Economic development of the country remains a major challenge. For, economic development is not achieved unless respectable GDP growth rates are achieved coupled with the reduction in poverty, inequalities, and the unemployment.
This reduction is expected to be soon and rapid, and not at a point in time in the distant future by when the policy makers will have moved on to other assignments.
Unless the above view is meaningfully incorporated in policy to show quick results, the policy is aiming more at economic growth rather than economic development. For the development then, the proposed routes are micro-financing, education, health, and population welfare.
While micro-financing is desirable to engage the few or a small percentage left out of the formal system; micro-financing as a development strategy to alleviate poverty will not do an effective mopping job of a landscape littered with poor, almost like exhaust from an engine that needs an overhaul. The solution is in engine overhaul and not in exhaust treatment so as to contain or arrest the growth of poverty with a view to treating the cause and not just the symptom. At best, even if micro-financing touches all the poor which is optimistic, it will raise them to subsistence or slightly above it. The outcome would still not be inclusive growth if the multitude is lifted to barely eke out an existence on the fringes of the society that they will likely remain relegated to through the meagre resources provided to get by.
As for education and health, these are lumped together as social welfare even though poor scores on these indicators are a direct upshot of the country’s poor economic performance. If the country performed unsatisfactorily on the scores of education and health, it is the economic development paradigm that needs to be looked at afresh instead of just making a case for social welfare projects to ameliorate the lot. Even if, hypothetically speaking, the score on education and health improves significantly through social welfare projects, would that by itself, spur development unless the capacity is simultaneously created to absorb and engage the educated and healthy human power? The answer usually given is; “give them education and they will do something”. This “something” remains elusive in the absence of opportunities that are a hallmark of under-development. The issue is one of the opportunities and, above all, equality of opportunity that a system must keep generating to keep the healthy and educated creatively and productively engaged. How might these capacity constraints be addressed?
As the issue of capacity constraints is brushed aside, education and health are being viewed as ends in themselves. While this is notwithstanding the importance of education and health, the government and donor agencies are then required to just attend to these basic needs of the multitude that are being bypassed in the process of growth. If there is such a sizeable negative spillover in terms of poor education and health, then should the government and donor agencies not also focus upon minimizing this large spillover from a growth process that has been more exclusive than inclusive? If yes, the growth process will need to be inclusive and all encompassing. The issue is paradigmatic.
While it is fine for the country’s affluent to absolve themselves of the responsibility by simplistically advocating for education and health as a surefire solution to development, the emphasis in government’s policy has strong ideological underpinnings.
The belief in the 1960s was that the industrialization and urbanization would lead to the development, as benefits would trickle down through a grow-now-distribute-later approach. It was further believed that the inequities would widen initially as a first tension of the capitalism. Since the trickle failed to surface meaningfully and soft states were ill-equipped to handle any tension of the capitalism, the slogan in the 1970s changed to the growth-with-equity. The inverted-U of inequalities also stood refuted in real life in some developing countries in Asia. So, a half-hearted and half-baked attempt was made to distribute-before-growth as was seen in the then land reforms and nationalization effort. It was also coupled with a limited big-push to industry. Plagued by the coordination failures across the board, the strategy failed to make an impact, as a poorly implemented strategy is as bad as or worse than a poorly formulated one. This was also the time when developing countries’ scholars were coming up with dependecia. And, the Western democracies were converting the Keynesian prescriptions into the political-business cycles that, inter alia, led to the stagflation of the late-1970s. Stage was set for a neo-classical counter-revolution exported liberally since the 1980s to the less developed countries (LDCs), also as a part of a final assault on the rival ideology promoted by the former Soviet Union. More markets and less government would be the new slogan for the LDCs required to put their house in order before holding the West responsible for their malaise as in the dependency school. The LDCs were to then set their market structures right in environments ill-prepared for the free market system which assumes a certain individualistic rationality conspicuous by its absence in the LDCs that are dominated by group, class, clan, and tribal considerations which values actually sneak into their urban sectors as well, thus making their functions more frictional than would otherwise be the case. While time is required to prepare ground for erecting free market systems, this concern would then be incorporated in the theoretical prescriptions that would be imported next.
