Re-industrialising Pakistan under globalisation
ZUBAIR FAISAL ABBASI
ARTICLE (March 31 2008): Economic globalisation affects both local and global systems of wealth creation and distribution. The effects can be witnessed in micro-realities of workers searching new modes of livelihoods to make for the lost ones while macro-realities are manifested in processes of stat industrialisation in many developing countries.
However, there is an enormous variety of debates around dynamics of economic globalisation and possible policy responses. This article identifies competing perspectives related to industrialisation under economic globalisation. While arguing for a central role of state in industrial development coordination and building of national innovation system, it suggests that a focus on re-industrialisation in Pakistan is possible under WTO regime.
Originating from free-trade doctrine, some opinions claim that Pakistan, under globalisation, should forget about possibilities of a new wave for industrialisation altogether. Though controversial, the claim also argues that the East Asian 'Gang of Four' days are over, and globalisation - meaning flow of foreign direct investment (FDI) and openness - will determine whether the country can industrialise or not. Such arguments also advise that Pakistan should try to attract FDI through the policies of liberalisation, deregulation, and privatisation. Most importantly, the government has to be cut-to-size and be kept out of markets in the process.
However, on the opposite side, forceful voices originate from at least two quarters, which at a certain level are mutually supportive approaches to long-term economic development. Broadly speaking, one is new institutionalise political economy and the second is new growth and new trade theory approach.
The first tries to focus on 'getting institutions and interventions right' and emphasises the importance of industrial policy and human development with a purposeful and accountable presence of government in support of long-term industrial development objectives and structural transformation.
The second approach lays emphasis on the pivotal role of knowledge and information related interventions, which can induce long-term economic growth dynamism. It also redefines the reasons behind foreign trade beyond traditional comparative advantage and seeking competitive advantage in production for exportable items which can provide increasing return to scale.
This stream of arguments supports the need of reasonable tariffs and protection for the industrial development. In a nutshell, this policy advice also prescribes efforts to generate economies of scale without unduly following the neo-liberal prescription for intense competition.
The above mentioned two approaches possibly advise economic managers of Pakistan to strategically think of the central role of state and public sector institutional arrangements in managing and coordinating investment and industrialisation processes with strategic and cautious integration into the global market.
The moral of the story is that industrialisation under globalisation for long-term economic development is too important an activity to be left to blind forces of FDI and openness.
However, looking at the current wave of economic thinking in policy circles of Pakistan, one feels that the country is trying to maintain a cosy place in the lap of the 'unholy trinity' - The IMF, World Bank, and WTO. The search for a neo-liberal Pakistan has ultimately created immense stresses on different strings of possible export-oriented industrialisation.
Interestingly, what is being pursued, at the moment, is a belief in export-led growth which, for all practical purposes, means whatever any business can export should export. Export-led growth thinking does not argue for any economy-wide significant intervention to establish national system of innovation which can support export-oriented industrialisation for high quality value added manufacture.
In reality whether a country exports low value added potato-chips or high value added computer-chips does matter. In this way, a secular export-led growth thinking should be a worrisome situation for the incumbent post-martial law regime in Islamabad.
Looking at from another angle, in the absence of national industrial policy and increasingly shrinking capacity of the government's institutional arrangements for investment and information coordination, some experts also think that all industrial development eggs are being put in FDI-attraction basket.
Many researches, specially undertaken by economic geography specialists, show that increase in global flow of FDI has been towards selected countries of Asia and Eastern Europe.
The researches explain that one important feature, which Transnational Corporations (TNCs) seek is competitive advantage. This entails availability of skilled and highly productive labour force. TNCs are no longer fascinated with the idea of access to cheap human and natural resources but like to seek efficiency gains and strategic asset building.
Another stream of research shows that TNCs do not bring technology, which is highly relevant to the national development needs of the host country. They bring technology, if needed, for their own purposes not for an economy-wide structural transformation.
So the advises about looking for FDI as a source of long-term economic growth are at best fragile, which need sobering thoughts with a view of strategic national industrial policy. An egalitarian society and educated citizenry creates its own scale economies and externalities, which TNCs always assess before making strategic relocations for competitive advantages.
Towards the end, this is suffice to say that while some opinion-holders conclude that under globalisation, industrialisation in Pakistan is not possible because it has been unsuccessful industrialise in the past, is a hasty and faulty conclusion.
In addition, under the WTO regimes, though export subsidies are prohibited, which provided leverage to now-developed countries in the past but vents for investing in research and development for competitiveness, building national innovation system for industrial upgrading, and many aspects of industrial policy are still open.
These are replicable paths used by East Asian Gang of Four economies as well, one must understand. Industrialisation under globalisation, however, requires a sound vision of democratic developmental state with a developmental bureaucracy - the bureaucracy, which can simultaneously be autonomous and accountable in managing the industrial development path.
THIS CAN BE DONE IN AN EXCELLENT WAY WHEN ALL THREE SECTORS: first (government), second (business), and third (civil society) work together towards achieving national development objectives and strengthen national institutions. Each sector can contribute a set of competitive advantages.
Business Recorder [Pakistan's First Financial Daily]
