For decades, Pakistan's economic gurus have searched for a recipe that would place the country on a path of sustained prosperity. The preferred answer has usually been industrialisation. Build factories, increase exports, absorb surplus labour and growth will follow.
This rationale is understandable. Manufacturing transformed East Asia. South Korea, Taiwan and China all used industrialisation as a vehicle for economic transformation. Pakistan has spent decades attempting to replicate that success. Yet an uncomfortable reality confronts policymakers today. The world that enabled East Asia's industrial rise no longer exists.
Automation, robotics and increasingly sophisticated production systems mean that manufacturing is producing more output with fewer workers. Global value chains have become more competitive and technologically demanding. Even where manufacturing expands, it no longer absorbs labour at the scale it once did.
This is why prominent development economist Dani Rodrik, in his recent commentary, has questioned whether manufacturing can still serve as the primary engine of development for countries with rapidly growing labour forces. For Pakistan, this debate is particularly important.
Pakistan’s development challenge is not simply to establish more factories. It is to foster productivity across an economy where millions of people work outside large industrial enterprises. Farmers, retailers, transport operators, home-based entrepreneurs, service providers and small manufacturers collectively account for a significant share of economic activity. Most are unlikely to become employees in export-oriented factories anytime soon.
The central question, therefore, is not where people work. It is how productive they are wherever they work. This is where Pakistan's economic discussion often misses the mark. The principal obstacle to productivity growth today is increasingly institutional rather than technological.
The evidence is compelling. Research from the Pakistan Institute of Development Economics (PIDE) shows that Pakistan's total factor productivity growth has weakened over the long term. While countries that achieve sustained high growth typically become more productive over time, Pakistan's growth has frequently relied on accumulating labour and capital rather than using them more efficiently. The result has been recurring boom-bust cycles, weak export competitiveness and periodic balance-of-payments crises.
Pakistan's next growth breakthrough is therefore unlikely to come from a single mega-project, industrial zone or technology park
Notably, this is not because Pakistan lacks access to technology. Mobile phones are widespread. Internet penetration has expanded rapidly. Digital payment infrastructure is improving. Artificial intelligence (AI), cloud computing, and data analytics are becoming cheaper and more accessible every year. The challenge lies elsewhere.
A small retailer in Gujranwala may own a smartphone but lack access to affordable inventory management tools. A wheat farmer in southern Punjab may have internet access but no reliable digital advisory service available in Urdu or Saraiki. A small manufacturer in Sialkot may wish to modernise production but lack affordable quality-control technologies and technical support. Technology exists. However, effective delivery mechanisms often do not.
This distinction matters because productivity growth increasingly depends on diffusion rather than invention. Pakistan does not need to become a global leader in artificial intelligence to benefit from AI. The greater opportunity lies in helping ordinary workers use existing technologies to become more productive.
Imagine a farmer receiving localised recommendations on irrigation, pest management and fertiliser application through an AI-powered mobile assistant. Imagine a retailer using demand forecasting tools to reduce waste and improve margins. Imagine a small garment producer using low-cost computer-vision systems to improve quality control and reduce rejected orders.
None of these innovations requires a university degree. None requires large capital investments. None requires workers to abandon their existing occupations. What they require is an institutional ecosystem capable of making such tools accessible, affordable and useful.
This is where policy must focus.
First, digital tools must be localised. Technologies designed for English-speaking users in developed economies will have a limited impact in Pakistan. Productivity-enhancing applications must function effectively in Urdu and regional languages.
Second, business models must reflect economic realities. Most Pakistani enterprises are small businesses operating on thin margins. Digital services designed for large corporations will not be affordable or reach the small businesses that need them most.
Third, digital tools must integrate with Pakistan's evolving financial architecture. Platforms such as Raast and mobile wallets provide a foundation for linking productivity tools with payments, savings and access to credit.
Fourth, policymakers must ensure that productivity gains are broadly shared. If digital platforms merely extract value from small businesses rather than increasing their incomes, technology will reinforce inequality instead of reducing it.
The broader lesson is that Pakistan's productivity challenge cannot be solved through industrial policy alone. Manufacturing remains important. It generates exports, foreign exchange and technological learning. But manufacturing should be viewed as one component of a broader productivity strategy rather than the sole engine of development.
The future of economic growth will depend increasingly on whether countries can place productivity-enhancing technologies in the hands of ordinary workers. The countries that succeed will not necessarily be those that invent the most advanced technologies. They will be those who build institutions capable of spreading those technologies throughout the economy.
Pakistan's next growth breakthrough is therefore unlikely to come from a single mega-project, industrial zone or technology park. It will come when millions of farmers, shopkeepers, service providers and small entrepreneurs become more productive than they were yesterday. That is ultimately an institutional challenge. And it may be the most important economic challenge Pakistan faces in the decades ahead.