How Politics Influences Economics?

How Politics Influences Economics?
I want to raise a very simple but pertinent question: Why in past two and half years Pakistani economy has tanked despite having decent economic technocrats in the Finance Ministry and State Bank of Pakistan? To find the answer, we have to dive deep into the political economy of Pakistan. Any decent economist will tell you that Pakistan’s poor economic performance is connected to constant political instability/uncertainty, divergence between de jure and de facto powers and fissures/tension between different organs of the state. This has stifled our economic potential and therefore to do course correction, we must first acknowledge some basic facts.

That is, economic development cannot be separated from the broader political, socio-cultural and institutional environment in a country. Economic development requires a conducive ecosystem. No country in the world can economically develop under a volatile and hostile environment of political engineering and political victimization

The powerful quarters in Pakistan falsely assume that economic technocrats can deliver economic development despite of the broader political and institutional instability created by the narrow-vested interests of the former. This is tantamount to wishful thinking because history tells us that economists/technocrats cannot deliver economic development; it is always delivered by a forward looking visionary political leadership by creating political-economic settlement/consensus in the society.

For example, at the height of Great Depression in the US in 1930s, it was a progressive American politician/President Franklin Delano Roosevelt who created a broader political-economic consensus between liberals, conservatives and progressives and pulled the US out of depression and made it a leading super power in the Northern Hemisphere. In China, it was the leadership of Deng Xiaoping which put China on a transformational path. In Malaysia, Dr. Mahatir envisioned Malaysia Vision 2020 and charted a new course for his country. The bottom line is through inclusive politics the leadership creates a socio-political, institutional and cultural ecosystem in the country which paves the path for economic development.

Dismal economic performance and poor governance is tied to the political approach of the PM Imran Khan. He promotes ‘divisive politics’ rather than inclusive politics, he dehumanizes his political opponents and critics in the media and civil society. This is extremely dangerous for social cohesion in our society. PM is entitled to criticize his opponents but dehumanizing them is a quasi-fascist tactic, and a recipe for economic catastrophe.

I would like to note a shocking and depressing fact and I hope this will also jolt the powerful quarters and force them to critically reflect on their own approach.

That is, Pakistan has become one of the worst performing economies in the region since PTI government has assumed power and this trend is set to continue in future, if left unchecked. According to Asian Development Bank projections, Pakistan’s growth rate will be 4 times and 3.5 times slower than India and Bangladesh, respectively. On the other hand, the inflation rate in Pakistan is projected to be 27 percent and 46 percent higher than Bangladesh and India in 2021, respectively.

In last four decades, other countries have overtaken Pakistan because of our internal political turmoil & crisis. Given the low growth trajectory under the PTI government, India and Bangladesh are definitely going to further pull away from Pakistan in terms of per-capita income. We must ask how and why they have been able to develop so rapidly and we couldn’t?

In today’s global economic order, economic development is primarily tied to investments and exports. The share of total investment is hovering around 10-12 percent of the GDP in Pakistan, whereas in Bangladesh and India, it is around 25 percent of the GDP. In particular, India and Bangladesh have been able to successfully attract FDI in past two decades, while Pakistan could not keep up the pace. In fact, the FDI in Pakistan has declined by 11 percent in year 2019-20 as compared to 2017 level. The net inflow of FDI in Pakistan is only $2 billion, whereas in India it is more than $50 billion and it has now crossed $16 billion in Vietnam.

Similarly, Pakistan has failed to keep up pace with its peer in terms of growth of exports. As compared to Pakistan’s meager $20-$25 billion range of annual exports, India’s exports stand at $528 billion, Bangladesh is about to touch $50 billion and Vietnam stands at $279 billion.

This should ring alarm bells even among the powerful quarters which previously viewed PTI government favorably because if ‘business as usual’ prevails than Pakistan’s strategic and geo-economic position will be further comprised.

Pakistan’s current economic trajectory is simply unacceptable. At the current pace, we will be unable to offer decent employment opportunities to our 2 million young population entering job market annually which will create numerous social, cultural, economic and security challenges for us as a country. The way out is very simple, we do not need to invent a new wheel, we simply need to learn from the successful experiences of other countries. Therefore, Pakistan cannot afford the sheer incompetence, recklessness, vendetta and arrogance of the PM Imran Khan.

We have to decide between these two choices: 1) stick with old ways of political engineering and provide political life-support to the hybrid regime; 2) Learn from our past mistakes and begin a new chapter and let the people of Pakistan decide their fate through a fresh, free and fair elections.

That is where Pakistani politicians, judiciary, establishment and media need to improve. We need to unlearn the old ways of political engineering and victimization and learn the new ways of inclusive governance based on research backed policies and most importantly promote socio-politico-institutional harmony among diverse organs of the state and society for sustained & inclusive economic growth. This is the only way forward we have as a nation, if we want to leave a prosperous, peaceful and progressive Pakistan for our future generations.

As it is obvious from the facts, I presented above that the path of incremental economic growth is no longer an option with our growing population. The fall of Roman, Ottoman, Mughal empires took place when they were unable to support the burden of big armies and growing population due to stagnation in economic growth. We stand at a threshold, either we depart from the business as usual or sink in the dustbin of history as a crippled country. One of the biggest reasons for our failure is the lack of political stability, political engineering and experimentation.

The current juncture reminds me of John Maynard Keynes, 20th century’s most influential economist, famous quote:

“The difficulty lies not so much in developing new ideas as in escaping from old ones”.

The choice is clear: status quo or constitutionalism, incrementalism or leapfrogging, narcissistic egos or development.

*An earlier version of this article has published in The News on March 10, 2021