The globalization process has turned the world into an increasingly interdependent entity. No nation state or a country can now claim to be absolutely sovereign, in both socio-economic or/and military sense. However, without an irreducible minimum sovereignty over its economy and culture as well as its military prowess no country can escape being turned into a subservient state fated to trade its independence for survival. Such nations find themselves constantly threatened by the fate that the nuclear-armed Soviet Union had to face in the cold war days.
As globalization is primarily an economic process, it is but natural for the security of a country to be shifted from the military to the economics. Economic security takes into account particularly the new risks that arise from globalized competition primed by the incredible new advances in information and telecom technologies; for example threats to data, attacks on public research centers, attacks from financial predators against state currencies, stock market manipulations, short selling exports to damage competitors in the world market etc. We should, therefore, guard against being rendered isolated in the geo-economic terms.
Over the last nearly seven decades we have been trying everything in the ‘book’ to lift the country out of its depressed level of socio-economic moorings but to no avail. Every recommended step in the ‘book’, singly, in pairs and in every combination and permutation seemed to have only succeeded in further deepening the stagnation.
For long, we have sustained mainly on bilateral external assistance, mostly from the US which came in the shape of kind (military equipment, weapon systems and aircraft plus commodities) and cash. From the 1970s onwards, we also started receiving significant assistance from Saudi Arabia and China which in the 1990s increased manifold along with assistance from Europe.
And from 1958 onwards, multilateral assistance also started flowing in from the World Bank as well as the International Monetary Fund (IMF). Since then the WB has financed a number of physical and social infrastructure development programs and the IMF has entered into 16 structural adjustment programs with Pakistan. But all of these Fund programs ended up prematurely except for two.
Since the 1990s, the country has also been receiving generous assistance, mostly from rich countries through their non-governmental organizations (NGOs) which bypassed the governments in Islamabad and went directly to what in the NGOs’ assessment was the most needy sectors or sub-sectors like education and health. The NGOs came into being when it was finally concluded by the bilateral and multilateral aid givers that most of what was disbursed officially was hijacked by the elite in the poor countries.
Those who promoted the idea of lifting developing countries out of their stagnant state of the economy and set them on the road to prosperity through bilateral and multilateral assistance and also by filling the ‘gaps’ through direct help to needy sectors and sub-sectors through NGOs by-passing the governments in developing countries seemed to have persuaded themselves into believing that that was the magic formula for engineering prosperity in poor countries.
However, in most cases this magic formula refused to work. And this failure was no-where more pronounced than in Pakistan.
Pakistan’s economy needs to grow at an annual average rate of 10-12 percent for at least over a decade for the so-called trickle-down theory to prove its economic viability. Indeed, this is the kind of growth rate that is required to be sustained for at least ten years at a stretch without any break to make any perceptible dent in the incidence of poverty in the country.
Shorn of the self-deceiving fiction poverty in Pakistan has more likely entrapped 50 percent of the population rather than the 30 or- so- percent that our official experts have concocted out of thin air. And this percentage is likely to go up further if lack of access to affordable education, affordable health cover, affordable transport, affordable housing and affordable communication are taken into consideration.
But how do we, in the first place achieve a growth rate of 10-12 percent even in one single year what to talk of sustaining this growth rate at a stretch for ten years with an investment rate of no more than 10 percent? Using the rule of thumb many independent economic experts have maintained that without an investment rate of around 30 percent per annum, again without break for almost a decade, it is next to impossible to achieve an annual average growth rate of 10-12 percent.
But in order to mobilize an annual investment rate of 30 percent and that too at a stretch for nearly a decade you need a saving rate of not less than 35 percent or more. Currently that rate is no more tan 11-12 percent.
So, on the face of it Pakistan is destined to remain stuck up at an annual average economic growth rate of no more than 5 percent at the most which would while adding further to the population of poor in the country is likely to concentrate even more wealth, perhaps almost 90 percent of what would be accruing to the nation, in the hands of a minuscule minority of not more than 0.01 percent of the population.
