Making Pakistan rich

After more than seventy years of independence, Pakistan is characterised by scarcity of the necessities of life for most of its population. It remains one of the poorest countries in the world, despite having tried different strategies to tackle underdevelopment and poverty.

The main reason behind this is what philosopher A N Whitehead called ‘misplaced concreteness’, meaning placing emphasis on inappropriate policy and strategy. Whether the strategy is import-substitution for the domestic market or export-orientation, the aim is to produce to generate income. Pakistan has tended to follow either of these policies by importing production technologies (at high cost) rather than producing these by indigenously generated machinery, which would bring enormous benefits to the economy in the medium to long run.

The recent propagated slogan of ‘make it in Pakistan’ reflects the inappropriate policy option followed over the years in Pakistan. The slogan should be ‘made by Pakistan’. The former propagates items put together from imported kits, or have an insignificant indigenous value-added to the final product. ‘Made by Pakistan’ means that different sectors and sub-sectors of Pakistan’s economy supply components to make a final product such as irrigation technology.

Pakistan’s major industry, textiles, is dependent on increased import of foreign machinery and ancillary products to expand output. It is the availability of the capital goods and technology generating sectors that have, for example, enabled South Korea to develop electronics, shipbuilding and other industries. Even more so, these sectors enabled the UK to develop products to counteract the ravages of the Covid-19 pandemic. Manufacturing and goods production are crucial for Pakistan’s economy because the rest of the economy is dependent on these. An economy without a robust manufacturing sector is not a post-industrial economy; it is a very weak underdeveloped economy.

To paraphrase Adam Smith, it is not gold and silver that makes a country rich, but the productive capacity of its people. In fact the causes of wealth are something quite different from wealth itself. A country may possess wealth – exchangeable values; if however, a country does not possess the power of producing objects of more value than it consumes, it will become poorer. A country may be poor; however if it possesses the power of producing a larger amount of valuable items than it consumes, it becomes rich. The power of producing wealth is therefore far more important than wealth itself.

Manufacturing constitutes the modern means of productive capacity. Agriculture and manufacturing are crucially inter-connected. Highly productive agriculture is dependent on the quality and quantity of inputs provided by manufacturing industries: machinery, fertilizers, irrigations, tractors and other inputs. In fact, so important is the relationship for the health of any economy that the Chinese in the 1950s established a separate Ministry for Agricultural Machinery to provide both an interface between agriculture and industry and to boost production. Manufacturing provides inputs for agriculture, and agriculture provides wage goods (rice and wheat) and industrial crops (cotton and sugarcane) for industry.

Any nation or group of nations that is deficient in this capacity will be at the mercy of those countries which have greater productive capacity and hence power. (The relationship between poor and rich countries and the international financial institutions they control are structural and relational, and only secondarily psychological.) In Pakistan the absence of a deep and meaningful productive capacity/structure for manufacturing industrial and other goods should be a cause for great concern as it incapacitates its development potential and possibilities of enrichment.

The most crucial industries that constitute the structure of productive capacity are the group of industries which make production machinery. This is the equipment that industrial societies use to create almost all goods and services. To illustrate, one can trace how a small segment of Pakistani society, the ‘middle class’, uses the products of such machinery. The cars that these people drive to work are produced by putting together parts made by machine tools, using material-handling equipment, including assembly lines; the petrol/gas that goes into the car is processed by petro-chemical refinery equipment and transported from elsewhere to Pakistan for distribution.

Capital goods, such as the steel that goes into the cars, or the chemicals used by most industrial processes, are just as important as production machinery. Capital goods are the intermediate goods that are used to produce the final goods. Final goods, which are the final goods that most consumers see, are in reality the end product of a long sequence of production machinery and capital goods. These industries are the hidden strength of any economy.

Sadly, these crucial industries are extremely poorly developed in Pakistan, depriving it of developmental dynamism. For example, Pakistan’s immediate though longstanding problems of shortages in supply of energy, and its alternatives from solar power, are directly related to the lack of productive capacity. This is due mainly to lack of or weakly developed capital goods industries, machine-producing and technology generating sectors in particular.

The development of a relatively autonomous productive structure based on indigenously produced capital goods industries would be a great enabling factor, giving Pakistan more options and control over its economy resulting in: increased creation of indigenously created jobs, increase in incomes and consumption. Resulting in an increase in the wealth of the country as reflected in greater GDP; allowing the country to allocate resources to various sectors, including energy, education, sewerage systems and waste management. That is, the funding of sectors – from utilities to defence.

Though GDP is a controversial concept (for example, the services sector is included in the composition of US GDP, but the GDP of the former Soviet Union mainly included material production and largely excluded the services sectors.) Nevertheless with all its shortcomings, an increase in GDP based on Indigenous processes can result in innovation and productive creativity in Pakistan.

There are a number of myths that inform the discourse of some Pakistani economists on the question of the development of the Pakistani economy: First, that Korea copied Pakistan in its development effort because Pakistan’s Second Five Year (c. 1960-65) coincides with Korea’s First Five Year Plan. If this was the case then the Korean economy would be in a similar situation as that of Pakistan.

Second, some Pakistani economists assert that we are a ‘service’ economy. But if one analyses the major segments of this ‘service’ economy: transport and communication, utilities, retail and wholesale, health services, business services (computers, internet, etc.), the government and administrative/security – all are directly or indirectly dependent on goods production. This is most clearly demonstrated by the finance, insurance and real-estate industries. These transfer the goods generated by the rest of the economy among different sectors. The finance sector of the economy is dependent on the capacity of the manufacturing sector to create wealth in the form of goods. The finance sector can only receive a return on its investment, ultimately, if the investment generates new production. In addition, the globalization and expansion of finance and insurance would have been impossible without the material make up technologies of communication and information.

Within Pakistan’s economy, different parts serve different functions. Without robust manufacturing, agriculture and services, a modern economy could not exist. An economy without a substantial and appropriate manufacturing sector is not a post-industrial economy; it is a weak underdeveloped economy. A modern or modernizing nation without a significant manufacturing sector will become a colony of other nations, in fact if not formally.

The writer is a retired senior teaching and research academic from POLIS, University of Cambridge. He is an associate member of Darwin College, and can be reached at: pn214@cm.ac.uk