COMMENT: Reorienting the growth narrative —Jamil Nasir - Saturday, February 26, 2011

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The educational system is totally divorced from the realities of the market and unless an effective strategy is adopted to deepen the nexus between supply and demand, enhancing labour productivity will remain a distant dream

Conventional planning based on capitalist fundamentalism has not delivered in the case of Pakistan and the country needs to reorient its growth narrative. This is the key message of the new draft growth framework, an elaborate document of the Planning Commission of Pakistan, available for comments on its official website. The potential culprits for lustreless growth performance are many but the major reason is low savings and those too were not channelled to productive uses due to leakages and fragility of the markets. Resultantly, in order to fill the gap between savings and investment, Pakistan remained heavily reliant on foreign aid. But the panacea of aid for development also failed catastrophically.

The pros and cons of foreign aid may be analysed, debated and questioned. Academia groomed in the hardcore discipline of economics may explain the failure of aid in terms of the range of perverse incentives it generates for its recipients. They may argue that the country got the aid, so savings and domestic resource mobilisation were discouraged. The aid money was used for consumption goods instead of investing it in bricks and mortar. It was squandered through corruption and did not reach the intended targets. It remained ineffective, as sensible economic policies, and good governance, and so on and so forth did not accompany it.

Against this backdrop, the new draft growth framework lays more emphasis on the software of growth, i.e. critical enablers to growth like innovation, entrepreneurship and markets. The chief elements of the software of growth includes enhancing the productivity of both the private and public sectors, limiting the role of the government, introducing market reforms, and improving the quality of life of the citizenry through better public service delivery.

The productivity gaps are in large measure due to the inefficient use of factors of production, i.e. labour and capital. The protectionist measures adopted in the form of high tariff walls, erected to defend local industries/firms on the strength of the infant industry argument, did not foster competition. Firms/businesses had little incentive to invest in R&D and innovation. Our firms and producers were not exposed to the best global practices of making optimum use of capital. The state pampered selected sectors of the economy but time has proved that such policies were misplaced, and the narratives of industrial development were wrong.

For enhancing productivity, and catching up with the technological frontiers, interaction with foreign firms is highly important. The country therefore needs to attract know-how, or technological spillovers from firms applying these practices. Foreign direct investment (FDI) and collaborative ventures between local producers and foreign firms and buyers are some important vehicles for transferring know-how. This in turn requires a good investment climate, improvement of which is persistently one of the daunting challenges Pakistan is faced with, due to security concerns.

Low labour productivity is mainly attributable to a low or irrelevant skill set, and lack of training and mentoring opportunities. The educational system is totally divorced from the realities of the market and unless an effective strategy is adopted to deepen the nexus between supply and demand, enhancing labour productivity will remain a distant dream. The existing disconnect between industry and education is mainly responsible for the divorce between the markets of labour supply and labour demand. Further, the demographic dividend cannot be reaped unless we invest in our youth by providing them with better opportunities for realising their potential.

Reform of the civil services are a must for achieving high growth on a sustained basis and effective public service delivery, an aspect that has received surprisingly little attention of the authors of the draft growth framework. The civil services in Pakistan are going down the hill with each passing day. Incentives, both monetary and non-monetary, are low. Respect is continuously on the decline. The principle of meritocracy is under question. The demarcation lines between the ‘good guys’ and ‘bad guys’ stand blurred due to politicisation, sifarish (patronage) and the accompanying culture that has crept into the public sector services of Pakistan. The misplaced criterion of promotion that attaches heavy weightage to seniority and seldom rewards efficiency, honesty, hard work, intelligence and zeal for efficient and cost-effective public service delivery has further disillusioned young civil servants.

Inequities among various service groups are sharp and have further deepened with the passage of time. The emerging private sector coupled with the above-mentioned factors is crowding out talent and it has become a daunting challenge to attract the best talent to the civil services and retain it. This situation calls for broad-based civil service reforms and should be an essential part of the new growth framework of the planning commission.

Limiting the role of the government is easier said than done. Certainly the government should not be in each and every business. And its role should be limited to the maximum possible level in goods and factor markets. But at the same time the private sector needs to be made more robust and responsible. The sick State Owned Enterprises (SOEs) that have become one of the major causes of the widening fiscal deficit in particular need to be restructured and reformed. Instead of divesting their full control to the private sector, public-private partnership may be an appropriate option to begin with.

But there are limits to reducing the role of the government. Further, in a country like ours where inequities are deep and sharp, the role of the government for redistribution of income and the delivery of public goods is inescapable. The point is that public sector is a necessary evil, whose role cannot be eliminated altogether. It would therefore be more prudent to introduce reforms with a view to making it more efficient at public service delivery and provision of public goods.

However, the good news about the new growth framework is that it is a complete shift from the formulaic thinking of the past. Economic growth on a sustained basis can be achieved by introducing wide-ranging reforms is the message that is manifest throughout the draft document. Hopefully, this document will provide at least a framework to put the country on the right track.

The writer is a graduate from the Columbia University in Economic Policy Management. He can be reached at

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