Economic stability

Published February 22, 2022
The writer is a political economist with a PhD from the University of California, Berkeley.
The writer is a political economist with a PhD from the University of California, Berkeley.

FOLLOWING the recent GDP rebasing, the PTI and PML-N are going on about their resulting higher GDP growth rates. Yet sceptical citizens are unimpressed, being too familiar with our boom-bust growth cycles, resembling not a development ladder but a game of snakes and ladders.

Economists know regimes can manipulate fiscal, monetary and external stimuli to achieve short-term growth that soon busts. Thus, they review macroeconomic stability too: a mix of low external/fiscal deficits, high employment and GDP growth, low inflation, a stable market-based exchange rate and high foreign reserves. If GDP growth is high but some of these economic indicators weak, such growth is usually artificial and unsustainable. Also, GDP growth must be high enough to absorb population growth, around seven per cent for us given the high levels of the latter.

Political economists go beyond macroeconomists to smartly argue that regimes can even contrive macroeconomic stability, eg via short-term aid with toxic political conditions or elitist growth. However, these unleash conflict that busts growth. Thus, I propose the more useful, concept of macro-politico-economic stability, which adds equitable growth and sustainable investment source as drivers of growth (beyond toxic aid) to the indicators above. So let us dive into reviewing how Pakistan has done since 1947.

Data for most economic indicators is only available after 1971, after we lost half the country due to macro-politico-economic instability. The few indicators for Gen Ayub’s era show high growth but also high trade deficits and unstable foreign reserves. Growth ran on unreliable US aid and high inequity, so much so that the poverty rate went up from 40pc to 50pc. US aid cuts after the 1965 war lowered growth which given the inequity led to conflict. So Ayub gave high growth but not macroeconomic stability let alone macro-politico-economic stability.

Rarely have we achieved even the most basic goal.

Zulfikar Ali Bhutto cut aid reliance and inequity, but gave slow growth, high inflation and external deficits and 50pc devaluation though growing reserves. Gen Zia gave higher growth via toxic US aid, lower but still elevated inflation, high fiscal deficits, major devaluation yet unstable reserves. So neither capitalist nor socialist nor religious zeal across three eras gave us stability.

The 1990s, with the US aid ended, had weak indicators. With toxic US aid resuming, they all improved under Gen Musharraf, to give some macroeconomic but not politico-economic stability from 2002 to 2006. High US aid reliance and autocracy fuelled conflict. Soon the external deficit went up and growth busted again, with its after-effects spilling into the PPP era to make most economic indicators weak. The initial PML-N years saw some macroeconomic stability but with growth only around 4pc. The quest for higher growth via external deficits led to a bust. Finally, the less said about the gung-ho captain’s famed tabdeeli sarkar’s era the better, for his and its own sake.

Rarely have we achieved even the basic goal, a growth rate of 7pc to meet population growth, let alone the two types of economic stability. Bangladesh and India have recently had high growth and more economic stability of both types. Most Saarc states have also done well globally on some major economic aspect without toxic aid via high productivity and with better social indicators. Here the government huffs and puffs much but knows only how to achieve short-term growth via unsustainable monetary, fiscal and external stimuli, toxic aid and economic inequity.

All this is linked to four toxic legacies of our autocratic eras. Firstly, they gave reliance on toxic aid, which the state in turn gave to businesses to make them dependent too on subsidies instead of productivity for growth. Secondly, they gave an idolisation of the real estate sector to attract investment away from industry, with a powerful state entity’s housing society spread nationally towering above others as a disturbing role model.

Thirdly, they gave big businesses owned by it. Regular state enterprises bleed money but are often in monopoly sectors where private capital hesitates to go. But the former are in sectors where private capital can easily operate and grab their market share via state muscle. Most have low productivity shown by their low share in our exports as they can’t compete globally, much like batters called flat-track home bullies in cricket. So expectedly when bullies do business, they remain bullies. Finally, the entity’s retired top honchos are given plush top jobs everywhere to produce societal unproductivity given their lack of expertise and top-down styles.

These factors combine to give a national economic psyche and culture of unproductivity, incompetence, tax evasion, amnesties, short-termism and rent-seeking which nix economic dynamism.

The writer is a political economist with a PhD from the University of California, Berkeley.

murtazaniaz@yahoo.com

Twitter****: @NiazMurtaza2

Published in Dawn, February 22nd, 2022

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