Trade and Economy

Detonating an Industrial Revolution in Pakistan

Pakistan carried out six nuclear tests in May 1998 and joined the ranks of nuclear powers. It became possible because it had mastered the complete nuclear fuel and technology cycle. Pakistan has however not become an economic power. Many developing countries despite attracting huge FDI inflows, high GDP growth rate, efficient manufacturing base and showcase development have also failed to detonate Industrial Revolution. Like us, India is also an example. The Indians have, however, tried to sneak unsuccessfully into the industrial era, through the development of IT services sector, transport and gems/jewellery sectors.  In Asia, only Japan succeeded in completing the full cycle of Industrial Revolution by initiating ‘proto-industrialization’ during the Meiji era before moving into heavy industrial growth trajectory.  China went through three distinct phases of ‘trial and error’ in efforts to ignite Industrial Revolution; the Qing dynasty era (1860-1911), Republican era (1911-1949), Central Planning Era (1949-1978), before finally succeeding in its fourth attempt during Deng Xiaoping’s post-1978 economic reforms and open door policy to the world. China is currently, however, going through its fifth generation of Industrial Revolution post-WTO era (2001-till present), with the progress in Artificial Intelligence (AI), robotics, and digital revolution of the post-modern era. Neither the 1997 Asian Financial Crisis nor the Global Financial Crisis of 2007-08 could stop China’s high growth trajectory, because it was based on ‘Proto- Industrialization’. 

Pakistan stands in 2018 where China stood in 1978, before embarking on comprehensive reforms. Pakistan’s survival and continued existence is dependent on its economic take off which can be assured only by detonating an Industrial Revolution which in turn can be made possible by promulgating homegrown comprehensive policy reforms in all sectors of life. This calls for hard decisions, strong leadership and united people. If Pakistan wants to be counted among the major Powers in the 21st century in realization of its founding fathers and millions who sacrificed their lives for creating this country, there is no room for blame game. Pakistan is the best blessed and geographically positioned country for the future. It has the capacity to grow fast and surprise the world. 


Industrial Revolution Needs an Ecosystem
But, proto-industrialization, as indeed is, ‘nuclear tests’ by itself is not enough. It is not just about competitive advantages; size of market, infrastructure, economies of scale, developing supply chains, division and supply of labour, enhanced Total Factor Productivity (TFP). It is all of these and much more. Detonating an Industrial Revolution also needs an ecosystem or enabling environment of mass marketing, financial intermediation, mercantilist culture, supportive government, inclusiveness, market coordination, professional capacities and networks etc. China in fact took three decades to completely master the cycle of Industrial Revolution for which the UK, USA and Europe took three centuries. China succeeded in proto-industrialization as the earliest Chief Executive Officers (CEOs) of privately owned enterprises (POEs) were in fact the Heads of Village Councils and not those with foreign degrees, as in other developing countries. Textiles were the flagship industry of China’s proto-industrialization followed by toys, souvenirs, home appliances, traditional Chinese medicine agriculture machinery and electronics. China has essentially followed a ‘bottom up approach’ in detonating Industrial Revolution, as opposed to the ‘top down’ approaches in other developing countries. Most developing countries have failed to understand that there is no short cut to igniting an Industrial Revolution. 


It is of utmost importance to know the sequence and process of economic growth, development, planning and implementation. This requires understanding of theories propounded by different schools of thought in development planning and pick up the ‘grain from the chaff’.  For seventy years (1947-2017), Pakistan had a system of government that served faithfully the interests of East India Company and IFIs (Bretton Woods Institutions, Washington Consensus etc.). The Western nations promote a colonial governance system which impoverishes the people of the developing countries by strengthening the hold of their one percent elite as long as their loot and plunder is stashed in offshore bank accounts. The elite keeps its own money abroad and expects foreign investors to make investments. The western powers instead wait for ’Color Revolutions’ to benefit from the chaos and anarchy, as was visible in the Middle East, West Asia and Africa.


