The typical problem with economic revival efforts led by the banking sector is their focus on stability through contraction, often at the expense of growth and employment generation. One reason is that their primary objective is to conserve cash to recover debt, which limits their perspective. While such an approach may be necessary for a short period in adverse conditions, history shows that it has a limited shelf life. Beyond a certain point, this recessionary strategy must transition to a growth model that expands the economy, increases revenues, and provides opportunities for both markets and people to flourish. If maintained for too long, it can become counterproductive, leading the economy into a vicious cycle where increased taxation results in diminishing returns.
The greatest economic boom in US history occurred during World War II mobilisation. While some perceived it as a time of scarcity and belt-tightening, household consumption actually remained steady, and the era was marked by a vast expansion of demand spurred by military production, with significant spillover into the civilian economy. Germany experienced a similar boom, where Hitler’s economic revival, driven by war preparations, generated widespread prosperity. More recently, the Trump administration saw the US Treasury collect record revenues, largely by lowering taxes and protecting domestic industries to boost economic activity and national output.
Pakistan today finds itself at a similar crossroads. With a rapidly growing population and a 65% youth demographic under 35 years old, the situation is urgent. Unless opportunities are quickly provided to cash-starved families, social unrest could be imminent. Economic managers may be focusing on the wrong priorities. Instead of pursuing aggressive revenue collection or propping up failing institutions, they should concentrate on improving economic governance by addressing market distortions caused by rent-seeking, corruption, nepotism, unfair business practices, smuggling, and tax evasion. Additionally, the state should withdraw from sectors where it has no business being involved.
Unfortunately, the same old practices that contributed to the current economic predicament persist. Globally, there is growing recognition that the growth narrative plays an even larger role in modern economies, where productive potential is no longer seen as fixed or limited. In the 21st century, any country that can synergise Friedman’s three-tier model of growth—sustainable, ethical, and equitable—with modern tools like information technology, scientific developments, and artificial intelligence, will succeed. China is a prime example of this approach.
New analytical data from the Booth School also shows that booms and growth enhance productivity by incentivising opportunities and innovation. Unleashing the private sector in a transparently regulated environment allows entrepreneurs’ creativity to flourish. Though Bangladesh has stumbled recently, this approach has been the key to its success over the past decade and a half. Interestingly, even the perceived threat of inflation is now being re-evaluated. Many economists in the mid-2010s believed that unemployment shouldn’t fall below 4.5 percent, fearing it would spark inflation. However, recent experience in developed economies shows that 21st-century inflation is less correlated with economic booms and more connected to supply-chain cycles.
At home, it is increasingly clear that, despite the government’s claims, the economy is not working for the common man. With frustration mounting, it would be wise for the government to reconsider its current economic model before it’s too late.
Dr Kamal Monnoo
The writer is an entrepreneur and economic analyst. Email: kamal.monnoo@gmail.com