A little clarity, please!
A recent speech of PM Imran Khan at the World Government Summit highlights some important aspects of his thought process with regards to the economy. It is important that those are analysed for bringing greater clarity towards his approach to policy and its implementation.
He is indeed correct in indicating that socialistic thought process of the 1970s was detrimental in wealth creation, and since then the mindset of the policy makers and bureaucrats is titled heavily towards anti-wealth creation. There is more to it than meets the eye and the PM will need to understand all the main influences on policy and policy makers.
The policy of nationalization back then negatively impacted economic growth and the evolution of economic policy since then in terms of unnecessary procedures served as a major disincentive to business activity. Moreover, while the policy of nationalism has receded from policy framework over time in Pakistan, the procedures and bureaucratic attitude still need reform, which the government needs to take to purge the spirit of this thought process. But before such reforms can be untaken meaningfully, it is important to understand what exactly is being targeted in this reform.
To put it more precisely, it was a kind of state socialism that was practiced in Pakistan, and the broad brush usage of the term, socialism, is incorrect. Maybe the PM has hinted at it in the same narrow way, but then he needs to make it clearer. This is important, because at the same time he also idealizes the Scandinavian model of economic development, which is social democratic in nature.
This social democratic model builds on the original thinking of socialism, which came about as a reaction to individualism so that the focus could shift from personal gain and competition, to cooperation and social welfare. In that sense, the PM’s comment about survival of the fittest, is counterproductive and as such goes against the spirit of human nature of care for others.
I think here the PM is self-contradicting in the sense that he puts it a responsibility on people- and rightly so- that they live for more than for themselves, and that people with more money and power, should in fact exhibit greater responsibility in taking care of others.
In fact, the PM wants implementation of a fairer tax regime, in the form of a primarily progressive taxation on income and wealth, properly implementing the system of Zakat (or poor due), and bringing informal economy into the formal fold, all so that growth comes with proper a distribution mechanism. Here, he needs to understand that this mechanism in place back in the 1960s- the era when the economy had many good aspects but not this. So the PM needs to applaud the policies of the past with a pinch of salt- it is wrong to assume that merely increasing the size of the economic cake- or wealth creation- would translate into gains for everyone through the trickle-down effect. This is clear if you look at the case of the infamous twenty-two families’ phenomena in Pakistan and the worldwide disproportionate rise of income inequality.
This widening gap between the rich and the poor, in turn was also impacted by the adoption of Neoliberal thinking in policy making around the late 1980s. It was not just a certain brand of socialism that negatively affected the economy, but also an extreme opposite in the shape of Neoliberalism that is still impacting us. In that sense any programme that the government now negotiates with IMF, it should try its level best to purge those conditionalities that have Neoliberal leanings.
This Neoliberal mindset was also pointed towards by the PM in his speech as a source of increasing income inequality in the world. It is a very welcome thing that he realizes this given the political and economic havoc this mindset has brought. But he should understand that liberalizing the economy- lessening the role of government from running important state enterprises, social sectors, and markets- as a reaction to the socialistic mindset of the 1970s that he wishes to fight against, will be another mistake; a mistake that will otherwise take the policies right back where he does not want them- into the fold of Neoliberalism, and in turn into widening income inequality and poverty levels.
Rather, the path to follow is the ‘Middle Way’ of the social democratic model of the Scandinavian countries, which is a healthy compromise ‘between command communism and unregulated capitalism’. This system works for welfare of the people overall, and is in turn closer to the model of the State of Medina- which the PM wishes to implement otherwise.
It is therefore important that clarity and precise focus is brought to policy. In that sense the purpose of the PM House converting to a high level research space also seems to have been diluted- with inclination towards a good but generalized university of higher learning.
The PM will need to understand that in this vision of social democracy and welfare, wealth creation will not mean government taking a back stage in monitoring the markets and the private sector
Yet simply tasking certain universities to work towards finding policies that fits the PM’s will not since clearly a more focused and internationally collaborative approach, one that is directly monitored by the PM for results, is the need of the hour. In that sense, the PM House research facility approach is fast losing its required purpose with the creation of a good but generalized university.
At the same time, creating committees to bring reform by the PM, but then including those people in them that are primarily heavily influenced by the Neoliberal thought process- in terms of their academic and professional experience or for example from years of service in multilateral institutions (including IMF) and practicing the same while working under various governments in Pakistan over the years- will only frustrate the future of this country and the PM.
Do the ministers and the economists of the Economic Advisory Council (EAC) not indicate this to PM? But then why should they, when they are also highly influenced by this Neoliberal thought process, and may not be sharing the same thought process of social democratic welfare system that the PM and apparently the Finance Minister holds!
The PM has to bring more clarity on what he wants for the economy and even for the polity. And if he wants to borrow a little from the State of Medina and then the Scandinavian model as well then he will have to at least a) restore the PM House to the original focus that he exhibited initially, and b) include in committees and EAC those policy makers that share his vision. The PM will need to understand that in this vision of social democracy and welfare, wealth creation will not mean government taking a back stage in monitoring the markets and the private sector; in fact it would also mean introducing the philosophy of social libertarianism for bringing democracy in economic organizations/firms so that both workers and producers have a say in organizational decision making. It would also mean that the government- and not the private sector primarily- will also have a meaningful say in the decisions of production and consumption.
The PM will also have to launch a counter attack on the assault of Neoliberalism on economy and democracy, by increasing the capacity of government to bring in distributional consequences to economic growth/wealth creation. For that it will also need to create an effective price commission to ensure that markets- both real and financial- reach true price signals in terms of prices of commodities, labour (or wages), and capital (or interest rates). Lastly, the government will have to bring in a much needed fairer and broader tax regime. But first, the PM will need to get clearer in mind and approach for implementation.