Technology’s role
THE latest budget is primarily aimed at putting Pakistan’s finances in order. The government has set a massive target for the Federal Board of Revenue — 35 per cent more than last year! The government is also planning to practise austerity. This budget is ambitious; if it works it may bring down the budget deficit.
This fiscal consolidation, however, will significantly check the economic growth rate. Official estimates put economic growth at only 2.4pc next year. Economic growth is the surest guarantee for job creation. According to the UN, given demographic trends, Pakistan needs 1.3 million new jobs every year!
Given the urgent need to increase economic growth to create jobs, policy options in the budget appear limited, since a major chunk of expenditure will go towards debt interest payments for the next several years. Is there any way through which the government can bring about economic growth? The answer lies in focusing on technological innovation.
The economy’s fundamental problem is its technologically backward exports — food commodities comprise 21pc of exports. The demand for the latter does not increase as economies and incomes grow in our trading partners. Consumption of wheat, rice or sugar is limited by biophysical constraints after all. However, as the economy and income grow in Pakistan, people purchase more and more imported goods like iPhones and vehicles, especially as new models appear every couple of years. This imbalance in sales and purchases is what widens the trade deficit. These weak ‘terms of trade’ are the real reason behind the perennial trade deficits that force Pakistan to knock on the IMF’s door regularly.
Pakistan needs 1.3 million new jobs every year.
The nature of exports can be transformed through sustained technological innovation. Instead of food commodities, Pakistan can export processed commodities. Instead of cotton yarn, it can export locally developed branded apparel, earning a lot more foreign exchange, even for the same quantum of exports, thereby reducing the trade deficit and unshackling itself from the IMF.
The critical role of technological innovation in increasing economic growth is not disputed. It is a key explanation for the exponential economic growth during the Industrial Revolution.
The real puzzle is why technological innovation takes root in some societies, while others are not able to make much headway.
Recently, at the Economia Festival in Trento, Italy, two economists offered solutions to the technological innovation puzzle. Joel Mokyr identified two variables that mitigate against technological innovation, stalling economic growth. He underlined corruption and political risk as significant hurdles that work against upping the rate of technological innovation. Simply, in the presence of a kleptocracy, innovators can never be sure if they can keep all the profits from their inventions. This lack of incentives makes them reluctant. At the same time, the spectre of political risk — when economic policies affect business profitability —creates disincentives for local and foreign businesses as far as investment in new technologies is concerned, thus stalling economic growth.
Daron Acemoglu, author of Why Nations Fail, argued that technological innovation and economic growth only come about if societies gain more liberty against the governing institutions that rule them. And, societies can gain more liberty by instituting robust checks and balances that keep corrupt rulers at bay — for nations that have effective accountability mechanisms, the likelihood of economic growth is much higher.
Given the urgency to focus on technological innovation and economic growth, there are two major lessons for Pakistani policymakers: first, technological innovation and economic growth will not take root unless local and foreign investors keep the gains from their innovations and investments. To do so, robust checks and balances and accountability mechanisms are needed.
The second lesson is perhaps more important and deals with political risk — when economic policy changes on a dime. Technological innovation will not take root if investors do not have confidence in the permanence of economic policies. And, given that most infrastructure projects like the Orange Train in Lahore have completion timelines extending beyond five years, there must be economic policy permanence and overlap across different governments.
The latest budget merely attempts balancing the books; job creation and economic growth must be the real objectives. Policy options for increasing economic growth have all but disappeared. Focusing on technological innovation does, however, offer a way out. What is really needed right now is a ‘charter of economy’ through which political leaders can rise above their differences and reach consensus over the permanence of economic policies for the next decade at least.
The writer is a Fulbright Scholar and has a doctorate. He teaches economics and public policy at Habib University, Karachi.
Published in Dawn, June 25th, 2019
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Comments (15) Closed
Great article. The author is extremely knowledgable.
The federal government has no money to skilling peoplee .
Kakul academy and Quetta staff college; please introduce the topics highlighted in this article in your curriculum ASAP so that we have learned scholars when they come to devise the economic and fiscal policies of the country in years to come. Politicians and rest of Pakistan please do not bother to notice, it is beyond your remit.
Author forgot to mention that for technological innovations a strong knowledge base of science and social science is required, which we don’t have. Lesson for the nation is that “to reap something, we must sow it first”. Where are we in educating the masses? Not started or thought about that yet.
Well Written.
on the other side of the coin, technological innovation / advancement creates widespread unemployment, how can we tackle it?
Start Milk Business and other small scale Industries...People in Pakistan are not interested to be job generators...People want only jobs and blame the Government for not getting them jobs...There are many people with loads of money yet they don't want to be source for employing others.....
