Pakistan Economy in the Domestic,

Regional & Global Context

Dr. Asad Zaman, Vice Chancellor, Pakistan Institute of Development Economics (PIDE)
22nd Mid-Career Management Course, National Institute for Management
Islamabad, Monday 24th Oct 2016 - For video & writeup: http://bit.do/aznim17
Can we achieve economic
transformation? Rapid growth?
 East Asian Miracle Countries
 BRICS – China workers oxen  autos, median income doubles in 10 yrs
 Good Policies can turn countries around sharply.
 Bangladesh & India have had higher growth in past 2 decades.
MAIN OBSTACLES are WRONG IDEAS implanted in our brains!!
 SOFTWARE of development is MUCH more important than HARDWARE.
 Updating software IS POSSIBLE, thought outside scope of Economics.
Obstacles to Rapid Growth

Wrong Theories
Determined Opposition –
Total Interest Payments from Poor to Rich
Countries: around 7 Trillion USD
Transfer Payments by Multinationals: Another 7
Trillion.
The Neo-Colonial System
Debt & Interest Based
“All that we had borrowed up to 1985 or 1986 was around
$5 billion and we have paid about $16 billion yet we are
still being told that we owe about $28 billion. That $28
billion came about because of the injustice in the foreign
creditors’ interest rates. If you ask me what is the worst
thing in the world, I will say it is compound interest”
President Obasanjo of Nigeria, speaking after G8 summit in
Okinawa, Japan 2000
Blocking ALL paths to development
East Asian Miracle
 BIG Industries Guided by Govt
 Industrial Policy – close
coordination
 Export subsidies
 Price controls, Restrictions on FDI
 Tight Govt Control of Money
WTO
 Govt out of private sector
 NO INDUSTRIAL POLICY
 No Export subsidies
 Free capital movements
 Independence of Monetary
Policy
Liberating Our Minds!
Economic Theory
 Export Led Growth
 Privatization
 Striving for Luxury Life-Styles
 Elimination of Corruption
 High Growth Rates
 FDI, CPEC, Industries
What We need
 Domestic Demand
 Improved Management
 Promotion of Simplicity
 Promotion of Integrity, Honesty
 Poverty Reduction
 Best Investment: Local
Capabilities.
Pakistan Development Experience
Mahboobul Haq Phase I
 Current Priorities: Economic Growth is EVERYTHING:
 Once Growth Occurs, everyone will benefit –Trickle Down Theory.
 Mahbubul Haq, with Harvard Group, implemented this theory in Pakistan.
 There was growth, but also 22 families.
 Growth oriented policies implemented by IMF/WB in Russian.
 Millions malnourished, Many billionaires created.
 Same results in Chile, under Pinochet, with advice from Chicago Boys –
Friedman.
Phase II Mahbubul Haq

 Human Development Index – Focus on Education, Health

 Politicians target criteria – claim success on basis of criteria.
 Malnutrition, Unemployment, Health, Education IGNORED
Phase III: MH:
Human Beings are Means and Ends of
Development
Conventional Wisdom
 Human Beings are resources for
use of production of wealth.
 FIRST produce wealth, THEN
distribute to the poor.
 Social Welfare is Burden on
Budget
MH & Amartya Sen
 Wealth is resource to be used to
create satisfactory lives.
 Improve Human Lives and THEY
will create wealth.
 Social Welfare is ESSENTIAL for
development.
Can I make a difference?

 Massive social change due to small number of dedicated individuals

 We live in a world of ideas – not of bricks and stones.
 We only live once.
 Every human being has infinite potential!
 Illusion: I am ordinary, unable to affect change
 Reality: Every human being is unique. Every moment is precious.
Global Scenario

 Dramatic Shifts in Power Configurations

 USA-India Axis versus China-Pakistan Axis
 US has no further use for Pakistan
 CPEC is a dramatic game-changer.
 China has strategic interest in Gwadar – must be factored into possibility of
Indian Attack
 Major geo-political re-alignments under way, require radical rethinking
along social, political, and economic frontiers.
Regional Scenario

 Afghanistan, Iran are more natural allies.

