State, entrepreneurship and the common good

By Shahid Javed Burki
Monday, 16 Aug, 2010

FOR about three decades, from the early 1980s to 2007 when the global economy almost collapsed, countries around the world have been busy redefining the role of the state with respect to economic development.
With the collapse of the Soviet Union and the end of Marxism, there was no longer a debate based on ideology. The argument that only the state could quicken the pace of development was no longer seriously made. The real debate was on how far the state should retreat and how much space should be left to the private sector to manage development and economic change on its own.

Among developed countries the United States took the lead by placing private entrepreneurship at the centre of its economy. As Alan Greenspan said repeatedly in his many pronouncements, private economic players could be trusted to be totally rational and when their actions are aggregated, the result would be combined good. That, of course, did not happen and the result was the Great Recession of 2008-09, brought about by personal greed and lack of concern for the common good.

In the emerging world Pakistan, under President Pervez Musharraf, gave an enormous amount of space to private entrepreneurs. The state left them alone, stepping in only when the private sector felt that it was faced with unfair competition from abroad. This allowed private monopolies to develop at the expense of the consumer.

Protected by the state, some sectors developed rapidly but not competitively. Automobile sector is an example which thrived behind the wall of protection that was built around it. This brings me to the question that is receiving a great deal of attention in business schools all over the world: What do entrepreneurs want from the state and what should the state be prepared to give them?

For the last several years data have been gathered by several institutions, including the World Bank, to understand what motivates business people, what discourages them, what they perceive as the do’s and don’ts of the role of the government, and how they are influenced by the changes in the international environment.

The bank publishes its findings in reports that appear every year under the title of ‘Doing Business’. It also carries out detailed analysis of the situation in individual countries and presents its findings in what are called ‘Investment Climate Assessment.’ This has been done for Pakistan.

However, the latest ICA report for Pakistan remains unpublished because of some easy-to-resolve differences between the authorities in Islamabad and the bank. This is unfortunate since the report is extraordinarily rich in information that would be of benefit to the policymakers. Private institutions have also entered this field of endeavour.

Some interesting data have been released by the Legatum Institute in London based on a survey of 4,000 entrepreneurs, business managers and aspiring entrepreneurs conducted by YouGov. Most of the people surveyed are in China and India. These two countries were selected since even with the pull back by the state, they are following two very different models of development. Legtum’s Ryan Streeter has analysed the results and presented them in an article published recently in The Wall Street Journal. His findings are important for both Pakistan’s policymakers and entrepreneurs as they address the problems the country currently faces.

“Entrepreneurs in both countries (China and India) are bullish”, writes Streeter. “Nearly half of the respond ents believe their societies are more welcoming of entrepreneurial activity now today than 10 years ago, and only one-quarter in India and one-third in China believe the global financial crisis has seriously hampered the prospects for new businesses. The vast majority believe their lives will improve dramatically in the next five years.” That the entrepreneurs from these two countries are bullish about the future is not surprising. Both countries are speeding ahead with development; China continues to see its economy grow at the rate of more than 10 per cent a year while the Indian economy has begun to approach that number. On the other hand, if a similar survey were to be conducted in Pakistan where the economy is struggling at a rate barely more than the rate of increase in population, entrepreneurial sentiment would be very different. Business confidence is an important part of business behaviour.

The YouGov survey identifies two different styles of entrepreneurship that have emerged in China and India. The differences concern the way the business looks at the government and the role it actually plays and should play in their lives. The differences begin with the reasons for launch of businesses. An overwhelming majority of Indian business people name “being my own boss” as the most important reason for going into business.

However, family tradition and expectation are also important reasons. The same is probably true for Pakistan. This is the reason why in these two South Asian countries business ownership remains concentrated in certain communities. The South Asian business people are closer in this respect to American entrepreneurs who, according to a survey conducted by Kauffman Foundation in 2009, are more likely to cite “owning my own company than “building my wealth” as the main reason for launching businesses.

In China the most popular reason cited for starting business is to earn more money. It was a sense of this that led Deng Xiaoping, the father of modern China, to declare that it was “glorious to be rich”.

In China the state’s effort to promote business development is also ci ted as an important reason for entering the field of entrepreneurship. Nearly half of Chinese business people identified state efforts to encourage entrepreneurship while less than onefifth of the Indians said that the state was a factor in their decision. One reason why the Chinese were positive about the role of the state was the access to the government-owned banks for credit to set up businesses.

Almost one-half of the Chinese already in business had obtained loans from the government compared to only 19 per cent in the case of entrepreneurs from India. The Indians were much more dependent on families and friends for getting finance to set up businesses. Again, the same must be true for Pakistan. The Chinese look to the government for help with building contacts with foreign investors and foreign markets. The Indians are more reliant on their own initiatives in part because the government is weak in India compared to the one in China.

The researchers who have looked at the data find the Indian model more sustainable than the one being pursued by the Chinese. According to Streeter “because India’s entrepreneurs have succeeded amid dysfunctional government and financial institutions by developing a kind of independent and experimental ingenuity, it stands to reason that the enterprising class would prosper even more were India to reduce barriers to business and clean up corruption”.

To me this conclusion once again sets up the approach to business development as an either or proposition in so far as the role of the state is concerned. There are certain things the state must do not only to build investor confidence but also to protect the citizenry from the profit-seeking behaviour of entrepreneurs. It is right for people to invest in business in order to make money. It is right for the state to ensure that money is made not at the expense of the citizenry.

Crisis is a terrible thing to waste’

Once the last amount of floodwater has flowed into the Arabian Sea, Pakistan will be a transformed place. The question is whether this transformation can be managed by those in power or will it be forced on them?

By Shahid Javed Burki
Monday, 23 Aug, 2010

WITH so much destruction around after what were one hundred year floods, it is difficult to talk about hope and opportunities. But there are opportunities in crises only if those in positions of power are prepared to work for bettering the country’s future.
Those who know and have studied Pakistan’s history are comparing the floods and the destruction they have wrought with what happened right after the British hastened their departure from India.After accepting Muhammad Ali Jinnah’s demand for the creation of a separate homeland for the Muslims of British India, the colonial rulers left the new country to its own devices.

It would have been difficult to create a new country even in ordinary circumstances but when Pakistan was born what it had to deal with were many extraordinary developments. Among them was the mass killing of people on the basis of religion. Pakistan had then only 30 million people. To these were added another eight million who came from India with no possessions but only hope about the future.

