Probably Pakistan's Biggest Need: Charter of Economy

[JamD]

Let me preface this post by stating that I am NOT an economist and I have absolutely no formal training in it (I am an engineer). That being said, I've always had an interest in macroeconomics and have read up a lot on my own time. Of course this in no way makes up fro my lack of training; only justifies why I am interested in this area. For every issue I saw, after asking a series of why, the final answer always was, "it's the economy, stupid."

Firstly, it is no secret that Pakistan's economy has mostly been really crap, for lack of a better word. I've always wanted to know why this was and how could one fix it. I always wondered what prevented our leaders from fixing the economy that would benefit them too. I only got nebulous ideas of stability and growth as responses, which although made sense, but were lacking in specifics. However, recently I listened to the following podcast:

Yes, it is long but I have never seen a better explanation/summary of Pakistan's economic woes than this before. I know it is hard for us to dedicate an hour in this day and age but one can listen to this on a long drive or while trying to sleep at night. It is absolutely fascinating and made me go, "that makes so much sense!"

Secondly, Dr. Javed is from SDPI, which means that all of the material in the video is known to the government. So lack of imagination is clearly not the issue here. The people in charge clearly know what plagues Pakistan's economy.

Thirdly, as we can see from the video, the issue is the lack of structural reforms due to each successive government focusing on short-term politically beneficial policies that are catastrophic for Pakistan in the long run. Every government (civil or military) has done this.

Now, I can sort of see that there is some realization of the need for long-term strategic planning for economy in the PTI government+military (the deficiencies of which I'm not concerned with for now). Unfortunately, PTI+military does not equal the entire country. What prevents PML-N or PPP coming into power in the next elections and undoing all structural reforms in favor of short-term "growth?" Surely, even PML-N and PPP want a better economy (if only to steal from it for our most enthusiastic PTI supporters). Basically, everyone believes that getting to 5 years is the absolute max and short-term is the way to go. No party plans for two-terms. Notice how successful economies across the world regularly have two-term governments.

Therefore, what is needed is a charter of democracy: roughly an agreement by all current and possibly future stakeholders of Pakistan on some key aspects of managing Pakistan's economy. Get economic teams from each political party together and put them in the room with other stakeholders (military, SBP) and ask them to draft some bare minimum everyone can agree to. The opposition parties need to be assured that economic policies under this charter will not be opposed. They need to be educated (if they aren't already) of the unsustainability of the current model. Honestly, pulling all of these people together can only be done by the establishment. Sure, not everyone would like to join at first, but start with those who can. Others will join eventually when they have a fear of missing out.

Finally, you will notice that my post is devoid of any specifics. This is intentional as I am trying to learn here. I would welcome discussion on the points raised in the podcast from members more experienced in macroeconomics. I understand that this is a defence forum, but I feel there is too little talk of the actual economic realities and possibilities for Pakistan. I just dream of all the discussions we would be having if we had a half decent economy. Such a shame that we have to compromise so much simply because we have a terrible economy.

 

[Goenitz]

Of course this in no way makes up fro my lack of training; only justifies why I am interested in this area.

Good, we all should think about economics, and it is a tough subject. I will listen the podcast later and then contribute.

Sure, not everyone would like to join at first, but start with those who can. Others will join eventually when they have a fear of missing out.

Training is ok, but if you have Stalin like fear, then you can motivate people. Plus, then establishment need that 'passion' at first place to make that group at any cost (short term).
So, the best way is training, discussion, awareness, and education. So that people themselves demand it (long term, that is exactly what we are doing by debating it).

 

[Old School]

Modern economic dynamics can not always be determined by government actions. Government policies and regulations have certain limits caused by many social-economial factors. In brief, there is no single magic bullet to transform a weak economy to strong economy.

 

[JamD]

Yes, it is long but I have never seen a better explanation/summary of Pakistan's economic woes than this before. I know it is hard for us to dedicate an hour in this day and age but one can listen to this on a long drive or while trying to sleep at night. It is absolutely fascinating and made me go, "that makes so much sense!"

I've taken the time to put what I understood from the podcast as a flowchart. Apologies for errors.

 

[Bilal Khan (Quwa)]

I've taken the time to put what I understood from the podcast as a flowchart. Apologies for errors.
View attachment 730200

So...in short...

