Training Session in 24th Mid-Career Management Course, National Institute for Management Islamabad, Monday 24th Oct 2017
Brief Summary: Today’s world is dominated by wrong ideas. Every party spending time and effort on using media to propagate ideas IS AN INTERESTED party — no one spends time and money to spread PURE TRUTH. THis makes job of sorting out truth from falsehood very difficult. Many dominant, widely believed ideas are simply not true. For example, deaths due to Islamic terrorism in Europe and USA are about the same as deaths due to strikes by lightning — but perception is that these are much more. Similarly, the Corruption PERCEPTION index says that Pakistan is highly corrupt, but empirical evidence shows the USA is much more corrupt. — see my article: Corruption: Measuring the Unmeasurable, for more details
Ideas are far more powerful than is commonly realized –( See the Power of Ideas). In particular, good expectations about the future are self-fulfilling, because if people have confidence in Pakistan, they will invest in it, and help bring about a better future. Today. some people are talking about high deficit and debt of Pakistan as being signs of a weak economy. In fact, as explained in detail in the video lecture below, the two-gap model says that we need to have high deficits and debt in order to have high growth. Many bad ideas which economists have given us are the greatest obstacles to growth. Among this is the idea that growth is caused by machines and FDI and exports. Actually growth is caused by investing in our own people. This was realized by Mahbubul Haq after he applied the false growth theories from Harvad, and found that they did not work. He then created a radically new approach based on Human Development. This approach is of great value even today, since our policy makers are still using imported and failed foreign ideas, instead of tested and true domestic ideas. Among the main bad ideas is that WE the elite must carry out development, and then we will share the fruits with poor people of Pakistan. Instead, we have a large number of un-sung heroes who have actually created revolutionary, community driven, approaches to development, which are now being emulated all over the world. If we can liberate our minds from the shackles of colonization, and empower our people, giving them lives with security and dignity, our people will change the future of Pakistan.
1. Living in a Post-Fact & Post-Truth World
We’re living in post-fact and post-truth world. Today, there are so many truths available that it’s very hard to know what is true and what is false. Islam gives has the responsibility to not forward anything without verifying it ourselves. Reality is not made of bricks, stones and mountains but we can see only reflection of reality which is inside our mind. Lot of things that we know is not part of our experience but we get to know by narration instead of direct observation.
This interesting problem is capsulated in story called, ‘Lady and the Tiger’. It gives us very important fact that all parties that give information are interested parties in fact. There is no dis-interested party in the world. So, it’s very difficult to find out the truth.
2. Ideas are Powerful Shaper of Reality
According to Keynes, the practical men feel themselves quite away from philosophy. But actually what they are doing is based on philosophy without their knowledge. It is true as lot of people without any knowledge of modern economics or philosophy they are living their lives but even then these things profoundly shaping our world.
“Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back”, John Maynard Keynes.
Number of deaths by terrorist attacks, in EU, are slightly larger than people killed by lightening. But people killed by homicide, consumer products, walking in traffic, sporting accidents, heat wave, traffic accidents, suicide, respiratory illness, heart disease and cancer are much larger, respectively, than by terrorist attacks. By this information one can easily decide that how much resources should be spent to stop terrorist attack and how much for cancer, heart disease and other things. Reality is that billions are spent on terrorist attacks and very little money is spent on all of the other causes. Same thing is happening in USA where right wing extremist (white people) are committing about 120 terrorist attacks compare to 60 by Islamist and 20 by left wing extremists (black people). Total number of incidents is negligible but department of Homeland security spends billions of dollars on fighting these but other causes of deaths, those are more harmful, are completely neglected.
3. Pakistan is among the most Corrupt Countries
Most of the facts that we know are not the reality like Pakistan is 116 out of 176 countries in corruption but it’s an appearance. It doesn’t have connection with reality of corruption. In fact US government pays CIA to fabricate the reports. Corporation generate huge sum of profits by wars so they do lobbying and finance campaigns for wars. Projection to the public was that Iraq has weapons of mass-destruction but it was known that it’s not true. Similarly big pharma finance the politicians to pass the laws in their favor like to stop importing cheap medicines so that they can sell at high price.
Global financial crisis is another trillion dollar scandal. Vast number of banks and financial agencies were involved in fraud at large scale. Book, ‘When Pentagon was for Sale’, describes the scandal of massive overbilling in Pentagon and also giving contracts on favoritism and so on.
But despite all these huge scandals, US is at 18 in list of most corrupt countries out of 176 countries. If only dollar value is calculated of these fraudulent activities then it will be cleared that there is highest level of corruption in USA.
There is difference between perception and reality. It is perception that Islamic terrorists are destroying the world but reality is entirely opposite.