There was a net addition of two million people since six million Hindus and Sikhs left in the opposite direction, leaving Pakistan for India. When Pakistan took its first population census in 1951, 25 per cent of the people were born outside the country. This was the largest movement of people in human history and Pakistan then had the largest proportion of refugees in its population.

But there are a number of important differences between the situation today and the situation in the summer of 1947. There was a huge movement of people then but not much destruction of physical capital. Then there was little capital to destroy.

Now, more than 60 years later, the economy is much larger and structurally very different. There are also almost six times as many people cramped into the same amount of space.The loss of life this time around has been much less that was the case in 1947. No firm estimates are available but it has been speculated that about a million people were killed or injured in the civil disturbances that accompanied the transfer of population. But the proportion of the population affected is comparable.

Then, as already indicated, one quarter of the population was directly impacted. The proportion at about 30 million people directly or indirectly affected by the floods is one-sixth of the total population. The people who then left did so with practically no assets; that is also the case with the people on the move today. However, then millions of displaced people were settled on the lands vacated by the Sikh peasantry or on the properties left by Hindus and Sikhs in the urban areas. Today’s displaced people don’t have that option available to them unless the government, as discussed below, creates it for them.

One important outcome of the crisis of 1947 was that it created a major structural change in the economy and in the political system. Within a few years, Pakistan was less dependent on agriculture and became more reliant on industry and modern services. It also went through a dramatic reorienta tion in international trade Before independence, the areas that became today’s Pakistan traded almost entirely with India. By 1950, India was no longer the dominant trading partner. New markets were found in the West and in Japan. There were also changes in the structure of politics. As the refugees settled down they were able to wield power that was disproportionate to their numbers. This happened at the expense of the landed community.

It is reasonable to expect that similar structural changes will occur as a result of the current crisis. Once the last amount of flood water has flown into the Arabian Sea, Pakistan will be a transformed place. The question is whether this transformation can be managed by those in power or will it be forced on them? There will have to be changes in three areas: a move away from dependence on foreign flows, providing opportunities to the displaced people in the economy, and changing the structure of the government so that it becomes more responsive and adapt at handling crises.

As has happened so many times before, the policymakers during crises turn to the world to provide help. The same approach has been adopted once again. But the response has been less satisfying from Pakistan’s perspective. There are a number of reasons for this.

Pakistan is not a popular country these days in the West. Fareed Zakaria has called it the supermarket of terrorism. He and other people have estimated that 80 per cent of the recent acts of international terrorism can be traced back to Pakistan. Also, there is an aid fatigue.

Pakistan has turned up with a begging bowl in hand so many times before. And, there is an im pression that the government was slow to respond unlike the situation in some other countries – China is an example – that are also dealing with natural disasters. Those who give – and this includes governments, non-government organisations and people in general – would like to see that those who are in charge are doing everything they can in addition to asking for foreign help.

Some economists who have studied crises maintain that they are an essential parts of the way economies progress. “Crisis is a terrible thing to waste” said Rahm Emanuel, President Barack Obama’s chief of staff. He was, of course, referring to the financial crisis the Obama administration inherited from the Republicans. When the history of the Obama administration gets to be written, it will be recognised that it introduced a number of important structural changes that would not have happened in ordinary times. There are lessons in this for Islamabad.

By far the most important lesson is the need to become self-reliant. That can only happen if the rate of domestic savings increases and the tax-to-GDP ratio is improved. This will require the rich and the upper middle classes to begin to pay tax es and augment the resources of the government so that in difficult times it does not have to resort to the begging bowl. The upper income groups will have to give more to the economy and the society.

Much of the displacement of people has occurred in the areas where there are large land holdings. There is an opportunity to introduce a meaningful land reform in the affected areas and settle the displaced people on the land the government should acquire. There is also a lot of government land in various parts of the country. Some of this should be used to settle the affected and the practice of giving land grants to the senior military officers should be discontinued. And incentives should be given to the private sector to set up labour using industries to provide employment to the people who have lost all they had as a result of the floods.

A good government would turn this crisis into an opportunity for bringing about structural changes in the economy and the society that will not only reduce the pain being suffered by the people who have been terribly hurt. Such structural changes will also help the country in the long run. But a good government must have the capacity to think strategically.

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Rise of Indian-Americans

The Indian-Americans rank among the most highly educated ethnic groups in the US. In terms of political influence, the Pakistani-Americans are way behind the Indian-Americans.

By Shahid Javed Burki
Tuesday, 24 Aug, 2010


THE susceptibility of the American political system to money is well known and well documented. One peculiar thing about the system is that the po litical parties do little to finance their candidates for thousands of offices around the country.
That is left almost entirely to the can didates who go about soliciting funds from friends and allies and from those who will stand to benefit if the person they have supported wins the election. That this is the way the system works was recognised decades ago by the small Jewish community in the country that wields political weight that far exceeds the number of people of the Jewish faith in the American population.

But it takes more than money to gain influence. If it had just been money, the Arabs, with loads of wealth, would have gained more power than the Jewish com munity. That did not happen for the simple reason that they did not get organised and did not use their dispersed diaspora effectively to gain influence. The Jewish experience has been well studied and learnt by the rising Indian American community. There are now 2.5 million Americans of Indian origin.

According to the United States commerce department that is responsible for conducting population censuses and analysing population data, the IndianAmericans rank among the most highly educated ethnic groups in the country and they have the highest per capita income of any ethnic group in the country. The income per head of the IndianAmerican community is 20 per cent greater than the American average.

According to a recent report in The Washington Post filed by Krissah Thomson, “in addition to Nikki Haley, the barrier-breaking Republican nominee for governor of South Carolina, Indian-Americans are campaigning this year for congressional seats in Pennsylvania, Kansas, California, New York and Ohio. More than a dozen serve in senior positions in the Obama administration, including US chief information officer Vivek Kundra and USAID chief Rajiv Shah. Louisiana Governor Bobby Jindal, the first Indian-American governor, made the Republican shortlist for vice president in 2008.” In fact, the Republican party seriously considered Jindal as a candidate for the presidential elections of 2012 and he was invited to speak on behalf of the party after President Obama’s first address to Congress. It was his lacklustre performance that took some shine off his career and meteoric rise.In my own work on the Pakistani diaspora in the United States I have emphasised that in terms of the proportion of the Pakistani population, its size is larger than that of India’s. The Indian number is 2.5 million which means about 0.2 per cent of the homeland population. Pakistanis number at least 800,000 which makes the PakistaniAmerican diaspora close to 0.5 per cent of the homeland population. But what counts are the absolute numbers and there are three times as many Indians as Pakistanis in the United States.

