Pakistan Should Ignore "Washington Consensus" in India Trade

Discussion in 'Economy & Development' started by RiazHaq, Mar 7, 2012.

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  1. RiazHaq
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    RiazHaq SENIOR MEMBER

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    East Asian experience has some important lessons for Pakistan as the country embraces the western prescriptions of democracy and free trade. It's particularly important to recall these lessons now in view Pakistan's decision to open unrestricted trade with India whose major industrialists like Tata and Birla have greatly benefited from protectionist policies to scale up and gain experience.

    The East Asian nation of South Korea has become a great model of economic success for the developing world. Back in 1960s, its annual per capita income was around $80, less than half of Ghana's at the time. Today, it stands at $30,000, comparable to that of some wealthy European nations. For most of this period, the people of South Korea have ignored the Washington consensus, the western prescription on economy and politics, to achieve this miraculous progress.

    In 1960s and 1970s, Korea was led by military ruler General Park Chung-Hee who put in place the policies which helped Koreans realize their great potential. President Park made huge investment in infrastructure, health and education. In addition, South Korean analyst Ha-Joon Chang says that the Korean government "practiced many policies that are now supposed to be bad for economic development: extensive use of selective industrial policy, combining protectionism with export subsidies; tough regulations on foreign direct investment; active, if not particularly extensive, use of state-owned enterprises; lax protection of patents and other intellectual property rights; heavy regulation of both domestic and international finance."

    Pakistan, too, was ruled by a military dictator General Ayub Khan in a period labeled by Pakistani economist Dr. Ishrat Husain as "the Golden Sixties". General Ayub Khan pushed central planning with a state-driven national industrial policy. In fact, South Korea sought to emulate Pakistan's development strategy and copied Pakistan's second "Five-Year Plan".

    Here's how Dr. Husain recalls Pakistan of 1960s:

    "The manufacturing sector expanded by 9 percent annually and various new industries were set up. Agriculture grew at a respectable rate of 4 percent with the introduction of Green Revolution technology. Governance improved with a major expansion in the government’s capacity for policy analysis, design and implementation, as well as the far-reaching process of institution building. The Pakistani polity evolved from what political scientists called a “soft state” to a “developmental” one that had acquired the semblance of political legitimacy. By 1969, Pakistan’s manufactured exports were higher than the exports of Thailand, Malaysia and Indonesia combined. Though speculative, it is possible that, had the economic policies and programs of the Ayub regime continued over the next two decades, Pakistan would have emerged as another miracle economy."

    South Korea's Chang has exposed the hypocrisy of the West by explaining that the "G7 was always remarkably reluctant to recommend these (South Korea's) "heterodox" policies and insisted that the "Washington consensus" package of opening up, deregulation and privatization was the right recipe for everyone. When confronted with the Korean case, Washington consensus supporters tried to brush it off as an exception. However, the history of take-offs in most of the G7 countries – especially Britain, the US, Germany, France and Japan – is far closer to the Korean model than is commonly thought. The "unorthodox" policies used by Korea and almost all of today's rich countries need to be seriously considered in any discussion on development options."

    Since the great success achieved by South Korea and other Asian Tigers in the latter part of the 20th century, China has become the latest example to have followed the East Asian development model with great results for what is now being dubbed the Asian century. Each of these nations has done it by ignoring the Washington Consensus about democracy, free markets and free trade.

    As Pakistan embarks on a new course in trade, it's important for its leadership to recognize the wide gap between the theory and practice of the "Washington Consensus" to effectively safeguard its economy, domestic industries and jobs for Pakistanis to develop and prosper in the 21st century.

    Haq's Musings: Should Pakistan Ignore "Washington Consensus"?
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  2. third eye
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    third eye ELITE MEMBER

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    It does not matter whom in my opinon a nation should ignore.

    What matters is upon whom it focuses.

    Pak therefore should focus on itself- something it has hardly ever done since 47. Its focus ( read obsession) has either been Kashmir, Af, Taliban,fundamentalism and similar pursuits which has led the nation to forever having to run with the hare & hunt with the hound.

    If it were instead to consistently look inwards and do what is right for itself to stay on an even keel the rest would follow,
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  3. RiazHaq
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    RiazHaq SENIOR MEMBER

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    It's ironic that you talk about Pakistan's obsession with others while ignoring your own Pakistan obsession as evident from your presence and regular commentary here on this site.

