De-industrialization trend and the growth rates -DAWN


25 October 2004	Monday	10 Ramazan 1425

De-industrialization trend and the growth rates
By Dr Javad A. Ansari

The United Nation Industrial Development Organization's (UNIDO) annual review of industrial performance contains important insights for Pakistani policy makers. It provides overwhelming evidence to prove that deindustrialization will continue as long as policy liberalization is not abandoned.

The UNIDO ranks 93 countries on the basis of a Competitive Industrial Performance (CIP) index over 1980-2000. There are methodological and conceptual problems involved in the construction of this index . The index shows a pronounced bias in favour of relatively small export-oriented countries and therefore under-rates the performance of Brazil, China, India, Indonesia, Nigeria and Pakistan, it overestimates the performance of Singapore, Ireland, Switzerland and Finland which are shown to have the top four ranks in 2000 and outperform the United States, Germany and Japan.u

The CIP measures industrial performance in terms of (a) manufacturing value added (MVA) per capita, (b) manufactured exports per capita, (c) the share of MVA in GDP (d) the share of medium and high technology branches (defined in an excessively aggregate manner on the basis of the SITC three digit classification) in MVA, (e) t he share of manufacturers in total exports and (f) the share of medium and high technology branches (MHT as defined above) in manufacturing exports Scores obtained on the basis of these indicators are added up and averaged out to yield a CIP value for each country. No theoretical justification is provided for (a) effectively assigning equal weight to all indicators, (b) ignoring problems associated with assembly as against manufacturing of MHT products. (This yields an unrealistically high score for Malaysia, Thailand, the Philippines and Mexico), (c) using SITC three digit classification for ascertaining technological content and (d) using competitiveness rather than productivity as a measure of performance.

There is no justification for regarding manufacturing export rates as performance indicators. Germany in the nineteenth century, the USSR during 1927-1970, and China under Mao were insignificant exporters yet their industrial performance -measured in terms of total factor productivity growth was outstanding, Moreover export growth is in many cases a consequence of special privileges enjoyed for example by Israel and Mexico in America and Israel and Morocco in the EU market

Finally the CIP index omits Iran- an outstanding manufacturing sector performer in West Asia-- despite including data on that country in the statistical appendices. This can only be attributed to American political pressure on UNIDO. It is unfortunate that UNIDO like the ADB and the World Bank avoids reference to the good performance of countries that American hates. Using national data Israel's CPI score can be calculated at 0. 3 6 1, which place it just below China.

Industrial performance: The UNIDO CIP index thus has many limitations but despite these it is the best measure available for assessing comparative industrial performance. Table I shows that * Pakistan's rank fell from 47 th to 49th within the group of 93 countries during 1990-2000. It had risen from 53 d in 1980 to 47th in 1990.Pakistan's CIP growth rate was halved during 19902000.

Table 1: Ranks by Industrial Performance 1980-2000 (n-93)
	2000		1990		1980
	CIP Score	Rank	CIP Score	Rank	CIP Score	Rank
Maximum Value	0.833		0.772		0.758
Israel	0.458	21	0.430	21	0.415	20
China	0.379	24	0.323	26	0.240	39
India	0.275	40	0.262	36	0.243	38
Pakistan	0.235	49	0.219	47	0.192	53
Minimum Value	0.040		0.058		0.039
Source UNIDO

Pakistan's CIP score as a ratio of the maximum CIP score fell from 29 percent in 1990 to 28 per cent in 2000. It had risen from 25 per cent in 1980 to 29 percent in 1990.We see that policy liberalization has seriously hurt Pakistani manufacturing competitiveness in world markets. * Policy liberalization has also hurt India whose rank declined to 40th in 2000 from 36th in 1990. The value of India's CIP index rose at a faster rate during the 1980s(8 percent) than it did during the 1990s * China's performance is outstanding but again policy liberalization has slowed down improvement in China's global competitiveness.

