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Deindustrialisation

February 11, 2018

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PREMATURE deindustrialisation and its impact on Pakistan’s development prospects have been in the news lately. The argument put forth by some commentators is that until and unless the manufacturing sector’s crisis is resolved, Pakistan will be unable to generate employment and greater social mobility for the masses. While it is true that Pakistan’s manufacturing sector has been declining for decades, the argument that industrial growth is essential to generating social mobility and employment is a bit off the mark.

It has become popular to argue that a manufacturing renaissance, in both developed and developing countries, will generate millions of jobs — ‘Make America Great Again’ and ‘Make in India’ are just two examples. Proponents of this argument point to 20th-century case studies where countries developed strong manufacturing sectors to graduate from low- to middle- and high-income status.

While these policies may result in increa­sed manufacturing output and correct the trade imbalances for some economies, they will not provide high-paying jobs for millions — because the world is undergoing the Fou­rth Industrial Revolution where robots and au­to­mation are disrupting the global economy.

Pakistan’s youth needs necessary skills.

A recent McKinsey report predicts that automation will displace almost 400 million jobs around the world by 2030. Routine physical tasks, particularly those carried out in manufacturing, are already being automated. This trend is expected to accelerate. During this transition new jobs will be created in sectors where customer interaction is a core function of the job. Service-oriented sectors such as retail, healthcare provision, and teaching will be the likely winners.

The global conversation is now focusing on the future of work, investment in human capital, creating vibrant entrepreneurial ecosystems, and innovation. Instead of crafting policies that provide subsidies to a globally un­­­competitive and largely rent-seeking industrial base, Pakistan must deploy its scarce resources to develop the country’s burgeoning labour force.

In the short term, it must focus on investing in skills development programmes, the goal of which should be to take literate and semi-literate workers and equip them with the skills needed to start their own entrepreneurial endeavours. Following the completion of their programme, trained workers could be provided with low-interest modes of financing to start their own ventures. The state should use this opportunity to further engage with the workforce and forge a new social contract, thereby raising future tax revenues and reducing the size of the shadow economy.

The long-run solution must focus on fundamental structural reforms in the economy and education. Over the years, major parts of Pakistan’s economy have become rent-seeking and are unable to stay globally competitive. Key reforms, such as those that do away with the nonsensical SRO culture, are a critical first step. An empowered, non-partisan body should be tasked with recommending policies focused on fostering greater innovation and entrepreneurship as well as executing a long-term road map to improve economic competitiveness.

Finally, Pakistan must focus on giving its youth the necessary set of skills. Basic literacy will no longer do — the youth must be provided an education that fosters greater critical thinking and problem solving. Without these, the youth dividend will turn into a crippling liability.

It is important that Pakistan’s policymakers draw a distinction between innovation and high-tech research and development. The former requires millions of citizens who are creative problem solvers with strong secondary-level education and vocational skills. The latter requires relatively fewer scientists and highly qualified engine­-ers from advanced universities.

Pakistan has soph­isticated engineers and scientists — the country’s successful nuclear programme is evidence. What it needs is millions of innovative citizens who can generate economic activity across all sectors. This would give birth to new enterprises, thereby growing the economic pie and fostering sustainable economic growth.

Let there be no doubt that Pakistan needs to institute structural reforms to re-energise its ailing industrial base. Let there also be no doubt that successfully providing employment opportunities to the country’s youth bulge requires a vibrant and competitive manufacturing sector. However, a rigid focus on the country’s industrial base, particularly in the form of subsidies to the manufacturing sector, is likely to do more harm than good to the nation’s future economic prospects.

The focus of the state and policymakers in Pakistan needs to move away from picking winners and losers and towards fostering an entrepreneurial ecosystem. Pakistan’s population is its biggest asset, and the focus of any major initiative that seeks to push the country on a sustainable growth trajectory must focus on human capital development. Minus this, the most effective policies that focus on sustainable growth are bound to fail in delivering positive outcomes for society.

The writer is a South Asia analyst at Albright Stonebridge Group in Washington D.C.

Published in Dawn, February 11th, 2018