 Tension with India is extremely harmful for us; but I don’t know how to solve
this problem. The ancient strategy of Divide and Conquer.
 Need to re-think and re-configure trading patterns.
 More on self-sufficiency, plus regional sufficiency.
Domestic Scenario

 Myth: Governments are corrupt and inefficient

 Truth: All development success stories have been led by efficient and
visionary governments.
 Myth – we have poor governance, USA has good governance
 Truth – we have better governance than USA currently.
 BUT, there is a lot of room for improvement.
 Who is going to create this improvement?
 Who will be the driver of change?
Unique Development Episode:

 How did backwards Arabs become leaders of the world?

 Compare with Persia, India, Rome, Egypt, China
 Today, we study Rostow’s Stages of Development, to learn how to develop
in three hundred years on pattern of England.
 But we do not study how prophet Mohammad SAW created world leaders
in 30 years.
Key Lessons from Experience

 Investment in LOCAL PRODUCTIVE capabilities leads to growth.

 We need Millions of Engines of Growth – Paradigm Shift Required
 Each one, reach one. Make yourself the agent of change!
 TRUST PEOPLE DARINGLY
 FDI, Exports, raising taxes, RED HERRINGS!, Foreign Agendas
Requires Massive Change in Mindset

 Colonial Period created a machine with ONE purpose: Resource Extraction

 Current Mindset: Barbarian/Imperialist – All is fair in love and war!
Paradigm Shift Required:
 Government SERVANTS – not Rulers.
 Police Service, Not Police Force.
 Hazrat Omar’s Spirit: How can I eat refined flour, when others cannot afford
 Current Attitudes: Millionare can throw food in garbage, ignoring starving
people at his gate. HUMAN RIGHTS! Not responsibilities.
What is development?

Accumulation of wealth Enrichment of human lives

Human lives subordinated to Use of wealth to feed clothe house
creation of wealth everyone
Destruction of society, environment, Social interactions
Community building
Preservation & protection of habitat
From Outcome to Process!
A radical approach to thinking about ourselves
and about the world Its how you play the
Winners Talk, Losers Walk game
 Ideal State:  How can we work to bring
change
 Wealth, Luxury for all
 The journey is what matters.
 Peace, Harmony, Justice
 Success is achieved INSTANTLY
 IMPOSSIBLE TO ACHIEVE
 FRUSTRATION
From External Goals to Internal Goals

How can the world be

changed How can I change myself.
 It is too big. The task too difficult. How can I change my
department, neighborhood
Development is Human Development

Economic Paradigm Islamic Paradigm

 Humans are resources for  Wealth is resource for production
production of wealth of humans
 Human lives can be sold and  Humans are infinitely precious.
purchased
Obstacles to Development:

Illusion of Foreign
Expertise
 Learned Helplessness
 Dis-information
 Perkins: Confessions of an
Economic Hit-Man
Remedies
 Knowledge – Neo-Colonial
Mechanisms of Debt-Traps
 Courage to Act
 Desire to Act
Bad Ideas ARE dominant

 Fama: Rational Expectations – cause of GFC – Nobel Prize

 Bernanke/Greenspan – ridiculed possibility of bubble and speculation.
Rejected warnings. – Re-Appointed
 Queen of England, US Congress investigated failure of economic theories
to predict crisis
 World Bank: Washington Consenus failed all over the world – We don’t
have recipes for development.
Good Ideas suppressed

 East Asian Miracle – sustained growth at 7% for thirty years – Lifted a huge
portion of mankind out of poverty
 NO NOBEL PRIZES
 NO mention in economics textbooks!
 Japan, Brazil – many spectacular success stories
 Germany models: community banking, re-integration of east Germany.
Industrial-education partnership, putting human beings at center of growth
models
How to spend?
conventional
 Minimize consumption
 Maximize investment
Mahbubul haq experience in
implementing this strategy
Consequences: HDR
Lead Simple Lifestyles
islamic
Spend on:
 Essential consumption
 Productive investment
Don’t spend on
 Wasteful consumption
 Unproductive investment
Colonial structures & mindsets

Revenue extraction Sharing & caring

 Purpose of govt is revenue  Govt provides services & justice
extraction
 Police service (not force)
 Institutional structures designed for
 Local government
this purpose
 Communities
 Hierarchical, top down
 egalitarian
 No feedback

Good Policy requires change of mindset!