During 1980-1990 China's rank rose from 39P (behind India) to 26th and its CIP score rose by 29 percent. The gain during 1990-2000 was very modest in comparison, its CIP score rising by 17 percent and improvement in rank being marginal as is the improvement in China's CIP rank as a proportion of the maximum CIP value. As several empirical studies have shown China's productivity growth would have been faster had policy liberalization not been thrust upon China (Bagchi and Eatwell's studies for example)

The Table 2 compares Pakistan's performance in terms of the components of the CIP, it shows that:

Table 2: Performance As Measured by CIP Components
		1990				2000
	MVA per capita $	MHT in MVA percent	MX per capita $	MHT in manufacturing exports percent	MVA per capita $	MHT in MVA percent	MX per capita $	MHT in Manufactured exports
Israel	2576	52.7	2355	41.9	3444	56.1	3680	57.8
China	113	57.6	42	34.4	350	57.3	183	44.6
India	60	55.3	17	17.9	90	58.4	38	19.7
Pakistan	56	31.9	45	8.1	63	35.1	60	8.9
Note: MX = manufactured exports Source UNIDO

* Pakistan's MVA per capita was almost equal to that of India in 1990, by 2000.it had fallen to 70 per cent of the Indian, 18 per cent of the Chinese and 1. 8 per cent of the Israel WA per capita level.

* Pakistan's manufactured exports per capita exceeded India's by over 150 per cent and China's by 7 per cent in 1990. By 2000 Pakistan's manufactured exports were only 60 per cent higher than that of India. They were less than a third of Chinese manufactured exports per capita and less than two per cent of Israeli manufactured per capita exports. * The medium and high technology (MHT) content of Pakistan manufactured net output was 57 per cent of that of India in 1990. In 2000 this rate had risen to 60 percent.

Decline in this ratio in comparison to China was from 62 in 1990 to 60 per cent in 2000 * Pakistani medium and high technology content of manufactured exports was 45 per cent of the Indian level in both 1990 and 2000. In comparison to China however Pakistan's relative manufactured export technology content ratio declined from 24 per cent in 1990 to 20 per cent in 2000. The medium and high technology content of manufactured exports is extremely low -only 9 percent in 2000.as compared to 58 per cent for Israel, 20 per cent for India and 45 per cent for China. * Tables I and 2 provide conclusive evidence that both Pakistan and India are losing ground in global manufacturing markets.

The main reason for this loss of competitive strength by Pakistan is productivity growth stagnation- as Shahida Wizarat has shown total factor productivity growth has been declining in Pakistan manufacturing since the collapse of the Ayub Khan regime, Econometric estimations by UNIDO show that the value of the CIP indicator is strongly significantly associated with technological effort (measured by the R and D to GDP ratio and royalty payments). Regardless of the level of economic development learning and innovation lie at the core of the industrial productivity growth process UNIDO estimations show that the skill index is also positively associated with improvements in CIP, But the association between FDI inflows and CIP index values is negative for the 1990 sample.

Foreign investment inflows do not stimulate competitiveness and productivity growth, UNIDO finds that R and D expenditures is by far the most important determinant of the level of MVA and of manufactured exports High R and D expenditure is associated with growth of medium and high technology (MHT) in net manufacturing output. The UNIDO Report explicitly notes that Indian competitiveness stagnation is a consequence of slow MHT sector growth during the 1990s. This is largely due to policy liberalization, which has induced firms to increase advertising expenditure at the cost of R and D spending.

Policy liberalization is destroying Pakistani manufacturing. We continue to pursue a suicidal low, wage labor, repressive industrial strategy that bloats profits for textile and sugar Seths. The production of complex goods in capital goods industries is neglected and imperialist agencies such as the ADB and the World Bank continue to laud on the immiserizing and detechnologizing growth in the manufacturing sector.

Promotion of complex capital industry products is essential for the transition to industrial maturity, flexibility and the move to activities with higher levels of income elasticities of demand in world markets. Abandoning policy liberalization is essential if we are to move from globally declining industries such as textile and leather and vehicle assembly operations. Equally important is the abandonment of the low wage, labor repressive.

Industrial strategy, which the imperialists have thrust upon us but a change in industrial strategy will be impossible as long as the camp followers of the imperialists' remains in power. An Islamic government alone can implement this policy agenda.