However, their per capita income is about the same as the level of education. Unlike Pakistani diasporas in the UK and the Middle East, most Pakistanis who have migrated to the United States are professionals and their children have entered some of the more important professional groups in the country. In terms of political influence in the United States, though, the Pakistani-Americans are way behind the Indian-Americans. There are several reasons for this. Among them the two most important ones are perceived as religion and the inability to get properly organised. Religion was also a negative factor that the Indian-Americans had to overcome.

For Pakistanis, ever since 9/11 and the continuing terrorist activity originating from the Muslim world, Islam has been under siege in the United States. There can’t be a better illustration of this than the controversy surrounding the plans to build a mosque and an Islamic centre near ‘ground zero’ in New York City where the twin towers stood before they were brought down by Muslim terrorists on Sept 11, 2001.

As reported by The New York Times, “the arguments against the Muslim centre appear to be resonating. Polling shows that a majority of Americans oppose building it near ground zero. Some national leaders in stump speeches, Twitter messages and op-ed articles have turned angry denunciations of the plan into a political rallying cry that they say has surprising potency.” The other problem relates to the absence of organisations that can advance the political careers of people of Pakistani origin. The Indian effort started modestly; five years ago when a group of staffers on Capitol Hill started a club they called the Desi Power Hour. According to Thompson, “today … that once-casual gathering of legislative aides, communications consultants, tech gurus and fundraisers has grown into an influential political network that undergirds the record number of Indian Americans running for political office this year”. Nothing comparable exists for the Pakistani community.

Why should it matter if the Indians in the United States gain important political positions while the Pakistani community languishes? It would not matter if the two countries were at peace and did not always work on the opposite side of every political equation. I have argued on several occasions in this space that it is to Pakistan’s advantage to develop strong economic and trade relations with India. However that is not happening. If anything, the recent meeting of the foreign ministers of the two countries in Islamabad has set the process back.

The unfortunate statement of the British prime minister about Pakistan regarding terrorism in India before an audience of Indian business people has worsened the situation. With relations between the two countries not improving, the two communities in the US tend to work against one another in the political field.

For instance, many of the onerous conditions attached to the Kerry-Lugar bill last year were the product of intense lobbying by the Indian-Americans. It is important, therefore, for the PakistaniAmericans to also come together and begin to exercise influence that should be theirs given their size and economic stature.

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State and the crisis

By Shahid Javed Burki
Monday, 30 Aug, 2010

THIS may be a good time to begin to think about giving the economy gravely damaged by the floods a different focus.

There is a consensus building up among economists who are watching the unfolding economic situation and social disaster in Pakistan that it will take a long time for the economy to recover. Such is the extent and depth of the damage caused that the economy may not return to the path of growth for as long as five years.

In the meantime, the country will have to live on foreign aid which, given the reputation for corruption and inefficiency of the government, will be provided only grudgingly.

The international community is also looking for signals that those who govern from Islamabad are prepared to develop a strategy that, over time, will provide a firmer footing for the Pakistani economy. In order to do this Islamabad needs to think big and begin to place the economy on a different track that will provide it with dynamism.

Economists who have studied the economies that were successful in catching up with the leaders concluded that the state has a critical role to play and that that role will be different in different country situations. Alexander Gershchenkron, a Harvard University economic historian, was the pioneer of this line of thinking. He studied how France caught up with Britain as the latter took off with the help of the Industrial Revolution. Paris let the state take the lead in creating conditions that would help France to close the gap between its economy and that of Britain across the English Channel.

Germany, initially left behind by both Britain and France, developed a model in which the state encouraged close collaboration between the industrial and financial sectors. The Russians also turned to the state and allowed it to climb the commanding heights of the economy while suppressing private initiative. France and Germany succeeded in their catch-up efforts; Russia failed totally.

In the 1990s, the World Bank studied the catch up efforts of the various miracle economies of East Asia and concluded that the state, once again, was heavily involved in this effort. It invested in human development; selected the “winners” for encouragement and support; and forced the financial sector to invest in the winners while allowing banks and other financial institutions to obtain cheap resources from depositors.

Unlike the Soviet Union, the East Asian state did not create monopolies in the public sector. It encouraged the favoured private sector industries to compete with one another; letting the weaker companies to fail and exit. This is the way the Koreans encouraged the development of world class firms such as Samsung and Hyundai and let weaker companies such as Daewoo to leave the scene.

Initially the South Asian state also sought to place itself on the commanding heights of the economy. India did it under Jawaharlal Nehru, the country’s first prime minister who governed for uninterrupted 17 years. His efforts only succeeded in producing what the Indian economists themselves have called the “Hindu rate of growth” that was only marginally better than the rate of increase in population. Pakistan adopted the Indian model in the early 1970s when Zulfikar Ali Bhutto came to power.

While Nehru had not nationalised industries and financial institutions, Bhutto brought the enterprises in these sectors under the control of the government. The unintended result of this move to enormously increase the presence of the state in the economy was that it discouraged the private sector from investing. The economy slowed down appreciably. Also the expanded state increased the opportunities for corruption by both politicians and bureaucrats.

The purpose behind recalling this history is to alert the policymakers not to make some of the mistakes that disfigured the structure of the economy as they begin to reshape it to place it on a stronger footing. The present crisis has provided some opportunities that must not be wasted. Pakistan needs to catch up with other economies of Asia. It has been left behind by India by a wide margin; even Bangladesh, once the poorer part of Pakistan, is fast catching up with what is now Pakistan.

The new economy needs to be built on a number of pillars with the state playing an important role along with the private sector. What should the state do while attempting to restructure the economy and what kind of help should it secure from the international community?

The world has been fully alerted to the problems Pakistan now faces. It is preparing to help. That help could be directed into not only repairing the damage that has been done by the floods. It can go beyond that. I will take up next week the question of what kind of help Pakistan should aim to solicit from the world. Today the focus will be on defining the role of state.

In defining its role, the state should do what cannot be done by the private sector. This means getting involved in at least three activities. The first of these is improving the quality of governance. This, as most observers of the scene recognise, has declined perceptibly over the last several years. Democracies have a built-in mechanism for correcting errant behaviour by throwing out the offending elected officials. But elections are spaced at intervals during which much damage can be done.