    To set the record straight, let me tell you that Pakistan's economy has done better than India's for most of the period since 1947. As a result, Pakistan has achieved higher levels of growth, lower levels of poverty, a larger urban middle class and higher standards of living than India's over the last 64 years.

    [​IMG]

    Haq's Musings: A Brief History of Pakistani Economy 1947-2010
  4. Developereo
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    Developereo PDF THINK TANK: CONSULTANT

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    Good advice, applicable well beyond economics. Chances, however, are slim that it will be followed in Islamabad.
  5. Luffy 500
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    Luffy 500 SENIOR MEMBER

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    A very good article. But thanks to new laws formulated regarding Intl economy by the west , some of the policies followed by
    S.korea has become a no go zone for devoloping countries. Now countries have to be really bold and clever to implement policies
    that are regarded "bad" by the hypocritical west. Every single industrialized countries practiced heavy protectionism until their
    industries became efficient enough to take part in free trade. Japan for eg still maintains protectionist policies regarding its
    agricultural sector ignoring pressure from washington. The current free trade agreement with INDIA may not good for PAK at all
    since India has many deceptive trade barriers and may not allow an increase in PAK exports.
  6. kingkobra
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    kingkobra SENIOR MEMBER

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    all you talk about pakistan's economy is not what we see in reality...reality is that pakistan with its high obsession with India ruined everything that was nice inside her own territory...even though you claim that india is obsessed with pakistan...India focuses more on other issues like polio and aids which is proving to be fruitful now...only suggestion to pakistan would be focus on your own regions and first and foremost focus on issues like polio and AIDS..
  7. third eye
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    third eye ELITE MEMBER

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    My presence here or at any other forum of another nation is due to interest in international and regional affairs for a variety of reasons. The suggestion made is ludicrous and short sighted to say the least.We live in a world where events of one part / region impact us all. One would expect maturity in responses.

    @ the subject, nowhere in post No 1 and my reply thereto was a mention or comparison made with India while you couldnt resist from doing so.

    Who's obsessed now ?

    BTW does one need permission from a fellow member to make commentaries on this site ?

    P.S. I rarely get into a one - on-one with a member here, but personal remarks need to be responded to.
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  8. Contrarian
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    Contrarian ELITE MEMBER

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    To an extent protection is good for the economy. But when it becomes a permanent feature, it leads to stagnation of the economy. India was protected till 91 and there was no major competition and so the Indian companies did not improve. After liberalization, they all HAD to compete, it was a push for survival. And most of the companies actually did NOT want liberalization for precisely the same reason. They lobbied against it. But It worked for India. And India is as close a model as can be for Pakistan.

    And secondly, if your signing FTA's with China, allowing their imports, then there is no reason why you should not allow India's. Protectionism only works when you protect against EVERYBODY else. Selective protectionism does not bring the benefits you want your industries to reap.
  9. hinduguy
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    hinduguy ELITE MEMBER

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    He was talking about Pakistan's obsession, which translates to the obsession of its ruling class/decision makers.
    He was not talking about any Individial like you, and his obsession with pakistan is irrelevent to the topic as your obsession with India.
  10. Hutchroy
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    Hutchroy FULL MEMBER

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    RiazHaq Sir,

    I fully support your view.

    Indeed Pakistan should not even give India MFN Status as just like having Free Trade with China has had Imports from China lead to the "Wiping Out" of over Thirty Pakistani Industries.

    Free Trade with India will DESTROY Swathes of Pakistani Industry.

    Destruction of Pakistani Industries by China has been accepted in the name of China being Pakistan's All Weather Friend.

    The Detrimental effect on Pakistani Industries by Imports from India will lead to an all out War between India and Pakistan.

    And Devil take the Hindmost!
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  11. Cheetah786
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    Cheetah786 PDF VETERAN

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    Weak Will fall strong will survive and prosper if given a chance Trade with India and China will benefit Pakistan in the long run weaker industry that refused to compete can't last even in monopolized economy.

    Our industry will have access to over 2 billion consumers. we can ship every thing to these by road plus lower rupee will benefit exporters from Pakistan then importers.

    As far as the war is concerned I highly doubt it ,Trade will bring people closer then make them fight each other.

    Manufactures in Pakistan have unions and they use it for price fixing and other practices that will not benefit the common man and the government. because they had no incentive they simply did not invest in R&D or other measures to grow.

