There is much talk these days about how the PML(N) government needs to improve its governance and how it urgently needs to undertake “reforms” in order to do so. While it is all very well and perhaps fashionable to be talking in a clichéd manner about much needed reforms in the country, in practical terms it is important to understand that what reforms one is essentially referring to and what should be the reforms agenda that best suits Pakistan. Limiting the scope of this article to economic reforms (others being electoral, security, judicial, administrative, social, etc), these are generally interpreted to be structural. In simple terms, this means opening up of an economy on predominantly ‘market principles’ where ‘minimal government’ and ‘maximum globalization’ become the order of the day. The premise being that as the market economy yields output cum product efficiencies while globalization ensures a larger playing canvass on competitive terms, the economies that successfully adapt to this work environment tend to benefit immensely from resultant returns. The trouble though, is that a series of recent global economic events like the 2008 financial crisis, ensuing global recession especially in the US and the Euro-zone, and of late the slowing down of fast emerging economies such as India, China and Brazil, have brought to the surface some serious flaws in currently practiced models and theories, which find their root in the philosophy of the so-called ‘Washington Consensus’ of the 1970s.

With modern economists now increasingly challenging the old order by saying that markets are not necessarily perfect; not all forms of Foreign Direct Investment (even domestic for that matter, if wrongly prioritized) can be termed beneficial; and last but not least, whereas enhanced trade is better for an economy but an excessive faith in Free Trade is misplaced. For example, in the US- A country that has been a fierce proponent of free trade, sacrificing its home manufacturing in search of cheaper and better options abroad. Only 17 percent of the Americans believe that more trade leads to higher wages, just 20 percent think trade creates jobs and more than 50 percent say it destroys them. One could argue that this viewpoint is a little unfair but there are numerous other examples over the last decade (largely in Europe) that show free trade has in fact been a major (but not the only) factor behind the erosion of wages and job security. It has created tremendous prosperity – but mostly for those at the top. Further, if nations struggling to emerge successfully from prevailing downturns suddenly need to be careful about blindly indulging in free-er or enhanced trade, then at the same time they also have to re-think the ‘new-normal’ of economic recipes that until recently have been relentlessly pushed by the economic orthodoxy: low tariffs, free capital flows, elimination of industrial subsidies, deregulation of labor markets, balanced budgets and low inflation. All of these being the very basis of generic advice invariably handed down by the International Monetary Fund (IMF) and the World Bank to developing countries in return for help. Ironically, during the industrial revolution, today’s rich countries – Britain, France and the United States – pursued the very opposite policies: high tariffs, government investment in industry, financial regulation and fixed values for currencies!

When undertaking economic reforms the government also needs to be cognizant of the reality that over exposing an economy (whether in capital flows or deregulation or trade) often tends to be disastrous. The lowering of protective tariffs did not lead to rapid growth in Latin America, which stagnated in the 1980s and an exodus of ‘undesirable short term investments’ contributed to the grave financial crisis in East Asia, Russia, Argentina and Turkey in the mid-1990s when capital controls were non-prudently reduced or lifted in these countries. Though these mistakes were recognized, the World Trade Organization (WTO) still continued to push one-size-fits all rules, premised more on ideology than experience, that mainly hurt developing countries. The Doha Round of Talks never got concluded, subsequent Bali agreements also faltered within a short span of time and now the recent Geneva accord could just be the beginning to an end of a long held WTO belief that an agreement needs to be binding on “all” member countries – possibly leading to further fragmentation within the organization and its members.

Coming back to the predicament of our government, it would be good for them to take a leaf out of Jeff Madrick’s latest work, “Seven Bad Ideas” in Economics, where he argues that while expanding Global markets is a worthy goal, history offers lessons that can instead lead to more constructive trade, capital and currency policies. His first point being that gradual reform is more effective than a sudden and sharp shift to free markets, deregulation, and privatization. Shock therapy in Russia was a failure, and nations from Argentina to Thailand, paid a dear price for liberalizing capital markets too quickly. The historical models of sustained growth are clear: gradual development of core industries; economic diversification; improvements in literacy and education, especially for women; slow, deliberate opening of capital markets; and the protection of labor from abusive pay and working conditions. Second: nations should be left space (by financial institution like the IMF and World Bank) for experimentation and to factor-in home based ground realities. Third: models of growth that depend indefinitely on exports are not sustainable. While exports should be the primary focus, real value addition and wage rationalization will not take place unless domestic consumption is also nurtured simultaneously. And fourth: every free trade agreement and trade liberalization endeavor should come with a plan to strengthen the social safety net through job training, help for displaced workers, policies that stimulate growth and safeguard key national industries, and a prudent overall evaluation of short-term and long-term gains and losses.

Finally, the real question facing the government itself is: is it up to the challenge? In countries such as ours where resources are limited, growth is low, population is high and largely uneducated, and the rule of law and institutions implementing it are weak, a challenge of another kind arises that questions the very legitimacy of democracy to deliver. Once you start talking to the overwhelming majority of the people who are either poor or certainly not affluent, you end up in a scenario where politics tend to eclipse policies. You can end up with a majority of the population voting for bad economic policies or incompetent leaderships simply because they can either not see long-term objectives or simply don’t care about them. By resorting to reforms that are in the real interest of the country and its people, this government will not only be fighting to restore the public’s confidence in them but also in democracy.

The writer is an entrepreneur and economic analyst.