There is clamour from all official quarters that the economic “reform process” will continue even under the new democratic dispensation.

These assurances have been given by none other than the finance minister, Mr. Shaukat Aziz and President General Musharraf with the State Bank of Pakistan constantly emphasizing upon the continuity of the economic “reforms.” The above assertions and exhortations call for more questions than one.

Is it continuity of reforms, if at all, that we should be seeking at a time when we are equally keen to induct an elected government? If we are headed towards a democratic dispensation, then should we hamstring it with a predetermined strategy and a policy direction? If the policy direction has been determined already, why must we then have another government?

For, changes in governments are sought primarily because a change in policies or direction is required. To have another government without granting it the freedom to stay or change the course of economic policy is like merely having lieutenants to execute a strategy that is almost being dictated to a new set up when the latter should have space to determine the course afresh. Freedom to make this choice should be the privilege of the incumbent government rather than that of the previous or outgoing one. The issue is that some of the previous government, for example in finance, may be added on to the incoming government with the result that the key economic issues would be dealt with like they have been during the last three years. Is this why people went to vote?

This is an issue that the incoming government will need to address as well. If they won the confidence of the people, then what was the economic part of their manifesto? If they thought that the previous government’s economic agenda was good enough to be their economic manifesto as well, then why must there be a change of government in the first place? It is the economic agenda that mostly makes or breaks an election campaign especially in a weak economy. And, if a party has nothing new to offer or it wants to offer more of the same, then why must it be in the run? For the sake of democracy, they’ll say. But ‘democracy’ is not an end in itself. It is a means to ensure a government of the people, for the people, and by the people towards the end of the attainment of the larger interest of the people. So, if a previous government has been working for the people regardless of its origins, what difference does it make to the people who govern? It makes a difference only when a government is not for the people. They would then like to take charge through their elected representatives to have a government of the people and by the people. Otherwise a change in government would be superfluous and redundant.

We, therefore, need to examine whether the previous three years since October 1999 offered an economic agenda that was for the people directly or indirectly through a convoluted route. If the former is the case, then results would have shown by now. And, there would have been little need to convene a people’s assembly, at least from an economic point of view. The very fact that elected representatives are sought implies that people’s interests are to be better served. The assumption is that only an elected body can serve the interests of the people better.

So, if improvement in service is required, then the new government must have both space and freedom to determine the economic course afresh. A new government with hands tied to the old “reform process” will hardly be able to justify its reason for being if it is expected to merely provide extension to the old line of thought. Change of guard, if at all there is one in finance and economics, will beg for a rationale. The rationale will necessitate a re-determination of the course. Continuation of the same old guard will also need to justify staying the course that they insist upon despite the benefits stuck in a pipeline that appears clogged and is likely to remain so for an unknown period before even a trickle forces its way out that the finance minister believes should eventually reach the people. The eventual period is an unknown point of time in the future which even the finance minister cannot predict in all his infinite wisdom.

The SBP’s annual report 2001-2002 presents a dismal picture for the multitude. While it boasts of an economic growth rate of 3.6 per cent which is higher than last year’s by 1.1 per cent, it is not only less than this year’s target of 4.0 per cent but it also depicts a jobless growth. One cannot really feel joyful if the rate of growth is not joyful for the multitude. The SBP gives an unemployment rate of 7.8 per cent for 2000 which will not be updated until the next Labour Force Survey (LFS) is conducted.

However, the SBP does not expect a significant improvement for the years 2001 and 02. Needless to add that the above rate of unemployment is also understated because it is based on a formula appropriate for full- or near full-employment developed economies. It does not include the discouraged workers who give up looking for jobs as they think none are available. If discouraged workers are added to our numbers of unemployed, the numerator in the formula would swell up.

But the technical definition of the numerator of the “unemployed” excludes discouraged workers which may be fine for developed economies due to their small numbers there but not for us as these are the numbers that present a true picture of the unemployment situation. So, if the masked unemployment rate has increased to 7.8 per cent, it is an indicator of the actual rate of unemployment which would be several times over.

With all the “favourable” paper indicators notwithstanding and despite their disputed sources and causes, a score as poor as that on the rate of employment is like having failed in the practical exam. Failure in practical exams does not earn one a pass overall. So, how can an overall ‘F’ be a predictor of a rosy picture in the future especially when the “future” itself needs to be defined in terms of a time line? Ordinary minds need to fathom this self-appreciation in some official quarters under these dismal circumstances. At least, the SBP “autonomy” is paying off somewhat as they are reporting and analyzing more independently than the high offices in Islamabad.

