On December 9, 2021, the Economic Advisory Group (EAG) set up by the PRIME Institute, a private think tank deeply invested in the idea of free markets, released a report on a new vision for Pakistan’s economic transformation. . The launch was attended by some of Pakistan’s leading economists, sociologists and thinkers, including Planning and Development Minister Asad Umar. He proposed to have a dialogue between economists, much like a dialogue that takes place between politicians inside and outside parliament. The dialogue, he believes, would lead to a consensus among economists that would be vital in determining the direction the economy is taking. While the speech was important, it was not clear whether it linked Pakistan’s economic problems to the lack of speech, or if the speech itself could be a potential solution to the problems! In either case, it is questionable whether there could ever be a greater simplification of Pakistan’s economic conundrum and the best ways to address it.
While recognizing the importance of free markets and liberal economic ideas such as privatization and deregulation, the report stresses that Pakistani markets have failed and that the only means by which governments can avoid efficiency losses and provide a enabling environment for innovators is to plan for economic transformation and increase the degree of complexity of the economy. He makes four proposals for increasing the degree of complexity of the economy:
- review the current pricing regime
- the overhaul of the education sector with the aim of integrating vocational training at post-secondary or higher education level
- reduction of tariff and non-tariff trade restrictions and integration into regional and international trading blocs
- rethink industrial policy with the aim of improving land use in cities and simplifying the tax code
The authors also make several recommendations for achieving the desired transformational impacts in each of the policy areas described above. One recommendation that is gaining attention is to direct the productive resources of the economy to their most efficient uses. Historically, subsidies, government policies and regulations have ensured that the returns to the production of less complex goods remain high, resulting in the crowding out of resources from the production of complex goods (high-tech and value-added goods). ). Taxes, subsidies and pricing regimes have all incentivized certain sectors and commodities over others, leading to asymmetric development of certain sectors and commodities. But, as the authors seem to argue, the sectors that this government support has developed have less to offer in terms of their role as multipliers and contributors to overall economic growth. Sectors and commodities that have a higher multiplier effect are seldom the recipients of government policy and regulatory advantages. This has kept Pakistan below its potential for growth and development.
The report points out that markets in Pakistan have failed and that the only way governments can avoid efficiency losses and provide an enabling environment for innovators is to plan for economic transformation and increase the level of complexity of business. economy.
The report, however, does not talk about Pakistan’s growth potential: something I think is important to discuss in any study that highlights the role of the private sector. Overall, the report assigns a subsidiary role to government and proposes market reforms, each of which will ensure that government policy and regulations are fair, transparent, and allow companies greater freedom to conduct their business.
The developing world presents a particular challenge for liberal economists and free market fundamentalists. With high levels of multidimensional poverty and numerous development and governance challenges, it is difficult to look beyond the “social function” of governments – which is why we have not gone beyond what I do. calls the “age of government” an age where we come to develop a passive role or – rather to put it mildly – a supporting role of government.
One binary that has come to define the relationship between government and the private sector is the political binary – service delivery. Essentially, this implies that services are best provided by the private sector, which will ensure efficiency and distribute resources equitably through market forces and the pricing mechanism. Politics here is the job of government and its architects, the bureaucracy led by the political elite, will have a great influence on how it is designed and implemented.
Free traders who vehemently despise government as an adequate force to meet our 21st century development challenges must realize that the private sector – no matter who has hampered its growth – is also an inadequate force.
Although the EAG has not explicitly attributed to this binary, the report seems to give the impression that despite the move towards market reforms and deregulation in some sectors, for all policy and regulatory purposes the government will continue to remain the dominant actor. Binary, however, as both simple logic and empirical indicate, is flawed and does not produce results.
Here are some reasons why the binary does not work and why thinking along the lines of an economic transformation must start from a clear demarcation of the respective roles of government and the private sector and the extent to which resource allocations. between various products and sectors should be done on the basis of uniformity.
Although the EAG offers uniform tariffs, it takes into account sectoral contexts as a guiding principle for allocating resources between sectors and products, and extends the role of government from its social / development function to the role it should play to facilitate private enterprise, promote innovation and incubate startups, etc.
This binary hasn’t really worked in the developing world. And there are several reasons for its failure.
First, those free traders who vehemently despise government as an adequate force to meet our 21st century development challenges must realize that the private sector – no matter who has hampered its growth – is also an inadequate force. From the perspective of the efficiency gains it has achieved and the size of the investments it can mobilize, the private sector is failing to meet the challenges posed by the extent and number of market failures in the sector. developing world. Second, the argument behind such a line of thinking is that markets and private firms are efficient and therefore must be the service providers. However, it fails to recognize that the effectiveness of markets largely depends on policy, and therefore binary does not exist due to a strong interdependence between policy and service delivery. Giving government discretion and control over policy deprives the service delivery function of its necessary autonomy, which is vital to the efficiency with which the private sector can deliver services. Third, the 18th Amendment created a division within government to create an internal – binary service delivery policy. Here, the power to design policy rests implicitly with the federal government and the delivery of services rests with the provinces. Fourth, the binary has been dismantled wherever the government has entered into public-private partnerships: by engaging the private sector for technical consultations and giving it some control over policy and in many other cases by providing services in subcontracting them to private companies.
While deregulation and market reforms are desirable, it will be interesting to see how the binary will work differently and under what arrangement the government and the private sector will operate, to ensure that policies and regulations are effective and efficient. tailored to the needs of the private sector.