Daily Times

Pakistan has been grappling with economic challenges for decades. Inflation hovering at 12.6 percenet, unemployment – with 4.5 million individuals falling under the category, current account deficit at a of $464m and a burgeoning debt crisis have become synonymous with the country’s economic landscape. While various economic policies have been implemented over the years, many economists and policymakers are increasingly advocating for a shift towards economic conservatism as a potential solution.

However, the challenges facing Pakistan are multifaceted. The country’s geopolitical location, bordering unstable regions, has led to significant security expenditures, diverting resources from development. Moreover, the political landscape, often characterized by instability and corruption, has hindered economic progress. These factors, coupled with a burgeoning population and limited natural resources, have compounded the economic woes.

Economic conservatism, characterized by limited government intervention, tax cuts, deregulation, and free-market principles, has demonstrated success in fostering economic growth and stability in several countries. Proponents argue that by reducing the government’s role in the economy, it creates a more conducive environment for businesses to thrive, leading to job creation and increased tax revenue.

A cornerstone of economic conservatism is tax reduction. By lowering tax burdens on individuals and businesses, governments can stimulate economic activity. As Milton Friedman, a renowned economist and advocate of free markets, argued in his book “Capitalism and Freedom,” lower taxes encourage investment, innovation, and entrepreneurship. This, in turn, can lead to increased productivity and higher incomes.

Furthermore, deregulation is another key component of economic conservatism. By reducing bureaucratic red tape, governments can create a more business-friendly environment. This can encourage domestic and foreign investment, leading to job creation and economic growth. Studies have shown that countries with lower levels of regulation tend to have higher rates of economic growth.

Critics of economic conservatism argue that it can lead to income inequality and a decline in social programs. However, proponents counter that a growing economy ultimately benefits everyone, as it creates opportunities for upward mobility. Moreover, they emphasize the importance of targeted social programs rather than broad-based government spending.

Economic conservatism, characterized by limited government intervention, tax cuts, deregulation, and free-market principles, has demonstrated success in fostering economic growth.

While there is no one-size-fits-all solution to Pakistan’s economic challenges, adopting principles of economic conservatism could be a significant step in the right direction. By reducing government intervention, lowering taxes, and deregulating the economy, Pakistan can create a more favourable climate for businesses to flourish, leading to increased economic growth and improved living standards for its citizens.

Pakistan’s tax-to-GDP ratio of around 9% is significantly lower than the regional average. Implementing a comprehensive tax reform, such as broadening the tax base to include the informal sector and simplifying tax structures, can boost government revenue without imposing excessive burdens on businesses. For instance, Chile’s tax reforms in the 1980s, which lowered corporate tax rates and simplified the tax code, led to increased tax compliance and economic growth.

Excessive bureaucracy and red tape hinder business growth in Pakistan. Deregulating various sectors, such as industry, trade, and investment, can stimulate economic activity. Streamlining regulatory processes and reducing bureaucratic hurdles can attract both domestic and foreign investment. India’s experience with deregulation in the 1990s, which led to rapid growth in the telecommunications and IT sectors, serves as a compelling case study.

Privatizing state-owned enterprises (SOEs) can improve efficiency, reduce fiscal burdens, and introduce competition. Countries like the UK and Chile have successfully privatized SOEs, leading to increased productivity and better service delivery. However, careful planning and execution are crucial to avoid asset stripping and ensure transparency in the privatization process.

Reducing trade barriers and promoting free trade can enhance economic growth and job creation. Pakistan can benefit from increased exports by lowering tariffs and non-tariff barriers. However, it is essential to protect domestic industries during the transition period. Vietnam’s economic transformation through trade liberalization is a notable example.

The impact of economic conservatism on various sectors could also be fruitful. For Example, deregulation of the agricultural sector can promote investment, increase productivity, and improve farmers’ incomes. However, it’s essential to provide adequate support for small-scale farmers through extension services and access to credit. Tax incentives, deregulation, and improved infrastructure can attract domestic and foreign investment in the manufacturing sector, leading to job creation and export growth. The success of countries like South Korea and Taiwan in transforming their economies through export-oriented industrialization is relevant. The services sector, particularly IT and business process outsourcing, has the potential to be a major growth driver. A conducive regulatory environment and investment in human capital development are crucial for this sector’s expansion.

Implementing economic conservative policies in Pakistan presents both challenges and opportunities. The deep-rooted bureaucratic inertia, political interference, and a lack of institutional capacity can hinder reform efforts. The truth is that the current governing style with incapable leadership, unwilling bureaucrats and unengaged technocrats could only lead to a fate similar to that of Bangladesh’s Sheikh Hasina. The American style of democracy cannot work unless the masses are educated on the root of the matter and support the economic evolution from its core. We can continue to try the usual way of approaching economic challenges, Khan or not, these are bound to fail without the right team, the income disparity will widen with 2% holding the wealth, 98 percent in poverty and a disappointed nation as a whole.

The writer is Foreign Research Associate, Centre of Excellence, China Pakistan Economic Corridor, Islamabad.