Neoliberal economics: the challenge within

Neoliberal economics: the challenge within

As a rule, our political parties have their heads in the clouds when it comes to contending with fiendish economic problems. Not surprisingly, economic issues take a backseat in political polemics. In the run-up to the elections, a rancorous tug-of-war between the principal political players has clouded the fact that they all are on the same page regarding the efficacy of neoliberal economics for the country. This implied consensus on neoliberalism leaves little room for discussion on alternative economic doctrines or policies.

The fundamental characteristic of neoliberal economic policy is its creed-like faith in the market forces to bring about an optimal allocation of resources. Even a feeble attempt by the state to tinker with the market mechanism is seen by neoliberals as hobbling business activity, and thus, sawing down the size of the economic pie. Deregulation, liberalisation, privatisation and free trade are among the canons of neoliberal philosophy.

Neoliberalism has exercised so profound an impact on contemporary economic thinking that the word ‘reform’ has become synonymous with making the state as well as society completely subservient to the market. But as the 2007 US financial crisis and the global economic recession that it unleashed bring out, giving carte blanche to the market forces is for sure a recipe for disaster.

In Pakistan, the foundations of neoliberal economic policy were laid during Gen Ziaul Haq’s era (1977-88). Although Gen Ayub (1958-69), Pakistan’s first military ruler, was also wedded to capitalism, his economic policies represented a departure from neoliberalism in, at least, two fundamental ways. One: instead of keeping its hands off economic activity, as implied by neoliberalism, the state played a vital role in economic management. Two: the rapid industrialisation during the Ayub era was based on import-substituting industrialisation and a restrictive rather than a liberal trade policy, which runs counter to neoliberal prescriptions about economic management.

In 1980, Pakistan entered into an Extended Fund Facility arrangement with the International Monetary Fund (IMF), which committed the government to pursuing the star neoliberal policies of deregulation, trade liberalisation, and cutting back on fiscal deficit. The Zia regime, understandably, also upended the flagship nationalisation policy of Z A Bhutto. The sixth five-year programme, which was introduced in 1983, for the first time described export-led growth as a principal policy objective. It was also during the Zia era that a managed floating exchange rate system was put in place. Thus, the stage was set for Pakistan to fully embrace neoliberal economics.

In 1988 and subsequently in 1993, Structural Adjustment Programmes with the IMF were inked, under which imports tariffs were massively slashed and the state undertook scaling down its role in the economic sphere both as a producer of goods and services and as a regulator of the corporate sector. Although the economy did not undergo a structural change, the fundamentals of neoliberal economics were fully embedded into economic policymaking.

The PPP government, which returned to power in 1988, continued with the economic policies of the Zia era, notwithstanding its claims to be a party of the poor and the working class. Since then a change in government, or even a change in the form of government, has had little impact on the direction of our economic policy.

The developments that started off in Pakistan during the 1980s, and which have persisted through subsequent decades, were not an isolated phenomenon. The end of the 1980s saw the eclipse of socialism in Eastern Europe and elsewhere and the emergence of market economy as virtually the undisputed form of economic organisation across the globe. Soon, Pakistan’s bigger neighbours – China and India –would also begin to put their trust in market economy, albeit not as unflinchingly as we did.

At present, all the three major political parties subscribe to the basic tenets of neoliberalism; they only differ in the nuts and bolts of the same overarching economic policy. The PTI majors on human development, preserving the environment and, of course, eradicating corruption. The PPP makes great play with redistributing the economic pie and inclusive growth. The PML-N enthrones infrastructure development through mega projects and expansion of the industrial base over other economic goals.

Likewise, the parties agree in principle on privatising the loss-making state owned enterprises (SOEs) – though for political point-scoring they may be up in arms against such an initiative when they are in the opposition. Neither the PPP nor the PML-N government scrapped the privatisation ministry during their tenures. The post-election government is not likely to do so either.

By the same token, political parties, when they are in power, may also seem to extend greater patronage to a particular segment of the economy: agriculturists in case of the PPP and businesses in case of the PML-N. At the moment, the PTI is playing up to everyone. Whether the party is more farm or factory-friendly, we will come to know when it forms government.

Although ‘inclusive growth’ is one of the buzzwords in contemporary economic thinking, on which our political parties also draw upon, it is not clear how much room neoliberalism leaves for inclusive growth. If resource allocation is done solely by market forces on the basis of the ability to pay, the low end of society will continue to be hit hard. In countries like Pakistan, where the tax-to-GDP ratio is very low and whereby the implication of bringing down fiscal deficit continues to be one of the most serious economic challenges for the government, the state’s ability, granted that it has the willingness, to transfer resources to the low income groups remains exceedingly limited.

The situation is compounded by the widespread tendency to see low wages and bad working conditions as key for businesses to cut costs, grow and become competitive. Be that as it may, the relationship between wages and costs goes both ways. While low wages may be cost-saving, they also wind down labour productivity and thus, offset any gains accrued by holding down the wages.

As all the major political parties are in thrall to neoliberal economics, they pay only a lip service to labour rights. Prescribing the minimum wage is the best instrument that the government, no matter which party is in the saddle, comes out with to ameliorate the lot of the working class. It remains unmindful of the fact that in the face of widespread unemployment, workers will leap at working even at a wage rate that falls below the minimum prescribed rate.

As for supporting low-income groups, a scheme of cash transfers named the Benazir Income Support Programme (BISP) is currently in place. But such arrangements can, at best, provide a temporary respite from poverty; they can hardly be an instrument of job creation or narrowing the gaping economic inequalities. The latter requires a proactive role of the government in the economic sphere rather than a hands-off approach. If we look at the manifestos or programmes of the major political parties, all of them call for inclusive growth and protecting workers’ rights. But none of them questions the basic assumptions of a neoliberal economic policy.

Karl Marx once remarked that political transition was meaningless if not accompanied by economic changes. In Pakistan, as a rule, political power changes hands after every election without any meaningful change taking place in the economic policy. The 2018 polls may not be different from previous such exercises. Neoliberal economic policies are likely to stay undisputed and unchallenged, especially when another agreement with the IMF is round the corner.

By: Hussain H Zaidi

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