The SBP report further reveals that the formal industrial and services sectors are unable to create enough jobs for all the labour supply in the country. During the tenure of the might-be outgoing economic managers, the real GDP growth rate registered a declining trend for the first two years. The GDP growth rate declined from 4.2 per cent in FY99 to 3.9 per cent in FY00 and further down to 2.5 per cent in FY01. While it turned up to 3.6 per cent in FY02, it remained below the targeted rate of 4.0% as mentioned already.

While the overall agricultural growth rate fluctuated registering an increase in FY02 to only1.4 per cent, the rate of growth of major crops has been registering a negative growth since FY01. The rate of growth of overall manufacturing also fluctuated since FY99 and decreased to 4.4 per cent in FY02 from 7.6 per cent in FY01. The rate of growth of large scale manufacturing decreased from 8.6 in FY01 to 4.0 per cent in FY02. Exports and imports both registered negative growth rates in FY02.

So, foreign exchange reserves may have increased to unprecedented levels due to, inter alia, a host of external and non-economic factors, the above dismal performance on the economic front should be a cause for great concern. It cannot simply be explained away by high forex reserves or a marginal decline in the debt burden by having the issue postponed into the future. The position on the front of budget deficit has been pathetic to say the least with budget deficit-to-GDP ratio shooting back up to its FY00 level at 6.6 per cent in FY02 as well after dropping to only 5.3 per cent in FY01. The IMF tranches have been released after granting waivers on the revenue and some other targets mainly as a function of the international and now global political economy. It is Pakistan’s geo-strategic position and global political outlook that is, thus far, keeping it integrated with the international financial system more than its economic policies. While the economic policies had to additionally fall in line with the IFIs’ requirements to qualify for their funds, to believe that it is the soundness of our economic policies that is, by itself, proving to be a winning strategy is to be downright presumptuous!

The SBP links the rate of unemployment with the level of investment and uses a rather simplistic trend analysis to establish the relationship. While this relationship holds in theory, the question is whether our rates of unemployment and ratios of investment-to-GDP are simply issues of a few percentage points that the SBP traces over time. Even a few percentage point improvement in the rates of unemployment cannot make a visible dent in our scene of unemployment as the vast multitude of discouraged and displaced workers do not figure in our calculations at all. This brings us to the question of continuity of a so-called reform process that is mere management by extrapolation within a paradigm that was adopted, at least, in 1988 when the first elected government after the late General Ziaul Haq’s era assumed office.

It is a common concept in strategic management that when desired results cannot be achieved within a certain paradigm then paradigm shift is in order without which strategic drift is only likely to widen. Also, even if this may not be the case and limits of incremental change are reached within a paradigm, then, in the interest of continuous improvement, a discontinuous break, that is, “punctuation” would be required to bring about a transformational change that would launch the system into a new paradigm and a process of regenerative change that would then enable a new cycle of incremental change, albeit in a new paradigm.

Equilibrium in the system would thus be maintained although it would be in the nature of a “punctuated equilibrium” which hoop, if not crossed, would take the system to a stalemate at the limits where the system would only be found marking time as we have been despite many employment-specific schemes in addition to managing by hope too by focusing only on investment and growth not all of which may have been pro-poor.

It would only be at the expense of boring repetition that we can recount the inability of grow-now-trickle-later model to address the unemployment and poverty issues any time soon, micro-financing and SMEs notwithstanding. For the economy and the nation to march on in sync, the populace is to be integrated in the mainstream. This is what the goal of the economic policy ought to be and not merely to convert the economy into a free-market one. Free-market system cannot be a goal. It can, at best, be a means to an end.

Whether it can be a means to the end of inclusion is moot. The means and the ends are currently being used interchangeably at the same level of analysis which is erroneous conceptualization. If the goal is inclusion of the people and not extrapolated exclusion, then the strategy would need to be devised afresh towards the above destination. This is not to say that the current emphasis on growth and investment should be placed on the shelf. Rather, the manner of investment leading to growth may need a redefinition. So, all of the investment may not necessarily be in capital and technology especially for sectors where alternative sources of growth are available in abundance.

For example, in agriculture and in basic industry where appropriate technology may be used by deploying the abundant human resource and investing in it liberally. This would, however, be possible only if our ends and means are clear and not substituted either with each other or with goals that should not be ours. And, this requires an ability to cross the hoop, the “punctuation,” that alone would lead to stability and equilibrium. However, to attain stability over the medium-to long-term, it is “punctuated equilibrium” that the economy would need and not the surface equilibrium that the governments since 1988 have tried to maintain at the expense of either stagnancy or further decay!