Besides, in political and social systems such as Pakistan, the opportunity for making change is considerably limited. Economic dependence of much of the electorate on the elite and the continued prevalence of the “baradari” system means that it is not easy to, as the saying goes, “throw the rascals out” during elections. What is required is a built-in system of accountability that has the ability to ensure that all those who hold and exercise power are answerable to an incorruptible authority.

Since the early 1990s Pakistan has experimented with different accountability systems. Unfortunately the systems put in place themselves came under the influence of political masters and became corrupt. Given this history it may be prudent to establish a commission of persons chosen by the parliament that has full authority over an institution such as the current National Accountability Bureau. This will subject the NAB itself to the same kind of accountability that is envisaged for senior judiciary in the 18th amendment.

The second activity for the state is to select the “winners” – sectors as well as enterprises within the sectors – that will be supported in order to move the economy towards greater export orientation. Agriculture including livestock is the sector that has the greatest potential in this context. It is also the one that has been hurt the most by the floods.

But helping the sector to acquire dynamism will need a combination of state-supported initiatives. These include provision of subsidised credit, research and extensions, and identification of external markets. Automobiles is one other sub-sector that could be helped with emphasis on supplying to such rapidly developing industries as those in China and India.

The third area of attention by the state is the one that has been talked about a great deal – development of the country’s large human resource. Here again the state and the private sector need to work together.While the emphasis should be on improving the quality and accessibility of basic education, development of skills for a modern economy must also receive considerable attention.

There are other things the state must do to help the economy out of the deep crisis in which it has plunged as result of the floods. This is a good time for the state to develop a strategy for the future.

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Four big ideas

The storm through which Pakistan is currently passing can only be dealt with if the leadership comes up with a big idea that would transform society and prepare it for the 21st century.

By Shahid Javed Burki
Tuesday, 31 Aug, 2010


ONE way of looking back at Pakistan’s 63-year history is to spot some of the big ideas that have shaped the country — its society as well as its economy. There are at least four of these that should occupy the top of any historian’s list.
The first, of course, was the idea that the Muslims of British India could not live in a Hindu-dominated albeit independent state. Mohammad Ali Jinnah articulated that idea and foun ded the state of Pakistan. Jinnah did not wish to create an Islamic state, only a state that would serve the social, economic and political interests of his community.

It was only after the ‘Muslimisation’ of Pakistan that, as a result of the migra tion that accompanied the partition of British India, Islamic groups gained the strength that would not have been possi ble had other religions continued to dilute the influence of their radicalism.

The country Jinnah created lasted for less than a quarter of a century in its original form. In 1971, it broke into two parts, a Bengali Bangladesh and a multi-ethnic Pakistan. The Bengalis winning independence from Pakistan was an indication that ethnicity was a more powerful basis for nationhood than religion. Will what is left of Pakistan survive as a nation state is a question that is being asked by many, not only by those who opposed the demand for the creation of a Muslim state in the first place. This big idea has not failed but is currently under a great deal of pressure.

The second big idea was put forward by Gen Ayub Khan, Pakistan’s first military president. This idea took its cue from the thinking then that the South Asian ‘soft state’ could not ensure the broad-based development that was needed to address the problem posed by the presence of extreme poverty in the subcontinent. The term ‘soft state’ was coined by the Swedish economist Gunnar Myrdal in his seminal work The Asian Drama which won him the Nobel Prize. Ayub Khan used this thinking and created a political and economic system that restricted popular participation in government affairs while allowing considerable space to well-trained and motivated economists and planners to move the country forward.

The idea worked for a while. For almost a decade, the Pakistani economy outperformed other South Asian economies. It was during this period that Pakistan’s per capita income passed that of India. But the idea could not be sustained; the political system did not have the resilience to absorb some of the discontent that inevitably results from rapid economic growth that does not pay enough attention to income distribution.

We owe the third big idea to Zulfikar Ali Bhutto who took a page out of the discredited Indian model of development and put the state on the commanding heights of the Pakistani economy. However, while Jawaharlal Nehru, India’s first prime minister and the inspiration behind the economic model that yielded the slow ‘Hindu rate of growth’ for the Indian economy, did not nationalise the industries and financial institutions that were in the hands of the private sector, Bhutto took this route to expand the presence of the state in the economy.

The results were disastrous. Nationalisation not only slowed the rate of growth of the economy but also stunted the growth of the Pakistani firm. The country is still living with some of the adverse consequences of this big idea.

The fourth big idea came from Gen Ziaul Haq who aggressively brought his version of Islam into the Pakistani society. While his attempt to Islamise the political and economic systems did not succeed, his approach did have the consequence of bringing an extremely restrictive version of religion into a country that had happily followed for centuries the Sufi tradition. Zia left the country with a very unhappy legacy.

Unless the more liberal elements within Pakistani society assert their presence and rescue the country from obscurantism, the first big idea — that a state could be created to serve the Muslims of South Asia — could also suffer the same fate as the three other big ideas.

The conclusion that should be drawn from this brief overview of Pakistan’s history is not to disparage the idea of ‘big ideas’.

In fact, I would argue that the storm through which Pakistan is currently passing can only be dealt with if those who are in leadership positions come up with a big idea that would transform society and prepare it for the 21st century.

This should encompass all aspects of life in the country. It should strengthen the political system so that it becomes more representative of the people it serves and provides a voice to all segments of the population. It should create an economic structure that is able to raise resources from within the country — and not only to provide for sustained development. Internal resource mobilisation should also take care of the crises that will continue to hit the country.

This will happen given the unrelenting increase in population and global warming that will melt the glaciers and bring more water into the rivers for several more years be fore they go dry and leave the land parched.

As the current crisis has shown Pakistan’s tendency to seek assistance from the world whenever a crisis hits the country is testing the patience of those who were prepared to help in the past but are now reluctant to assist a country that is unable to take care of itself. The new big idea should also address the question of the role religion should play in reshaping the society. Without a clear definition of the role of religion in politics and of the way the society should work the country will continue to be pushed into a very dark alley.

It is hard to say whether those who currently dominate the political sphere have the ability, the interest, the willingness or the capacity to act on this big idea. What is clear is that the tide produced by the floods will not only submerge a lot of precious land. It will also drown those who were elected to govern in the name of the people. There cannot be any doubt that the floods of 2010 will define Pakistan’s future in many different ways.

