GIVEN the fact that we are dealing an extraordinarily difficult situation that has many facets and given the fact that there are still opportunities that exist, I have some suggestions about the areas on which policy makers could work. This includes industrialisation.

The aim should be to provide the country with an industrial base that can satisfy a number of objectives. This is needed so that industry contributes more significantly to the growth of the economy, provides employment to a rapidly increasing workforce, narrows inter-personal and inter-regional income disparities, and increases exports.

There has been a significant change in the structure of the global economy over the last couple of decades, especially since the start of the process generally referred to as “globalisation” This has resulted in the easy flow of large amounts of capital across national frontiers, increase in international trade as a proportion of global output, changes in the location of industrial output, and the “flattening” of the world that has led to outsourcing of many production processes and services to several developing countries.

Pakistan’s policy makers paid little heed to these developments. The result was that the country did not take advantage of the changes in its external environment as was done by several Asian economies, including India, which saw a sharp increase in the rate of domestic output, exports and also a restructuring of their economies. These economies are now better integrated with the global economy compared to Pakistan. But there is still time to play catch-up. Policy makers should take a careful look at the structure of the global economy with a view to identifying some of the niches into which industrial production can move. Such an approach is called “picking the winners” by economists.

Not only should such niches be identified, public policy should also indicate the support that can be provided to the private sector to develop and export the products related to them. One form of support would be to help develop the instruments of finance that could support this type of development.

Small and medium sized companies may play an important role in “identifying the winners approach” to development. How should the state promote the development of SMEs? The state could do this in a number of ways. What it shouldn’t do is to direct the flow of cheap credit to them.

There was a time when development thinking encouraged the establishment of “development finance corporations” (DFCs) in the public sector to support industrialisation in the developing world. This led to the support by the World Bank to the establishment of institutions such as the PICIC, and the IDB. They played an important role in the initial industrialisation.

However, it was recognised some time after the DFCs were established that the state does a poor job in the direct financing of industrial development. That job is better left to the private sector. But which part of the private sector? Should commercial banks be relied upon to develop the identified winners or should the development of such instruments of finance as private equity and venture capital funds be promoted? The new instruments could play an important role. Their development would depend on the regulatory framework the government adopts. Identifying the niches and promoting the development of the products that could fit into them would not necessarily increase exports. That may need the assistance of the state. In what form should help come from the state? The East Asian countries borrowed from the Japanese experience where the MITI, the Ministry of International Trade and Investment, helped the fledging export sector to create space for the Japanese products in the international market place.

This kind of approach was abandoned when The Washington Consensus became the dominant ideology in development circles. The state was pushed back and private enterprise was placed on the commanding heights of the economy. There is realisation that the public and private sectors must work together to promote development. This means that the role of the state must be redefined and that includes the government’s role in developing the export sector and in promoting exports.

Pakistan’s geographic location provides it with many opportunities it needs to exploit. It is the only relatively large country that shares borders with the world’s two countries, China and India, with more than a billion people each.

Nepal and Bhutan are two other countries that are similarly situated but are considerably smaller in size than Pakistan. China and India are not only large but also have the emerging world’s fastest growing economies. How could the private sector take advantage of the country’s proximity to these giant economies?

Pakistan’s close proximity to oil rich and capital surplus economies of the Middle East presents another set of opportunities. How could the private sector exploit these? The resource-rich countries of Central Asia are also close to Pakistan. What are the opportunities available in these countries that could help the private sector? In all these areas what kind of help the private sector would want from the state?

It is recognised that Pakistan has lagged behind in developing its human resource. As has been shown by many populous countries, a large and young population can become an economic asset if it is properly educated and trained. This was done by China, India and the Philippines. Otherwise, a large and young population would become a burden for the economy and the society. There is a danger of that happening in Pakistan.

The public sector has failed in providing education to the Pakistani population , the median age of which is only 17 years. This means that the country has more than 85 million people below the age of 17. How can the private sector help in this area while also taking care of its own skill needs? There is now tradition of private entrepreneurship in the educational sector. This should be encouraged. The private sector should be encouraged to invest in technical education, not just in social sciences.

Pakistan has done a poor job in improving the technological underpinning of the economy. No matter which index is used – the number of patents issued to researchers, the number of articles contributed to professional journals, the technological sophistication of exports etc. – the country ranks low. What can be done to improve the technological base and apply research to agricultural and industrial processes? How can the private sector cooperate with the state in developing institutions for research and development?

There is now considerable amount of evidence available with such development institutions as the World Bank and the Asian Development Bank to suggest that a functioning and credible system of law is an important determinant of economic development.

Pakistan’s legal and judicial systems are weak. The attempts by the donor community to reform them have faltered. The Asian Development Bank developed and financed an important project for legal reform that is not being satisfactorily implemented. Policy makers need to examine the current situation and make recommendations about reforms – the reforms needed to attract both domestic and foreign capital into the country.

I have asked a number of questions in this space today. In the coming weeks and months I will attempt to provide some answers to them.