Policy issues in the EFF programme – II

In addition, lack of adequate regulatory capacity means that it is very likely, as has been the case in real markets, for example, agriculture, left to market forces without adequate level of governance, instead of multiple sellers competing for greater market share at the back of improved quality goods/services, a collusive behaviour is adopted where at least majority of sellers agree on same, or very similar prices, which works in favour of profit maximization, taking the prices all the more away from optimal, or true price discovery.

Unfortunately, both the neoliberal-minded Extended Fund Facility (EFF) programme, and similar policy stance by public policy in general over the years – at the back of most policy makers having similar neoliberal policy stance, given their orientation in tradition of ‘Chicago boys’-styled economic thinking – has meant that the misgivings of privatization, especially in the context of poor regulatory capacity of public sector, and weak economic institutional, organizational, and market conditions.

Policy issues in EFF programme — I

Weak public sector capacity to both run itself in the first place, and then to regulate has, in addition to traditionally low investments in education, and better approach to public service, also is due to rampant recourse to outsourcing. This is all the more dangerous for the public sector, because both protecting the demos from profit-maximizing approach of the private sector, and for having the policy and implementation ability – including that of appropriately regulating markets, and privatized affairs – to deal with crisis situations like the fast-unfolding climate change crisis, and the Covid pandemic for instance, requires taking risks, and learning-while-doing approach, and outsourcing has not allowed public sector to walk that learning curve.

Economic experience, both globally and domestically, has indicated that companies that do the outsourced work, and those that provide third-party validation of their performance – since as discussed governments in general in developing countries do not have the capacity to regulate, and lack of transparency in accepting this reality, especially in terms of past below appropriate level performances also lowering trust in government’s declared capacity – have shown strong signals of collusive behaviour to support each other in terms of continuing to get such work from governments; an issue which is of global nature, and all the more in developing countries that they have suffered in the wake of the neoliberal assault of the last four decades or so.

World renowned economist, Mariana Mazzucato, in her noted 2023 published book ‘The big con: how the consulting industry weakens our businesses, infantilizes our governments and warps our economies’ that she co-authored with Rosie Collington pointed out misgivings of an over-board outsourcing policy. In doing so the government unjustifiably reins in its footprint in terms of important functions for governance, incentivization, and market creation/regulation for adequate pricing, and by over-engaging the otherwise highly collusive in general, and otherwise much more technically sound consulting industry to allow government to call out their con, which in turn allows perpetuation of their so-called relevance for greater good of the economy; with the internal moral hazard that government’s capacity diminishes over time to see through these nefarious designs – an outcome which the extractive institutional design of the politico-economic elites perhaps also desires.

The book points out in this regard the following: ‘The consulting industry today is not merely a helping hand; its advice and actions are not purely technical and neutral, facilitating a more effective functioning of society and reducing the ‘transaction costs’ of clients. It enables the actualization of a particular view of the economy that has created dysfunctions in government and business around the world. …What we call the Big Con is not about criminal activity.

It describes the confidence trick the consulting industry performs in contracts with hollowed-out and timid governments and share-holder value-maximizing firms. These contracts enable the consulting industry to earn incomes that far exceed the actual value it provides – a form of ‘economic rents’, or ‘income earned in excess of the reward corresponding to the contribution of a factor of production to value creation. …While consulting is an old profession, the Big Con grew from the 1980s and 1990s in the wake of reforms by both the ‘neoliberal’ right and ‘Third Way’ progressives – on both sides of the political spectrum.’

To give an example, reportedly a certain economic advisor in the ‘Economic Advisory Council’ ‘a non-constitutional and independent body formed to give economic advice to the Government of Pakistan, specifically the Prime Ministery’, was reportedly previously working in the ‘McKinsey and Company’ – a company, which has reportedly strong tilt towards neoliberal thinking – has left that job, and instead is advising towards rationalization of the extent of government’s footprint.

Here, it is likely that government is being led by a consultant that shares the reported neoliberal view of the company he reportedly previously worked in.

Under the neoliberal framework, which has come under increasingly strong criticism in the wake of the GFC 2007-08, government is seen as the problem, and needs to be reduced to the minimum, and this framework does not hold a more balanced role of government in a developing country in particular. It would have been much better if such an effort was being led by the government itself, with likely much more better understanding of local conditions, and requirements, and an effort in this regard with likely greater openness to the misgivings of the neoliberal framework.

A June 6, 2025 Bloomberg published opinion piece ‘Harvard, McKinsey and Davos are paying for Neoliberalism’s sins’ pointed out in this regard: ‘Three institutions stood at the heart of the neoliberal regime that ran the world from the 1980s onward: Harvard University, McKinsey & Co. and the World Economic Forum (WEF).

Harvard and McKinsey were the premier training grounds for the emerging global elite. The WEF’s annual meeting at Davos was the annual meet-and-greet party for the people who had made it (and their journalistic chroniclers). All three institutions reinforced each other during the glory years of neoliberalism.

And all three are currently in crisis. Their travails tell us a great deal about what was wrong with an idea that once delivered a necessary shock to a sclerotic Keynesian regime but was corrupted by its crude celebration of success. They can only recover their former vitality if they reflect seriously on what went wrong during the rah-rah years — and on their own central role in creating our current malaise.’