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China’s expanding global reach

By Shahid Javed Burki
Monday, 04 Oct, 2010


THAT China is developing fast while the United States is struggling to find its economic feet has become an important part of conventional wisdom about the reordering of global economic power.
That China’s increasing economic muscle will also get translated into an increase in military strength and that Beijing will not be reluctant to challenge other big powers is also becoming part of conventional thinking.

For a small country such as Pakistan – small in the sense of its economic presence in the world – such power rivalries should not be of great concern. That would be so if the country was not so closely aligned to the two major powers that might come into conflict sometime in the future.

Pakistan cherishes its “all weather” friendship with China and it looks to the United States for financial help during periods of economic stress. Also China is Pakistan’s immediate neighbour and it matters a great deal which way this giant moves. Pakistan should make a serious effort to better align its economy with that of China.

But for that approach to be adopted it is important to understand China and where that large economy is headed, what are the challenges it faces as it accommodates itself to being the second largest economy in the world and what it has to offer to the countries around its periphery.

Under President Barack Obama the United States has begun to ac cept the fact that it no longer dominates the world as it used to do a few years ago. During his first visit to Asia in November 2009 as the American president he gave a speech in Tokyo en route to China in which he suggested that Washington and Beijing should work together in order to guide the global economy.

In fact he was proposing a G2 system that would sit atop a multitiered global structure that would include G8, the group of rich countries, and G20, a group that included all G8 countries as well as the world’s major emerging economies. Unfortunately Pakistan does not belong to any of these groupings. It is, therefore, forced into a passive position with respect to the evolving world economic order.

It is important to recognise that for years to come, economics will remain China’s focus. I worked on China for seven years, from 1987 to 1994, directing the World Bank’s programme in that country. It was during this time that China had to deal with what it calls the Tiananmen Square incident and the West has labelled it as massacre.

There was pressure on the World Bank from G7 countries to stop lending to Beijing, something that the bank was able to resist. Because of this crisis in the relationship between China and the West and therefore with the World Bank I had many meetings with China’s senior leaders.

They, with one voice, told me that China was not interested in playing on the world stage. Its preoccupation was with building its economy and improving the economic and social well being of its large population.That policy stance paid off and China has now emerged as the second largest world economy, overtaking Japan earlier this year.

Several economic historians study what they call the “catch-up periods” in the global economy. These are the periods when the countries that have lagged behind caught up with the leader, sometimes overtaking it. This type of analysis was given prominence by Alexander Gershchenkron, the Harvard professor generally regarded as the most influential economic historian of his time.

He studied the rise of France and Germany – and later that of the Soviet Union – as these countries attempted to close the gap with Britain the leading economy of that period. Later other historians extended this analysis to study the rise of Japan, the “miracle economies” of East Asia and China.

China basically followed the Japanese and East Asian catch-up model. It followed a production oriented approach that had several components.There were significant transfers of income from households to manufacturing. This was done by the state holding interest rates low thus rewarding investors at the expense of savers. This led to very high rates of investment which increased steadily and reached an extraordinary level of 46 per cent of national income in 2007, increasing from an already high 32 per cent in 1997.

At the same time household consumption fell from 45 to only 36 per cent. The state run as well as privately owned enterprises were encouraged to export. They were helped by the state by keeping the rate of exchange low compared to the currencies of the countries that were the principal buyers of manufactures. In order not to allow the exchange rate to appreciate, the state purchased large amounts of foreign currencies thus building up large foreign currency reserves.

As Financial Times’ Martin Wolf puts it, “China is Japan ‘plus’: its investment rate is higher, trade sur plus larger, rate of consumption lower and exchange rate intervention bigger.” This model was dependent on the state playing a decisive role in guiding the economy, a fact that was emphasised by Prime Minister Wen Jiabao at the Asia Davos meeting held in midSeptember in Tianjin, the port city close to Beijing.

Investment, a significant amount of which was made by the state, was the driving force behind economic growth. “We owe our achievements to the implementation of the stimulus package by the Chinese state”, he told his audience. As a result, the economy grew by 9.1 in 2009 and an incredible 11.1 per cent in the first half of 2010.

But the question whether the model followed by China is sustainable over time is being asked not just by China watchers in the West. It was also raised by Prime Minister Wen at the Tianjin meeting. “In the case of China, there is a lack of balance, coordination and sustainability in economic development”, he said. The Chinese leaders have continued to believe that they need high rates of economic growth in order to secure social and political stability.

An increasing rate of investment is needed to maintain a politically and socially desirable rate of economic growth. But this cannot be maintained at the pace achieved in the past decade or two. At some point investment will stop rising and the rate of growth will slow down.

For instance, if political imperatives demand a growth rate of 10 per cent a year, it may need investment rate of 50 per cent of national income. This produces a conun drum the Japanese have already encountered – the “bridge to nowhere” syndrome when the state ends up investing in things the economy does not need.

At some stage – and most economists believe that stage has been reached – the model of development must change and household consumption must take precedence over investment. This readjustment and rebalancing will produce tensions since it will mean reducing corporate profits and employment growth in the manufacturing sector. Once this restructuring of the economy begins to occur, it will have a profound impact on international trade. China will not need as many capital goods as it currently needs from the West and will require basic goods of consumption that its economy will not find productive to produce.

Wages are rising fast in China and it is no longer efficient for the economy to produce cheap manufactures. Also, although China is a large country most of it is desert and mountainous and not available for agriculture. The earlier fixation on the part of the leadership to being self-sufficient is being replaced by greater confidence in obtaining food from abroad. It is these changes in the structure of the Chinese economy that Pakistan’s planners must bear in mind in order to reorient their own structure of production to take advantage of the economic colossus next door.

Pakistan has a free trade agreement in place with China. Islamabad could use its framework to increase its exports to the Asian giant. However, to be able to do that it will have to address supply side constraints in order to produce the surpluses that could be exported.

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A new twist to old ties

What we are seeing is the likelihood of Pakistan becoming the focus of great power rivalry. This could have consequences that may not be all that good for the country.

By Shahid Javed Burki
Tuesday, 05 Oct, 2010

ONE of the recurrent themes in my articles appearing in this space has been the need to factor in China more explicitly and more imaginatively in the making of economic policy.
I have been suggesting to both policymakers and business people in Pakistan to look more to the East than the West in order to help the national economy as well as to promote private enterprise.

For half a century — since Pakistan began to look to countries some distance from its border to build political and economic alliances — the default position has been to reach out to the West. By the West, policymakers in Pakistan have meant America rather than Europe.

