In Lahore, Dhaka, or any fast-growing city of the Global South, the story of “growth” is often narrated through the lens of consumption: the new motorbike on instalments, the crowded malls on weekends, the rising imports of phones and fuel, and the political temptation to keep demand running-whatever the fiscal or external cost. It is an understandable impulse. When incomes are squeezed, and aspirations are rising, consumption feels like relief, and for governments it feels like proof. But for developing economies, consumption-led growth is frequently a treadmill: it can lift activity briefly, yet it rarely builds the productive muscle-skills, technology, export capacity, and institutional competence-that sustains prosperity across shocks.
The uncomfortable truth is that many developing countries are not suffering from a “lack of spending”; they are suffering from a lack of capability. Capability is the economy’s ability to produce competitively (at home and abroad), to move workers into higher-productivity tasks, and to continuously learn-through firms, farms, and formal institutions-how to do more complex things. When capability is weak, consumption becomes increasingly import-intensive, external deficits widen, currencies come under pressure, and the state oscillates between stabilisation and stimulus. The cycle is familiar across decades: demand surges, imports surge, reserves fall, austerity returns, and social trust erodes.
Consider Pakistan’s macro structure in the most recent global datasets. Household consumption is extraordinarily high relative to the size of the economy: World Bank data show households’ final consumption near 84.8% of GDP in 2024. By contrast, the investment engine is thin: gross fixed capital formation is reported around 11.23% of GDP in 2024-a level that makes sustained productivity catch-up extremely difficult. Export dynamism remains constrained as well: exports of goods and services are about 10.4% of GDP (2024), a modest base for a country of Pakistan’s scale and demographic pressure. These are not abstract ratios; they explain why every bout of demand often runs into a hard external ceiling. Even when export receipts improve in absolute terms-Pakistan’s total exports were about $30.675 billion in FY2023-24-the economy still struggles to break out of low-complexity, low-productivity traps.
Subsidies and safety nets matter-deeply-because transitions are painful. But social protection should be designed to protect households while the economy upgrades, not to freeze the status quo.
Now contrast Bangladesh, which offers both inspiration and a warning. Bangladesh’s household consumption share is materially lower-about 70.13% of GDP in 2024-and its investment rate is far stronger at about 30.7% of GDP in 2024. Over time, that investment-combined with export-oriented industrial learning-helped power one of the most significant manufacturing success stories of the past four decades: ready-made garments expanded from almost nothing to an industry widely cited at roughly $47 billion in exports in 2023. Yet Bangladesh also illustrates why “consumption versus exports” is too simplistic: capability must diversify. Heavy dependence on one sector creates exposure to logistics disruptions, compliance shocks, and buyer concentration-risks highlighted repeatedly when industrial accidents, global demand swings, or supply-chain interruptions hit a single dominant pipeline. The lesson is not that Bangladesh should abandon what works; it is that capability must broaden-from basic manufacturing into higher value textiles, technical apparel, pharmaceuticals, electronics assembly, and modern tradable services.
Global growth thinkers have been pushing this point for years: development is not mainly about spending more; it is about raising productivity and building “learning systems.” Dani Rodrik has argued that the growth challenge in today’s world is increasingly about upgrading productivity, where most workers actually are-often in small, informal firms and services-rather than relying on a narrow, classic industrialisation pathway alone. And Ha-Joon Chang’s long-running critique of “kicking away the ladder” remains relevant: countries that are rich today did not climb using only laissez-faire purity; they used active policy to build industries, skills, and technological depth. The common denominator across serious development thinking is capability: targeted upgrading, disciplined implementation, and institutional credibility.
For Pakistan, capability-building is inseparable from state capacity and governance because the growth model repeatedly collapses at the fiscal and regulatory layer. The state cannot build capability if it cannot reliably mobilise resources, enforce rules fairly, and protect productive investment from arbitrary distortions. Pakistan’s own official fiscal reporting underscores how central revenue performance has become to macro stability, with revenues noted at 12.6% of GDP in FY2024 in the Economic Survey reporting. International assessments also continue to emphasise that governance failures, exemptions, and weak enforcement mechanisms directly suppress investment and long-term growth potential. The point is not to moralise; it is to recognise that capability is not just “more factories.” It is also predictable taxation, contract enforcement, competitive regulation, export facilitation, and credible energy and logistics systems.
So what does “from consumption to capability” look like in practice, beyond slogans? It begins with treating productivity as a national social project, not a technocratic footnote. Pakistan needs an export-and-investment bargain: stable macro rules that reward savings and long-horizon capital, paired with ruthless simplification of doing business-especially for SMEs-so that firms can formalise, access finance, and integrate into supply chains. The target should be concrete and measurable: raising investment from low-teens toward levels associated with durable catch-up, while expanding exports beyond a narrow product set and a narrow set of markets. Bangladesh, meanwhile, should treat its garment success as the foundation for the next ladder rung: deeper backward linkages (synthetics, man-made fibres, chemicals), higher design and branding capability, and a deliberate shift into adjacent complexity-supported by skills, standards, and energy reliability.
Capability also means human capital that is usable by real firms, not just credentialed on paper. For both Pakistan and Bangladesh, the binding constraint is increasingly not “people,” but skills matched to modern production: technicians, quality managers, compliance specialists, machine operators, coders, supervisors, and mid-level industrial leadership. This is where vocational training, industry-linked curricula, and certification ecosystems become macroeconomic instruments, not education-sector afterthoughts. When a country can reliably produce competent technicians and supervisors, it reduces the risk premium that investors quietly price into every decision. Finally, capability requires a political shift: leaders must stop selling consumption as a substitute for competence. Subsidies and safety nets matter-deeply-because transitions are painful. But social protection should be designed to protect households while the economy upgrades, not to freeze the status quo. If we keep defaulting to short bursts of demand while neglecting productivity, we condemn societies to recurring stabilisation crises-each one eroding trust, widening inequality, and pushing talent outward.
The moral case for capability is as important as the economic one. A consumption-first model tends to concentrate gains in import-linked trading, rent-seeking, and short-horizon arbitrage. A capability-first model, when done with fairness, spreads dignity: more skilled work, higher wages rooted in productivity, more women able to participate safely in the labour market, and more youth able to imagine a future at home. That is the real promise of development-not the illusion of prosperity purchased on credit, but the quiet, cumulative power of societies that learn how to produce, compete, and continuously improve.
The writer is Foreign Research Associate, Centre of Excellence, China Pakistan Economic Corridor, Islamabad.