In this article first of all we will go through some theories of development and analyse their application to Pakistan, and then we will see what the strategy for the economic development of Pakistan should be.
Adam Smith is regarded as the foremost classical economist of this age. His monumental work, “An Enquiry into the Nature and causes of the Wealth of Nations,” published in 1776, was primarily concerned with the problem of economic development. Though he did not expound any systematic growth theory, yet a coherent theory has been constructed by later day economists. Indeed, even today, this book remains a key text book in most economic courses and is referred to in many debates involving the subjects.
Adam Smith believed in the doctrine of natural law in economic affairs. He regarded every person, as the best judge of his self interest, who should be left to purpose it to his own advantage. In furthering his own self interest he would also further the common good. In pursuance of this, each individual was led by an “invisible hand” which guided market mechanism. The invisible hand the automatic equilibrating mechanism of the perfectly competitive market, tended to maximize national wealth.
Division of labour is the starting point of Smith’s theory of economic growth. Division of labour increases with the extending of markets. For this purpose, expansion of commerce and international trade is especially beneficial. According to Smith, farmers, producers and businessmen are the agents of the economic progress. It was free trade enterprise and competition that led farmers, producers and businessmen to expand the market which in turn made economic development which is largely the ability of the people to save more and invest more in the country.
Smith’s theory of economic development has limited validity for under-developed countries like Pakistan. In Pakistan, the size of the market is small. As a result, the capacity to save and inducement to invest are low. The size of the market is determined by the volume of production. This in turn depends on the level of income, which is very low.
The political, social and institutional assumptions underlying Smith’s theory are not applicable. Laissez-faire has lost its significance in underdeveloped countries. Monopoly of power has tended to strengthen the vicious circles of poverty. Therefore, development is possible through government intervention.
Classical Economists believe in Laissez-faire economy and the invisible hand for market mechanism. They regard capital accumulation as the key to progress and profit induced investment. According to them, the end result of capitalist development is stagnation. This stagnation results from the natural tendency of profits to fall and the consequent choking of capital accumulation.
This theory is not applicable to the LCDs like Pakistan. It neglects the impact of technology on development. It gives the wrong notion of stationary state. The Laissez-faire policy is impracticable because without government intervention, many projects for development cannot be completed in Pakistan. This theory has a negative view of capital accumulation and it ignores the role of the middle class in national development.
According to Karl Marx, capitalism is the root of all problems. As he says, “capital is dead labour that, vampire like, only lives by sucking living labour and lives the more, the more labour it sucks.” When the capitalist is replacing the workers by machines, he is killing the workers by machines; he is killing the goose that laid the golden eggs. As capital accumulation increases, competition increases and profit tends to decline. In order to counteract this tendency of decline rate of profit, the capitalist increases the degrees of exploitation of the nation by reducing wages, lengthening the working day and by speed ups, etc. The ratio of labour to total out-put falls still further. The rate of profit declines all the more. Production is no longer profitable. Marx suggests the role of government for economic development. According to him, socialism is the remedy these all these problems.
Marxian theory is not applicable to underdeveloped countries. Marx did not think of the problems of such countries, for he was mainly concerned with the development, the primary aim is to create larger employment opportunities to increase purchasing power and fresh demand, to build a strong capital base and increase productive and technical capacities within the economy.
According to Paul. N. Rosenstein Rodan, a big push or a large comprehensive program is needed in the form of a high minimum amount of investment to overcome the obstacles to development in an underdeveloped economy and to launch in on the path to progress. The theory states that proceeding kit by kit will not launch the economy successfully on the development path rather; a minimum amount of investment is a necessary condition for this. It necessitates the obtaining of external economies that arise from the simultaneous establishment of technically interdependent industries. Thus indivisibilities and external economies flowing from a minimum quantum of investment are a prerequisite of launching economic development successfully. He distinguishes between three kinds of indivisibilities and external economics.
1. Indivisibility in the production function, specially of social overhead cost (SOC)
2. Indivisibility of demand
3. Indivisibility inn the supply of Savings.
A similar theory is presented by R. Nurkse. According to him, the vicious circles of poverty are at work in underdeveloped countries which retard economic development. If they are broken, economic development will follow. The vicious circles operate both on supply side and demand side. They can be broken by balanced growth in all the sectors.
These theories are also inapplicable to Pakistan. They neglect the investment in the agricultural sector, which is the basis of our economy. Indeed, the decades of neglect in this sector have already taken their toll, with a decline in the contribution from agriculture to the national economy. These theories also neglect the economics from import substitutes and exports promotion. These do not consider economic planning, and they are beyond the capabilities of LDCs because of the shortage of resources.
The concept of unbalanced growth is popularized by Hirschman. It is his contention that deliberate unbalancing of the economy according to a predesigned strategy is the best way to achieve economic growth in an underdeveloped country. According to him, investment in strategically selected industries or sectors of the economy will lead to new investment opportunities, and so pave the way to further economic development. In practice, development policy should aim at:
1. Prevention of convergent series of investment.
2. Promotion of divergent series of investment.
This is possible by investing either in SOC (Social Overhead Capital) or DPA (directly productive activities). The path of development via SOC capacity is self-propelling and essentially permissive. The other, via SOC shortage, is an instance of disorderly compulsive sequence. According to Hirschman, economic development typically follows a path of uneven growth; that balance is restored as a result of pressures, incentives and compulsions.