As American economic and political power increased and as air travel became more affordable, Pakistan’s private and public sectors sought close rela tions with the United States. America became the preferred destination for Pakistani students going abroad for advanced education. The penetration of US markets became an impor tant goal for Pakistani exporters.

For a number of years now, Islamabad has been working on negotiating a freetrade agreement with Washington. After this year’s devastating floods, it has sought preferential access to US markets for its textile exports. Islamabad also looks to Washington for financial help whenever it needs external assistance to tide over economic problems, which is often.

In responding to these overtures it was natural for Washington to advance its own interests in Pakistan and the region to which the latter belongs. There were reasons for Washington to provide large amounts of assistance to Islamabad in the 1960s when it feared that the communist ideology would spread to Asia; in the 1980s, when it wished to expel the Soviet Union from Afghanistan; and in the early 2000s when Washington launched the ‘war on terror’. It was an accident of history that during these periods Pakistan was governed by military rulers.

Since the economy did considerably better because of the large flows of external capital into the country, an impression was created that the military was a much better manager of the econ omy. That the country did so much better under military rule was in large part because of the easy access to foreign capital whenever men in uniform were in charge of policymaking.

It is for the first time in Pakistan’s history that Washington has a strategic interest in Islamabad while the country is being led by a civilian leadership. Although the move to develop a long-term relationship with Pakistan began when George W. Bush was in power, it has acquired a somewhat different dimension under Barack Obama, his successor.

Recognising that the way in which Bush had conducted the war against terrorism had alienated much of the Muslim world, Obama is attempting to bridge the gap between his country and Muslim nations. In this endeavour, Pakistan, being the second largest Muslim country, has acquired special significance. That said, it should be noted that the conservatives among American policy thinkers have begun to focus on Pakistan not so much as a large Muslim country but as a country in which China has interest for military and geo-political reasons.

Any major transition in the world economic order will not be smooth. It is bound to produce conflicts. The recent tiff between China and Japan that resulted from the confrontation on the high seas between a Chinese fishing trawler and a Japanese coastal guard ship is one example of the kind of problems that we will see as large economies around the globe make adjustments to the redistribution of economic power around the globe.

In this particular case China was more assertive than usual and the Japanese chose to blink by releasing the captain of the Chinese vessel they had arrested. In the same vein, China is refusing to succumb to the pressure that the US is bringing to bear on Beijing on various economic issues, especially the value of its currency which Washington believes is highly undervalued. To these concerns the conservatives have begun to take note of the build-up in its blue water navy by the Chinese.

In a recent newspaper article Robert Kaplan, the author of Monsoon: The Indian Ocean and the Future of American Power, elaborated on why Washington should be concerned about the approach Beijing is now following in military matters. “The greatest geopolitical development that has occurred largely under the radar of our Middle East-focused media over the past decade has been the rise of Chinese sea power.” He notes that because of the recent build-up, China now has the second largest navy in the world after the US which is acquiring assets not from abroad but by developing a manufacturing capacity of its own. Its focus is on equipping its navy with submarines. The country now has 66 sub-surface vessels and “if China expands its submarine fleet to 78 by 2020 as planned, it would be on par with the US Navy’s undersea fleet in quantity, if not in quality,” writes Kaplan.

In order to project its power in the Indian Ocean, the Chinese are looking for ports its fleet can use. China is the on ly major global power that is bound by land on three sides. It therefore needs access to the sea from places other than its own ports that are clustered around its east coast. It is for this reason that it is said to be funding the construction of ports in Bangladesh, Myanmar, Pakistan and Sri Lanka. The reference to Pakistan is of course in the context of the port of Gwadar on the Balochistan coast.

Some American analysts also look with suspicion at China’s growing interest in Afghanistan which is reported to have trillion-dollar worth of mineral deposits waiting to be exploited. Beijing has already made large investments in exploiting copper deposits in one of the sites identified as extremely rich by a report published earlier this year by the Pentagon. Some of the mineral deposits in Afghanistan are in the areas bordering Pakistan and must stretch into Balochistan and the tribal areas of the north. This is then an additional reason for China’s interest in Pakistan.

What we are seeing, therefore, is the likelihood of Pakistan becoming the focus of great power rivalry. This could have consequences that may not be all that good for the country.

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China-India economic detente

By Shahid Javed Burki
Monday, 11 Oct, 2010

IN SPITE of the current slowdown in economic growth, Pakistan, by my count, is among the twenty eighth largest economy in the world.
Among the world’s major emerging economies it is the only one that borders the two that are the fastest growing. It has China and India as its immediate neighbours, the two economies in the new economic world that are reshaping the global system.

The large Asian economies will play important roles on the stage of the new world economy. Because of the size and structure of their populations they will also profoundly influence the global economy system.What is important from Pakistan’s perspective is that China and India are learning to work together. There is a developing economic d’etente between them. It therefore matters for Pakistan how well these two mega-economies proceed on the economic front.

It would be wise for Pakistani planners that in the strategy they develop to revive a sick economy and to set it on the road to recovery, they explicitly factor in the country’s economic relations with China and India. Ultimately the aim of policymakers should be to have the Pakistani economy grow at the rates that are expected of China and India. But for these ambitions to realise, Pakistan must look to these two countries for opportunities.

In the last few months the Indians have decided to shed their pride and have begun to take some steps to draw benefit from China’s rise rather than resent it or to aggressively compete with it. The Indian economic success has relied on developing the levels of skills of a small segment of the population in order to provide services to the developed world that the latter cannot produce on its own because of demographic constraints it now faces. With the exception of the United States and United Kingdom all other developed economies have – or soon will have – declining populations.

The two exceptions to this unprecedented demographic transition are the consequence of more generous policies towards immigration. The pool of the migrants that have already been formed in America and Britain have higher rates of fertility than the indigenous populations. They will continue to have slight increases in their populations until the middle of this century. Ultimately they too will begin to see first aging and then declines in their populations.

What are the options available to these old industrial economies to see the pattern of their consumption and its level survive and their economies to retain some dynamism? The answer lies in relying on the demographic profiles of the developing world where the populations and still young and are likely to increase for several more decades.

The large size of the Indian population was not the only reason for India’s success in using demography to its advantage. It was able to make a great success of first its IT industry and subsequently of health services and entertainment industry because of the ability to use English on the part of large segments of its population.. But in order to retain the extraordinary rates of growth in the output of these sectors, the Indians know that they must diversify their markets.

