‘The Federalist Papers are published following the Constitutional Convention. …The papers, particularly those written by [Alexander] Hamilton, recognize that the state creates economic conditions; it does not merely react to them. …Hamilton saw government as an essential, perhaps even primary, economic agent.
It does not merely respond to the private sector but is a primary mover… Hamilton realized that if the new U.S. government united, it could create economic conditions favorable to both internal economic development and its place within the international state system.
Rather than passively receiving terms from the great powers, as is the fate of so many post-colonial economies today, it could enforce its will in the realm of international trade.
Hamilton was also very clear that such an outcome would not develop “naturally” by way of [Adam] Smith’s invisible hand. It had to be planned and actively pursued by the state.’ – An excerpt from the chapter ‘Alexander Hamilton’s state-focused economy’ in 2021 published book ‘Public purpose: industrial policy’s comeback and government’s role in shared prosperity’
The world is facing the existential threat of climate change crisis, and the related ‘Pandemicene’ phenomenon. Fighting this requires building up resilience not only with regard to environment but also associated aspects of economy – and within it such sectors as education, health, and water – epidemiology, and elections; all of which are important in reaching appropriate level of adaptation, and in the first place avoiding global warming from crossing critical threshold of 1.5C.
Focus here demands economic institutional, organizational, and market reforms away from Neoliberalism, and towards a balance between Capitalism and Socialism, which is towards social democracy. It also requires deep level of finances, both to meet resilience needs both through climate finance, and finances for meeting sustainable development goals (SDGs) related targets.
In terms of having ample fiscal space, and a rational level of cost of capital (or policy rate), economic policy needs to move away from over-board monetary- and fiscal austerity policies – which in turn will allow a much-needed more balanced aggregate demand- and supply-side focus for meaningfully reducing inflation – on one hand, and in adopting counter-cyclical policy (and not pro-cyclical policy, as is being adopted traditionally, and currently in the country) to overall avoid over-board sacrifice of economic growth — and with it employment, revenues, domestic production, and exports — for possible short-term macroeconomic stabilization.
Expanding fiscal space, building up foreign exchange reserves, strengthening domestic currency, and improving balance of payments (BOP) account also require reduced debt distress, which depends on not following over-board austerity policy, and also on a much-improved global sovereign debt restructuring framework which, in turn, requires much stronger multilateral spirit than currently is the case.
Hence, in the presence of a polycrisis situation, which is also overlapping in nature, requires a mission-oriented role of government, both in terms of purpose-driven public representatives and appointed government officials. The latter requires doing away with a narrow civil service, and overall bringing all strands of work under the umbrella of ‘one public service’ – horizontally distributed over two streams, that is, ‘technical stream’, and ‘administrative stream’, and vertically distributed on the basis of performance into ‘fast-stream’ and ‘regular stream’, where placement in a particular stream depending on periodic assessments.
Enhancing the performance of public representatives requires improving the quality of economic institutions, or economic ministries which, in turn, will entail setting a mission-oriented agenda by governments in office, given the polycrisis and fast-unfolding nature of existential threats.
Doing this, in an overall non-neoliberal spirit, that is, looking at the role of government as a leader in economy, as seen by Alexander Hamilton, and which led to great leaps of improvement in the economy of USA over the next two centuries, or so, until the country – like much of the world, including Pakistan – in the latter part of the twentieth century, and beyond came under strong grips of Neoliberalism; resulting in addition to over-financialization, in perpetuation of extractive politico-economic institutional design at the back of diminishing role of government, and public policy being influenced by campaign finance – and overall moneyed-interest – than by public opinion.
Moreover, the neoliberal assault resulted in diminishing capacities of elected representatives, and appointed government/civil servants due to over-board practice of outsourcing on one hand and, on the other hand, limited regulation by government, and lack of pro-active approach in market creation, and price stability in terms of incentivizing greater productive-, and allocative efficiencies, including introducing price controls, especially as successfully adopted by China in the shape of ‘dual-track’ pricing mechanism, and as an alternative to Neoliberalism influenced ‘shock therapy’ policies.
Neoliberal-minded policies, in turn, resulted in both poor service delivery in general, and particularly lack of preparedness of public sector, whereby ‘institutions’ or ministries – where institutions provide laws, procedures, rules and regulations – not legislating optimally to provide mission-oriented environment, one that particularly lowered ‘transaction costs’, helped reach much better price discovery, and enhanced resilience through reaching much-improved productive-, and allocative efficiencies, and better quality of public representatives, public servants, and private sector service delivery — for both underlying ‘organizations’ — which included primarily state-owned enterprises (SOEs), government departments, and private sector industry/firms — and ‘markets’.
Here, policy continuity and improving the quality of both public representatives, and voter choice require legislating important resilience related policies with regard to four ‘Es’ — economy (and within it education, health, and water), environment, epidemiology, and elections (including focusing on various pre-requisites of healthy democracy, one of which is elections) –in terms of constitutionalising aspects that allow mission-oriented economic institutions, and underlying governance-, and incentive structures that allow building up resilience of organizations and markets, especially with regard to the heightened needs of a world of existential threats. In this regard, the writer in his recent article series proposed adopting this resilience related legislation as an ‘Economic Resilience Act’ (ERA).
This is the core without which it is highly unlikely that any number of economic policies, and governance initiatives – including incentive structures in terms of taxes, regulations, subsidies, among others – could provide anywhere near correct direction, and depth of reforms for improving service delivery, and creating resilience against existential threats.
Hence, whether more provinces or administrative units are created is a secondary question – which is not to say that debating on this question does not hold significant merit in terms of pros and cons of more provinces for the economy, and overall polity – because the primary objective is correcting philosophical underpinnings of role of government, in terms of moving towards non-neoliberal, non-austerity, and counter-cyclical direction, in improving the quality of public representatives, and appointed public servants, and in enhancing the quality of voting, in terms of much-more educated and economically empowered demos, in strengthening political voice, and in lowering the influence of vested interest on public policy by diminishing the role of money in politics.
Also, while the local self-governance system should be made functional for obvious benefits of inclusive, and quick-response service delivery of everyday-natured matters, the extent of performance of local governments nonetheless would require the overall reforms indicated above mainly in terms of course correction with regard to adoption of economic philosophy, reforms in broad areas of four ‘Es’, and appropriately high level of finances, all in an overall mission-oriented way given the deep level of poverty, and inequality, and given the country is among top-ten climate change vulnerable countries.
Copyright Business Recorder, 2025
The writer holds a PhD in Economics degree from the University of Barcelona, and has previously worked at the International Monetary Fund. His contact on ‘X’ (formerly ‘Twitter’) is @omerjaved7