Pakistan’s Case
Albert Einstein had observed “You cannot get different results by doing the same thing over again and again”. Pakistan has indeed been trying the same. Pakistan’s failure has essentially been its inability to ‘detonate’ an Industrial Revolution in order to achieve a mutually reinforcing and complementary process of development. This is partly due to lack of clarity and understanding of the historic experiences of Industrial Revolution in other parts of the world and partly due to flawed policies and malicious intentions of the financial hit men on the payroll of the IFIs who have been serving in the focal Planning and Finance Ministries. Pakistan has failed to create ‘proto-industrialization’ that could have provided the basic foundation for Industrial Revolution. No wonder, coupled with the lack of export culture, an import addicted elite, a defective education system, bad governance, incompetent monitoring machinery, and lack of foreign exchange to undertake modernization, Pakistan has only retrogressed. Pakistan needs to create rural industrialization and proto-industrialization with market creation at home and abroad using the resilient ‘textile industry’ as the flagship industry with Chinese collaboration becoming a part of the value chain of the global Chinese multinationals. 


One of the major flaws in Pakistan’s past economic planning was the mistake not to develop hydropower and indigenous coal resources. Instead the development plans were based on imported fuel. The other mistake was starting large scale projects near the big cities which apart from crowding them, also put heavy strain on their limited infrastructure, water, transport and housing sectors. This has also led to emergence of unmanageable slum areas with ghetto life, crimes and social evils. The case of Karachi, Lahore, Rawalpindi offer useful references of extended unmanageable cities. The federal capital Islamabad is catching up with its repute with uncontrolled urbanization and plans for development of industrial zones. The third mistake of Pakistan’s development planning has been the presence of IFI hitmen who dominated the various policymaking institutions particularly in the State Bank, finance and planning ministries. They ensured that Pakistan was ‘pauperized’ with their flawed policies and expertise. The mention of structural reforms in sectors of agriculture, taxation, civil service, education, energy, industrial etc., were all thwarted and made a taboo. The status quo was made sacrosanct. Renowned economist Dr. Mahbub-ul Haq had discussed Pakistan’s dilemmas in his treatise ‘The Seven Sins of Economic Planning in Pakistan’. The theme of my own graduating thesis at the Civil Services Academy Lahore in March, 1979 was the ‘Seven Additional Sins of Economic Planning in Pakistan’ which was an update on Dr. Haq’s works. It is, however, no use recalling past mistakes and indulging in blame game, except for drawing appropriate lessons. I have discussed some of these issues in detail in my recent book ‘Nation Building Paradoxes in India and Pakistan’.
Pakistan has the potential resource endowments to undertake a million ‘start-ups and joint ventures’ utilizing the Chinese technology and success stories, as it is currently merely operating at 2% of its potential. For example, less than 2% people pay direct taxes, Pakistan produces the world’s 10% raw cotton but adds value to only 2% as textiles, Pakistan also exports less than 2% of global textiles, less than 2% youth attend universities, less than 2% own cars, less than 2% speak English, small and medium enterprises comprise 2% of GDP, tourism contributes only 2% to GDP etc. Even with its harnessing of 2% potential, Pakistan stands tall as the only nuclear power in the Muslim world. It is among the seven strongest military powers and among the top ten nations in terms of demography, expatriate population, agriculture, mining and mineral resources, etc. Pakistan now needs to detonate its Industrial Revolution by learning from China’s experience of launching SEZs and Township Village Enterprises that formed the core of its proto-industrialization since 1978.

We may have to kick-start ‘rural industrialization’ with ‘one village three products’. Additionally, Pakistan has to begin in earnest the building of Township-Village Enterprises (TVEs) producing labour intensive goods for our own market and for the Chinese market. Chinese firms are willing to relocate.


Course Correction: Need of the Hour
As Pakistan prepares for the 21st Century, ‘course correction’ has become an existential question, if what remains of the country is to be saved from the plunderers, their cronies and external sponsors. The country needs ‘ignition’ as it has the ‘critical mass’ for generating the ‘chain reaction’ of an Industrial Revolution, the sooner the better. This is of paramount importance in order to generate enough productive capacity to pay back the external debt and provide mass employment to a rising population. We may have to kick-start ‘rural industrialization’ with ‘one village three products’. Additionally, Pakistan has to begin in earnest the building of Township-Village Enterprises (TVEs) producing labour intensive goods for our own market and for the Chinese market. Chinese firms are willing to relocate. There is, however, no central body at the federal level or at the provincial levels with the right capacities, commitment, and courage to undertake the mammoth task. The civil servants and the technocrats have been trained for a different kind of Pakistan, which is dependent, docile and degraded in the international community as the so-called ‘one tranche economy/basket case. 