The new wave of the 1990s would be the New Growth Theory (NGT) that would recognize the role of public policy in developing both physical and social infrastructure to make conditions ripe for the development of market structures. It is the NGT that has added a human dimension to the market reform programmes whose vulnerabilities in the LDCs have also been accepted. The question, however, remains whether the two components of the theory can be blended into a composite whole in Pakistan? Or, will the two aspects be executed as two separate prongs that will be difficult to converge? Since the new growth theory remains rooted in the neo-classical tradition and ignores the structural, institutional, attitudinal, and capacity constraints to the development; it is fraught with limitations no less serious than those of the neo-classical approach.
However, as this new flavour in development thought came tied to external financing programmes; attempt was made to address some of the above constraints. The emphasis on growth has been combined with the issues of governance, banking sector reforms, taxation reforms, education, and health. While the linkage of education and health with development would by no means be automatic without deep policy interventions that would transform the power relationships in the country; the remaining reforms have to either show the desired results or have yet to turn over into development goals outlined earlier. Banking reform, for example, even if taken at face value has yet to translate into the ends for which all development effort is undertaken. Even then banking reform is generally viewed as an end in itself when this intermediating role is but a means to the end of growth and development. To realize this end, complementarities are required on which front the progress is dismal. Success on the fronts of good governance and taxation reforms is a function of societal power structures, institutional characters, and the attitudes which govern more than any formal policy guideline.
The gap detected in the 1960s was the savings-investment gap that we attempted to plug with the borrowed financial and physical capital. By the 1970s and again by late-1990s, it became abundantly clear that financial and physical capital need to be complemented with human capital to make the former turnover into growth and development. That is, healthy and educated human power to drive the engine of growth. But, are the taxation and other systems of private and public governance not equipped with the educated and healthy human power — if health is to mean only physical health? How well have they driven the institutions and organizations they man? If efficiency and effectiveness are still conspicuous by their absence, then clearly there is more than the physical health and education that we need to spur the economy.
What we need is the social capital a well-coordinated and cohesive network of institutions and structures that work in sync for the mutual benefit of all and not at cross-purposes for the gain of a few at the expense of the interest of the rest. At its centre would be a set of developmental attitudes that alone can turn education into national gain. The attitudes would, however, flow from equitable power relationships that would in turn be a function of equitable allocation and distribution of resources the country is endowed with. The relationship is circular. Unless this virtuous cycle is entered, we will only be experimenting with the activity-centred approaches for years on end. These include the savings-investment approach, export-led growth promoted through a partial reading of the history of late developers, disjointed institutional and sectoral reforms, and attempts at building human capital without appreciating the place it will occupy in the overall scheme devoid of social capital.
While each one of the current emphases may be the necessary conditions for development, these are by no means sufficient conditions for the purpose unless their collective performance leads to the goals of development. For this purpose, the biggest coordination failure between the agriculture and the industry will need to be recognized. Since the two sectors were not synchronized, we have experienced both industrialization and rural-urban migration without development in the strictest sense as mentioned herein. We may even experience gains in literacy and life expectancy without achieving the development goals for as long as the country’s key sectors do not enter a virtuous cycle of growth. The solutions suggested are corporate farming which, as explained a number of times before, will exclude more than include. It is surprising to learn that China is going to be providing assistance in this direction even though it would be contrary to the enabling conditions they created for their own development. To avoid activity-centred approaches to development, it is imperative that the history of development of late developers especially in Asia is known fully and is placed in perspective. For, partial reading of success stories such as China’s, Japan’s, South Korea’s, and Taiwan’s will make us repeat the mistakes we made with the Marshall Plan kind of assistance and development advice we received after the Independence on the basis of the Western European experience. Development of this understanding should be an absolutely indigenous effort as providers of advice will be guarding their own interests more in their current stage of development than that of the recipient country’s. Only then will we be able to throw up integrated solutions to all the inclusive development.