The country's economy has the mind of a teenager with a credit card, and they're heavily using the credit card, but without a job to support it.

In earnest, we can't immediately change consumer habits (good or bad), not without extensive education and other systemic changes.

However, we can leverage our population (i.e., a big market) to exact changes on the part of investors (who are selling these imported goods).

This is where all my 'localization' rants come into play.

E.g., if you want to sell a single car in this market, you're going to need to produce 70% of its value within Pakistan. The investors might say, "well, we can't because you don't have XYZ." We say, "ok, then why not set it up and incorporate that as part of your investment?"

Yes in the short-run we'd still import engines and transmissions, but we can still manufacture most of a car. Moreover, our lower currency value and costs could also make those cars attractive produces for other markets. We have direct link into Afghanistan and Iran, but we can build corridors into Central Asia, and even tap into Northeast Africa (since we share the seas with that region).

This one policy would help us save on imports (since 70% of the car's value comes from Pakistan), and boost exports (auto-trade is huge).

You apply this across all consumer goods, we'll have a mid-level industry (i.e., manufacturing) similar to India. The next phase is getting our investors and wealthy folk to stop relying on real estate and get into natural resources in other parts of the world, especially Africa and Central Asia. We do that, then we'd also source the primary-level supply chain (e.g., metals, fuels, etc).

The last -- and longest -- phase is the feeder industry or critical input phase, which we can build gradually over 30-40 years. However, we should aim to stay within the natural resource and manufacturing sectors -- do NOT shift to services economic models. Rather, invest in other countries for service based services.

PS: You can set-up a Democracy Charter by giving each political stakeholder a cut of the net-growth of industries. E.g., put Zardari and Nawaz Sharif into a board of directors somewhere so they can collect a hefty cheque every year (no matter who governs). That's how it works in the West. You have to coach our leaders into seeing that money doesn't come from running government or loading your yes-men into the system. It comes from staying connected to a system that lifts everyone -- you just get the premium suite.

 

[JamD]

So...in short...

The country's economy has the mind of a teenager with a credit card, and they're heavily using the credit card, but without a job to support it.

Basically yes. But...

that description makes it sound like they're doing it simply because they are a teenager and don't care. The podcast argues that the causes are structural and the results inevitable due to the structures. Solutions require structural reforms, which require long-term strategic planning with ALL stakeholders on board. I don't know if I agree with simplifying the issue down to an analogy even for the sake of explaining it to the layman, since too much nuance is lost.

Nuance such as voting patterns due to economics, the kind of "growth" easily achievable in Pakistan's structures, Pakistan's lack of focus on long-term human-development goals.

On the bright side I feel that the cycles of democracy (2 done, going on 3 IA) have started to build institutional memory that is vital to deal with long-term challenges such as the economy of Pakistan.

In earnest, we can't immediately change consumer habits (good or bad), not without extensive education and other systemic changes.

However, we can leverage our population (i.e., a big market) to exact changes on the part of investors (who are selling these imported goods).

This is where all my 'localization' rants come into play.

E.g., if you want to sell a single car in this market, you're going to need to produce 70% of its value within Pakistan. The investors might say, "well, we can't because you don't have XYZ." We say, "ok, then why not set it up and incorporate that as part of your investment?"

Yes in the short-run we'd still import engines and transmissions, but we can still manufacture most of a car. Moreover, our lower currency value and costs could also make those cars attractive produces for other markets. We have direct link into Afghanistan and Iran, but we can build corridors into Central Asia, and even tap into Northeast Africa (since we share the seas with that region).

This one policy would help us save on imports (since 70% of the car's value comes from Pakistan), and boost exports (auto-trade is huge).

You apply this across all consumer goods, we'll have a mid-level industry (i.e., manufacturing) similar to India. The next phase is getting our investors and wealthy folk to stop relying on real estate and get into natural resources in other parts of the world, especially Africa and Central Asia. We do that, then we'd also source the primary-level supply chain (e.g., metals, fuels, etc).

The last -- and longest -- phase is the feeder industry or critical input phase, which we can build gradually over 30-40 years. However, we should aim to stay within the natural resource and manufacturing sectors -- do NOT shift to services economic models. Rather, invest in other countries for service based services.

