Economists say that every crisis brings an opportunity that should not be missed. And a growing number of economists are identifying new ways of doing things, sharing innovative ideas and current relevant practices that would work so that the crisis is not wasted.
Though many countries may have benefited from each other’s experience in their bilateral relations in the past, the exchange of ideas and experiences among the community of nations has become imperative in these hard times and in the digital era where knowledge and latest technologies are now playing a critical role in a changing world and keeping hopes of an early global economic recovery alive. The global crisis has provided an opportunity to thought leaders to play a leading role in ushering a transformational change.
In a shared ‘brain-picking exercise,’ the International Monetary Fund (IMF), recently created a website to demonstrate how different countries were combating the devastating effect of the pandemic on human lives and livelihood. And no less important, the IMF text models are changing in the wake of unprecedented health and economic challenges around the world.
While learning from experiences of other countries and doing things in a new way helps nations in significantly, indigenous solutions are required to have balanced social and economic development with the active participation of government, business and the society
Many scholars, economists and corporate executives and government functionaries are on the same track. In the annual meeting of the American Economics Association (AEA) early this month, the spotlight was on an unusual subject: ‘the importance of social forces — and the economists’ tendency to overlook them.’
The keynote lecture on the topic was delivered by Emmanuel Saez, Director, Centre for Equitable Growth, University of California, Berkeley. He is known for his work for assembling historical data on wealth and income inequality. Saez’s advice to his fellow economists was ‘to rethink their usual approach to the welfare state.’ The annual AEA conference was attended by thousands of economists from around the world.
Writing on the nature of discourse organised by AEA, a keen observer wrote in The Economist, London, that the next year’s conference, when it rolls around, may see a much more social event than this year’s with the following remark: just as the global financial crisis prompted a re-think of the profession’s understanding of financial markets and macroeconomic policy, the pandemic may prompt focus on other blind spots. One may point out here it is now widely recognised that systems and models need to revamped and redesigned, and, according to some social scientists, capitalism also needs to be updated.
While learning from experiences of other countries and doing things in a new way helps nations in significantly, indigenous solutions are required to have balanced social and economic development with the active participation of government, business and the society. Policymaking has to take into account specifics like a country’s cultural milieu as China’ success story demonstrates.
To quote analyst Shahid Mahmood, the Chinese policies have a very strong bias for indigenous solutions on the basis of their own experience. China, unlike our reliance on donors, has its own ground agenda, something which is missing in Pakistan. They are eager to learn from the experience of other nations and open up their markets gradually.
While the West has been very critical of China’s protectionist policy the US and the UK, standard-bearers of financial globalisation, have followed suit. While the developed economies were focused on financial market globalisation, China found space to boost manufacturing to become a global factory. In the last four years, the US policymakers pursued protection policies to revive manufacturing and provide employment. Despite Covid-19, US manufacturing production, supported by a shift in domestic demand towards goods from services, has increased by 11.2 per cent in the fourth quarter of 2020. Emerging markets like Pakistan with heavy foreign debt burden are focused on export-oriented manufacturing and slashing their imports.
Our policymakers also need to look at the latest US policy adjustments and their positive impacts. The Trump administration had demonstrated that higher rates of growth, employment and budget deficit did not trigger an inflation spiral. In Pakistan as well the current nascent recovery is marked by a dip in the inflation rate.
Deviating from its tight monetary instance after the outbreak of Covid-19, the State Bank of Pakistan has provided a huge impetus for an early recovery. As done elsewhere, the government is extending stimulus/relief to both firms and households. It may be recalled that during the Great Recession the policymakers had overlooked the households for the fragile global recovery to become more stable.
But the overarching issue that influences other economic trends is the imbalance between social and economic growth that is a barrier in evolving a mode of equitable distribution of fruits of development while inclusive and sustainable economic growth remains elusive.
The industrial economy in Pakistan has a weak corporate culture. Forgotten is the shareholders’ democracy in listed public companies which in the 1960s helped attract small investors in the stock market and is needed to broaden the base of industrial ownership. Now it is the market democracy where excessive speculations in stock markets help generate much of the economic activity.
In the agricultural sector, the traditional feudal pattern of landownership stifles the growth of corporate farming and discourages the development of cooperative farming. The bulk of agriculture and other rural economic activities remain in the informal sector and low farm yields are resulting in labour migration to cities with worsening civic and infrastructure problems. The growth in the commodity-producing sectors is lower than the services.
Pakistan can also learn from Chinese experience how the local bodies and the rural cooperatives have contributed significantly to grassroots development and removal of poverty. The political economy model in Pakistan needs to be updated by empowering social forces whose stakes lie in a robust change.
Published in Dawn, The Business and Finance Weekly, January 25th, 2021