    Trade deals will give them a choice try competing or disappear this will create a vacuum in the short term and benefit India or china but in the long run Industry that will learn its lesson from these deals will grow and that will benefit us all.
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  12. Hutchroy
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    I appreciate your views that in the Long Run Pakistan Industry will benefit.

    However, the way Chinese Free Trade Imports have led to over Thirty Pakistani Industries having gone up the creek without a paddle. They are closed – wiped out.

    Pakistani Industrialists can only take that much. The closures due to Free Trade with India will break the Camel’s back.

    I hope and pray that you will be right.

    Consequences if you are wrong? Horrendous!

    Remember that China and India with over a Billion Consumers each will be an extremely hard nut to crack. May be if Pakistani industry has a Ten Year Period of “protection” then it is possible that it will compete with China and India but with the present state of affairs it is highly doubtful.

    Any case - All the best
  13. RiazHaq
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    RiazHaq SENIOR MEMBER

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    Here's a BBC story on US challenging India poultry ban in WTO:

    The US has dragged India to the World Trade Organization challenging its ban on imports of American poultry.

    India has banned shipments of US farm products, including poultry meat and chicken eggs, since 2007 to prevent the spread of avian flu.

    US authorities said India had imposed the ban to protect local industry and that it violates global trade rules.

    The move comes just days after the US created a new panel to crack down on unfair trade practices by its partners.

    Ron Kirk, US Trade Representative, said that India's ban was "clearly a case of disguising trade restrictions by invoking unjustified animal health concerns".

    "The United States is the world's leader in agricultural safety and we are confident that the World Trade Organization will confirm that India's ban is unjustified."

    BBC News - US challenges India poultry import ban at trade body

    ---------- Post added at 08:29 AM ---------- Previous post was at 08:27 AM ----------

    I am not against trade with India or anyone else for that matter.

    But it's naive to go into it with the orthodoxy of the Washington Consensus that there are only benefits and no downsides for Pakistan.

    Rather than being motivated to engage in free trade as a matter of faith, Pakistanis need to learn to play this game of trade artfully to their advantage, as others like East Asians and Europeans have done.

    At a minimum, Pakistan should implement MFN trade with India to ensure it's a win-win for the long-term, not a win-lose proposition.
  14. RiazHaq
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    RiazHaq SENIOR MEMBER

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    Here's a report about the process South Korea is using to protect its industries before deciding on FTA with China:

    South Korea plans to fully consider potential fallout for "sensitive industries" that may be hurt if a free trade agreement (FTA) with China is reached, a senior government policymaker said Friday.

    Trade Minister Park Tae-ho said in a meeting with large industrial organizations that the government plans to do all it can to reflect the views of local manufacturers and the farming sector in formal FTA talks with Beijing.

    "Every effort will be made to constantly listen to the opinions of farmers, fishermen and businesses that may be affected by market opening," he said.

    The official said that with China’s domestic market growing at a robust pace, there is a pressing need to formulate a strategy to capture market share ahead of increased competition, hinting that a FTA will give South Korea an extra advantage.

    Related to the stance by the trade minister, Lee Dong-geun, the vice chairman of the Korea Chamber of Commerce and Industry, pointed out that China is already the world’s No. 2 economy and the largest importer of South Korean goods.

    "In the medium to long term, a South Korea-China FTA is inevitable," he claimed.

    The business group leader, however, stressed that Seoul must try to win concessions from China in certain sectors that are vulnerable such as the farming and industries currently dominated by small and medium enterprises (SMEs). SMEs generally do not have the competitiveness of big conglomerates like Samsung and Hyundai, and could be hit hard if cheaper priced products pour into the country.

    At the same time, Lee said negotiators need to get China to open its service and government procurement markets, as well as address non-tariff barriers and other complications, and administrative red tape that have hindered investments.

    Other business groups such as the Korea Automobile Manufacturers Association, the Korea Association of Machinery Industry and Korea Federation of Textile Industries concurred on the need for a FTA, yet called for various safeguards.

    They called for special safeguards to legitimately stem sudden surges in cheap imports and measures to prevent unfair trade practices such as illegal undercutting of goods prices that can distort the market and hurt local firms.

    bilaterals.org | S. Korea seeks to guard 'sensitive industries' in China FTA
  15. cyphercide
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    cyphercide SENIOR MEMBER

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    Protectionist measures are advisable for nations that already incorporate a proven domestic industrial base that can ensure supply without shooting consumer costs through the roof.Is Pakistan self sufficient in that aspect? If so then by all means,tax the pants off every foreign shipment entering your soil.
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