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New growth model.

Byline: Idrees Khawaja

BREAKING away from the country's low and declining growth trajectory calls for deep-rooted structural reforms. Realising this, the Pakistan Institute of Development Economics with consultation from economists and development practitioners in the country recently launched the PIDE Reform Agenda for Accelerated and Sustained Growth.

The development model which Pakistan has followed since the 1960s emphasises investment in hardware - infrastructure etc. This model developed by Dr Mahbubul Haq and the Harvard Advisory Group did serve the immediate needs of the economy at the time. However, with new knowledge and changing dynamics, our development model needs to undergo a paradigm shift, argues the Reform Agenda - the country now needs to focus more on developing growth-conducive software for society.

Acemoglu and Robinson have convincingly argued in Why Nations Fail that the difference in the income levels of the 'have' and 'have-not' countries stems from the difference in their institutions ie laws, rules and processes. The 'haves' possess laws, rules and processes that not only allow economic activity but also let it proceed at a fast pace and low cost. On the other hand, the laws, rules and processes followed by the 'have-not' countries constrain economic activity.

Our growth model must undergo a paradigm shift.

Some local examples prove the point. Forty-five steps are needed to lay an optic fibre for internet connectivity. Firms on average spend 577 hours and wade through 47 procedures to pay all the taxes for the year. Nine procedures are needed for a construction permit and this can cost up to nine per cent of the construction value. Land developers must obtain 22 NOCs from different agencies in order to proceed.

For Pakistan's youth bulge to be absorbed by employment, and to pay off our high debt, the GDP - according to the Reform Agenda, should grow at an annual rate of 7pc to 9pc for a period running into decades. GDP is nothing but the sum of economic transactions. Frictions mentioned above adversely affect productivity, increase transaction costs, and thus discourage doing business - fewer transactions mean lesser GDP. Productivity and investment, the two key drivers of economic growth, are not only low in Pakistan they are declining as well. Bad laws and cumbersome procedures keep productivity and investment low in Pakistan.

These constraining laws and rules are developed by the government. Lengthy and obsolete processes too are followed mostly by public entities. To follow a high-growth trajectory then, the country will have to be transformed into a well-functioning state - starting from 'which' organ of the state does 'what', and concluding with 'how' this must change. The entire public service including the civil service, judiciary, regulatory bodies, and local governments, etc. must be reformed to serve as 'enablers' of the economy. Regulatory bodies - Nepra, Ogra, Pemra, CCP, etc - must be staffed with professionals who are allowed to take decisions without bureaucratic interference. All laws, rules and procedures should be reviewed and amended to allow economic activity to take place and at a brisk pace.

Cities that allow workplaces, residences, places of leisure, hospitals, schools, shops, etc near each other encourage economic activity. Such cities are dense, high-rise, mixed-use and walkable. By clustering economic activities, such cities generate knowledge spillovers and reduce transaction costs. All cities must be reconfigured to become engines of economic growth.

Technology and AI are 'disrupting' almost every field. Embracing disruption, among other things, will require providing internet access to all and sundry. Selling spectrum at low cost, cutting taxation on the internet, lowering duties on mobile phones and giving subsidised access to the poor would facilitate 'internet for all' - the pay-offs are likely to be greater than the celebrated signal-free corridors, motorways and BRTs.

The ongoing disruption will create as well as eliminate certain jobs. Low-end manual jobs requiring little or no education are at high risk while tech-oriented jobs will increase. To take advantage of the transformation, the 'disruption' of the education system is required to produce the required human capital.

Rules and systems that govern trade and taxation will have to undergo a thorough change to allow trade and let people pay taxes.

The report laments the lack of interest in research, and recommends that policymaking be informed by research undertaken at the local universities - no contracting research to international donor agencies. The policy implications that would emanate from research would be grounded in local ground realities. This would also help universities produce youth who fit well in this tech-/AI-driven age. This new software of society can become a harbinger of high and sustained growth.
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Author:Idrees Khawaja
Publication:Dawn (Karachi, Pakistan)
Geographic Code:9PAKI
Date:Apr 24, 2021
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