They have decided to shift their focus to countries other than the industrial world. The rethinking includes the recognition that it must extend its development model to include outsourcing not only to the developed world but also to the large emerging economies that don’t have the skills the Indians were able to develop.

In this context, New Delhi has deci ded to focus on China, a country that also has more than a billion people. China does not have a population that is comfortable with English, the lingua franca of the service sector. Also, its pursuit of one-child policy to curb the rate of growth of population is also expected to introduce demographic constraints long before India faces that situation.

About 60 per cent of India’s 1.2 billion are under the age of 25 and its population is still increasing at a rate of 1.4 per cent, more than twice that of China’s 0.6 per cent rate. But for India bringing China into the circle of its economic influence means equipping its population with working knowledge of Mandarin, China’s official language.

Without knowledge of Mandarin it is difficult to penetrate the Chinese economy. This has been recognised by most countries that want to trade with China and benefit from its extraordinary economic rise and size.To teach Mandarin to their citizens, they have looked to China for help and the Chinese have responded with some enthusiasm.

There are now 260,000 people worldwide who are enrolled in Confucius centres the Chinese have established in many countries across the globe. However, according to a report in a recent issue of the Financial Times, “India has viewed Confucius centres with suspicion and kept them out of its main centers of learning”. That is now changing under the influence of Kapul Sibal, the country’s dynamic education minister.

The minister is now encouraging institutions of higher learning to set up departments of Chinese studies which, along with teaching Chinese history, economy and business practices, will also have the interested students learn Mandarin. To quote once again from the English newspaper, Mr Sibal has “gained reputation for dynamism in a department that has been slow to respond to the enormous challenge of providing India’s millions with suitable skills to ensure India’s much touted demographic dividend does not turn it to be a curse”.

Much the same can be said about Pakistan. Is it doing anything imaginative to take advantage of its even greater demographic dividend and even greater opportunities that lie just across the border in China? The answer, unfortunately, is “not a great deal”.

In late 2008 soon after he took over as Pakistan’s president, Mr Asif Ali Zardari, I told him that focus on China should be based on a well thought-out strategy. One of the steps I then proposed was to establish an institute of China studies in Islamabad. Such an institute should provide instruction in Chinese history, its economy, and its evolving relations with the outside world. The institution should also teach Mandarin.

The president reacted enthusiastically but I don’t believe anything has been done. Without proper planning and execution, the ambition to benefit from China’s remarkable rise will remain a dream.

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Improved governance

Pakistan can generate a greater bounce in its economy than India by creating better governance. It has occurred before in the country’s difficult economic history and could happen again.

By Shahid Javed Burki
Tuesday, 12 Oct, 2010

IT might seem excessively op timistic — perhaps irresponsibly so — to put out the thought that the Pakistani economy, troubled as it is, could bounce back quick ly provided the country can somehow devise a set of policies to address the problems that have led to the present crisis.
We should remember that when the conditions constraining an economy are removed a bounce-back can occur. It has occurred before in the country’s difficult economic history and could happen again if the environment in which the economy is functioning is improved. In this context it is important to ask the following ques tion: what are the areas that should re ceive the attention of our policymakers?

There is now a new economic team in place that has been given the responsibil ity of managing the country’s battered finances, to strategise the future by energising sectors that can provide quick dividends and by managing monetary policy that will reduce the pressure on prices and support the revival of growth. Finance, planning and monetary policy are the traditional concerns of all economic managers and it is in these areas where the government is being advised — in fact pressured — to act quickly.

For instance, the International Monetary Fund has held back the release of the next tranche of its large loan to Pakistan since Islamabad has not made clear how it plans to raise the tax to GDP ratio. The IMF wants action by December this year. At about 8.8 per cent of GDP, Pakistan has the lowest ratio of all the major economies in the world. But before a credible tax policy can be put in place the government has to address the broader issue of improving the quality of good governance.

Attempts have been made in the past to improve the government’s mobilisation of resources through taxation. It is well known why the government collects so little: the tax base is narrow, several sources of income are exempt from taxation, the rich and the powerful can bribe their way out of the obligations they have to the state and so forth. But good governance is needed to address these and other issues.

Good governance has several elements. Four have particular importance in the context.

The first is the capacity and willingness of those in power to give attention to policymaking that would help the economy. The second is a civil bureaucracy that has the capacity to implement the policies of the government. The third concerns the establishment of an institutional structure and legal system that can ensure that all government functionaries act responsibly and within the legal framework. The fourth relates to decentralisation to ensure that policymaking as well as policy implementation takes place as close to the level of the people as possible.

Pakistan needs to move in all three areas. To indicate where the focus of policymaking should be it might be useful to compare Pakistan’s situation with that of India. Let me begin with India.

Before the near-fiasco of the Commonwealth Games, India had earned the reputation of an economy on the way to becoming one of the world’s most dynamic economies. The great difference between India and Pakistan is that the former is deeply set in its ways while the latter is in a state of extreme flux. A state of flux means that change becomes possible; the attempt to bring it about meets with less resistance than is the case when traditions are strong and the urge to retain the status quo overpowering. It is possible for Pakistan to more thoroughly restructure its system of governance than seems possible in India.

As has been demonstrated vividly by the Commonwealth Games, even in a country that has seen its economic performance applauded all across the globe economic dynamism is the result of private initiative rather than government enterprise.

It is the private sector that has led the way. Montek Ahluwalia, currently the head of the Indian Planning Commission and once my colleague at the World Bank, said to me: “If the Indian government had discovered in advance what the IT sector was about to do for the Indian economy, what it accomplished would not have happened — never.” In the contest of the Commonwealth Games, it is the private sector that delivered while the government totally failed. As Raja Lakshmi wrote for The Washington Post one day before the opening of the Commonwealth Games, the event exposed “the gap that has emerged between a government rooted in a slower-moving socialist era and a entrepreneurial class that is busy building global IT companies, the world’s largest oil refineries and spectacular structures such as the $2.8bn airport terminal”.

Vir Sanghvi, Hindustan Times editorial director, put it more bluntly: “We can brag as much as we like about the new India. But when it comes to delivering on an international commitment, we are no China. We are still corrupt, slothful India.” What distinguishes Pakistan from India is the important fact that the hold of the bureaucracy was loosened over the economy in Pakistan as a result of some of the measures adopted by the administration of Prime Minister Zulfikar Ali Bhutto. He disbanded and cast adrift the powerful Civil Service of Pakistan that had partnered with the military during the period dominated by President Ayub Khan. By dissolving the CSP, Bhutto shifted the focus of policymaking from the bureaucracy to the people’s representatives.