Pakistan needs self styled entrepreneurs...People want only jobs, however they are not looking at job creation and becoming self styled entrepreneurs...They can take up Poultry, Farming, Agriculture & Horticulture...
Start by identifying 100 schools in each province and send trades teachers to teach all students - male and female basic trades - carpentry, plumbing, bricklaying, electrician, auto and truck mechanic, etc. Then expand to the next 100 schools and so on. Encourage the children's parents to come in the evening for learning the same trades. Train the next level of trainers, who will be responsible for teaching more citizens, both men and women. Low hanging fruit - it is really easy to do.
Check runaway population growth. It is a curse on any nation .
Have any one in India or Pakistan has noticed technological innovation, automation and increased productivity have made many jobs that required college degrees have been abolished. Many customer facing jobs have been converted to self service due to availability of smartphones and internet. No one is paying attention that many white collar jobs are disappearing than how millions of new graduates can be provided with the job.
CPE alone can give more jobs than author mentioned.
Technology is enabler. Whether it creates jobs, that is different.India is populous country. So we thought computerization will solve lots of problems(sorting and searching are two most frequent operations). We are exporting software that came later.
I agree with you Please talk with your politicians. Human mind is a terrible thing to waste ! Please develop your people, their minds - through education & set them free. It is better than hand outs from other countries frequently. Compete in this world by getting fit & better - survive or IT IS history. Selling your country & resources out to China & Arab countries -- is not the solution. It will only get you deeper in debt ! Do not sell your souls & future of your children to these devils !
"And, societies can gain more liberty by instituting robust checks and balances that keep corrupt rulers at bay"
That is the head of the nail. Proper processes with in built checks and balances coupled with fault redressal mechanisms is what is needed. This is a purely executive function so the government needs to work quickly on those. Unfortunately the government is so focused on arresting old so called offenders they are completely forgetting that a weak system is what breeds corruption. They are doing nothing to stop these so called offences from being committed again in the future. They need to bring in proper checks and balances in the system down to the process level.
Comments (15) Closed
Great article. The author is extremely knowledgable.
The federal government has no money to skilling peoplee .
Kakul academy and Quetta staff college; please introduce the topics highlighted in this article in your curriculum ASAP so that we have learned scholars when they come to devise the economic and fiscal policies of the country in years to come. Politicians and rest of Pakistan please do not bother to notice, it is beyond your remit.
Author forgot to mention that for technological innovations a strong knowledge base of science and social science is required, which we don’t have. Lesson for the nation is that “to reap something, we must sow it first”. Where are we in educating the masses? Not started or thought about that yet.
Well Written.
on the other side of the coin, technological innovation / advancement creates widespread unemployment, how can we tackle it?
Start Milk Business and other small scale Industries...People in Pakistan are not interested to be job generators...People want only jobs and blame the Government for not getting them jobs...There are many people with loads of money yet they don't want to be source for employing others.....
Pakistan needs self styled entrepreneurs...People want only jobs, however they are not looking at job creation and becoming self styled entrepreneurs...They can take up Poultry, Farming, Agriculture & Horticulture...
Start by identifying 100 schools in each province and send trades teachers to teach all students - male and female basic trades - carpentry, plumbing, bricklaying, electrician, auto and truck mechanic, etc. Then expand to the next 100 schools and so on. Encourage the children's parents to come in the evening for learning the same trades. Train the next level of trainers, who will be responsible for teaching more citizens, both men and women. Low hanging fruit - it is really easy to do.
Check runaway population growth. It is a curse on any nation .
Have any one in India or Pakistan has noticed technological innovation, automation and increased productivity have made many jobs that required college degrees have been abolished. Many customer facing jobs have been converted to self service due to availability of smartphones and internet. No one is paying attention that many white collar jobs are disappearing than how millions of new graduates can be provided with the job.
CPE alone can give more jobs than author mentioned.
Technology is enabler. Whether it creates jobs, that is different.India is populous country. So we thought computerization will solve lots of problems(sorting and searching are two most frequent operations). We are exporting software that came later.
I agree with you Please talk with your politicians. Human mind is a terrible thing to waste ! Please develop your people, their minds - through education & set them free. It is better than hand outs from other countries frequently. Compete in this world by getting fit & better - survive or IT IS history. Selling your country & resources out to China & Arab countries -- is not the solution. It will only get you deeper in debt ! Do not sell your souls & future of your children to these devils !
"And, societies can gain more liberty by instituting robust checks and balances that keep corrupt rulers at bay"
That is the head of the nail. Proper processes with in built checks and balances coupled with fault redressal mechanisms is what is needed. This is a purely executive function so the government needs to work quickly on those. Unfortunately the government is so focused on arresting old so called offenders they are completely forgetting that a weak system is what breeds corruption. They are doing nothing to stop these so called offences from being committed again in the future. They need to bring in proper checks and balances in the system down to the process level.