PS: You can set-up a Democracy Charter by giving each political stakeholder a cut of the net-growth of industries. E.g., put Zardari and Nawaz Sharif into a board of directors somewhere so they can collect a hefty cheque every year (no matter who governs). That's how it works in the West. You have to coach our leaders into seeing that money doesn't come from running government or loading your yes-men into the system. It comes from staying connected to a system that lifts everyone -- you just get the premium suite.

Yikes! You added all the nuance after I had posted lol. I hate to use a cliche but the solution needs to be "multi-pronged." It's not rocket science (even if it is we have rocket scientists lol). It's just that the nation needs to learn the idea of delayed gratification.

 

[CriticalThought]

@JamD we need a chart for education, not a charter for economy. Our economic woes go back to lack of education. In an educated society, enlightened people strike back at inflation by strategically reducing consumption. There are civilian watchdogs and price commissions/associations that unite consumers and use organized boycotts against rising prices.

And the reason why people are uneducated is because our leaders come to power on the back of support from uneducated masses. A large part of your population is in bonded slavery in remote villages where they are carted to election booths and required to elect a specific person.

Even a so called progressive leader such as Imran Khan has shown his true intentions by creating a 'Sufi University'. Masses are being controlled through superstitions.

The real groundbase for a modern economy is an educated population that can use modern advancements and apply creativity and ingenuity to increase exports. That's one more thing that is missing from your chart above and probably the video as well. Today, entire countries have shaped themselves as a virtual Inc., for example, China Inc., Japan Inc. The country's government tries to structure society itself around exports. But when you have IMF dictating, you will keep struggling with cyclic debt.

I have this from someone here in Australia who has worked with the World Bank that Pakistan and Venezuela are the main revenue generators for IMF. These world powers intend to keep you subjugated. And they do this through compliant leaders.

This is the source of your troubles.

 

[JamD]

@JamD we need a chart for education, not a charter for economy. Our economic woes go back to lack of education. Our economic woes go back to lack of education.

That I agree with 100%. Education has dramatic effects:
1. It automatically reduces population growth.
2. It increases economic mobility.
3. It increases productivity.
4. It increases female participation.

All of these things directly help drive the wheel of economy.

In an educated society, enlightened people strike back at inflation by strategically reducing consumption. There are civilian watchdogs and price commissions/associations that unite consumers and use organized boycotts against rising prices.

Full stomachs think of such lofty ideals. Pakistan's bhooki awam is glad to have a roti a day. My point is that we shouldn't be hoping that education will do what you say immediately. Maybe 30-40 years down the road, sure. But that's not what we should be measuring our success at educating our people with.

And the reason why people are uneducated is because our leaders come to power on the back of support from uneducated masses. A large part of your population is in bonded slavery in remote villages where they are carted to election booths and required to elect a specific person.

That is of course true. There is no reason why the leaders will educate the masses out of the goodness of their hearts so they can be elected out of power. They will never do that and to hope for that to happen is foolhardy. What can be done instead is to tell the "ashrafia" what they have to gain by a robust Pakistani economy. And the podcast presents several structural fixes to fix the structures that will ALLOW possible healthy growth.

Even a so called progressive leader such as Imran Khan has shown his true intentions by creating a 'Sufi University'. Masses are being controlled through superstitions.

Good for him. Small fish in my opinion. Economy is bigger than IK Zardari Nawaz Bajwa Ertugal.

The real groundbase for a modern economy is an educated population that can use modern advancements and apply creativity and ingenuity to increase exports.

Agreed.

That's one more thing that is missing from your chart above and probably the video as well.

Perhaps you missed it but please look closer at my chart under Economic policy not linked with social policy. Furthermore, the video talks about it (please listen to it you will enjoy it I think). A particularly fascinating story Dr sahb presents is of Bangladesh, where according to him, the government gave money to the mothers of daughters who would send their daughters to school till the 5th grade. This simple policy payed great dividends because it
1. Increased female literacy (which is horrible in Pakistan btw).
2. Gave more (economic) power to the woman in the household - this has been seen as a good way to control population.
3. It increased female involvement in the economy as the girls that were educated were more able to contribute to Bangladesh's economy.

Today, entire countries have shaped themselves as a virtual Inc., for example, China Inc., Japan Inc. The country's government tries to structure society itself around exports.