However, he and those who followed him failed to take the further step of creating a bureaucratic structure that would effectively implement the decisions taken by those in charge of policymaking. This is where Pakistan is today. It is my firm belief that with an appropriate structure of governance the Pakistani economy would quickly bounce back.

There is a consensus among economists that India could add as much two per cent to the already high rate of growth if it could somehow improve the working of the government. In fact Pakistan is in a better situation to do this. It can generate a greater bounce in its economy than India by creating better governance.

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Harnessing sources of growth

By Shahid Javed Burki
Monday, 25 Oct, 2010

TODAY Pakistan is South Asia’s sickest economy. Its growth rate is one-third to one-fourth of India’s and less than one-half that of Bangladesh.
Some of the problems that inflict the economy are the result of natural disasters such as the Great Flood 2010. Some have been caused by the rise of Islamic extremism in and around the country that is discouraging private sector investment.

But the real reason why the country is doing so poorly is the absence of public policy that would support economic advance.

Over the last several decades, Pakistan has tried many different approaches to speed up development. Sometimes it relied on public sector to take the lead; at other times it placed its faith in private enterprise. As we know from the experience of other developing countries, policy consistency is an important factor contributing to growth and development.

If Pakistan is to interrupt downward slide in its economy and stop it before it reaches the point at which recovery will become exceedingly difficult, it will need to put in place a well thought out strategy and stay with it for several years. Such a strategy needs to have two linked objectives.

The first is to get the economy to recover from the slump into which has fallen and where it has remained for several years while other large South Asian economies have begun to smartly recover. It may have been right to blame the loss in growth to the slowdown in the global economy as a result of the Great Recession 2008-09.

That is not the case any longer. The second objective is to place the economy on a trajectory of growth that is comparable to other large economies of the region. It is the second of these objectives with which I am concerned today.

It is always helpful to look at history to develop ideas for the future – to learn lessons from it. In this context, we might analyse the sources of growth by borrowing from the work done in recent years by some economists using what they call growth accounting.

Susan Collins of the Brookings Institution in Washington is one of the several economists who have done work in this area. She has applied this methodology to study 84 industrial and developing economies. Four of these – Bangladesh, India, Pakistan and Sri Lanka – are in South Asia.

Growth accounting “provides a means for decomposing increases in output per worker into the contributions from accumulation of physical and human capital (per worker) and a residual measure of the change in total factor productivity”, she wrote recently in a an essay contributed to a book published by the World Bank.

What was South Asia’s growth experience in the past several decades? Average annual GDP growth rates for India and Bangladesh increased by two percentage points in the 19802003 period compared to the two decades between 1960 and 1980. For India the rate of national income increase went up from 3.5 to 5.7 per cent, for Bangladesh from 2.4 to 4.4 per cent. The trend in Pakistan was in the opposite direction. It declined from 5.9 to 4.9 per cent. In the three countries, the share of investment in GDP declined; in the case of Pakistan from 22.1 to 19.5 per cent.

The first thing to be noted about the pattern of growth in South Asia, therefore, is that while it was impressive for the region as a whole, it was not so much the result of accumulation of capital as was the case in East Asia where investment as a proportion of GDP was about twice as high as in South Asia.

In none of the South Asian states investment rates approached the 30 to 40 per cent range typical for East Asian economies during their rapid growth periods. Does this mean that if capital accumulation was a relatively unimportant contributor to growth in South Asia in the past it can, perhaps, remain that way in the future. Such a conclusion would be important for Pakistan since its savings rate is much lower than other economies of Asia.

Collins argues that it would be wrong to reach that conclusion. Countries in South Asia will need to increase their rates of investment so as to accumulate both physical and human capital more rapidly if they are to achieve their desired rates of income increase going forward. This has already begun to happen in India and to some extent also in Bangladesh. Pakistan, however, is falling behind with every passing day.

A country’s per capita income can be decomposed into productivity, the proportion of domestic income that accrues to the country’s residents and labour force as share of the total population. For India productivity and living standards both doubled from 1980 to 2003. The former increased by 130 per cent from $2705 to $6144 in the 23 year period. The latter increased from $1185 per head of the population to $2721.

Pakistan’s performance was much less impressive: labour productivity increased by 81 per cent, from $2916 ( when it was higher than that of India) to $5277 when it fell below that of the country’s large neighbour. Gross domestic income per head of the population increased by only 68 per cent, almost one half that of India’s. It went from $1148 to $1927.

Pakistan’s relatively poor performance is in part due to the low rate of labour participation which remains close to one third of the total workforce. This, in turn, is because only a small proportion of women work outside their homes. The rate of worker participation increased by only one percentage point, growing from 37 to 38 per cent.

It remained steady at 44 per cent in the case of India. In Bangladesh, there was a two per centage points increase with the participation rate going up from 49 to 51 per cent of the workforce. This happened because of the increase in the employment of women in the readymade garments industry.

Collins work provides estimates of the contribution made by various sources of growth to the South Asian economies. Again comparisons of the trends of India and Pakistan are instructive. In the more recent period examined by her – from 1990 to 2003 – output per worker in India increased by 3.99 per cent a year. Factor productivity contributed almost one-half to this increase with capital accumulation providing another 37 per cent. The remaining 13 per cent came from education.

In the case of Pakistan output per worker grew by only 1.08 per cent, about one-fourth that of India’s increase. Factor productivity contributed 64 per cent to this increase and capital accumulation another 43 per cent. The contribution of education was negative, taking away seven per cent from the increase in worker productivity. For Pakistan to have its economy grow at a faster pace it must invest in education. In 2000 for population in the working age – for people over 15 years – average years of schooling was only 3.9 compared to 5.1 for India.

The perspective that capital accumulation matters goes hand-in-hand with the extensive and convincing new findings by development economists linking positive growth experience with strong domestic institutions such as contract enforcement and protecting property rights. Empirical work done at the World Bank shows strong links between the structure, efficiency and efficacy of the legal and judicial systems.

All major South Asian countries are weak in this respect; Pakistan probably the weakest of all. Growth accounting, therefore, points to some of the elements that must receive attention in the design of a growth-oriented public policy. These include large increases in the rates of public and private investment, increased participation of women in the workforce, increased investment in education and skill development, greater attention to improving the technological base of the economy, and reform of the legal and judicial systems.

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