Why Rapid Growth is Necessary

By Shahid Javed Burki
FINDING the right way to bring a country out of economic, political and social backwardness and to help its people out of despair and poverty remains an enterprise that continues to engage many great minds.

Over the last 60 years or so, starting from the time when millions of people in Asia and Africa were able to cast off the yoke of colonialism and take responsibility for their lives and for their future, development experts have continued to come up with recipes that would help release nations from poverty.

Some countries, most notably those in East Asia, succeeded. Some failed and continue to fail. Most of those who are still struggling are in the region known as Sub-Saharan Africa.

Pakistan’s own record has not been dismal. Not given much of a chance of success, it has clocked a fairly impressive record of growth over the last six decades. The gross domestic product has grown, averaging at more than four per cent a year over this period. There are only a score or so countries around the globe that can claim to have sustained such a record of growth over such an extended period. During the same period, the population has increased five and a half times, from only 30m in 1947, the year of the country’s birth, to an estimated 165m, 61 years later.

The proportion of people living in absolute poverty has declined from about 60 per cent in 1947 to around 30 per cent now. The size of the urban population has increased twelve-fold, from five million at the time of independence to around 60m in 2008. The structure of the economy has changed as well. At the time of its birth, Pakistan was an agricultural economy with no industry of any significance. More than half the gross domestic product was contributed by agriculture. Now the share of agriculture in GDP has declined to a bit over 20 per cent. Instead of agriculture, the service sector — both traditional and modern — has become the largest contributor to GDP.

The trajectory of growth Pakistan has followed over the last 60 years was not smooth and even. There were at least three periods of rapid economic progress and modernisation — in the 1960s, in the 1980s and in the early 2000s. Each of these periods ended in economic and political chaos. Why was the path to relative progress such a halting one? Why has Pakistan experienced so many jerks and jolts in its economic life? These questions are not easily answered and are better left to be dealt with by historians who investigate and write about these matters.

What concerns me today is another important question: what should the policymakers do now at a time of another halt to progress, another jerk in the move forward?

The fact that Pakistan is currently faced with an extremely serious economic crisis does not need repeating. The fact that the country’s new political masters need to quickly develop an approach for dealing with the stresses and strains under which the economy is operating at this time does not need to be repeated either. But what should policymakers do to address the problems the economy faces?

Economic theory is attempting to find an answer to this question at a time where the entire world — not just a few developing countries such as Pakistan — is having to deal with a sudden turn in the wheel of fortune. One group of development experts who recently contemplated this issue was led by the Nobel Prize-winning economist Michael Spence. It recently issued its report to the public.

Spence and his colleagues argue that the Washington Consensus that became the guiding economic philosophy in the late 1980s and the 1990s is now dead. The Consensus was built on three pillars: stabilisation, privatisation and liberalisation. These are the pillars on which the economic team recruited by President Pervez Musharraf built the country’s economic structure. Prodded by the IMF, to which the Musharraf team turned in the first three years of military rule, Islamabad emphasised stability over growth, privatisation over state control and liberalisation over state management.

There were two problems with the way this structure was built, it neglected growth for the time when the economy was being stabilised and it made no attempt to develop a medium-term strategy for ensuring uninterrupted growth. It is not surprising that the structure the team built came crumbling down.

What does the Spence group advocate for a country in Pakistan’s situation. No single recipe will ensure sustainable and rapid economic growth. Each country must devise its own strategy, given its own circumstances. However, one ingredient must always be present in the strategy: an active government that strategises. Governments “are sometimes clumsy and sometimes errant but active, pragmatic governments are indispensable”, say the authors of the report. Pragmatism means dispensing with ideology and focusing on what the situation demands at any given time. This is one of the salient features of the Spence group’s report.

The other is the emphasis it places on growth itself. Without adequate growth in the economy and without sustaining it over time, improvements in human well-being are impossible. The report looks at the experience of 13 developing countries that have managed economic growth of seven per cent or more a year for at least 25 years.

Two lessons are drawn. One, fast and sustained growth “requires long-term commitment by a country’s political leaders”. Two, high and sustainable growth depends on deep engagement with the global economy. Engaging with the world requires developing an understanding of where it will end, where it is going. During the Musharraf period, Pakistan had the first but not the second. There was a singular lack of understanding about the structure and evolution of the global economy among the policymakers.

What about the role of the state that was downgraded by the Washington Consensus? Spence and colleagues argue that no country was able to achieve rapid economic growth without high rates of investment in infrastructure, education and health. They also emphasise that “growth strategies cannot succeed without a commitment to equality of opportunity”. Once again, Islamabad during the Musharraf period failed this test.

The Spence Commission’s findings come at an opportune time for Pakistan where a new political order is taking shape. As the new leadership begins to look at what the economy needs it would do well to study the findings of Spence and his colleagues and build them into a strategy for adjustment and growth that needs to be put quickly in place.

Dawn