Domestic demand alternative to export-led growth

Published in The Express Tribune, September 21st, 2015.DDCarpets

With the fall of Russia, it became clear to all that the communist paradigm for development has failed. All over the globe, nations leaped on board the only alternative — the capitalist, free market paradigm. The Washington Consensus was a collection of standardised strategies and recipes for development, which became widely adopted. After a decade of experience, several evaluations by different sources came to the same conclusion: it failed miserably. Even John Williamson, who invented the term, acknowledged that the results of implementing the Washington Consensus had been “disappointing”. The central message of the World Bank report entitled ‘Economic Growth in the 1990s: Learning from a Decade of Reform’, “is that there is no unique universal set of rules … We need to get away from formulae and the search for elusive ‘best practices’.” Nobel Laureate Joseph Stiglitz ridiculed the Washington Consensus, stating that “one size fits all policies are doomed to failure. Policies that work in one country may not work in others.” He contrasted the success of the East Asian economies — which did not follow the Washington Consensus — with the failure of those that did.

Unfortunately, it remains true “that men do not learn very much from the lessons of history is the most important of all the lessons that history has to teach”. Planners all over the world ignore the experience of the 1990s and persist in following policies which are proven failures. Going one stage further, Stiglitz cautions that even the proven success of the policies which led to the East Asian miracle may not be transferable to other times and places. The spectacular success of East Asian economies has been attributed to export-led growth. Detailed examination shows that export promotion was only one ingredient of a complex constellation of coordinated and well-sequenced policies. It happened to suit the time, catching the tide of accelerated growth of global trade for the three decades up until the global financial crisis. Following the crisis in 2008, there was a sharp dip in the volume of global trade. Even though there has been a recovery, global trade figures remain stagnant, so that an attempt to increase exports now would require swimming against the tide.

While most planners stubbornly persist in pursuing the mirage of export-led growth, Chinese planners have shown far more wisdom. Chinese economists like Wang Mengkui have explicitly focused on expanding domestic demand as a driver of future growth. They have recognised that the vagaries of the global market mean that an export-dependent strategy would lead to a highly erratic economic performance. Furthermore, China has a huge captive domestic market and does not need to rely on exports for expansion.

There are many reasons why current circumstances in Pakistan call for a shift in focus towards a domestic demand-driven strategy, which is radically different from export promotion. Increasing exports requires producing goods of world-class quality in a market with cut-throat competition. We have neither the skilled labour force, nor the technology or industry to do that effectively. Even if we succeed in creating a specialised enclave which boosts exports, this would be a tiny sector, incapable of providing the large-scale employment essential for our future. On the other hand, goods attractive to our rural population would be cheap and crude, and easy to manufacture. There would be no danger of competition. Mass manufacture of products that are lower on the technology chain can provide employment to large numbers of low-skilled workers, and also generate the income required to boost domestic demand. It is the potential volume which makes the strategy attractive. Foreign mobile companies sell cheap SMS message packages by the millions to our low-income population. There are many more types of low-cost goods of low quality, which would be popular with the masses. While dreaming of unrealistic strategies to compete with high-tech industries, we show disdain towards the low-tech route, which was adopted by Japan and China on their way to their current achievements. Older readers would remember cheap Japanese goods of low quality, produced in initial phases of industrialisation. For almost a decade, Nadeemul Haq has been a voice in the wilderness, trying to attract our attention to the low hanging fruit of domestic commerce, ripe for picking. Let us pay attention, before it rots on the branches.

1 comment
  1. Zahid Asghar said:

    Yes this is true and it is bottom up approach. Japan when introduced motor bikes in 1950s it was not with export purpose but to serve its domestic markets. Then its production led to sophistication and led to brands like Kawasaki. Samsung from Korea has almost the same story. There is need to facilitate domestic commerce it will give due boost to the economy and will lead to branding in the domestic markets first and then export as well.
    Eid-ul-Adha occasion contributed more than 10 billion dollar to the economy if one’s guess is on safe side (otherwise some reporters estimate it to the tune of around 18 billion dollars). This domestic activity of around 10 million animals slaughtering has so many positive dimensions to boos the economy that one probably fails to capture all of these. Rs.20000 average price of 10 million animals, then the boost to leather industry, consumption increase of poor farmers who got good amount of money by selling these animals, butchers, button industry, meat to poor to meet their protein deficiency, travelling of people on eid and spending money on eid for personal needs….etc. All this may be lot more than many export boosting steps.
    There is high need to make our cities commerce friendly, to provide places to them for warehouses, meet their demands for low cost shops by designing our cities on human scale rather car scales horizontal cities.

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