The Failure of ‘Practical’ Economic Policy

Nadeem Ul Haque

(Editor’s Note: This is the full text of a speech delivered by Dr. Nadeem Ul Haque, former head of the Pakistan Institute of Development Economists (PIDE) at a recent pre-budget seminar organized in Lahore by The Nation. It is worth reading in full – not only for what it says about economic decision-making in Pakistan, but about our more general apathy for ideas, learning and knowledge.)

I realize that I am the odd one out—the impractical theoretical economist who should be kept away from policy.  Ever since Ghulam Ishaq Khan in the eighties – no even M M Ahmed in the sixties – and earlier there has been a refrain in this country that we do not need theory or learning we only need practice and practical ideas.  So all economists especially those who had any serious learning were never to be allowed near policy.  All thinkers were exiled.  Dr. Abdus Salam being a prime example.

Serious economists could be asked about policy half in jest when you run into them. But never take them seriously and never let them near serious decision-making. They could be invited to a committee to air their views for few minutes but only for practical men to wisely nod at how airy fairy these people of books are.

Shaukat Aziz our former PM, the most practical man, a man who looked down upon education had several pejorative names for people who read and think —“no action, talk only” NATO. Yes I admit to being NATO but I do wish Shaukat Aziz were here today to tell us how well practical men have done. Practical men have run his country for 60 years.  Should we conclude that practical men have failed that practical policies have failed that policies not based on serious thinking and research have failed!

Ladies and gentlemen I urge you to think of the achievements of practical men.

So what is practical policy that practical men preach? Practical policy is keeping the status quo of rent-seeking, injustice and a failed state intact.  Practical policy is no reform of decayed, politicized and corrupt systems. Practical policy is preserving a culture of no domestic thinking, domestic debate or even any local reading! Practical policy is going around the world shamelessly with a begging bowl only to avoid domestic reform and thinking. Practical policy is slavishly following donor plans and praying for good weather.

It is thanks to practical thinking that we are today at the bottom of all international lists. The failed state index, competitiveness indicators TI’s corruption, governance indicators, cost of doing business indicators all rank us at the lowest levels.

Yet practical men do not even allow a serious economist room in the entire economic establishment from the Planning commission to the ministry of commerce and with everything else included. Even when the failed state index puts us in the lowest category, practical men tell us that civil service reform is not necessary. Even when the Corruption index says that we have a serious problem, practical men say there is no reason to review our governance. Even when the property rights index tells us that property rights are not enforced in Pakistan, our practical men say it is too early for looking into that issue!

The refrain of practical men is that we are too poor to change and think. Sorry being impractical and NATO, I refuse to accept it. History show that audacious nations who have refused to accept such practical ideas have progressed. Examples of Singapore, Malaysia, Korea, Mauritius come to mind. In my impractical view our poverty is in ideas we are too poor in terms of our thinking, our vision our dreams.

But it is not the fault of practical men alone. Ladies and Gentlemen of the media you too love practical announcements. You side with them in this notion of thinkers being useless and practicality being non thinking. You do not even question the record of practical men. You accept their titles and officialdom as oracles of learning too easily. You do not challenge government appointments and policy announcements. You give a proud headline when the government goes begging instead of reform. You do not challenge them to regard reform and borrowing as possible alternatives.

It is budget time and we will all get wildly excited about economic policy. We will have wild expenditure and tax suggestions. Newspapers are already full of them and most of these are self serving ideas that lobbies have put forward. Today we will talk only of sectors and numbers as if we have a stable cohesive state devoid of a civil war, rent-seeking and misgovernance.

Being impractical for me it is time to review where we are going.  I must say that I am not very optimistic. But it is not just me. Ordinary Pakistanis – taxi drivers, waiters, traders etc – that I have run into in DC, London, Dubai, and Lahore now all express deep despondency in our country. There is now a collective sense of shame in our county and its achievements.

So let me make a prediction that the time for practicality is over. As a NATO and totally impractical, let me make say that it is the practical policies of our practical men that have made us miss so many opportunities to be a middle income country. If only reform had happened in the eighties when we had a remittance boom and then the Afghan War aid inflow? If only reform had happened after 9/11! If only we had opened the economy and the market as my alterego Dr Abdus Samad used to argue in the 80s? If Only we had built a serious governance system in the 90s as Dr. Samad used to write.