This theory is beyond the capabilities of underdeveloped countries, due to the lack of factor mobility and lack of basic facilities. The result of this theory is the emergence of inflationary pressures.
Strategies to be adopted for Pakistan
The development strategy for Pakistan should be made according to the circumstances of the country and keeping in view its capabilities, natural, financial and human resources, its basic needs, political institutional and social frame-work etc. This is essential so that policies are applicable to the country for development, and keep in view the overall needs of the people, the levels of literacy, development and so on in the country at large.
Pakistan is basically an agrarian country. Agriculture is called its backbone. For the development of Pakistan, it is necessary to develop its agriculture. Agricultural activities are mostly done under private sector, but the government should take initiative steps to promote the agri-sector. It is necessary to increase total output and production per acre to become self-sufficient, especially in food despite being an agricultural country, we have to import wheat. This practice must be stopped. There should be technical improvements on the land in order to boost productivity and take advantage of the full potential in this sector.
The government should implement the land reforms and keep a tight watch on the implementation. Credit facilities small farmers should be extended so that they can expand their activities. The government should also make arrangements for the supply of inputs like seeds, fertilizers and pesticides are reasonable prices and without adulteration. The government should encourage small farmers and those who themselves cultivate their land, rather those big land lords who live in big cities and do not participate in the production process.
Another important thing is the set up of agro-based and cottage industries. In our country, there are so many talented people and skilled artisans, but they cannot carry out their jobs due to the lack of resources. In many cases they have in fact suffered from repeated neglect, and faced a downslide in their spheres of work due to the lack of patronage. The government should promote them and take their work to foreign markets, where there is a considerable potential for development in this area.
One sector alone cannot contribute to development as much as required; the development of all the sectors is needed simultaneously. Policies should be made for all sectors and they should be integrated with each other.
It is wrong to view that industry and agriculture are apart from one another but their development is integrated. If the industry progresses, the raw material would be available locally to the industry, the purchasing power of people will increase, the demand for industrial goods will increase. So the two sectors are interrelated.
The industrial sector is an important as the agri-sector, so the development of industry is necessary. The government should give incentives to businessman and should adopt the policy of import substitution.
Physical infra-structure is very important for the development of a country. The government should take steps to improve social and physical infrastructures, and should invest more in SOC because without SOC, it is not possible to develop any other sector. Without SOC, investment in all other sectors will not bring out full results.
The main problem of Pakistan is poverty, which goes on. For development, we have to break this vicious circle. First of all, we should analyse the causes of poverty. These are the poor condition of farmers, lack of capital, low savings, low income, lack of education, lack of economic planning etc. we have to remove all these causes to eliminate poverty.
In Pakistan, institutional and structural framework is in a down fall. It should be changed and improved so the people can live and work easily in healthy environment.
Human resource development is very necessary for the development of any country. The current literacy rate (50.5%) is not satisfactory, it should be increased. Along with formal education, the government should also lay emphasis on the technical education and vocational training.
Technology used in Pakistan is very poor, especially in the agri-sector. As a result, production remains at low levels. Modern technology should be used in the production process, both in agriculture and industry and as well as in other sectors of the country. Specialized working should be done. Wages of workers should be reasonably high, so that they can work and live easily. Incentives should be given for increase in production. The market should be expanded through division of labour and quality control, which leads to increase in profit and expansion of market.
In addition to these problems, the rate of saving is also very low, and it should be increased. This can be done by giving incentives for profit and by reducing the hoardings of gold in private sector, by reducing of restricting the imports of luxuries. Saving can also be increased by the profit giving schemes, introduced by banks. But the thing which is very important is to invest all these savings and mobilize them through credit to achieve the goal of development.
The government should adopt the policies of export promotion and import substitution. We can gain foreign exchange by export promotion and can save foreign exchange by import substitution, because increase in foreign exchange is the need of the day. Exports should undertake as far as possible in the form of finished products rather than raw material or semi finished products, to increase the amount of capital flowing into the country.
Another factor which retards or holds back the economic growth is the wrong policies. The problem of Pakistan is not shortage of resources but the misuse of resources. So many times wrong policies have wasted or destroyed the resources of the country.
Authorities should think upon the matter, analyse the situation, take into consideration the resources and cost and benefits of the projects and then should make any policy.
Social evils like, smuggling, bribe, black marketing, fraud etc, are destroying our social, institutional and moral systems. These social evils should be eliminated by giving upon heavy punishments.
The most important thing is to change the thinking of people, and provoke them to work hard and make them ambitious for development, loyal to their country and make them believe on the welfare of the whole society rather than their individual welfare. Only then we could develop our country because will power is the main thing to achieve any goal.
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