That's a rather simplistic explanation of things isn't it? China and Japan are manufacturing powerhouses. Yes, exports are great but what will Pakistan export when we produce nothing and our economic growth is fueled by consumption? Again, I will refer you to the video (and the chart). Simply wanting to export more isn't enough to increase exports. We need to know what we're going to produce that we can export to the world.

But when you have IMF dictating, you will keep struggling with cyclic debt.

You say that like IMF is a choice for Pakistan. IMF is the RESULT of our economy. Build a strong economy and never see the face of IMF again. We would have to pay the pound of flesh for the decades of our incompetency even if the world was fair. And bad news the world isn't fair.

I have this from someone here in Australia who has worked with the World Bank that Pakistan and Venezuela are the main revenue generators for IMF. These world powers intend to keep you subjugated. And they do this through compliant leaders.

I don't ascribe to that narrative, sorry. In my opinion it's very reductionist, and misses the forest for the trees. Clearly there is a lot of nuance in the issue. Again the world isn't fair and no one should expect it to be. The question is, is Pakistan doing it's best? Hell no. Is it impossible for Pakistan to get out of this rut? Again a big hell no.

This is the source of your troubles.

 

[Bilal Khan (Quwa)]

I guess we can all agree that smart and sincere people need to be in charge of Pakistan.

For what it's worth, Laylat al-Qadr is in 6 weeks-ish. In the material world, our struggle is long and difficult, but we can try with prayer in the short-term, before once again trying to change the mindset of our people and leaders.

 

[Goenitz]

I've taken the time to put what I understood from the podcast as a flowchart. Apologies for errors.
View attachment 730200

I think the most important part is how to provide skill based jobs in SMEs... as growth doesn't lead to increase their income (human development).. It is same like the US, when borrowing is easy, so many restaurants/shops pop up.. and then they go default, as customers number reduces when the 'bubble' is burst.

So basically, during growth period, our people are melting reserves (capital) on small business with no skill to learn like making pizzas, with less return ,etc. And when economy goes down, people go bankrupt with nothing to do/provide services.

However, I wonder what wd happen if we don't follow current policy (fuelling consumption economy). Where wd inflation, GDP, etc go? As clearly it means we are burdening the 95% then.

Our main sector is small scale agriculture and farmers having high birth rate. It is sustainable farming basically. To shift to capital farming means we need industry to absorb unemployed influx coming from the small farmers. Else, more agitations and protest and unrest.

What i narrow down is to invest in sectors which we are essential. Other day I said that our chemical imports are of 5 billions $. So our service sector input deficit may go down in food/cosmetic/fertilisers/paint/pharma sectors.

Starts planting more corn for corn syrup, and oil. The oil imports are worth 2 billions $. Same goes for tea but it will take 15 years at least (before harvest). The US subsidise its corn crop. Also, corn need less fertile soil like sandy/soil mix. Plus we need to do research to make sugar from beetroot, corn, even potato, etc. Also, sugar cane are grown after wiping out cotton field (water heavy). Also we import soybeans for poultry feed and we can grow that too.


Then we should focus on circular economy. Like, Indians are still burning the subtle and we do too. So we can make artificial wood/paper from it. But we need to do research.

Education is a long term goal and I argue before that we need to focus on our primary education, but we are focusing on HE. Like we subsidise UET etc. Why, bcz China did it too, UK does too, etc. School education is cheaper here than university. I put the argument that installing a lift in a 16 story building. We should install it from 0-8th floor and not from 9th to 16th. As people can climb the stairs from 9th onward. But what we are saying that you should climb on your own from 0 to 8th then we will lift you up ( in reality it is 0-12th).

Anyway, basic education is necessary to feed the SMEs. As it is better to have few scientists and a lot of skill workers than more scientists with uneducated workers.

Just imagine how our SMEs go up with basic education. Like electricians, plumbers, food joint, etc. Their hygiene, quality, customer service, civic sense wd improve. They may go online, think high, aspire more, and be innovative with their products and service.

 

[Azadkashmir]

So...in short...

The country's economy has the mind of a teenager with a credit card, and they're heavily using the credit card, but without a job to support it.

In earnest, we can't immediately change consumer habits (good or bad), not without extensive education and other systemic changes.

