Many successful examples show that it is possible to achieve high growth. BRICS countries have achieved enviable economic progress. In particular, Chinese workers have gone from using oxen-driven carts to automobiles within a lifetime, while median income has doubled within a decade. Similarly, the East Asian miracle is a recent event. Even our neighbors, India and Bangladesh, have had higher growth trajectories than those of Pakistan.
It is obviously possible to achieve high growth, but it has not been happening. So, what are the obstacles to achieving high growth rates? The greatest obstacles lie not in the lack of material resources, but in the wrong economic theories, which lead us to wrong policy decisions. On the patterns described in “Confessions of an Economic Hit-Man”, powerful international organisations backed by corporate power use strategies to persuade us to adopt policies against the interests of masses, which prevent development. In particular, financial organisations make money by extending loans to poor countries, and do everything in their power to keep them poor. While loans are called “foreign aid” and advertised as being beneficial, the terms often ensure that the money goes back to the original country, or into the pockets of the corrupt, while the public is saddled with repayment for decades. The consequences are obvious in the form of trillions of dollars of tribute flowing from the poorest of the countries to the wealthiest.
Substantial evidence can be provided that countries are persuaded to pursue policies which are supposed to be beneficial, but in reality help the powerful financial lobbies. For instance, World Bank published a study in 1993 entitled the East Asian Miracle which lists the policies pursued by the East Asian countries which enabled them to achieve dramatic growth, transforming agricultural economies to industrial ones. In 1995, the World Trade Organisation was formed, supposedly to facilitate trade. However, all signatories to the WTO must sign an agreement forbidding them to use ALL of the policies listed in the World Bank publication as the sources of the East Asian Miracle.
Major Multinational corporations can easily dispose of local competition, but find it hard to compete with Government backed enterprises. Despite many well-documented cases of disastrous outcomes following privatisations, IMF and WB insist on privatisation as one of the keystones of public sector reform. At the insistence of World Bank team led by Jeffrey Sachs, Russia carried out massive privatisations of its huge public sector. As a result, billionaire were created overnight who acquired public assets cheaply, while a huge number of people went into poverty. Overall GDP in Russia fell by 50% as a result of the shock strategy of rapid conversion to free market enforced by the World Bank team.
If we are not deceived by propaganda for policies against our self-interest, it is easy to see the policies required to achieve high growth. The key is to increase local, domestic capabilities of production. The greater our own public participates in the growth process, the more rapidly we can achieve growth. By encouraging and allowing Community Driven Development, we can create a million engines of growth. However, pursuing this type of policy requires a major paradigm shift on part of the planners. Instead of controlling and driving the process, for which the capacity is lacking at the government level, the government needs to empower and enable communities to pursue their own agendas. Also, our policy makers need to learn to see through appearances and recognize the Washington Consensus for what it is: The Washington Agenda to enable Multinational Corporations and Global Finance to rule Pakistan.
We must start with the realisation that the people of Pakistan are our most valuable asset, and investing in them is surest and most rapid route to growth. All the talk of FDI, exports, raising taxes, budget deficit, exchange rates etc. is just a red herring and a distraction which prevents us from paying attention to our highest priority: improving the lives of the people of Pakistan. It is thought that we don’t have enough resources to provide for our people. The reality is that massive sums of money are already being spent on social service programs. This spending would already have been enough to change the lives of millions by graduating them out of poverty, if it had been done in a planned and coherent fashion.
The secret to rapid growth is community driven development. Current thinking among policy makers in Pakistan is hierarchical and top-down: we will make the plans, and create development, and then share fruits with the people. Instead, we need to take the back seat, and simply facilitate, energize, and empower the living communities to undertake the activities required for development. This will create millions of drivers of change, and rapidly transform Pakistan. The problem is to change mindsets, as giving power to the people involves reducing the power we wield in the center. Great leadership is required to change mindsets from domination and exploitation of the people to the service orientation required for community driven development.
Abandoning the advice of foreign experts who have successfully ruined economies around the globe, if we open our eyes to local possibilities, we can identify several game-changers which could provide a rapid turn-around in our domestic economy. Enabling finance is a key to creating change. This requires understanding that banks create credit out of thin air, backed by Central Banks. Using the same pattern, local community banks can create a large amount of credit needed to finance community based development projects. The German economy used this method to create rapid growth in the post-war period, and we can learn much from their experiences with community banking. Another game-changer is to go for investment in social welfare, health, and education. The current system of private finance does not allow for this, since this does not generate quick short-run profits. However, investing in the people is the surest route to rapid and robust long run growth. The free market fails miserably in directing investment money towards social welfare, which is why it has never been successful in producing development anywhere, despite claims to the contrary by its advocates.
The writer is the VC of Pakistan Institute of Development Economics (PIDE).