IT IS heartening to see a shade of realism now creeping in the statements of some policy elite about the country’s economy. They are beginning to concede that the government has not been able to do much for spurring economic growth and for poverty alleviation and that there is a lot more that they need to do.

However, one is not entirely reassured when, in the same breath, it is further said that the direction of the national economy has been set to achieve the above objectives. It is this strategic direction that many in the country are least comfortable with.

Before we go on to discuss the “strategic direction” per se, the above statement regarding “setting the direction” needs to be explored. For, no strategy on earth can be executed exactly as formulated, in isolation, to achieve the desired goals for two reasons. One, due to environmental turbulence, only a light deft touch can be given at the outset. Strategy actually gets fleshed out in action by a committed team of implementors. Two, commitment and ownership are won only through widespread involvement of the stakeholders who would together give shape to the strategy during the course of implementation. The direction itself might be redetermined too, if need be. Since the above crucial process is conspicuous by its absence, the probability of the achievement of desired goals is low or negligible.

Further, quick determination of national economic direction behind closed doors is an issue in itself that has been thoroughly debated in the past and would need a fresh look in the light of new realities. The political economy of decision- making in the realm of economics appears to be taking a fresh new turn.

However, coming back to the issue of goals and the path laid out to achieve them, the goal of poverty alleviation has been factored in by none other than the international lending agencies primarily to appease the restive multitude in their third world markets. First, the proposed route to poverty alleviation would touch only a minute fraction of the poor in the country. The slogan, however, finds way into the rhetoric and provides a face-saving when no tangible effort is made to arrest the generation of poverty which the system would keep churning out unless the sources of poverty are struck at their very roots. Consequently and secondly, the micro finance banks will serve as band aids for wounds that will keep festering in spite of micro financing unless the causes are addressed. As for the sources of poverty, easy solution is found in increasing the rate of economic growth. While none would dispute the goal of economic growth, reliance on economic growth for bridging huge poverty gaps is a flawed concept if assets and wealth distribution are too skewed to allow equitable distribution of incomes. For, distribution from growth would favour the owners of assets disproportionately more than others thus adding to the issue of maldistribution and thereby generating more demand for micro financing.

While micro financing as well as small and medium enterprise financing (SME) provide partial or minimal symptomatic cure to the negative spill-overs from our development strategy and/or its failure, this new trend is also a sequel to the demise of development banking. While none would dispute the need for micro financing in an economy where maldistribution is minimal and the need for SHE financing in an otherwise industrialised economy seeking resilience, the emphasis on viewing the above as substitutes for development banking and green field project financing is indeed problematic. For, it indicates a loss of direction in a country that is already a century (or two) behind the developed world.

Winding up our development financing effort is a virtual abandonment of our struggle to industrialise. Both of these measures have been taken at the behest of the foreign lending agencies that are more interested in cultivating our markets for finished goods imports from their home countries. Consequently, we are advised to rely only on SMEs and whatever little industry we have to spur growth, the natural contribution from agriculture notwithstanding. How would one then achieve the rapid rates of economic growth that might make a little perceptible dent in the country’s bleak economic situation?

The response from the Western mentors is that the growth should be export-led as was the case in the Far Eastern economies when they actually made an impact in international markets after achieving sustainable levels of growth and internal development through indigenous development strategies. Exports then fed back into the cycle they had entered through a focused approach towards broad-based development. International trade was initially an effect rather than a primary and an autonomous source of development. As also borne out in the case of India, openness by itself did not result in growth. Rather, it is growth that leads to higher levels of exports and trade.

So, with our industrialisation or industrial consolidation effort pretty much abandoned and with our inability to raise the levels of exports significantly enough, one wonders how those rates of growth would be achieved that might place Pakistan prominently on the world economic map and/or reduce economic inequities within. So, another prong of the “direction” determined at the behest of international lenders is the emphasis on privatisation. While private sector itself requires a conducive environment to function in, their ability to compete in a liberalising global environment is suspect. Also, this policy advice emanates from the 1980s’ orthodoxy based on the neo-classical counterrevolution that fed into Reagan’s supply-side experiment which focused on long-term economic growth through deregulation, private sector encouragement, savings and investment. While Reagan left the US economy with huge budgetary deficits without an impact on the rate of savings and economic growth (both of which declined), the neo- classical school’s recommendations fed into the policy prescriptions of the IMF and the World Bank.