However, we can leverage our population (i.e., a big market) to exact changes on the part of investors (who are selling these imported goods).

This is where all my 'localization' rants come into play.

E.g., if you want to sell a single car in this market, you're going to need to produce 70% of its value within Pakistan. The investors might say, "well, we can't because you don't have XYZ." We say, "ok, then why not set it up and incorporate that as part of your investment?"

Yes in the short-run we'd still import engines and transmissions, but we can still manufacture most of a car. Moreover, our lower currency value and costs could also make those cars attractive produces for other markets. We have direct link into Afghanistan and Iran, but we can build corridors into Central Asia, and even tap into Northeast Africa (since we share the seas with that region).

This one policy would help us save on imports (since 70% of the car's value comes from Pakistan), and boost exports (auto-trade is huge).

You apply this across all consumer goods, we'll have a mid-level industry (i.e., manufacturing) similar to India. The next phase is getting our investors and wealthy folk to stop relying on real estate and get into natural resources in other parts of the world, especially Africa and Central Asia. We do that, then we'd also source the primary-level supply chain (e.g., metals, fuels, etc).

The last -- and longest -- phase is the feeder industry or critical input phase, which we can build gradually over 30-40 years. However, we should aim to stay within the natural resource and manufacturing sectors -- do NOT shift to services economic models. Rather, invest in other countries for service based services.

PS: You can set-up a Democracy Charter by giving each political stakeholder a cut of the net-growth of industries. E.g., put Zardari and Nawaz Sharif into a board of directors somewhere so they can collect a hefty cheque every year (no matter who governs). That's how it works in the West. You have to coach our leaders into seeing that money doesn't come from running government or loading your yes-men into the system. It comes from staying connected to a system that lifts everyone -- you just get the premium suite.

i think before building cars we should concentrate on making power tools then upgrade to making cars.

 

[FOOLS_NIGHTMARE]

I have been saying for years that this big country called Pakistan can only be governed by COLLECTIVE WISDOM. Any party who thinks they can manage it on their own is either stupid or dwells in a cuckoo la la land. Govts or alliances should be given full support and not uprooted on a regular basis. What's the point of planting a SAPLING and uprooting it in few years, need to wait for it to grow into a full fruit-bearing tree. Unfortunately, our country has been in an EXPERIMENTAL phase since its inception. Time to act like a mature nation and stop constant leg pullings and medalling.

 

[JamD]

I think the most important part is how to provide skill based jobs in SMEs... as growth doesn't lead to increase their income (human development).. It is same like the US, when borrowing is easy, so many restaurants/shops pop up.. and then they go default, as customers number reduces when the 'bubble' is burst.

Sp basically, during growth period, our people are melting reserves (capital) on small business with no skill to learn like making pizzas, with less return ,etc. And when economy goes down, people go bankrupt with nothing to do/provide services.

Yes. SME's should be the key focus as they are the real engines of an economy. Even here in the US, we have SO MANY SME's, even though the large companies are all the outside world hears about.

As you have said we need to think about what kind of SMEs? We want SMEs that involve:
1. Medium-to-high skill jobs
2. Manufacturing
3. IP Creation.
This is where my limitations as a nonexpert come in: How to promote such SMEs? Tax incentives? Something vague like "ease of doing business?" Not sure. But there needs to be a discussion on this from experts.

However, I wonder what wd happen if we don't follow current policy (fuelling consumption economy). Where wd inflation, GDP, etc go? As clearly it means we are burdening the 95% then.

I think that as we restructure are economy our GDP will remain low for a while. This was alluded to in the podcast as well. For example, Bangladesh grew at 4.5 to 5.5 % during the 90s. This wasn't enough but it was sustainable. We can expect to grow slower than that for longer, while we make reforms. We will need to swallow the bitter pill. I think the hesitance to swallow that pill is the reason successive governments keep going after the short-term disastrous solutions.

Restructuring an economy can take 10 years. So we should be ready to button up the hatches and just go for it.

Our main sector is small scale agriculture and farmers having high birth rate. It is sustainable farming basically. To shift to capital farming means we need industry to absorb unemployed influx coming from the small farmers. Else, more agitations and protest and unrest.