Let me also say that the failed policy of practical men have brought us to this pass of Talibalization and a country that is falling apart. The current system of apartheid where the poor have no opportunity and the rich line their pockets through rent-seeking is akin to the pre-revolutionary situations that we have seen all the way down from the French revolution to today. I remember when people talked of rising inequality and missed opportunities our practical Prime Minister who now refuses to live at home used to remind us of the rising stock market and full hotels reminiscent or Marie Antoinette. This apartheid system has to go either through reform or through revolution. That is the choice that we have in front of us. Practical men cannot hold the status quo for long and perhaps the time has come to change the status quo.

So the continuation of the failed policies of practical men will not lead us out of our problems but perhaps to deeper disasters. What should we do then? My advice is dream a little, be a little audacious in our thinking—perhaps even be a little NATO like me.

All the way from Adam Smith to now Robert Lucas, famous economists all impractical men of research and learning have been will attempting to understand the growth process. Tomes have been produced and there is much we can learn from these. Perhaps we should read some of these. But then practical men tell me proudly that they do not read. For policy and decisions all you need is Meetings! Perhaps we need to review our process of decision-making too.

Let me tell you the upshot of this research. For example, Florida has argued that growth happens in cities that subscribe to the 3 Ts—Tolerance, Talent and Technology.  Bernstein says that historically societies that have grown have developed systems for strong property rights, a respect for learning, and connectivity. Easterly and many others have argued vehemently that aid-dependent countries do not make it.

What do we learn from this that economics is not about money, sector subsidies and actions, budgets or stray numbers that people love to quote!

If we are to grow and eradicate poverty, we need modernity the three Ts – technology, tolerance and talent! For modernity you need modern cities and city centers? Growing cities are cohesive not split into cantonments and other parts. Growing cities are autonomous and professionally managed with their own political institutions. Growing cities are tolerant and modern full of markets and commerce. How do we develop city centers of commerce and modernity when are city centers are marked for housing governors and bureaucracy and subsidized polo grounds an elite clubs. Of course it is impractical to attack privilege!  Without attacking privilege how can talent be nurtured and meritocracy established.

Lip service is paid to governance. Yes we need to improve our governance but how? Governance is not an empty word.  Better governance means better property rights, markets and rights managed by a professional and thinking civil service. No longer will a practical civil service with perks and rentseeking do in this modern era. A professional civil service cannot happen with the hangover of the colonial administration that lives on perks, transfers and power.  Useless agencies like Passco, Pak Text Book Board, Book Foundation and many others need to be closed down before we ask for higher taxation. If we tax more without changing government we will merely fuel inefficiency.

All thinkers talk of knowledge being a driver of growth. This is not just another Higher Education Commission (HEC). The creation of knowledge is not just land and buildings. I wish it were for we have more university land than most countries. We need thinking, research and a reading culture. Out universities cannot be managed as they currently are by a bureaucracy. They need to be returned to thinkers and dreamers.

Policymaking must learn to respect domestic thinking use it and interact with it. We need think tanks. It dismays me to say that Lahore has no think tank. What a shame for city which was the home of Allama Iqbal and many other thinkers.

Easterly has documented how large donor plans and loans have not worked calling for more local experimentation, research and thinking. For 5 years I have been writing papers arguing that our growth strategy is wrong in that we are stifling domestic commerce. One would think our policy maker would have noticed such an attack on policy and discussed it perhaps even learnt form research. But then practical men can ridicule impractical men.  And practical men will again say that service sector growth was bad.

But the government must listen to think tanks, engage them seriously. At the Pakistan Institute of Development Economists (PIDE) I argued for the assessment of our policies for entrepreneurship claiming that we have no entrepreneurs.  What is the government view on this impractical idea! But sorry practical men make policy in meetings without reading.

Ladies and gentlemen the state of the union in Pakistan is in despair. We are all somber with terrible anticipations. For me it is time for reflection and thinking. Practical policies and practical men have failed! Let us accept it and like the rest of the world accept learning and research as a guide. Reform should be our buzzword for the next 20 years. You people of the media must incentivize our practical men to think of reform. You must give more space to reform and reform thinking and research. You must ask for more thinking centers. ‘Business as usual’ no matter how practical is no longer acceptable.

If it is ‘business as usual’ – ‘no reform and only begging’ –than my impractical prediction is that 50 years from now we will be where we are. Let the practical men prove me wrong. But bear in mind what practical policies have delivered over the last 60 years.