Daily Times

In his address to civil servants, Prime Minister (PM) Imran Khan talked about reforms in bureaucracy and assured civil servants that such reforms would be beneficial for them. He also talked about how he was able to transform “impossibilities” into “possibilities” on various fronts. He cited some of his previous achievements, such as winning the 1992 Cricket World Cup, building the Shaukat Khanam Cancer Hospital, building the Namal University and winning the 2018 General Elections.

He appeared to be a proponent of idealism who would love to bridge the challenging and sometimes insurmountable, gap between “ambition” and “reality”. For governments, the term ambition is very broad and includes but is not limited to policymaking, reform, enhancing economic growth, facing defence challenges, adopting austerity measures, handling criticism, ensuring good governance, managing soaring debts, creating jobs, providing housing, handling megaprojects (such as CPEC), supervising foreign affairs, and ensuring the currency’s strength. In short, every step that a government plans to take falls in the ambit of “ambition”. It is, therefore crucial for policymakers, politicians, managers, economists and planners to seriously understand the gap between the notions of “ambition” and “reality”.

Here it is important to mention that the 2002 Nobel Prize for Economics went to Daniel Kahneman, who argued that humans are overly optimistic. He further argued that humans have the tendency to underestimate costs and overestimate the benefits of their “ambitions”. He termed this phenomenon as “the planning fallacy”. In simple words, humans are psychologically tilted towards initiating projects by underestimating their weak aspects and overestimating their benefits. This is one of the strategic planning areas requiring the PTI government’s attention.

As far as revival of economy and growth is concerned, there are two main schools of thought that explain the gap between “economic ambition” and “reality”. The first school of thought, called balanced economic growth model, suggests that all sectors of the economy must grow together in a balanced way. The main proponents of this view are Ragnar Nurkse and Paul Rosenstein-Rodan. The second school of thought, mainly led by development economist Albert O Hirschman, argues that all sectors of economy do not necessarily need to grow simultaneously. It is termed the unbalanced economic growth model. It is because developing countries usually do not have enough capital and resources to ensure balanced economic growth.

In that case, they must start growing the individual sectors of economy in an unbalanced manner. Hirschman argues that while transforming “ambition” into “reality”, the challenges and difficulties confronted result in innovative thinking, research and development (R&D), out of box solutions and evolution of unique business ideas and models in a particular environment, such as Pakistan. He termed this phenomenon as ‘the Hiding Hand Principle’ — arguing that an unforeseen hand benevolently comes to help when new business initiatives are taken.

He was impressed by the business spirit and industrial entrepreneurship of the newly born state of Pakistan. One of the case studies he used, in developing his critical economic thinking and coming up with a widely appreciated political ideology, was the establishment of East Pakistan’s Karnaphuli Paper Mill (KPM). He took up the KPM case in his book, Development Projects Observed, published in 1967.

The main objective of the mill was to utilise the extensive resources of Chittagong’s bamboo forests. The KPM was a large scale project stated to be the largest paper mill in Asia. However, KPM was confronted with several challenges and difficulties immediately after its establishment. In this regard, the major upset that endangered the KPM’s existence was an unforeseen event called ‘flowering of the bamboo’. This is a phenomenon in which flowers start to blossom due to which new bamboo shoots do not effectively grow and the plant dies.

Imran Khan’s views are quite close to the unbalanced growth model, where the modus operandi to translate economic ambition into reality is to encourage individual growth in different sectors of the economy

This phenomenon usually takes place only once every 50 to 70 years. Such events — called ‘Black Swan events’ — are extremely rare but may leave disastrous impacts on businesses in their peculiar environments. The KPM planners never expected that their bamboo supply would suddenly be interrupted.

At that time, some economists termed the establishment of KPM a failure on the part of the Pakistan government. These challenges and difficulties were, however, seen very differently by Hirschman, as he notes that many creative steps were taken by the government of Pakistan which led to positive innovation.

An organisation was set up for collecting bamboos from East Pakistan. Different kinds of lumber were cut in the tracts. A research program was initiated to find fast growing species which could replace the troubled bamboo supply. These creative steps, taken after the KPM fell into trouble, led to innovative solutions such as diversification of raw material for the KPM. This way, an over reliance on unreliable bamboo supply was curtailed in a creative manner. The end result was that Pakistan was able to successfully develop its own business model for the paper industry.

PM Imran Khan’s views are quite close to the unbalanced growth model, where the modus operandi to translate economic ambition into reality is to encourage individual growth in different sectors of the economy. This suggests that policymakers must closely examine the case studies of the countries and governments that have actively pursued the unbalanced economic growth model. That means, identifying the challenges and issues from such cases and taking appropriate measures when applying this approach to Pakistan.

China could be one such case study that predominantly adopted the unbalanced economic growth model. What Pakistan can learn from the Chinese business model is that the Chinese companies did not initially follow Western business models. They moulded Western business models in their favour as per their domestic business needs and environment. They only reaped the profits in the beginning, thus placing the entire R&D burden on the competition, while continuing with spill over effect of innovation through copying and imitation.

PTI’s political vision needs to follow a clear line of action. Whether it is about creation of new jobs for the youth or providing housing facilities to the needy; ultimately, it is actual delivery that matters. Here the real challenge for the new government is not to just kick-start new projects or initiate reforms in government departments but to devise methods and procedures that could robustly supervise the challenging gap between the targets set (ambition) and the targets achieved (reality).

The writer is Additional Commissioner, FBR, holding PhD in Economic Planning from Massey University, New Zealand

Published in Daily Times, September 25^th 2018.