The PTI-led coalition government that came to power about 17 months ago promising change (Tabdeli) has so far followed almost the same failed economic model that the successive governments, both civil and military, have been pursuing over the last 40 years.
Earlier during the 1970s Pakistan had seen the creation of an industrial base of sorts in the public sector. This sector was expanded with the setting up of Heavy Mechanical Complex, Heavy Electrical Complex, Pakistan Machine Tool Factory, Special Steel Factory, the Pakistan Steel Mills and a couple of fertilizer factories, etc. During the decade regular support prices also used to be announced for cash crops.
However, since the days of President General Ziaul Haq the bias against public sector investment in new and emerging areas has prevented investment in the areas the private sector has been unwilling or unable to invest in because of lack of technical capcity. The total break with the strategy of the 1970s of establishing modern heavy industry has undermined Pakistan's ability to change the structure of production, from low value products towards high value technology intensive production.
Today the economy seems to be hobbled by constraints of technological backwardness, poor human resources and declining competitiveness even in traditional industries like cotton and leather. Any break will require long term intervention and well developed industrial policy. However, given the enormous influence of the IMF and the World Bank, to whom such interventions are an anathema, it is unlikely that Pakistan will soon embark on such a course.
By the mid-1980s Pakistan had started following the economic model which had been propounded by the Milton Friedman's Chicago School of thought that promoted what is called free market economy. In this model greed was good; small was beautiful; and it was not the business of the government to be in business.
Prime Minister Benazir Bhutto who came to power following the 1988 general elections had spent much of her exile years in the UK when Mrs. Thatcher was holding the economic fort there and which had even forced the UK's Labour Party to abandon it socialist policies and introduce what was called the New Labour which was a caricature of Mrs. Thatcher's economic model. Benazir was seemingly greatly influenced in her thinking by the New Labour's policies and, therefore, quickly embraced the prescription advised by the Washington Consensus abandoning, but seemingly half-heartedly, the socialist policies of her father.
So, from then onwards Pakistan just sleep walked into a debt trap from which it now seems impossible to get out as long as we continue to follow the economic model built around the idea of the Washington Consensus.
What is ironic is, while we continue to follow this model, the very foundation on which this model was built - Capitalism - is seemingly buckling under in the rich capitals of capitalism given to growth and growth alone without equitable distribution of the fruits of growth.
Although no one knows when the growth locomotive will start in a given country, if and when it does, the poor will be more likely to hop on the train if they are in decent health, can read and write, and can think beyond their immediate circumstances. It may not be an accident that many of the winners of globalisation have been communist countries that invested heavily in the human capital of their populations for ideological reasons (such as China and Vietnam) or places that pursued similar policies because they were threatened by communism (such as South Korea and Taiwan)."
On the other hand, in rich and poor countries pursuing free market economy, elites promised that neoliberal policies would lead to faster economic growth, and that the benefits would trickle down so that everyone, including the poorest, would be better off. To get there, though, workers would have to accept lower wages, and all citizens would have to accept cutbacks in important government programs.
The elites claimed that their promises were based on scientific economic models and "evidence-based research." Well, after 40 years, the numbers are in: growth has slowed, and the fruits of that growth went overwhelmingly to a very few at the top. As wages stagnated and the stock market soared, income and wealth flowed up, rather than trickling down.
The best bet, therefore, for a developing country such as Pakistan is to attempt to raise living standards with the resources it already has: investing in education and health care, improving the functioning of the courts and banks, and building better roads and more livable cities. The same logic holds for policymakers in rich countries, who should invest directly in raising living standards in poorer countries.
According to Miatta Fahnbulleh (The Neoliberal Collapse - Markets Are Not the Answer; published in Foreign Affairs, Jan./Feb. edition), the limits of capitalism has been long in the making but was brought into sharp focus in the aftermath of the global financial meltdown of 2007-8 and the global recession that followed it.
"Capitalism is in crisis. Economists, policymakers, and ordinary people have increasingly come to see that neoliberalism - a creed built on faith in free markets, deregulation, and small government, and that has dominated societies for the last 40 years - has reached its limit.
"In the developed countries, economic growth over the last decade ceased to benefit most people. At the end of 2017, nominal wage growth among OECD members was only half what it was a decade earlier. Meanwhile, in those countries, income inequality is higher than at any time in the past half century: the richest ten percent hold almost half of total wealth, and the bottom 40 percent hold just three percent.
"Defenders of neoliberalism frequently point out that although decades of wage stagnation and wealth concentration have led to ballooning inequality in developed countries, the same time period has seen a dramatic increase in prosperity on a global scale. Over a billion people, they argue, have been lifted out of extreme poverty owing to technological advances, investments, and prosperity that were made possible by the spread of free markets. However, this argument fails to account for the critical role that governments have played in that change through the provision of education, health care, and employment. Such state interventions have arguably been as decisive as the invisible hand of the market in lifting living standards. This defence also ignores the fact that despite many gains in prosperity, massive wealth concentration and staggering inequality continue to shape the global economy: less than one percent of the world's population owns 46 percent of the world's wealth, and the poorest 70 percent own less than three percent.
"And ideas such as restoring public ownership of the essential utilities that were privatised in recent decades, such as railways, electrical services, and water companies, are gaining traction, with over 75 percent of people polled in the UK supporting such a step. Meanwhile, in the United States, a 2018 Gallup poll found that among Americans aged 18 to 29, socialism had a higher approval rating (51 percent) than capitalism (45 percent). 'This represents a 12-point decline in young adults' positive views of capitalism in just the past two years,' Gallup noted, 'and a marked shift since 2010, when 68 percent viewed it positively.'
"A new social contract with citizens should extend beyond the workplace, however, with the ultimate goal being the establishment of a "well-being state" that would provide everyone with the basic necessities to maintain a decent quality of life. This would require increased investment in the staples of the welfare state, which have been weakened under neoliberal governments, such as guaranteed universal access to high-quality health care and education. But the new approach would go beyond those familiar elements by offering universal access to childcare, public transportation, and minimum income protection-that is, a floor below which no one's income can fall irrespective of whether a person is employed. These expansions of the welfare state should be funded through progressive taxation that would raise the tax burden on those who can most afford it, by increasing the top rates for income and corporate taxes and by taxing wealth, such as capital gains, at the same level as income."
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