Looking for an Engine of Growth

Of all the euphemisms that are used as national gospels, the term ‘engine of growth’ is perhaps the most mysterious. It has somehow captured the fancy of development gurus and sectoral lobbyists for the past decade or so. I have never understood the implication of this term but its rhetorical frequency has become irksome now. Every time a speaker begins his/her presentation or dialogue with claiming that such and such sector or business should be made the engine of growth, I hold my jaw firmly in case a big yawn dislocates it.

It begins with the farmers lobby. Since the earliest ‘five year plans’ systemic resource transfers were built in the economy to subsidise the industry, government coffers and urban consumers with artificially depressed prices of agricultural commodities – all except sugarcane which has been a political crop all along. Prices of wheat, edible oils, cotton, rice and pulses etc. were either fixed through price support system or depressed through market interventions by the government. By the eighties, farmers had enough of it. It was when resource transfers were at their peak: More than 30 percent export duty on cotton and wheat kept well below international price. These implied taxes, so to say, were previously offset by subsidies on agricultural inputs but under structural adjustment programs of IMF and World Bank, as they were withdrawn the farmers began to feel the pinch. They lobbied for removal of all such implied taxes and resource transfers. I was a part of that movement in a very active fashion, leading the farmers versus APTMA wars on the front foot.

Farmers pleaded their case rhetorically by trying to prove that Pakistan is an agricultural country and agriculture should be made the engine of growth. While I quietly gathered data to argue logically that resource transfers were no longer tenable since they were repressing agricultural growth to punitive levels my farmer friends began waving the ‘engine of growth’ flag. Industrialists, lead by APTMA giants, countered the argument by citing examples of South Korea, Japan and other South Asian economies that were booming on industry and value-addition. No one won that battle in confusion of hyperbole since the Achilles heel of farmers – exemption from taxation – pitched the urban intelligentsia on the side of the industrialists in chiding farmers for not paying any taxes. The farmers argued that in presence of massive implied taxation through resource transfers and Usher (5 percent of gross) that they paid any other taxation was unjust. They didn’t make a distinction between resource transfers as sectoral tax and income tax as a personal liability.

I argued within the farmer community for a voluntary acceptance of direct taxation and then lobbying for withdrawal of resource transfers but I was made an outcast for such blasphemy.

That matter was resolved when Benazir’s government had to legislate abolition of exemption from wealth tax and agricultural tax under IMF conditionalities through a quid pro quo with farmers that export duty on cotton will be withdrawn permanently and wheat support price increased considerably. Farmers were taxed and industrialists lost their subsidy to agricultural raw materials, not through rational dialogue and policy decision but through external coercion. Both went silent for a while hoping to fight another day.

In 1999, when the new regime took over with professional economy managers, they had a spreadsheet view of the economy and hailed exports as the engine of growth. Just before, Nawaz Shareef’s government had announced SMEs (Small and Medium Entrepreneurs) as the engine of growth, a model adopted from Japan, Germany and other western economies. The new regime had a look at the SME slogans and thought it wasn’t a bad idea. It decided to forge ahead with exports through SME development, a very nice sounding cocktail. Since 70 percent of exports came from textile and 20 percent from rice and leather, these became the flagship sectors.

SMEDA was engaged to prepare an opus magnum, the Textile Vision 2005 to lay down a road map for the post 2005 scenario where quotas would be demolished under WTO rules and Pakistan’s textile sector exposed to the full heat of international competition. It could either wither under pressure or soar to new heights of performance – both options lay open. The highly optimistic Textile Vision directed the leadership and the lethargic bureaucracy to adopt an open market strategy with institutional, regulatory and fiscal support to the textile industry for its survival first and revival later. The giddy optimism that the Textile Vision brought, lead to the preparation of Leather Vision, Horticulture Vision, and growth strategies for other sectors like marble & granite, gems and Jewellery, fisheries and so forth but all with export orientation. However, exports remained the engine of growth. What about the 65 percent of domestic economy, aside from exports? No one asked.

Simultaneously, Dr. Ata-ur-Rehman unfurled the totem of IT flag luring the leaders and the public into dreams of nurturing a thousand Bill Gates from unemployed youth of the country. The country began to feel the cyber-vibrations as IT became the engine of growth.

On top of all this, Ministry of Finance and the State Bank starting galloping with fiscal and monetary flags fluttering up front. Debt reduction, foreign exchange reserves, interest rates, savings, budget deficits and resource mobilisation became the key factors of economic growth. General Musharraf looked like Judas Ben Hur reigning all the wild horses of his chariot, each believing it can win the race alone, while some of them pulling in different directions. For example, Finance believed in resource mobilisation while Industries and Commerce Ministries were tugging for industrial growth. Agriculture, the back bencher kept screaming for revival of agricultural subsidies but in the age of free market economy it was a lost cause.

Dr. Akram Sheikh the Secretary Industries and Chairman Engineering Development Board, taking inspiration from the ‘Vision era’ tried to launch an ‘Engineering Vision 2015’ declaring, yes you are right, engineering as the engine of growth for Pakistan’s future. He believed that Pakistan could leap frog ahead of Asian tigers by increasing the share of steel manufacturing industries from 6 percent to 37 percent in GDP, ahead of agriculture by 12 percent points within 10 years. His understanding of the holistic term ‘engineering’ was confined to hammer and chisel, smoke stack industries that form the third tier of industrial growth today in the World. Maybe he was inspired by eighteenth and nineteenth century renaissance of Europe, I don’t know, but his engine was more than metaphorical, actually literal – a steam engine?

I suspect that the naïve concept of ‘engine of growth’ assumes that all sectors of the economy are compartments of a train hooked up in a line without self propulsion and need an automotive device in front to pull them down the tracks. This is a very symbolic manifestation of ‘linear thinking’, more than a mere pun. I think there is no such linearity in real life, except perhaps in feudal and bureaucratic power hierarchies.

Economies are pluralistic and parallel with complex inter-dependencies of value-chains and complimentary relationships between different elements. Development and growth are functions of imagination, innovation and adaptation in given circumstances, driven by a vision and will to excel – all products of the mind. A society is the sum total of its human resources, no more. If a small nation of shopkeepers across the channel from France could conquer the world or if a small nation could sit on the mountains in Europe and survive two World Wars in a secure state of neutrality and prosper, it wasn’t because they probed and found an engine of growth.

Thomas Hardy’s ‘Mayor of Casterbridge’ reveals through its main character that ‘your character is fate.’ It applies to nations as to individuals.

Iqbal Mustafa
11 October 2003

1300 words