Everyone is an economist
PAKISTAN’S economic crisis and confusion, exacerbated primarily on account of unforgivable delayed responses by the incumbent government, has also revealed the rather sad state of Pakistan’s media and of its economists.
The huge media explosion, particularly in the electronic media but also the English newspapers, has revealed how bare Pakistan’s scholarly cupboard is, and how charlatans have been crowned kings. These days, given the deserved interest in both the global financial crisis and the domestic economic meltdown, all television channels have been giving extended time to information and views pertaining to such issues on their channels.
Today, the electronic media has made bankers, businessmen, stockbrokers and journalists experts on the intricacies of economic and financial issues of which most know very little. Personal anecdotes, and not even informed opinion, replace any sound academic or general discussion about Pakistan’s economy or about the international financial crisis.
Barring very few exceptions, most supposedly informed guests on these channels cannot distinguish between the capital market, capital investment or the capital account, yet speak with an authority which only reveals their complete ignorance. Stockbrokers hold forth on monetary policy, bankers and MBAs on fiscal policy, and journalists on an assortment of issues ranging from what they think the impact of raising (or lowering) the CRR and SLR would be to the impact of an IMF programme of which they know barely the basics and can claim no understanding.
In the 25 years in which I have taught and done research in economics in Pakistan, I have never seen so many people appearing in the public arena and being called ‘economists’. Most of these self-styled, or increasingly media-styled, economists have hardly written academic papers or books, yet speak with the authority of someone who understands how a complicated and complex social, political and economic system works. Many now call themselves ‘political economists’ which gives them license to talk about anything at all, without having understood what it is that makes up the discipline of political economy.
High journalism — and usually not even that — substitutes for scholarly and academic discussion in the media. Moreover, access to the Internet has made a cut-and-paste job far easier, and for many newspaper readers who do not scan more than just a single column, material which has been developed and debated in very different contexts is recycled as original.
Editors often complain about the huge dearth of ‘good writers’ and this is particularly marked in the case of economic and financial issues. While many articles or reports in newspapers simply provide a great deal of information, the inability of many writers to make sense of the data is an obvious and chronic problem. Given the format of the electronic media, even data and information are not a requirement, and with generalist anchors not even trained in the very basics of economics and hence unable to ask the right questions, both anchors and their guests make do with a few popular sound bites, talking a lot but saying very little. It is very seldom that one hears an informed discussion on the economy.
Yet, it is important to state that it is not just the media that is responsible for the low level of discussion or debate, but economists too are to blame. While there are a few competent and trained economists in Pakistan, many of them having worked in educational institutions and with practical experience, most shy away from the media leaving the spaces to be filled in by the excess supply of mediocrity that this country has to offer. In the long list of highly accomplished eminent economists who constituted some of the many committees set up by this government, very few speak to the media or write in the press.
Some of course, for numerous often petty reasons, prefer not to be seen as critics of the government and stay away. Others consider themselves to be ‘above’ such populist or frivolous activity, feeling that their time is better spent teaching, writing papers or advising government. Then there are those who hardly have the time any longer, given the huge commitments their lucrative consulting involves. Moreover, speaking publicly may require them to articulate an opinion which may cause any one of their donors to take issue. As one prominent economist said once when asked why he didn’t write: discretion is the better part of valour.
Nobel prize winners like Joseph Stiglitz and Paul Krugman, to name perhaps the two most prolific, write regular columns in numerous newspapers in addition to teaching and their academic commitments which include writing articles and books. They write for a general audience and are immensely popular and critical of numerous issues. I believe, following the footsteps of such economists, there is a need for many of the best economists in Pakistan to intervene and shape public opinion and educate readers and viewers in the country.
There is a large audience out there, hungry for scholarly and academic discourse on issues which now affect everyone’s lives. More importantly, only those with understanding and scholarship can replace much of the nonsense that one reads or hears regarding the economy in Pakistan’s media.
Time to learn from China
IT reflected all the forlorn hope of a tail-ender, a twelfth man even, that last of a dozen protocols signed between Pakistan and China at Beijing on Oct 15. The final document was a memorandum of understanding between China’s Cricket Association and the Pakistan Cricket Board.
That the Chinese should wish to learn the game from us — once World Cup victors — is understandable. They learn from the best and then outstrip their teachers. Just count the number of medals they won at the Beijing Olympics: 51 gold at the Olympics, and 89 gold at the Paralympics. Such laurels are not won by simply resting on them.
In the 1960s, we were an economic role model for the South Koreans and our national airline PIA taught others (including the now unstoppably popular Emirates) how to fly. Our Tarbela Dam was the envy of developing countries for being the world’s largest earth-filled dam. We played hockey and, sometimes, cricket better than the inventors of the game. Today, we have been relegated to a position of geopolitical irrelevance, and geo-economic bankruptcy.