So from what I understand about economic growth after the industrial revolution is this:
Healthy economies go through
Agricultural economy > manufacturing economy > services economy
So as you transition from agri to manufacturing due to advances in agri, the jobs lost in agri are gained in manufacturing.
However, as we know Pakistan skipped the manufacturing step and jumped to services.

Again, an expert can say more about this but I think we need to develop some sort of manufacturing base AT THE SAME TIME OR BEFORE we reform agriculture to be more modern. This is exactly because of what you said.

What i narrow down is to invest in sectors which we are essential. Other day I said that our chemical imports are of 5 billions $. So our service sector input deficit may go down in food/cosmetic/fertilisers/paint/pharma sectors.

Starts planting more corn for corn syrup, and oil. The oil imports are worth 2 billions $. Same goes for tea but it will take 15 years at least (before harvest). The US subsidise its corn crop. Also, corn need less fertile soil like sandy/soil mix. Plus we need to do research to make sugar from beetroot, corn, even potato, etc. Also, sugar cane are grown after wiping out cotton field (water heavy). Also we import soybeans for poultry feed and we can grow that too.


Then we should focus on circular economy. Like, Indians are still burning the subtle and we do too. So we can make artificial wood/paper from it. But we need to do research.

Right. There needs to be long term strategic planning. You have more ideas than I do.

Education is a long term goal and I argue before that we need to focus on our primary education, but we are focusing on HE. Like we subsidise UET etc. Why, bcz China did it too, UK does too, etc. School education is cheaper here than university. I put the argument that installing a lift in a 16 story building. We should install it from 0-8th floor and not from 9th to 16th. As people can climb the stairs from 9th onward. But what we are saying that you should climb on your own from 0 to 8th then we will lift you up ( in reality it is 0-12th).

Agreed 200%!! Our universities are mere HR factories for industries outside Pakistan. Of course given enough people in the country, a decent amount get to university. But with no industry or basic economy to absorb these graduates, they just go abroad where they can earn a living. Once we have a strong primary education system, transformative changes will happen in society. Imagine the potential of the 25% Pakistanis that can't write a single sentence, had they been educated.

We need to realize the importance of developing our basic health and basic education sectors.

Anyway, basic education is necessary to feed the SMEs. As it is better to have few scientists and a lot of skill workers than more scientists with uneducated workers.

Just imagine how our SMEs go up with basic education. Like electricians, plumbers, food joint, etc. Their hygiene, quality, customer service, civic sense wd improve. They may go online, think high, aspire more, and be innovative with their products and service.

Agreed again. We wanted shortcut and leapfrogged in education just like we did in industry (by skipping manufacturing phases).

 

[CriticalThought]

@JamD @Goenitz have you ever actually interacted with an investor? An entrepreneur told me his personal experience first hand. He wanted to setup a plant to locally produce German cement. So he decided to investigate how local labor would take it up. He found an illiterate Pathan and explained to him he will be working with a new cement that doesn't need too much water, and should be applied in small quantities. But even after much painstaking explanation, the Pathan did what he was used to.

He tells me his contact in Germany explained to him that the people who work with this cement have passed at least 12th grade. As part of their training, they learn about various chemical bonds and atomic structures that the cement forms.

This is why I am saying you will not see any economic advancement until and unless you have an educated workforce available. People will not bring in FDI given the local situation. At most, you might see some investment in IT, call centres etc. But the core manufacturing and modern engineering that we talk about, it will not happen without education.

 

[JamD]

@JamD @Goenitz have you ever actually interacted with an investor? An entrepreneur told me his personal experience first hand. He wanted to setup a plant to locally produce German cement. So he decided to investigate how local labor would take it up. He found an illiterate Pathan and explained to him he will be working with a new cement that doesn't need too much water, and should be applied in small quantities. But even after much painstaking explanation, the Pathan did what he was used to.

He tells me his contact in Germany explained to him that the people who work with this cement have passed at least 12th grade. As part of their training, they learn about various chemical bonds and atomic structures that the cement forms.

This is why I am saying you will not see any economic advancement until and unless you have an educated workforce available. People will not bring in FDI given the local situation. At most, you might see some investment in IT, call centres etc. But the core manufacturing and modern engineering that we talk about, it will not happen without education.

I agree wholeheartedly with that.