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How to Survive the (Economic) Storm

by Akmal Hussain
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Arif Ali—AFP

Arif Ali—AFP

Controlling violence requires the use of state power and development, not appeasement.

The storms of extremist violence continue to buffet the still-fragile ship of state in Pakistan as the government struggles to find an even keel.

Pakistan’s coalition of militant extremists has de facto control over large swathes of Pakistan’s territory in the federally-administered tribal areas, and powerful reach: they have in the past attacked key military installations, including Pakistan Army’s headquarters. The militants don’t believe in the state as it exists. Their objective is to overthrow the Constitution and establish their own version of the Shariah. Their violence, of course, undermines the legitimacy of the state, which is failing in its fundamental function to protect its citizens.

Control over violence is necessary for economic growth. In the Shadow of Violence: Politics, Economics, and the Problems of Development by Douglass C. North, John Joseph Wallis, Steven B. Webb, and Barry R. Weingast shows it is not enough to remove the political and social obstacles to freely functioning markets. Development requires restraining violence. Research in this book also shows that as much as 35.6 percent of the Pakistani population is living below the poverty line—defined as less than Rs. 2,028 per person per month.

Widespread disorder is an important reason for the sharp decline in investment and growth in Pakistan—from 2001 to 2011, violence has taken an estimated 40,000 lives and cost the economy $67.93 billion, according to official estimates. The continuing recession, with its associated increase in poverty, has the potential to fuel extremist tendencies. Demographic changes present both an opportunity and a danger: over 60 percent of Pakistan’s population is below 30, which means 3.1 million people will hope to enter the workforce annually over the next four decades, but employment is not a given.

A stagnating economy with severe fiscal and balance-of-payments pressures constrain the government from taking major initiatives to create jobs and overcome poverty. Coupled with an inadequate governance capability, this had led to most of the population being denied the bare minimum material conditions for a dignified life: education, health care, social services, gender equality, and affordable access to justice. Such deprivation restricts the potential for economic growth and can easily steer Pakistan’s potentially transformative demographics into explosive social and political directions.

Some sort of peace with India can only help the situation, especially as water-scarce Pakistan spoils for a fight over resources with its thriving neighbor. The minimum, internationally-accepted water requirement is 1,700 cubic meters per person per year; Pakistan is already down to about 1,300 cubic meters. There is a clear and urgent need to set up institutional cooperation with India for the joint monitoring of river flows, to share research, and to introduce best practices for improving both irrigation and water-use efficiencies.

Controlling violence requires the use of state power, diplomacy, and development—not appeasement. To achieve sustained high growth with rapid poverty reduction, a new paradigm of growth is necessary: a change in the institutional structure from an elite-based economy to one that provides access to the middle classes and the poor over productive assets, skills, and high-wage employment. Such an inclusive growth process—with a broader base of investment, innovation, and productivity increase—will generate sustainable growth through equity. This new growth trajectory will also require the catalytic power of integrating with the regional economies of Central Asia, South Asia, and East Asia.

The prognosis does not have to be dire. Recent research by the UNDP shows that Germany in the eighteenth century, Japan in the mid-nineteenth century, and China in the mid-twentieth century undertook universal provisioning of basic services when their per capita incomes were less than that of Pakistan today.

At the very moment of its crises, there is a window of opportunity for Pakistan: a young population and an enviable geographic location at the hub of three of the greatest economic powerhouses in contemporary human history: China, South Asia, and East Asia. If Pakistan’s youth can be schooled, skilled, and made to feel secure, they can transform their country. But in order to even begin steadying this listing ship, the prerequisite is a capable and competent government with courage and vision. That’s the very least Pakistan is owed.

Hussain is the distinguished professor of economics at Lahore’s Forman Christian College University.

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