In the world of economics, countries are usually viewed through the binary of ‘developed and ‘underdeveloped.’ This distinction has held for long, being in vogue especially after WWII when it was felt that many countries, majority of them just fresh from throwing off their colonial yoke and becoming independent, needed help in attaining the same level of economic growth and development as experienced by the leading powers of that time. As a result, a neat distinction between the world into ‘developed’ and ‘underdeveloped’ emerged which has clung to imagination of the global populace, especially the practitioners in the field of economics. This distinction was complemented by other such distinctions, like ‘industrialised’ and ‘agricultural’ to supplement policy interventions and research.
Recently, this distinction has been challenged by some voices in the field of economics, going as far as to suggest that such distinctions are akin to intellectual apartheid. Outside the field of economics, a plethora of leading writers and intellectuals have also challenged this distinction over time. Late VS Naipaul, a Nobel prize winner in literature, was one such intellectual who presented his own idea of distinguishing between the developed and the underdeveloped world. According to him, the easiest way to distinguish between the two categories is way they tackle their pressing issues, whether economic or otherwise. Developed world is developed because they have this tendency of permanently deciding upon a course of action, and then move on to the other, future challenges. In contrast, what makes the developing world ‘developing’ is their failure to comprehensively tackle their critical issues and their tendency to remain glued to an issue for a long time without any agreeable resolution. In short, there is cyclicality to the issues confronting the developing world.
Certainly, as far as economics goes, VS Naipaul’s categorization stands validated to a great extent. Pakistan serves as a good example of how a country is caught up in an unending cycle of economic difficulties since its inception. There are countless examples that can be used to support this assertion.
Let us start with the observation that in almost every developed nation, lower tiers of governance (districts, city and rural councils) have ample administrative and fiscal powers. Through culmination of a long and arduous process, these countries have settled upon the principle that concentration of powers at the center/federal or state/provincial levels, while keeping local level tiers out of the equation, is generally a harmful bet. The reasons are many, and vary by their nature, from ensuring good service delivery to citizens having a voice in the national milieu. Localities in these countries, for example, have the power to levy taxes and issue bonds to finance their expenditures.
In contrast, Pakistan’s 73 years of existence have been marked by an endless, unsettled debate on whether devolving powers at the lower tiers of governance is a sound idea. One would find considerable opposition to such a course of action, as well as support, with both camps unable to reach a definitive understanding.
Another example in this regard comes in the form of role of the government in economic affairs. In general, governments in the industrialized nations now act primarily as supporters of economic activities rather than indulging directly in them. This principle was tested severely as the Great Recession struck, but governments in these countries still managed to avert the temptation of taking over troubled institutions of the economic activity. Rather, their very active role was limited to a supporting act. For example, in order to prevent the collapse of the insurance giant AIG, which could have meant loss of thousands of jobs and further economic gloom, the US government instead lent the institution $85 billion at substantially discounted terms in order to prevent its collapse. Not only were thousands of jobs saved, but the firm was back in profit within a couple of years, returning the debt.
Now contrast this to Pakistan, where the federal government alone is directly running around 200 Public Sector Entities (PSEs) which are a huge drain upon the national exchequer. These PSEs are besides the innumerable ministries and divisions, majority of them of little or no economic or social value. Yet their skyrocketing expenses must be bore by the people whose taxes sustain these white elephants. Despite overwhelming evidence, the government refuses to lower its economic footprint, and is instead caught in the endless cycle of debate upon what to do with them and futile attempts at turning these around.
One point of disagreement as to what I stated above may come in the form of persistence of economic policies related to a certain aspect, whose practice has a long history but are still in vogue practice. Monetary policy, for example, is not a new field and neither is the idea of a central bank acting as a lender of last resort to prevent a bank run or collapse of credit circulation. But this kind of argument tends to ignore the fact that within the practice of these kinds of policies, the tools and the methods of the practitioners have undergone change in sync with evolution of newer challenges. For example, nowadays, the challenge confronting the central banks of industrialised nations (especially Federal Reserve of the US and ECB of the European Union) is the low nominal interest rates (negative rates, if taken in real terms) and low inflation, a state of affairs that economists categorize as part of a phenomenon known as ‘secular stagnation.’ That has been the case since the Great Recession struck in 2008. Thus, it is a new challenge that economic circumstances threw up, being dealt with new tools that have been developed to address this challenge (Quantitative Easing, for example). Contrast this with monetary policy practices in the developing world, and one witnesses the same old tools and methodologies continuously in practice.
It should also be noted that the above stated issue of devolution of powers to lower tiers, for example, was mainly stated in the context of failure to move beyond a certain issue, rather than a definitive stamp of approval of devolution versus centralization (in terms of cost-benefit analysis). This is reflective of a failure of intellectual efforts and national cohesion over an issue rather than economic benefits or costs, the result of which is the perpetual quagmire that is cyclical in nature.
One can thus conclude that VS Naipaul did indeed have a point in making his distinction. What was stated above related to economics only, but Naipaul’s observation stands mostly true of other aspects of life too.
The writer is an economist