Shamefully, and worse still shamelessly, we have yet again dusted our begging bowl and begun importuning our friends for help and financial support. In the past, China has invariably been the quickest off the mark. It has never baulked at coming to our aid — whether it was in the form of material as in 1965 or in 1971, or in cash when the Chinese government provided $500m during the early years of Musharraf’s penury to bolster our foreign exchange reserves. The only condition they placed was that it should not be spent. It should lie untouched in the balance sheet of the State Bank, a borrowed fig leaf covering our insolvency.
Today, a new government in Pakistan is hearing a different response from a new China. While both parties value the special relationship that Chinese President Hu Jintao once described during his 2006 visit to Pakistan as “higher than the Himalayas, deeper than the Indian Ocean and sweeter than honey”, President Zardari was reminded by President Hu Jintao during his visit to Beijing of the need for “deepening the Pakistan-China strategic relationship in new circumstances.”
The Chinese also emphasised that both sides need “to accelerate the implementation of the Five-Year Development Programme on Economic Cooperation”, their elliptical way of expressing disappointment at the lack of progress on a mechanism they take more seriously than we do.
The five-year programme, signed with great fanfare in November 2006, aimed at expansion of bilateral trade to over $15bn by 2011, cooperation in agriculture, manufacturing, automotives, urban infrastructure, minerals, tourism, financial and engineering services, and investment policy support. Two years have gone by and the Chinese are still waiting for any one of these sectors to attain measurable progress.
According to some sources Pakistan had hoped before Mr Zardari travelled to Beijing that China would improve upon its earlier largesse and deposit anything up to $3bn in our coffers. The Chinese and their hard-earned dollars are not so easily parted. A Chinese official explained: “We have done our due diligence, and it isn’t happening.”
It is believed that the Chinese have agreed to provide two more nuclear plants on the lines of Chashma I & II. Interestingly, this commitment was disclosed not in the joint communiqué but unilaterally by the Pakistani side, which then coyly declined to tell when or how these two plants would be built. The new plants should add 680 megawatts of electricity to our national grid, but before we invite the neighbours in to admire our illuminations we would do well to remember that it took Chashma I nine years to reach commercial operations and that Chashma II, begun in 2005 and assuming it proceeds according to schedule, will not be complete until 2011.
Even with all four Chashmas — two in hand and two still confined to the drawing board — we will still only have 1,300MW against the target of 8,800MW from nuclear sources planned in Vision 2030. Meanwhile we must reconcile ourselves to many long, hot summers, while our neighbours luxuriate in nuclear energy made possible by the US and by Russia.
Had Charles Dickens been alive, he would have been tempted to use Pakistan as a model for Mr Micawber, who despite his perennial insolvency, remained convinced that “something will turn up”. Our ‘somethings’ are plans A, B & C. Plan A is to obtain $1.4bn from the World Bank, $1.5bn from the Asian Development Bank, $1bn from the Islamic Development Bank, and another billion dollars from DFID. All this funding is project-related and disbursable once projects have undergone the gauntlet of rigorous appraisal procedures.
Plan B is to approach the Friends of Pakistan, an informal gathering of friendly creditor-nations who are being asked to put their money where their hearts are. Although the first formal meeting is yet to be held in Abu Dhabi, US Assistant Secretary of State Richard Boucher has chilled Pakistani expectations with his comment that no cash should be expected. It seems that while our friends are prepared to teach us how to fish, they are reluctant to trust us with the cash with which to buy the tackle.
Plan C, which is not really a plan at all, is to crawl to the IMF and to eat crow. It will not be the first time. Between 1998 and 2001 we entered into nine separate arrangements with the IMF. They know us all too well, with the practised understanding of a family pawnbroker.
There is a feeling in official circles that as the IMF will always be there anyway, other sources of fiscal support should be explored before going to a Shylock of the last resort. One can expect that whatever conditionalities the IMF applies to us will be, no matter how beneficial they may appear to be in the long run, no more welcome than a penitent’s hair shirt.
It is time perhaps for us as a nation to learn the lessons we have been teaching others for so long. Rather than borrowing money from the Chinese, we could perhaps borrow their ideas. Once the Chinese wanted to learn English so that they could spread throughout the world and then teach everyone Chinese. Perhaps they want us to teach them how to play cricket so that they can compete throughout the world, win the World Cup, and then teach everyone how to play mahjong.