There is sadly little understanding of local media in appropriately reflecting on the issues such as the misgivings of the neoliberal assault, practice of over-board austerity policy, and the role of outsourcing. Capacity issues of local media in this regard – an issue that is similarly present in a number of major media outlets internationally as well, perhaps also because of their collusive behaviour in the overall extractive politico-economic institutional design – are for instance highlighted in a narrow way in which discussion panels of economists are selected for reflecting on economic issues, for instance the recent discussions on recently proposed Federal Budget; where instead the panel should select economists from different schools of economic thought, with the result being that mostly neoliberal-minded economists are in the discussion panels.

Moreover, by pushing the government out of governing and market creation to regulating, and reacting to market failures, to the privatizing spree, and outsourcing, the government is getting all the more thrust into a ‘dependency model’, with diminishing capacities to both call out failures of private sector, and to take centre-stage in terms of increasing knowledge base to deal with an ever-increasing world of ‘polycrisis’, including existential threats.

The EFF programme forwards the ‘dependency model’. For too long the neoliberal framework is being thrust, with the willing reception of ‘Chicago boys’, without any worthwhile retrospection in the light of glaring evidence of its misgivings being ignored. This needs to be de-mystified in a much bigger way than is being done in the country currently, and the role of media and educationists/opinion makers, for instance, is indeed very important in this regard.

The developed world, which did open up their economies but did not jump the gun, they rather first built the basis on protectionist, largely state-led role in economic decision-making, avoided short-termism, and targeted goals of reaching productive, and allocative efficiencies of a needed level. Even in those countries with considerable success in this targeting has suffered too quick, and too deeply following the neoliberal model.

Sadly, both the leading policymakers in general in the country and those at the IMF continue to ignore these aspects that have come to the fore all the more since the Global Financial Crisis (GFC) 2007-08, and later on the Covid pandemic, and continue to push governments for neoliberal reforms.

Together with practice of over-board austerity policy – the serious misgivings of which are glaringly clear in both the country’s own experience of practice of this policy over the years in terms of short-lived macroeconomic stability, given poor economic institutional, organizational, and market conditions, and after giving lot of economic growth, and in turn employment sacrifice.

Unfortunately, the Federal Budget that has been recently announced is totally in line of neoliberal-, and overboard austerity policy. For instance, both in the EFF programme, and the proposed Federal Budget FY 2025-26, there is no indication on providing neither any support price, or any indicative price even when poor market functioning, and highly sub-optimal regulation by government, including the likely practice of collusive behaviour, is not anywhere near leading to true price recovery.

Similarly, privatization of important state-owned enterprises (SOEs) like air travel, railways, steel production, among others is being emphasized indicating their loss-making performance, but not realizing the lack of institutional focus by government over the years, and the need for government to run such important strategic affairs to safeguard the interests of the demos, both in terms of welfare aspects, but also to have greater control over investment and pricing of the goods and services, for their high level productive and allocative role in the overall economy, and especially in the situation of polycrisis, and the immense stress it produces for aggregate supply.

Loss and trade-off are being primarily wrongly contextualized under both the EFF programme, and the proposed Federal Budget.

Rather than internalizing the misgivings of the over-board austerity policy – as evidenced from sticky core inflation, which is more reflective of internal economic situation of the country, and not the CPI inflation that has more influence from external factors like low international commodity prices – and adopting a much more balanced aggregate demand, and supply-side policy approach, to overall see a lower interest payments related expenditure, instead strategically important role of government in seeing markets move towards optimal pricing, for instance in agriculture sector, and in the case of protecting demos, and supporting exports through SOEs, being reined in through pushing towards privatization for reducing losses, and creating greater fiscal space.

The government, sadly, has not learnt much from either Scandinavian countries plus China or from the high level of misgivings of neoliberal- and over-board austerity policies. For instance, a major role in lowering poverty, attracting greater investment, and enhancing exports in a drastic way by China has to do with not coming out of the markets in the way of a sudden ‘shock-therapy’ style – as being pushed through neoliberal policy agenda of IMF programme and the proposed Federal Budget – of strategically important economic sectors – including those provide food security – but rather to adopt ‘dual-track’ pricing mechanism, and government keeping significant role in running SOEs, and adopt a gradualist approach of liberalization, while improving economic institutions, organizations, and markets, and reaching needed thresholds for proper economic functioning over an appropriate non-neoliberal liberalization curve.

There is then also an inherent contradiction in the proposed Federal Budget – which as per the EFF programme conditionalities requires IMF’s approval, and then reflects on both the government, and the IMF – in terms of moving towards a resilient, green economy; which is also the main objective of the other recently negotiated programme of IMF in the shape of Resilience and Sustainability Facility (RSF).

On one hand a ‘carbon levy’ is being introduced on petroleum products to discourage the carbon footprint, while at the same time general sales tax (GST) at the rate of 18 percent is being applied on imported solar panels, which hold the majority share of supply of solar panels.

The justification that domestic industry needs to be supported required subsidizing the local industry for supporting them in terms of providing competition for market share, rather than discouraging the move towards solarization, given the nascent nature of domestic production of solar panels falling significantly short of demand, especially in supporting cost burden of high energy costs from national grid for agriculture, and other industry, especially given their role in providing food security, and exports.

(To be continued)

Copyright Business Recorder, 2025