This trend, the trend of increasing inequality is likely to grow even more acute in case the country were to grow at the 10-12 percent sustained over a period of a decade if equitable redistribution of the fruits of this high growth rate is not ensured through legislating laws that would make the act of seeking rent a crime.
In fact it is mainly due to this very reason-letting the fruits of growth to be hijacked by the rent seekers that has actually kept the country’s rates of savings and investment at highly depressed level forcing the overall economic growth rate to remain stuck at around 4-5 percent over the last 10 years resulting in the ever expanding sea of poverty and at the same time concentrating enormous wealth in the hands of a few.
It is now time to do some candid appraisal of the ground realities. We don’t have our own sources of energy; we do not own enough capital to provide even two square meals to our galloping population; and being too far behind in world ranking in education, our capacity to acquire knowledge-based technologies is too limited. Much of our so-called natural wealth, like the huge coal deposits in Sindh and rich minerals in Balochistan are buried deep under mounds of earth. We don’t have either the capital or the technology to exploit these on our own.
Pakistan’s exports are plummeting not only because demand for our raw commodities and low-value products in the rich markets has collapsed but also because we lack enough exportable surpluses in items that are in demand globally and/or regionally. In fact, we don’t make such items at all.
Our border trade with our immediate neighbours – India, Afghanistan and Iran – has been held hostage since the very day Pakistan came into being to our self-destructive geostrategic compulsions. So much so that we have actually cut the nose to spite the face as we have virtually bottled up the country shutting down our trade-outlets in the East, in the West and North-West while the Northern outlet is too far away and in the South we have a small little sea outlet, not enough for even our own limited export and import activity.
So what do we do now? Continue living with such a depressing scenario and suffer the imminent consequences or try looking for ways to break the shackles of the model in vogue?
Let us take a look at our comparative advantages: 1) We are an agricultural country; 2) We are a market of about 200 million people; 3) Pakistan is located at the crossings of trade routes from Casablanca in Africa to Kashgar in West China’s Xinjiang Uyghur autonomous region and from Thailand in Southeast Asia to Turkey beyond the Middle East; 4) China and Pakistan are building a 3,000-kilometre economic corridor connecting Kashgar in China to the southwestern Pakistani port of Gwadar with road and rail. And one cannot also rule out the possibility – in a couple of years – of overland transit trade route through Pakistan linking India with Afghanistan and beyond to Central Asia. This would be the third corridor passing through Pakistan. The CPEC is the second corridor. The first one is the corridor that extends from Karachi port to Khyber Pass and beyond carrying essential supplies of arms, ammunition, fuel and food for the US troops station in Afghanistan.
These advantages can be exploited to the maximum if we become a warehouse/transshipment economy rather than continue to hanker for an industrial economy, which we have been trying all these 70 years to achieve but without any success.
This would require a well-thought-out trade policy that would allow almost free-of-duty entry of raw materials, intermediaries and equipment in knockdown condition to be warehoused in Pakistan and then forwarded to final destinations after the required value addition. Such a regime would also require letting the rupee appreciate/depreciate driven by free market forces with minimum of artificial crutches.
Such a policy would also attract foreign direct investment in avenues in which it would be more economical for the sponsors to fabricate items inside Pakistan for local consumption and also to re-export them to the four-corners from the ‘hub’. This will also facilitate the transfer of technology and training of skilled manpower. Transfer of appropriate technologies would also open the way for Pakistan, essentially an agricultural country to becoming a leading high quality processed-food exporter.
M Ziauddin, "Doing away with the wrong book," Business Recorder. 2018-06-27.Keywords: Economics , Foreign direct investment , Agricultural country , Economic security , Economic growth , Socio-Economic , Globalization , Soviet union , Pakistan , China , Europe , IMF , NGOs , CPEC