A better sense of worth
THE art of British artist Tracey Emin is not the first place you might look for insights into the economic crisis, but in the past few days, as world leaders have tried to haul us back from the edge of disaster, I have been haunted by the photographic self-portrait where she sits, having apparently given birth to a pile of bank notes and coins.
The piece, entitled I’ve Got It All is part self-mockery and part serious introspection. As she scoops up her money, she is defying the detractors who say her art is ludicrously over-priced. At the same time, with her vulnerable, downward gaze, she seems to be asking herself: am I really worth it? The image is floating round my mind because it seems to address the confusion running through society in the years leading up to the crunch: there was an apparent abundance of easy material wealth, but deep doubt and insecurity about intrinsic values. Bafflement at crazy asset prices and bonuses fanned out of Wall Street and the City of London into the wider world; as we lost our grip on financial values, our handle on cultural, social and moral values became less secure too.
Sticking with conceptual art for a moment, a friend of mine told me a little story which I found darkly delicious. A few months ago, a hedge fund manager approached my chum for advice on a business idea: he wanted to syndicate Damien Hirst’s diamond-encrusted skull. The plan was to put together a consortium of investors to buy it, then to make a return by charging for the skull to appear in films, museums and at rich people’s parties.
The hedgie eventually abandoned the idea because he couldn’t make up his mind whether the piece was actually worth $90m. How would you assess its value? Is it art? Is it right for a hedge fund manager to treat a Damien Hirst like a bunch of sub-prime mortgages?
Clever artists such as Hirst and Emin play on those uncertainties. Clever financiers exploit their equivalent in the financial world.
There are always some people whose principles — in investment and life — remain unwavering in the face of any maelstrom. This collapse is likely to be profitable for one fund manager who has for decades made a point of sticking to his own fundamental notions of value: the American billionaire Warren Buffett. His great mentor was Benjamin Graham, an influential American investor whose key insight was that, on the stock market, there is a deceptively simple duality. Graham called this the Class One versus the Class Two truth. A Class One Truth is a sober assessment of a company’s objective worth at a point in time: the figure you get after you add up the value of its property, cash and other assets, then subtract its debts.
A Class Two Truth, by contrast, is based on external factors such as emotion, fashion and herd instinct: it is ‘true’ only for as long as we continue to believe in it, just as a designer handbag is only worth $10,000 if people think so. When there is a discrepancy between the two types of truth on the stock markets, there is a chance to make money.
The distinction can be stretched a little wider: Buffett dislikes debt because of the concrete Class One downside to borrowings: they have to be repaid. That is particularly dangerous if you have borrowed against a Class Two asset, whose dubious value might evaporate. Plainly, the bankers who took a wrecking ball to the world’s financial system would have done well to have studied the writings of Ben Graham.
Confusion over values seems to have migrated into all sorts of other arenas, not least the public figures we choose to admire. Take two women, both young, both attractive, both named Nicole. The first, Nicole Cooke, won a cycling gold medal for Team GB in Beijing this summer, yet she is much less of a celebrity than Nicole Richie, whose accomplishments are to be a clotheshorse and the on-off best friend of Paris Hilton. Nicole Cooke has Class One fame: her gold medal will shine whether the public looks at it or not; Nicole Richie is Class Two, and is only famous if we think she is.
The gap between real and fantasy values is hitting hardest, of course, in the housing market. In the UK, the so-called Halifax index became as much a barometer of national esteem as a measure of property values. Homeowners elided the rising value of their semi with their social and even personal worth — we boasted of increasing prices as if they were achievements, and those who could not afford to get on the ladder were made to feel like outcasts.
As consumers, too, many of us came adrift. Face-creams for $200 — why not? A dress for $10,000 — a snip. The language of the markets invaded the fashion pages as garments are described as ‘investment pieces’. In the latest copy of Grazia magazine, there is an article about ‘Fashorexics’: women whose approach to the credit crunch is to skimp on food so they can still afford their designer wardrobes.
The tension between Class One and Class Two values is deep in our mythology. It drives the narrative of fairy tales like Cinderella and her ugly sisters. The clash can be comic, but it can be deadly serious. The two sets of values are often at war within our own psyche: we’d like to think we’re sceptical, salt of the earth Class One people but at the same time, it’s hard to resist a bit of surface glitter.
Somewhere inside, something didn’t feel right, and we want to restore our equilibrium. Part of that is about revaluing things that don’t register on the financial markets: the soaring grace of a ballerina, a good book on a cold winter evening, an evening with old friends, an unexpected kindness. There has been a lot of talk about embracing a return to austerity, but puritan virtues are over-rated. What we can hope for is that out of the wreckage we can build a more balanced, less brittle, form of prosperity. We’ve tried a second class economy, and second class values — now we should aspire to first class.
— The Guardian, London