Bangladesh’s exports were $44.39 billion and its GDP was $416.26 billion, with the exports-to-GDP ratio was 10.66% in 2021. Vietnam’s exports were $341.58 billion and its GDP at $366.14 billion, with the exports-to GDP-ratio at 93.29% in 2021. South Korea’s exports were $761.24 billion and its GDP was $1,810.96 billion, with the exports-to-GDP ratio at 42.03% in 2021. Results from other Southeast Asian countries, like Cambodia and China, would be similar.
Apparently, South Korea adopted Pakistan’s growth model in the 1960s. Now, South Korea falls in the category of the developed world and Pakistan is still stuck with declining exports. The political economy literature traces the role of Japanese colonialism in the rise of South Korea. Japanese colonialism encouraged the South Korean state to “discipline” its capitalist class, and set the country on the development path. However, British colonialism, with its lavish endowments of state patronage, made it difficult to “discipline” the middle class and elite in Pakistan, so the economy could not take off on the lines of South Korean growth-enhancing trajectory.
Pakistan’s rapacious rent-seeking elite operates on the basis of guzzling up huge subsidies. Dr. Hafiz Pasha calculated that Pakistan’s various elite segments used subsidies to the tune of Rs 2,660 billion or $17.4 billion in 2017-18. It was equivalent to 7% of Pakistan’s GDP at the time.
It was the underlying “political settlement” that determined the equilibrium of forces in the state and society – that either moved towards productive coalitions or regression.
Copying and pasting export policies of other countries do not always work. State and society’s structures have to change so that underlying “political settlement” becomes growth and productivity enhancing. On the contrary, China and Bangladesh transformed their economies in growth-enhancing ways. So structures are not sacrosanct; they can be transformed with agency. Still this transformation needs to change the political settlement for it to succeed.
Much of the miracle in Southeast Asia, China and Vietnam is a result of strong state capacities to implement tough policies and get desired results. China and Vietnam have a revolutionary past that has made it easier for them to set up strong state institutions and develop economically. However, Bangladesh also transformed by bidding farewell to its praetorian past and investing in human development and leading a women-centred garments’ economic revolution.
Therefore, it is possible to mould structures and tread a path towards change and pro-people growth, innovation and productivity.
A recent World Bank report states that there are many “zombie” Pakistani firms, both in the private and state sector, and since the distortions in the economy support these less productive firms, they continue to linger on the back of subsidies rather than being replaced by new productive firms as per the dictates of capitalist growth.
High profitability in Pakistani firms is not necessarily linked with higher productivity, rather it has a more direct relationship with higher levels of protection and rent-seeking. Most of the subsidies for the exports sector are availed by the large established entrepreneurs, mostly in the garments sector. It means that government subsidies are not targeted towards newer and smaller entrepreneurs who could prove to be more innovative and earn bigger export margins. Unless such policy distortions are addressed, it is hard for a productive and high yield export sector to consolidate and earn dividends.
Pakistan’s rapacious rent-seeking elite operates on the basis of guzzling up huge subsidies. Dr. Hafiz Pasha calculated that Pakistan’s various elite segments used subsidies to the tune of Rs 2,660 billion or $17.4 billion in 2017-18. It was equivalent to 7% of Pakistan’s GDP at the time. Unless Pakistan’s elite is stripped of its huge subsidy favours and it is “disciplined,” it will not become productive and will not transform the country’s “political settlement” towards a growth-enhancing trajectory.
Pakistan can transform through political stability and working out the implementation of a comprehensive charter of economy, along with politics centered around respect for the constitution and the promotion of citizen welfare through sociopolitical and economic policies. In other words, the political settlement in Pakistan needs to be transformed towards pro-people growth and development.