No Lack of Resources for Development!
Wrong Priorities & Deep Misconceptions

 Social Responsibility: Service Orientation: Live to Serve

 Story of Ibn-e-Abbas and Aitkaf –
 They feed others out of the love of Allah, and do not ask for gratitude.
 Re-orienting Education.
 Re-orienting provision of Health Services.
Tough requirements

 Good honest sincere people who wish to serve, don’t ask anything for
themselves!
 Clearing mind of fallacious and deceptive theories
 Smart technical analysis of cost benefit for different projects
 Creation of thousand points of light – community led development
Life is not about wealth, power, fame
Circumstances are training grounds
personal development is the goal
 Realize the infinite potential buried within you – this is development.
 Serve in a way to ALLOW others to achieve their potentials. – this is the
strategy for development.
 Put all your efforts into serving others, and ask for nothing for your self from
others. This will open the channels to receiving from God, who can give a
lot more, and from where you cannot expect.
Secret to Rapid Growth:
Community Driven Development
 This creates millions of engines of growth.
 REVERSES current paradigm; WE create growth & share fruit with the poor
 INSTEAD: Support communities, and LET THEM be drivers of growth.
 Lesson has been learned repeatedly
 The RICH have buried this lesson under carpet repeatedly.
 Domestic Demand, instead of FDI, Exports, Taxes.
Game Changers

 Local Public Banks Invest in People & Communities

 Investing in Social Welfare, Health & Education
 Micro-Credits for SME and Agriculture
 Avoid Dollar Dependency – More Barter Deals
 Domestic Demand Based Development
 Tax on Rents NOT on production and NOT on POOR
Mainstreaming Lagging Areas

 Amazing developmental disparities in neighboring areas.

 Growing militarism in Balochistan, KP and FATA, the problem of IDPs return
and rehabilitation
 Integrating all into mainstream will reduce conflict and gain political
goodwill, & prestige
 Poverty Graduation across 500 Union Councils in affected areas.
 Budget: 100 million per UC, 50 billion for three years.
 OUTPUT: HOW MANY PEOPLE, HOW MUCH INCOME

Graduating the Poor

 Cost PKR 30 billion over three years.

 Affecting 100 million people
 Incomes raised by $500 p.a.
 GNP addition: $50 billion p.a.
 Second round MULTIPLIER EFFECTS: From 100 billion to 300 billion, due to
increasing domestic demand.
Improve Financial Inclusion
Qarz-e-Hasna Microcredit schemes
 500,000 new loans (average loan size of PKR 30,000) benefiting 3.5 million
people.
 Zero Cost in Long Run – Self-Liquidating Loans
 Outcomes: Benefits for 3.5 million people.
Links to Relevant Works
Video of this talk at NIM 24 Oct 2016: http://bit.do/aznim17
Impact of Colonial Heritage on Economic Policy for Pakistan – The colonial
heritage converts our ruling classes into oppressors and exploiters of the public.
Changing this mindset to public service is required for progress. [bit.do/azich]
Privatization of SOEs: Islamic Views — It is not state ownership but putting
personal power and benefits over the public interest that is the source of our
SOE problem. [bit.do/azpsi]
Re-Defining Development: Talk at NIM on 6 Apr 2016 on the issue of how West
understands development to be accumulation of wealth, but Islam teaches us
that this word refers to human development — if we make progress towards
learning to be human beings. [bit.do/azrdd]
What is Development? — Similar talk to the one above. Bit.do/azwid
Achieving High Growth – how we can remove obstacles to growth in Pakistan
– shortlink: bit.do/azahg