These policies have been pushed rather rigidly by the two agencies even though the emphasis in the 1990s shifted towards a balanced approach combining the features of both state-led as well as market-led models. While the pendulum shifted from state-led to market-led model in the 1980s, it achieved a balance between the two in the 1990s. However, we are still stuck with the 1980s’ thinking which focuses primarily on market-led reform. one of the reasons why we are trapped in the 1980s’ mode is that our economic policy formulation is overly dependent on the guidelines from the IMF and the World Bank. And, a reason why market-led reform is a fixation with these two agencies is that it is most beneficial for foreign investors as well as for the export of their goods and services.

While the World Bank restored the role of the state by mid-1990s as a framework of institutions required essentially to create an enabling environment, it is downplayed or not emphasised enough in the case of policy export to Pakistan. One of the cited reasons is the third degree corruption that the state agencies were steeped in. If corruption reaches its highest degree, the moral fabric of the society stands ruptured. And, society includes both the public as well as the private sectors. The apparent issue is, therefore, corruption and reciprocal exchange that needs to be addressed in all sectors alike irrespective of the nature of ownership. Solution, therefore, does not lie in shifting emphasis from one foot to another especially if both the feet are mucky. While there is a need to rest on both the feet, both require disengagement from the practices that have led to the malaise. Consequently, the need for a balanced approach and emphasis on improvement in corporate governance as much as there is a need to emphasise good public governance.

Similarly, while private sector may be pronounced the engine of growth, the engine requires an enabling physical and social infrastructure to drive that part of the process it is responsible for. The other part of the process would need to have the state in the saddle without which the economic vehicle would remain immobile. To drive the process of economic growth and development, the state would need to take charge without which an enabling environment would not be created.

And, enabling environment would mean addressing those core causes that continue to impede a self-perpetuating process of economic development. Core causes are neither poverty nor deficits (fiscal and trade) nor low growth rates. These are all symptoms of the sclerosis our economic system and institutions are currently plagued with. While these may be called core issues, it is important to identify the causes that lead to them.

The causes would point to an inability of the state to create that environment in which the economic sectors flourish and reach the point of take-off. One of the reasons why industry declined was because our industrialisation effort since the 1960s was a forced one with inadequate domestic demand. Plagued with low capacity utilisation, its profitability in the short run could not be sustained. A parallel effort was not made by the state to develop domestic demand and thereby markets for our industrial goods. Domestic markets could have developed through a simultaneous emphasis on agricultural and rural development where bulk of the population is still concentrated.

Unfortunately, the agricultural development policies strengthened the already powerful and immiserized the peasants, development of some progressive farmers notwithstanding. As this impeded growth of domestic markets for produced goods, industrial growth remained stunted. Economy’s takeoff calls for a role of the state in developing the agricultural/rural sector that would have a tractive effort on other economic sectors. Unfortunately, the policy direction here as well is towards corporate farming with foreign collaboration that would further marginalize and immiserize the rural poor.

Unless the rural poor are involved with a direct stake in the rural economy, the system will keep generating more misery, poverty, deprivation, alienation. The countries that developed rapidly took off with land reforms as cornerstones of their development strategies without which economies would neither have the markets nor the attitudes conducive for growth. The more a state abdicates or postpones its role in laying the foundations of growth and development as above, the more it tends to consolidate elitist structures of power that tend to appropriate most of the wealth of nations thereby creating even more formidable barriers to equitable growth and development. As the state weakens, the elite structures gain strength and further restrict progress towards shared growth which alone can make the various economic sectors enter a virtuous cycle of development. Otherwise, quarter after quarter, it is strategic drift that would keep getting reported. Strategic drift calls for a shift in the paradigm or else performance gaps widen and resources consumed in closing the gaps through symptomatic rather than a curative effort. Perpetual symptomatic treatment would lead to a further loss of economic vitality that should be guarded against first and foremost.