4. Two Gap Model of Growth
There is well known Two Gap model of growth which states that if country wants to grow then investment should be made in future of country. For it money is needed to invest today to get results in future. Now there are two type of money. Some of the money is domestic and for imports of machinery etc. the foreign currency is needed. There are two gaps here of which one is domestic saving gap that how can we raise money to invest in domestic market and secondly how can we raise foreign exchange to finance imports. Standard recommendation is that public should have lot of savings from which investment can be made and secondly high exports are necessary to generate foreign exchange earnings. These two gaps leads to low growth of countries.
The solution to these problem is to borrow to finance domestic investment and to fulfill exchange requirements. There is a problem with this solution that if country borrow money and misuse it then it’ll cause great damage to the country. On the hand if borrowed money is invest efficiently then there is no harm in borrowing revenues can be generated by it.
Pakistan has lot of borrowing but there is no harm as all money is invest on power plants, roads, capital goods etc. These investments are massively important for growth of economy in long run. Pakistan will achieve self-sufficiency in electricity through these investments and it’ll help industry to increase exports in near future. Domestic borrowing is done a lot by Pakistan but it’s going in right directions. Fixed capital investment in Pakistan is very strong which requires confidence in the future.
One sided scare story is Pakistan is drowning in in huge debt and economy will collapse soon. But the reality check is that economy is projected to exceed 6% growth which is maximum that can be seen in decades.
5. Who is Circulating False Facts? Why?
Now the question is who is circulating the false facts and why are they doing it?
The reality is that majority of people are simple minded dupes. For instance, Taliban were created by RAW, but lot of simple minded Muslims have been misguided into thinking that Taliban has something to do with Islam. Pakistan has got huge diplomatic achievement when support Iran against KSA and President of Iran visited Pakistan. The relations were becoming good that could also be helpful for increasing exports to Iran. But all of this was sabotaged when all headlines were about Kalbhushan Jadav instead of Iranian president even though he had been caught 40 days earlier. Iranian President returned and relations with Iran went even worse instead of improving as one specific group didn’t want Pakistan to develop good relations with Iran.
6. Quran: Leadership is circulated among the People
Quran says that leadership of the world is circulated among the people. Giovanni Arrighi, famous sociologist, analyzed the trend in world power and see that after every seven or eight decades the world power shifts. For past few centuries the European powers are in lead but he says now Asian countries will take lead on Europeans. He predicts that China is going to be next hegemon as GDP of Chine, on the basis of purchasing power parity, exceed the USA.
Pakistan is lucky to have China as trade partner but India and now USA are opposed to it.
There is strong pro-US, anti-Chine lobby within Pakistan and doing everything to derail the CPEC. Investment in future requires confidence but if the confidence is shattered in the economy then it destroys the investment. Confidence is state of mind which can be disturbed by false facts. There is a self-fulfilling prophecy that if we believe in the future it generates the strong future but if we doubt ourselves it also weakens the power. So the importance of soft power is huge to manipulate the public opinion now a days.
Can we take Pakistan to top 10 economies in 2050?
Some outsiders have predicted it’s possible. If we look at physical resources and all the material facts then we’ll see that it’s not impossible but biggest difficulty is due to mindsets as out of the box thinking is needed to achieve this goal.
7. Obstacles to Rapid Growth
One obstacle to rapid growth can be the debt trap. When debt is taken for wrong purposes and used by corrupt politicians then the people has to pay interest on loan. Such debt proved to be burden on economy and it’s possible but difficult to lessen this burden. However, it is important to differentiate clearly between “good” and “bad” debt. If debt is taken for the right purposes, it can substantially help improve the economy. In Pakistan, currently, most of our newly acquired debt is being put to productive use, but there is a burden of bad debt from the past, so the picture is mixed. In general, most of the poor countries are caught in the debt-trap, but for Pakistan, more important issue than debt is the wrong theories of economic development used by policy makers.
8. Blocking All Paths to Development
East Asian Countries (EAC) achieve miraculous growth from agrarian economy to industrial economy. Everything that these countries did was against the World Bank’s (WB) policies. EAC had the big industries guided by the government whereas WB policies restrict the interference of government in the economy. EAC had industrial policies to create coordination and subsidies the favorite industries. It means instead of being out of the market the government play crucial role which is against the WB policies. There were also price controls and restrictions on FDI whereas WB suggest to promote free market movement. In EAC there was also tight government control of money but WTO strictly against the influence of government on monetary policy.
After the East Asian miracle the WB rules closes all these paths to growth for its member countries. In all of such policies there is half-truth but there is also element of half-falsehood. For example WB restrict the involvement of government in economy as it causes harm but it’s half-truth as good government intervention can also put the economy on growth path.
