Economic inequality, societal polarisation and intensifying environmental dangers are the top three trends that will shape global developments over the next 10 years. Trends such as rising income inequality and societal polarization triggered political changes in 2016 and have exacerbated global risks. Needless to say that Pakistans leadership has to respond if we are to survive and prosper in this new global economic order, which post 2008 seems to have changed course from free trade to growing protectionism in the garb of neo nationalism. The problem for Pakistan however is that amidst these challenging times, the ruling party PML-Ns economic policies have making of a situation gone horribly wrong and even worse, it refuses to learn. Its third term now, but what we see are the same old stubborn ways, autocratic cum non-transparent governing style, and a mindset stuck in a time warp while the world has moved on. As exports and small & medium size manufacturing in Pakistan nosedive, ironically the government takes solace in a bullish, but speculative stock index; higher reserves, albeit on borrowed funds; and a stable Pak rupee, but artificially held with no real fundamentals! Robert Shiller (Yale) best explains this phenomenon in his irrational exuberance on why capital formations and investments that are created merely on change-of-hands or speculative behavior do not add to the real underlying strength of an economy and merely create artificial bubbles that can cause a lot of pain when they will ultimately burst. A cursory look at these Shiller factors in Pakistan during 2016 and what we see is not a pretty sight: any sizeable investments merely represented change of ownerships; rising stock exchange index can largely be attributed to the performance of a handful of companies & to a Chinese equity buy-out; and almost all well performing large local corporations invariably guilty of rent seeking.

So why is manufacturing and then within it the element of exports so important? Simple answers: Joseph Schumpeter (the management guru) explained it beautifully back in 1942: The joy of birth can only be achieved if a baby is born to yourselves and not merely to your neighbor or to someone else in the community (this with reference to domestic manufacturing) and the best thing you can do for your child is to make him compete in the real world and not just pamper him in the four walls of your home (and this in reference to competitiveness and exports).

Practically, exports help maintain the current account equilibrium, create a lot of jobs across various skill-set levels, aide equitable distribution of returns like no other business does, and most importantly for the economic managers, serve as a yardstick of an economys competitiveness. However, competitiveness should not be confused with subsidies or financial-support packages. For example, the latest export package announced by the government may be a first step in the right direction, but without an integrated industrial and trade strategy, a package such as this will not go the entire distance and will serve only as a temporary solution. The government instead needs to focus on evolving a sustainable overall growth strategy that not only enhances Pakistans share in the global markets, but also in-turn focuses on value-addition and future investment. The domestic manufacturing sector has over many years been undermined by the following: A large informal sector that feeds off smuggling, under-invoicing and tax evasion; Significant disparity in input costs when compared with our regional or global competitors; An inflated exchange rate (at least by about 5%); A massive circular debt on account of unpaid/delayed refunds to exporters; Declining industrial productivity; and An over liberal import regime owing to some poorly negotiated free trade agreements. Every time Pakistan has sealed an important trade agreement its trade balance on the contrary has deteriorated. Examples: China, Malaysia, Indonesia and Thailand. Although Pakistan already had a trade deficit with each of these countries, these deficits further increased after signing of preferential trade treaties with them. So no rocket science required in determining that these treaties, when negotiated, were very poorly thought through. Fast forward to today, the Ministry of Commerce has currently launched FTA (Free Trade Agreement) negotiations with six other countries, Bangladesh, GCC (Gulf Cooperation Council), Singapore, Morocco, Turkey and Iran, and it needs to ensure that we dont again end up at the wrong end of the stick!

Difficult as this may all sound, actually the vision to really make Pakistan economically great calls for even much more than this. For the long-term, Adam Smith, perhaps the first true economist, gave some answers in his, An Inquiry Into the Nature and Causes of the Wealth of Nations. That treatise is sometimes thought of as a capitalist bible.

It is at least partly about the achieving of economic greatness through the pursuit of wealth in free markets. But Adam Smith did not believe that money alone assured national stature. He also wrote disapprovingly of the single-minded drive for wealth, saying it was the most universal cause of the corruption of our moral sentiments. Instead, he emphasized that decent people should seek real achievement not only praise, but praiseworthiness. So in the overall context of Pakistans long-term economic growth and development, an achievement will reflect not only in prosperity per se, but also in establishing a consistent atmosphere and a social environment where merit, honesty and fair play can flourish.


The writer is an entrepreneur and economic analyst.