Projections based on the latest performance indicators of national economy have started another wave of pessimism. According to a World Bank report, the GDP growth rate will decline from 5.8 per cent in 2018-2019 to 2.7 per cent in the coming fiscal year. Consumer prices rose by 8.2 per cent between February 2018 and February 2019. The contributing factors in this included currency depreciation, pressures exerted by domestic demand and higher fuel prices. Average inflation for October 2018-February 2019 was 7 per cent. This compares poorly with 4.1 per cent for the corresponding period the previous year. What do these figures tell us? They say that the purchasing power of the people has declined significantly. The story does not end there.
Tighter fiscal and monetary policies introduced in the name of austerity might have destabilising consequences for the economy through increasing unemployment. Among all the proposed measures, higher economic growth rate, widening the tax base, increasing tax revenue, privatization, documenting the informal sector and decreasing budget deficits along with current account deficits to fight chronic macroeconomic problems, the most significant is GDP growth – increasing the size of pie to be shared.
The economic problems are not unique to Pakistan. Almost every developed country has been through the storm. The wretchedness and tribulations caused by the Great Depression that hit the world in 1929-1933, the stagflation that hit many large economies, including the US in early 1970s, and the recession of 2007-2008 are not distant history. The scars inflicted by these catastrophic phases of business cycle are hard to erase from memories. Despite the nightmare situations, these economies fought their way out of their problems. If other countries can survive economic crisis, what can stop us? Let’s first see how these countries reached prosperity after dreadful conditions.
Between 1869 and 2018, the output of the United States shows an increasing trend despite a few episodes of decline during the world wars and recessions. Achieving economic growth and sustaining it is the secret of their success. In developed and emerging economies the output growths for the last two decades have been phenomenal. The question arises how have they succeeded in attaining economic growth at a rate which we have not been able to target, let alone realize? The answer lies in the way their institutions promote growth.
A police officer in Grade 16 enjoys more authority in Pakistan than a medical doctor
Acemoglu and Robinson in their book Why nations fail, introduce two types of institutions – inclusive and extractive. Inclusive economic institutions are those that provide security of property rights and relatively equal access to economic resources to a broad cross-section of the society. Extractive economic institutions are those that provide security of property rights and relatively equal access to economic resources to only the elite of the society. According to the authors, these institutions develop a set of incentives, which determines sustainable economic growth. For example, inclusive economic institutions incentivise inventions and innovations by ensuring property rights for every individual in a society. Creative individual react to these incentives by innovating because the profits yielded by these innovations translate into their prosperity. The entire society reaps benefits in the shape of employment and economic growth. There are countries which owe their economic success to giant companies which thrive on innovations and contribute to social welfare. Here’s a glimpse of the success stories:
In 2017, Apple’s market capitalization amounting $1 trillion ($1,000 billion) dwarfed the GDPs of Pakistan ($304.952 billion), Sweden ($538.04 billion), Argentina ($637.59 billion), Switzerland ($678.88 billion), Saudi Arabia ($683.82 billion), The Netherlands ($826.20 billion) and Turkey ($851.10 billion). Apple’s worth exceeded the combined net worth of 11 richest men in the world totalling $831.1 billion); Charles Koch ($53.40 billion), Sergey Brin ($54.20 billion), Larry Page ($55.70 billion), Larry Ellison ($58.20 billion), Mark Zuckerburg ($65.20 billion), Carlos Slim ($65.70 billion), Amancio Ortega ($70.40 billion), Bernard Arnault ($80.70 billion), Warren Buffet ($84.20 billion), Bill Gates ($94.90 billion), and Jeff Bezos ($148.50 billion). In the United States alone, Apple plans to create two million jobs by investing $350 billion by 2023. Apple is just one example. The net worth of each of Amazon ($777.8 billion), Alphabet ($766.4 billion), Microsoft ($750.6 billion) and Facebook ($541.5 billion) exceeds the current GDP of Pakistan. The wealth creation is clearly a panacea. All other options merely redistribute the pie.
Pakistan, on the other hand, offers a different set of incentives. The incentives are to be sought in careers in politics, military or civil bureaucracy or sale of imported products.
Despite being the sixth most populous country in the world, we have not produced a single company whose worth constitutes a significant proportion of the GDP. The leading companies in Pakistan enjoy success, not through innovation but by creating monopolies using their proximity to politics. This sort of success exploits the common man and hampers economic growth. This is not the way the developed countries operate.
Why do we lag behind in terms of innovation? It is because top students dream of making it to military bureaucracy or civil bureaucracy.
The number of medical doctors and engineers taking CSS examinations is alarming. No wonder the country suffers from a shortage of almost 200,000 doctors. Many of the doctors and engineers who can’t make it to superior services fly abroad. Sindh Chief Minister Murad Ali Shah once complained that there was a severe shortage of qualified engineers to carry out development projects. The situation in academia is no different. Speaking to the media in 2017, the then HEC chairman said that the country had a deficit of 36,000 PhDs. Is it the disparity in wages and perks that is causing people to choose bureaucracy over serving the community as a doctor, engineer, teacher, mathematician, physicist, chemist, biologist, accountant or lawyer? In most instances it is the social dynamics.
A police officer in Grade 16 enjoys more authority in Pakistan than a doctor. Most graduating candidates thus dream of joining the powerful. This poor distribution of privileges and incentives deprives the nation of some of its best brains. It does not allow the society to find its Einstein, Edison, Gates, Zuckerberg or Jobs.
While politicians, bureaucrats and military leader have their important roles, modern societies cannot be built without innovating scientists, engineers and entrepreneurs. The government must think of ways to establish inclusive institutions. Only then will students who find physics, mathematics, and chemistry interesting pursue these fields. They will then have the opportunity to come up with innovations that will result in wealth creation and employment generation.
The writer is a freelancer