This new Industrial Revolution will enable Pakistan to earn foreign exchange through an aggressive ‘export culture’ and ‘import substitution’ to help its modernization process for a sustainable era of economic development. The Pakistani market cannot permanently remain hostage to the inefficient monopolies and producers – narrow interest groups who refuse to change or are unable to compete. The world has always remained a place for the fittest. China’s Deng Xiaoping had told his countrymen four decades ago: “Either reform or perish”. There is no third option. He had replaced the Maoist Cultural Revolution era slogan of “Permanent Revolutions” with “Permanent Reforms”. Look where China is today. China is willing to help Pakistan too. Instead of promoting the elitist walled and boundary wall housing societies, Pakistan needs to revive and restore the municipal facilities in the existing small and medium towns to lessen the pressure on the urban mega cities. Further, Pakistan should develop at least a dozen towns in the coastal areas to develop the emerging cluster of ‘blue economy’ utilizing Pakistan’s rich marine, tourism, shipbuilding and mineral resources in the extensive continental shelf and exclusive economic zone, in order to join the ranks of newly industrialized countries by 2030. 


Pakistan has been denied economic take-off for 70 years by the western powers through multiple sanctions, discriminatory tariffs, quotas, duties, media hostility etc. Pakistan was the ‘Most Allied Ally’, but also the ‘Most Sanctioned Ally’ of the Western World. The existing system of governance in Pakistan promotes the flight of capital, brain drain and does not allow ‘change’ or policy reforms from within. Pakistan should not be allowed to remain a captive monopoly market for the existing investors, forever. The major blunders by the Government in handling CPEC has been its failure to mobilize the private sector and the overseas Pakistanis; protecting the environment and engaging the local communities as well as its failure to launch 33 Special Economic Zones (SEZs), nine of which had already been prioritized. Now it is stated that 3 of these at Dhabeji, Faisalabad and Rashakai will be launched soon. Pakistan needs to prepare to build at least 50 industrial parks, science and technology zones and SEZs along the CPEC route, with the help of China to produce exportable products for the Chinese market and beyond. But most important of all, the failure of the government has been the lack of political will and its inability to undertake comprehensive policy reforms to improve governance and introduce innovative initiatives for economic take-off.


Comprehensive Policy Reforms
The major comprehensive policy initiatives could include electoral reforms with limitations for legislators to one time membership of parliament or provincial assemblies to enable induction of new blood; reduction in the Civil Services and restructuring of ministries, departments and autonomous bodies to lessen mounting non-development expenditure; end of job quota system, with only 10% reserved for backward areas in order to improve the quality of governance, judicial reforms with introduction of ‘intermediation mediation courts’ to reduce the burden on higher courts; restructuring and privatization of WAPDA, PIA and Pakistan Steel Mills in order to end subsidies; documentation of economy for domestic resource mobilization; expansion in taxation base; standardization, simplification of tax rules to increase fiscal revenue; ease of doing business and simplification of rules and procedures to attract investment; modernization of agriculture to enhance quantity and quality of output; rural industrialization to generate employment; development of rural credit market to help rural population; land reforms to curb absentee landlordism; irrigation canals dredging to improve water availability; construction of  major hydel reservoirs and dams to store flood water; policies for overseas Pakistanis to harness their potential for nation building and industrial development; police sector reforms to improve law and order and improve public service delivery etc.