9. Liberating Our Minds
We need to liberate our minds from piousness economic theory. Export led growth says if we just focus on increasing exports that will lead to growth but it’s simply wrong. But it’s part of agenda of foreigners to promote export led growth policies. Actually to create growth we’ve to increase the productive capacity in domestic economy so correct theory is growth led export instead to opposite.
Privatization is recommended as solution to inefficient government but reality check negates this as China has 75% of all its industry in the public sector. So there is issue of improvement of management whether it’s private or public sector. Deception is created in our minds that we should for high life style and luxuries. But recent research on happiness shows that high standards of living causes unhappiness as we’ve to work very hard to maintain a high life style and real drivers of happiness are family, friends and social circle. Striving for luxuries is opposite of Islamic teaching of simplicity.
It is thought that high growth rate will change the future of Pakistan but actually it’s not right methodology. Right approach is to help the poor people because they’re the people who will drive country ahead.
10. Pak Development Experience: Mehboob-ul-Haq Phase-I
In 1960’s Harvard group came to Pakistan and implement the economic theory that is applicable currently. According to this theory growth occur by building factories and by putting saved money into machines to produce more. What happened as a result was that all the money accumulated in hands of 22 families. So growth did occur but it didn’t go to the people. Same kind of policy has been implemented in the world. Russia planned to adopt free market ideology but they were planning to adopt implement is gradually. But Sachs go for shock therapy and as a result the economy of Russia collapse and millions of people became poor except few billionaires. All the Washington-Consensus policies had the same result everywhere.
11. Pak Development Experience: Mehboob-ul-Haq Phase-II
Mehboob-ul-Haq created the Human Development Index and focused on humans instead of growth. He focused on education and health instead of machine led growth. These things were not part of economic theory before he created HDI. Even today economists target the GDP growth per capita but discourse must be changed. Instead of GDP growth the focus must be on malnutrition, unemployment, health, education etc.
12. Pak Development Experience: Mehboob-ul-Haq Phase-III
In phase III of MH development he came to the realization that human beings are means and ends of development. Conventional wisdom is to use human beings for the production of wealth but MH says the opposite of it and said wealth should be used for betterment of human beings. Conventional wisdom, currently being followed in Pakistan Planning Commission, is to first produce wealth and then distribute it to the poor. But we must do the opposite of it as first we’ve to help the poor and then they’ll produce the wealth. According to conventional economics the social development is burden but in actual the social development is essential for development. So development is all about human beings but not about factories and roads.
13. Key Lessons from Experience
One of the major lessons from alternative economics is that if we want development then millions of engines of growth are needed but government itself can’t do it. So, investment in local productive capabilities leads to growth. We’ve to create agents of change who are we but nobody else. We can’t wait for external forces to make planning for us and to develop us. We’ve to unlearn the dependency on foreigners for policy making and also in other fields. We also have to overcome the inferiority complex because it prevent us from thinking about our own problems. If we go to WB then can provide 20 things to follow to achieve growth but unfortunately the solution of our problems is not available in these recommendations.
Basically our bureaucratic system is designed to rule people but not to serve people. We need to change this thinking of bureaucrats and to motivate them to work for service of people as Islamic teachings taught us that leader of the people is actually servant of the people.
14. From Outcome to Process
One of the major problems with modern economic and social thought is they focus on outcomes. It’s not how change happens because change happens when we focus on process and on how we play the game. Islamic teachings are also similar that outcomes are not in our hands but what we do is in our hand. So, if we do the right thing right now then we’ve achieved success whether or not it leads to the word success. We should not think about consequences but do what is in our power.
Instead of external goals like how can I change governments and other people we must focus on internal goals like change in myself, home and neighborhood.
15. We’ve many Un-Sung Heroes
Pakistan has produced lot of thought leaders like we mentioned Mehboob-ul-Haq who changed the word Development and had massive impact on the world. Akhtar Hameed Khan created the idea of community development which is now very strong and powerful concept all over the globe. Similarly Muhammad Yunus created the Grameen Bank which is first viable model for microfinancing and it’s now being implemented all over the world. Fazle-Hussain Abid who is leader of BRAC had recommend the first intervention in poverty which has been successful in graduating people out of poverty. Adbus-Sattar Edhi has done huge service to society similarly Indus hospital gives free health treatment to poor. Education and health are responsibility of society to poor. Except these big heroes there are many other un-sung heroes in our society who has done great work for society in their capabilities.
This concept has been practiced for centuries in Muslim societies in which education was free for all children and give health care to everyone.