDP in the
economy.
If GDP grows it lifts up 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 stabilization, 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 like that.
We know now that growth happens when
the institutional/incentive framework is conducive to people’s
efforts to innovate and engage in entrepreneurship in open
competitive markets. This is clear. However, operationalizing this
statement is a huge research agenda. 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 2 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.
The Framework of Economic Growth (2011)
of the Planning commission could be one such point to departure. It
deliberately talked of only a small number of linchpin reforms that
underpins the rent-seeking system and has the potential of disrupting
it. It should be understood and discussed more widely.
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