Monday, September 3, 2012

Economic Myths & Our Elite

Came across an interesting read on Pakistan's economy written by eminent economist S Akbar Zaidi in Daily Dawn. Its  must read for all......


THE more one talks to Pakistan’s educated elite, the more one realises just how uneducated it is about many things, especially Pakistan’s economy. This is partly not their fault, for many economists are equally uneducated about many factors which affect Pakistan’s economy, an area in which they ought to have some competence and understanding.

Moreover, with the wild, unadulterated web, everyone is free to voice their unwanted, unsolicited opinions. While such wide public spaces have helped democratise the public sphere, both print and especially electronic, so that anyone can say anything they want, unsubstantiated opinions have also undermined reflection, scholarship and knowledge about numerous concepts and issues, creating misunderstandings about Pakistan’s economy.

Economists are singularly to blame and not just for perpetrating uninformed myths about Pakistan’s economy. Those who are competent and qualified — and there are some — are too busy consulting for donors to volunteer to engage in the public sphere. Some even feel that there is little point in doing so since their views and opinions ‘don’t really matter’, and no one reads them.

Perhaps not, but there is still a responsibility on the part of those who are more knowledgeable — in any discipline — to convey and bring their knowledge to the public sphere, and whether they are read or not, is less relevant.

Importantly, more scholarly and learned interventions would replace much of the gibberish which substitutes for analysis on opinion pages. With Western journalists quoting Pakistani Op-Ed contributors whenever convenient, perhaps a more substantive analysis in the first place, would help them understand far better than the conversations they reproduce from the drawing rooms and the watering holes of the elite on which they thrive.

This absence of scholarly engagement results in numerous myths about Pakistan’s economy which become part of the general conversation, and then of conventional wisdom. One can list any number of such misperceptions, but perhaps a handful will emphasise the point.

It is not the fast-moving consumer goods, the Engros and the Habib Banks, or Pepsi or Unilever or ICI, which drive Pakistan’s industry, as so many of the elite who work for them falsely believe. Instead, Pakistan’s industrial force and its economy are based on the dynamic and creative small-scale or informal sector.

Research at LUMS has shown that this sector constitutes as much as 90 per cent of economic establishments, 30 per cent of GDP and 25 per cent of export earnings, and employs 78 per cent of the non-agricultural labour force of Pakistan.

These 3.3 million small- and medium-sized establishments are highly labour-intensive in comparison with the large-scale manufacturing sector, and around 95 per cent employ less than five workers. The backbone of Pakistan’s economy is its informal, small-scale sector, for which policy is seldom designed.

A second myth repeated ad nauseam is that Pakistan is predominantly rural and is an ‘agricultural country’. Research by Reza Ali showed as long ago as 1998 when the last census was held, that Pakistan was almost half urban and half rural, using more productive and useful definitions of ‘urban’, and not the moribund definitions proposed by the Census Organisation.

Fifteen years later, although research awaits the next census, it is not possible to call Pakistan a ‘rural’ country by any stretch of the imagination. If anything, probably 60 or 70 per cent of the people in Pakistan reside in areas one should call urban.

Furthermore, with integrated communication services and linkages, the idea of a ‘rural’ and ‘urban’ divide is increasingly redundant, and one ought to consider settlements and habitation on a continuum.

Since Pakistan is primarily urban, it is also no longer agricultural in terms of the contribution to the economy to which agriculture contributes only one-fifth. However, agriculture is still the main form of employment for Pakistani labour — around 45 per cent of the workforce.

Nevertheless, in areas which are designated by the government as ‘rural’, the non-agricultural sector generates nearly 60 per cent of the total income. Hence, even in ‘rural’ areas, economic activity other than agriculture provides a greater share of income than does agricultural activity.

One might just add in passing that Pakistan — its economy, its agriculture and its relations of production — is not feudal, no matter how often one repeats the claim that it is. At least on this one count, many social scientists are grudgingly coming around, although since many Western journalists only meet such ‘feudals’, they still write mainly about ‘feudal’ Pakistan.

Many liberal members of the Pakistani elite argue for a reduction in the military budget, believing that this will lead to a resultant rise in social-sector spending. One look at the data will show that both have fallen over the last decade.

Yet another particularly pervasive and persistent myth amongst Pakistan’s elite is that US aid to Pakistan is ‘good for the country’, when academic research has shown consistently that nothing could be farther from the truth.

There are numerous other such false hopes which Pakistan’s elite invests in, some of which are translated into government policy. Nevertheless, perception matters perhaps more than reality. If people believe something, they act on the basis of that false knowledge and understanding. Many explanations as to why Pakistan is in such dire straits rest at the doorstep of

Pakistan’s literate, though highly uneducated, elite.

The writer is a political economist.