The other major areas of comprehensive reforms could include industrial policy reforms to restore the trust of the private sector, launching of Special Economic Zones, industrial parks and township village enterprises, small and medium enterprises (SMEs) to generate mass employment opportunities; additional incentives like policy packages to attract foreign direct investment (FDI); energy sector reforms for expansion in capacity and conservation of energy, policies to promote renewable energy; development of mining and mineral resources; tourism promotion policy incentives, marine sector or blue economy development; standardization of education system, higher education; administrative structure reforms (with addition of new provinces); development of commercial business districts (CBDs) in major city centres; financial and banking sector reforms; effective local government and municipal reforms to empower local bodies; green environment policy initiatives; culture values revival initiatives, social sector reforms to encourage voluntarism and community participation; housing sector reforms to promote development of townships; health sector reforms to promote private sector investment in hospitals, clinics, diagnostics centres and local pharmaceutical industries; science and technology sector reforms to enable the transfer of technology/prototypes from abroad for SMEs; policies to promote civil-military collaboration in defence production, etc.


Pakistan stands in 2018 where China stood in 1978, before embarking on comprehensive reforms. Pakistan’s survival and continued existence is dependent on its economic take off which can be assured only by detonating an Industrial Revolution which in turn can be made possible by promulgating homegrown comprehensive policy reforms in all sectors of life. This calls for hard decisions, strong leadership and united people. If Pakistan wants to be counted among the major powers in the 21st century in realization of its founding fathers and millions who sacrificed their lives for creating this country, there is no room for blame game. Pakistan is the best blessed and geographically positioned country for the future. It has the capacity to grow fast and surprise the world. CPEC will remain ‘supply side economics’ without comprehensive policy reforms, unable to trigger economic take off. The new Industrial Revolution can become a reality if all existing assets and resources in the country i.e., human, material and intangible are fully harnessed. There has been no sufficient attention to the development of professional capacities. There has been more focus on ‘media management, ribbon-cutting and China cutting’.


With its current governance structure, Pakistan is not fully prepared to harness CPEC in the contemporary era of globalization. The various stakeholders have instead made it a ‘mela’ or fair/festival true to our folklore traditions; others see it in lyrical terms with biryani and honey, moon and stars, mountains and oceans. Cronyism reigns supreme in every sphere of governance. We are not able to match the Chinese spirit of hard work, discipline, time management, organization, mobilization and work ethics. No wonder, more and more Pakistani firms without value addition, global market connectivity and innovation are dying a ‘peaceful death’ or re-locating. Natural selection and creative destruction are not always bad, as long as new players keep entering the market. There is, however, no implementation machinery for facilitating Chinese private sector’s MOUs, deals, contracts and agreements. There is absence of follow up action on official MOUs and agreements. Pakistan needs to attract new Chinese investors with additional incentives package and improve the knowledge, technical and ethical capacities of the relevant ministries, departments and entities.


CPEC is means to an end i.e., economic take off. It can happen timely with wide ranging comprehensive policy reforms as discussed in earlier paragraphs. Pakistan missed the boat during the globalization era, partly due to its own acts of omission and commission. Leadership crisis has been at the centre of all crises in Pakistan. Leadership is all about honesty, vision, trust and delivery. Further, leaders must have an ability to take hard decisions, not just led by public opinion but also be capable of leading the public opinion. Pakistan instead had ‘demagogues’ with weak intellectual capacities, honesty or vision. The main contours of comprehensive reforms can be formulated and sanctified through ‘Presidential Ordinances’, when the parliament is not in session. Time is of essence to avoid systemic failures, anarchy and chaos. Pakistan has already lost valuable time to launch comprehensive policy reforms. The only remaining time space now is 2018-2020, which is the last chance for making Pakistan’s economic take off to happen. Pakistanis need to come out of ‘complain, blame and ungrateful’ mindset to avail the opportunities of globalization. CPEC is meant to help Pakistan ride the wave of globalization on China’s back. China is willing to help Pakistan come out of the ‘black hole’ in which it has been confined by our Western friends through their policy of sanctions, discriminatory duties, quotas and hostility. Pakistan can replicate China’s success and do it fast too, if it had an honest, capable and patriotic leadership with a talented team of advisors to do it!


The writer has served as Pakistan’s Ambassador in Germany, Singapore and Mauritius. He worked in China for two diplomatic assignments for nearly a decade. He is the author of several books on China. Currently, he is Director Chinese Studies Centre, National University of Science and Technology (NUST). Islamabad.
E-mail: [email protected]
 

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