“It is a very common device that when anyone has attained the summit of greatness, he kicks away the ladder by which he has climbed up.”

ECONOMIC development, particularly in Pakistan’s context, remains shrouded in mystery. The chroniclers of our nation’s destiny harken to the ‘glorious’ ’60s, or the consumption-driven growth at the start of the present millennium, missing key undercurrents including inequality and structural change.

Many of these misunderstandings have been fuelled by an ideational conflict — one that seeks to define development and how best to achieve it. Ideology and political realities have shaped this conflict as much as economic theory and evidence. One particular ideology — neoclassical economics — has come to dominate discourse on economic development, turning attention away from essential factors that fuelled growth for the now developed states.

One fundamental pillar of growth for countries like America and Britain, for instance, has been industrial policy predicated on active state involvement and high tariffs. This active state intervention and protectionism stands in sharp contrast to modern economic theory, which propounds the ascendancy of free markets and liberalised trade. Developing countries must, neoclassical economic theory now tells us, embrace principles of the free market to catch up with countries like the US and UK, which oddly violated these very tenets. This intellectual perfidy is in fact what ‘kicking away the ladder’ refers to in the quote by German economist Friedrich List quoted at the beginning of this piece.

Developing countries which did achieve high-income status, too, did not blindly follow free market principles. Banks in Korea, for example, were nationalised before the country became an ‘Asian Tiger’. This nat­i­onalisation allowed the state to divert crucial capital and investment into high-rew­a­rding industries such as electronics, per­­mitting Korea to develop comparative advantage in high-value industries. Main­stream economic theory, in contrast, would have told Korea to continue to export textiles — the industry in which it had traditionally enjoyed comparative advantage. The rise of Japan and China reveal similar insights.

A change in our economic destiny requires critical rethinking.

What do these forays into economic history hold for Pakistan — a country mired in interminable political and economic turbulence? First, we must acknowledge that mainstream economic theory remains woefully inadequate to address our plethora of challenges. This mainstream thinking — embodied by kicking away the ladder of alternative growth opportunities — has been crystallised in the Washington Consensus of the 1990s and putative victory of free market neoliberalism, both of which remain political projects to maintain global north-south political and economic disparity.

A change in our economic destiny thus requires critical rethinking and engagement at the very ideological level, one that allows us to imagine alternatives and sustainable approaches to growth, inequality and development.

Second, this rethink must shape our approach towards development in the years ahead. Blind adherence to nostrums that lead to unfettered privatisation, liberalisation or a ‘hollowing out of the state’ will only serve to exacerbate inequality and political instability, as history witnessed in Chile in the 1970s and Eastern Europe following the demise of the Soviet Union. This is a key consideration currently, owing to changes in government and their agenda for the next five years.

These lessons of history also caution us against divorcing economics from politics. The supposed victory of free market ideals is very much couched in political terms se­­­ek to keep entren­ched eco­nomic imbalan­ces. Sadly, this disjunct­u­­re remains the world’s reality today with ce­­ntral bank independence and the rise of technocrats — including as finance ministers — serving as key examples. In reality, the economic remains very much the political, with growth in Japan, Korea and China premised on the state’s active helping hand.

Pakistan, however, operates in a more challenging context. The near ubiquity of the Washington Consensus makes divergence very difficult, with the IMF’s structural adjustment programmes, too, imposing constraints on active state intervention. This substantially limits the state’s ability to practise active industrial policy that can help generate economic growth and increase overall productivity.

The first step to mitigating these problems once again comes down to recognising the ideational and intellectual challenges we face. For it is only through a radical reimagining and a critical engagement with history and economic thought that we can hope to liberate ourselves from our economic troubles.

The writer is a civil servant and is currently pursuing graduate studies at the University of Oxford.

Published in Dawn, May 4th, 2024