Pragmatism as policy

Published August 9, 2021
The writer teaches politics and sociology at Lums.
The writer teaches politics and sociology at Lums.

SINCE the mid 1970s, a central concern in economic policymaking has been the transition from state control of the economy towards the free market. While some variant of this conversation has taken place in nearly every country of the world, it has remained most pronounced in countries that were governed under state socialism or communism. This includes, most prominently, the former Soviet Union and satellite states in Eastern Europe, as well as some countries in Latin America (notably Chile and Bolivia), Africa and Southeast Asia. This concern has also shaped policy in both India and Pakistan, where state intervention in the economy was uneven and took the shape of selective nationalisation and permit systems.

Across a wide variety of cases, the transition was marked by something that is loosely referred to as ‘shock therapy’, ie the deregulation of prices in a range of essential commodities, removal of currency controls, and rapid privatisation of state assets. Much of this was done under the tutelage of multilateral institutions, such as the International Monetary Fund, and bilateral donors based out of the West acting under the advice of prominent macroeconomists.

While analytically distinct from other forms of ‘structural adjustment’ pursued in indebted economies, these interventions mark the general trend towards marketisation (also sometimes labelled as neoliberalism) that is guided by models that posit the reliance of economic growth on free(er) markets and self-adjusting prices.

The results from these interventions vary, with some economies recovering reasonably well, while others enter long-term periods of high unemployment and low growth. In drastic cases, such as those documented in Eastern Europe, there is some evidence of declining social indicators such as in health and mortality figures.

The wholesale adoption of marketisation policies has produced undesirable results.

Barring some critique from heterodox circles, the debate remains mostly settled in practice. The set of deregulatory reforms listed here remain in use in a wide range of cases, and form standard prescriptive practices within economic policymaking. Pakistan too has experienced some of this at various points in the past three decades, with periods of unsustainable growth being followed by short, sharp, and often painful adjustments.

There is however one particular case where the pitfalls of a heavily bureaucratised economy have been avoided, and where growth has been sustained without heavy bouts of inflation, and where all of this has been made possible without the administering of shocks seen in other instances. That case is China.

It is exactly this outlier that forms the subject of an excellent book by political economist Isabella Weber, titled How China Escaped Shock Therapy: The Market Reform Debate. The account provides an intellectual history of how China steered through the post-Mao period by undertaking a series of reforms that eventually set the stage for rapid economic growth witnessed during the preceding two decades.

At the core of Weber’s documentation is the role of ideas and how key policymakers are influenced by competing notions of pragmatism, tradition, and theory. While the fact that there was a great deal of deliberation among Chinese intellectuals and party officials on how best to transition from state socialism to state-guided capitalism (or what Branko Milanovic calls political capitalism) is reasonably well-documented, what is less appreciated is the role that historical tradition of thinking about the economy plays in China’s case.

To this end, Weber documents a series of debates from China’s past, extending all the way back centuries, on what the role of the state should be in setting prices and how to manage pragmatic considerations of providing cheap food and fuel, but at the same time not overextending the state’s heavy hand that could stifle enterprise.

The author ensures that this documentation of tradition from centuries earlier is not seen as casting a deterministic shadow on policymaking in the late 20th century. China’s eventual economic trajectory was shaped by interactions between politicians, Western-trained economists (who favoured shock therapy), and a range of other actors. Key decisions were taken by taking into consideration larger motives, such as the autonomy of the state, the political climate, and concerns over a ‘moral’ contract with the citizenry at large.

This is precisely why when inflation started to increase and public discontentment grew at various marketisation policies during the late 1980s, the state had to step back and follow a more balanced approach in order to protect its own political basis.

China in many ways remains an exceptional case, not least because of a range of historical factors that have contributed to its present moment. But improved documentation and consideration of how it has charted out its development trajectory provide some interesting insights for other countries.

In the work referred to here, the idea of deliberation as central to pragmatic (and ultimately) successful policymaking is an important one. Wholesale adoption of marketisation policies has produced undesirable consequences in a range of contexts, which may have been avoided by considering alternatives outside or by pursuing gradualism.

Another key lesson is maintaining clarity on the relationship between the state and the economy. In China’s case, the economy remains subservient to state political interests, as seen in recent moves to restrict particular types of enterprises from operating on the stock exchange and in the regulation of the for-profit education space. Ultimately, the question that policymakers across the world have to answer is who does the economy serve, what is the basis of the state’s economic relationship with the citizenry, and what are some of the key material goals worth pursuing. Ideally, policy prescriptions should then emerge only as answers to these loftier questions.

The writer teaches politics and sociology at Lums.

Twitter: @umairjav

Published in Dawn, August 9th, 2021

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