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Beyond macroeconomic indicators

Economists, policy practitioners, politicians and international agencies in Pakistan are obsessed with macroeconomic indicators as a way to measure and achieve national progress. They keep on writing and challenging each other on numbers and trends of fiscal deficit, exchange rate, public debt, interest rate, and tax to GDP ratio among others. More often than not, this discourse is rooted in a surface understanding of the simple interrelationships of macroeconomic variables taught in Economics 101.

Despite the strident government rhetoric about raising economic growth rate and enhancing trade competitiveness, binding constraints to economic growth are not tackled seriously enough. Local economic and social development and microeconomic foundations in the areas of productivity, technology, regulations, infrastructure and social capital that are critical for growth and development rarely get any attention. I do not mean at all that macroeconomic performance does not matter for development and prosperity, rather my concern is-they get more share in the policy debates than they ought to have.

Why is the economy conversation in Pakistan so narrowly focused on macro issues to the neglect of more fundamental micro concerns? I will try to outline some reasons for this indifference on the large part of economists and policy makers in Pakistan. First, economists are mostly trained to analyse secondary macroeconomic datasets easily available at national and international level. Secondly, understanding of local issues is often more tedious and costly, and they sometimes do not have access to financial resources to study behavioural perspectives and local level dynamics in our cities, villages, and regions. Thirdly, economics schools generally do not teach local economic development and qualitative research, which constrains the capacity of economics students and practitioners to develop “thick description” of issues. Fourthly, most of the research dissertations and economics papers in the country or abroad are mainly focused on domestic and international macroeconomic issues.

It can plausibly be argued by some that this focus on the macro economy is on account of there being not much local level variation of different cities and regions, reason being centralisation of autonomy, authority, and resources at federal and provincial levels. However I do not agree with this. Each city and region has its own characteristic which, sometimes, can be better understood by research and analysis through qualitative approaches eg ethnography and phenomenology. Look at the incredible success of Sialkot city in terms of partnership between business community and government agencies to develop and maintain complex infrastructure jointly. How all of this happened and why it could not happen at other places? One will rarely find any research on it. Even the urban conferences/forums concentrate on overall urbanisation trends and challenges, instead of focusing on individual cities.

If we turn to agglomeration economics, we can see huge variations in the performance of industrial clusters in the country, but rare discussion and research is there on such aspects of economic productivity and prosperity. One can find sterile cluster studies by federal government’s redundant organisations but it’s hard to get a good analysis of performance of formal and informal enterprises by serious researchers. Yet some localities and communities have found such innovative means to resolve complex economic and social problems that central plans can take years to do. “Changa Pani” is a grass root level example of government-community partnership for 24/7 metered drinking water implemented at small scales in Faisalabad, Lahore and Bhalwal. Similar examples can be found in educational quality and standards across different public sector institutions. In some cases, leadership of an educational institution delivered, what could not be achieved by so called education policies and plans. For example, a silent revolution in girl education is taking place in Gujranwala Division owing to a large fleet of University of Gujrat’s buses to pick and drop girls from far flung rural areas to the university. This initiative based on understanding of local constraints to girl education has proven far more beneficial than gender development workshops and plans, crafted often in Islamabad by government and civil society. Land record reforms in Punjab and police reforms in KPK are unfolding which are raising hopes for better governance but little research is available on their direction and impact so far.

I do not want to give an impression here that all good things are happening in different cities and regions in Pakistan. But I do want to make a case that our economists, policymakers, and politicians need to muddy their hands by studying closely the experiences of people and communities in resolving their problems through their own efforts, instead of generalising with a lens of macroeconomic aggregates and averages. The dialogue on economic policies in Pakistan lack intellectual humility, diversity of perspectives, engaging conversation and theoretical pluralism that to some extent we can observe in Bhagwati vs Sen debate in India.

Obviously there are few exceptions in the circle of economists. Amongst popular writers, I like insights and perspectives of Dr Faisal Bari-highlighting vital behavioural and micro level dynamics of key economic and social issues. Amongst universities, I come across research by Lahore School of Economics that tries to focus on agglomeration economics. Similarly, research approach and commitment to focus on spontaneous development by an Islamabad based think tank, “Policy Research Institute of Market Economy” is encouraging and productive. Dr Vaqar Ahmad’s stance on regional connectivity and trade reforms is well known. And of course Dr Nadeem-ul-Haque has been writing and advocating few important aspects of developing professional culture in economics circles and focusing on city and entrepreneurial competitiveness issues. Dr Asad Zaman is contributing to critique of standard economic theories and policies. So we can find fewer economists whose discourse parts ways from popular discussions on macroeconomic numbers.

It is also common to put blame of slow growth on corruption or inability of central Governments. But I want to make a point that if microeconomic foundations are set right and society is thriving, we can still move towards high growth and competitiveness. It is evident from recent growth performance of India. It will be helpful to cite Francis Fukuyama about India at the end of his book, Political Order and Decay; “The system is rife with corruption and patronage; 34 percent of the winners of India’s 2014 elections have criminal indictments pending against them, including serious charges like murder, kidnapping and sexual assault. A rule of law exists but it is slow and ineffective that many plaintiffs die before their cases come to trial.” The purpose of this long quote is obviously not to legitimise politician’s corruption or to condone them from legal and moral accountability and also not to establish that corrupt governments do not affect quality of development process. Rather, it aims to highlight that microeconomic foundations and devolution can circumvent failures of federal governments and at some point of time they enhance quality of government through strong demand and influence of reform coalitions and rising middle income class. This phenomenon is emerging now in Pakistan when middle class is exerting pressure for transparency and accountability of public officials.

Finally, it is foremost to devolve the power, authorities, and resources at local levels. Recently formed local governments have not served the very objective of transferring powers and resources at local level. Influential voter alliances, bureaucrats, and politicians do not want power and resources to be transferred at local level. Academic and research community has greater obligation in this scenario to advocate for devolution and decentralisation. I think the time is ripe to restructure federal Planning Commission and provincial Planning and Development Boards/Departments, so that they only focus on interprovincial and inter-jurisdictional development issues. Local Economic Development Offices (LDOs) should be established and strengthened at the district and city levels to analyse and respond to local needs of business community and citizens. There are currently offices of Finance and Planning, and Enterprise and Investment at district level but they lack mandate and capacity to carry out such functions. By establishing LDOs, there will be more demand for local research and it will also mobilise some economists and policy makers to look beyond macroeconomic indicators.

While economics is being challenged internationally from inside and outside, in the wake of rising inequalities, mathiness of economic models, heterodox thoughts and failure of astrological predictions by economists, in Pakistan macroeconomists, economic policy practitioners, researchers and politicians need to be confronted to deliberate and address micro foundations of the economy and society.

Naveed iftikhar, "Beyond macroeconomic indicators," Business Recorder. 2016-06-23.
Keywords: Economics , International agencies , Interest rates , Criminal law , Economic policy , Moral education , Pakistan , KPK , GDP , LDOs