Soloman, I very rarely agree with you and never agree with articles you post here but this is bullseye. Every Pakistani on PDF and beyond needs to read this. I have been saying for long time Pakistan has no
real industry or real industrialists. All we have is rent seekers and patronage politics conjoined in a extractive monopoly. The only way this rickety structure has survived is by exporting people [ex-pat remittances] and borrowing money or pawning to geo-politics by getting grants from superpowers. The real economy can be summed as -
- foreign remittances
- loans/borrowing
- grants for geo-political services
@Cybernetics
Two main factors that affect a nation's ability to be industrious:
- The state
- Civilian culture
Industrial nations at its outset required a centralized government that created certain conditions for sustained economic development. Industry is capital heavy, and to help them weather volatility, a centralized entity is needed to maintain stability or such large investments will have a hard time seeing returns. To maintain vitality, industries need competition either internally or in export markets. Export is preferred for achieving rapid economic growth because in the international markets no one is going to soften competition for you, and you will be forced to innovate and lower costs. In this process you increase productivity and boost the purchasing power of your nation, stagnation means death.
https://en.wikipedia.org/wiki/East_Asian_model_of_capitalism
Technological growth, is often seeded by military industries and large state institutions/projects. I think this is often underplayed in economic theory but is appreciated in technology circles. Smaller private firms don't have the capital to engage in basic scientific research or to push for ambitious projects, often it is up to the state to provide this.
Rent seeking mentality you mentioned has seeped into the general populous as well and it is dangerous. When CPEC is talked about, there seems to be significant number of members talking about returns on toll fees of foreign transport as an engine of growth and other rent seeking methods. With that kind of thinking it is no surprise that some people think these roads are meant for the benefit of China and not Pakistan but that accusation to most Chinese is very strange due to difference in perspective. I'm not sure if it is reflective of the general population but if yes then this mode of thinking will severely damage long term economic growth. It reflects a lack of confidence in one's nation's ability to produce value with the addition of this support function thus shifting the responsibility of economic impetus upon others. In this case these people are implying that China is the value generator and Pakistan is the landlord which extracts the value. If one wishes for sustained rapid economic growth, rent seeking should be the last thing to be talked about, it doesn't create value by itself. When value is not created you are incentivized to be in an endless competition with the users/customers and not to be in a cooperative relationship because the pie is stagnant. What should be the narrative is how to increase the economic multiplier from the CPEC catalyst, members advocating for that are on the right path IMO.
China's highways have tolls to expedite the return on investment (enabling greater investment) and limit wear&tear due to excessive use by non-economically important activity. Nobody (including the government) gets caught up thinking this is some sort opportunity to earn money from foreign trucks. The roads are a support function within a system of systems. Why do we need good highways? because highways enable rapid transport of people and goods. Why do we need rapid transport of people and goods? because it would speed up economic activity where previously lacking (convenience factor is also economic in nature). Tolls are meant to earn a return to be able to acquire sufficient financing and limit users just enough to enable good level of utilization but low enough to prevent jams, not for extracting as much wealth from the users as possible to earn a hefty income. Roads are not just important for end to end, the bulk of the load is for internal needs. Yes you can drive from Russia to Vietnam using China's new highway system but how many people actually uses the highway for that purpose? Vast majority of the traffic is for shorter domestic transport routes, same will be true for CPEC, value will need to be generated in Pakistan.
The economy is a system, each part doesn't exist in a vacuum. Heavy industries and infrastructure are the foundations. Have a rent seeking foundation and it limits the height you can build your building.
Rent seeking type of thinking will lead to economic issues even after some time of rapid economic growth. This would inflate large asset bubbles, increasing economic inequality. Real industrialists and entrepreneurs provides downward pressure on the power of rent seeking assets and mentality.
Some members have stated that China should give Pakistan $10 billion for free or it's not a good ally. If China does it, a few years later people would have largely forgotten and a deeper hole would be dug because no fundamentals have been changed, more money will be required. China is a developing country, if too much money is given out for free there would be internal backlash as there are too many domestic needs. If China cuts aid at this point then Pakistan would be in a worse position, that is not desired. Money at its fundamental is a trust system for exchanging and preserving value. For this system to work, there must be good judgement of value. If China gives free money on that magnitude, it will only be doing Pakistan damage in the long run. CPEC is not the Marshall plan, CPEC is helping to build and support what didn't exist before while the Marshall plan was largely for reconstruction of largely developed nations.
No country is free of rent seeking but we need to empower the counter balance in order to stay healthy. Easy money never yields good long term results for a system but easy money sounds ever so alluring. Do what is difficult and you will be rewarded, the world operates on value.
