This is the first of a sequence of posts on the current economic crisis in Pakistan. Although the discussion is in the context of Pakistan, all the poor countries in grips of the modern neo-colonial global system face essentially the same problems. The financial basis of the system is outlined by Jason Hickel in Aid-in-Reverse: How the Poor Countries Develop the Rich. He describes how the poor countries receive 1.3 Trillion USD in financial inflows, aid, etc. from the rich. But, the poor transfer 3.3 Trillion USD to the rich countries, essentially preventing any possibility of development of the global South. The financial inflows are really payments to the local power elites (army, bureaucrats, politicians, influential people, and media) as well as infrastructure and weaponry required to maintain the neo-colonial power structures for exploiting the resources, human and otherwise, of the colonized. The purchased power elites act on the behalf of the colonizing powers, and implement policies that impoverish and exploit local resources for the benefit of foreign corporations. But, other than this hard power, soft power in the form of control of media and education, is required to create the assent of the colonized to their own exploitation. Among the most powerful tools within this arsenal are false economic theories, which keep the masses and their university-trained thought leaders engaged in fighting phantom enemies. These economic theories are inherently incapable of recognizing and addressing the real sources of our problems, since history, power, armies, and politics are deliberately excluded from the scope of study. This first part merely explains the simple problem which is at the root of the current economic crisis, and the simple solution that could be implemented, if it was not against the interests of the global and local power structures. Later parts will take a deeper look at what can be done to work against these configurations of power and (false) knowledge which block all paths to progress.
This is part 1 of a talk delivered at COMSATS, Lahore on April 10, 2023, on “Current Economic Crisis in Pakistan: Solutions from an Islamic Perspective”. There are two obstacles to solving the current economic crisis. The configuration of local and global political power is a continuation of the colonial era, designed to extract resources. More insidious is the soft power in the form of fraudulent economic theories, which keep us chasing phantoms, and failing to recognize the source of our problems
PIDE is the official think-tank of the Government of Pakistan. My job as Vice Chancellor PIDE was to provide research-based advice to Planning Commission and other government bodies. I was also a member of many other high-level Government committees. For Five Years, we researched, analyzed, and presented policy suggestions in many different areas to many different Ministries. To my knowledge, not ONE of these policy suggestions was implemented. I have explained the reasons for this in Impact of Colonial Heritage on Economic Policy in Pakistan
Based on my experience, no one in the halls of power listens to policy advice! Today, because Pakistan is facing a severe economic crisis, everywhere you look, people are analyzing, diagnosing, and offering solutions to our economic crises. Should we add to the noise? Is it POSSIBLE to take effective steps – or is it only possible to make noise? Are we battling windmills, and ignoring the real frontiers for action? Is there something that can actually be done? Or are all policy reform proposals unimplementable, like the one about belling the cat made by the mice?
In this talk, I will explain that there are things we can do, but they are very different from the standard policy proposals being discussed everywhere.
Insights from Karl Marx:
One of the insights from Karl Marx’s ideology is that capitalism exploits labor not by force, but by educating labor to believe in the necessity of its exploitation. Similarly, colonization extracts massive amounts of resources from colonies by making them believe in false economic theories. Jason Hickel in “Aid in Reverse: How Poor Countries Develop Rich Countries” writes that rich countries invested USD 1.3 trillion in poor countries but received USD 3.3 trillion in interest and other payments. Why do former colonies use economic policies which permit our exploitation to such a great extent? A part of the answer is that we have absorbed false economic theories, which keep us occupied with red herrings, while being oblivious to our real problems, and blind to the solutions.
As I have said earlier, there is not much point in discussing policy proposals for resolving our current economic crisis, because no one will listen to them. However, before proceeding to a deeper discussion, let me just put down the simple and obvious solutions to the current crisis. If we approach them with fresh minds, not clouded by complex and confusing economic theories, the problems we face in Pakistan are evident, and the solutions are clear. For more details about the sketch given below, see “Debt-Trap and Self-Reliance“
Last year, our imports cost us USD 60 billion and exports earned USD 30 billion, forcing us to borrow USD 30 billion. When we borrow, lenders dictate terms and force us to follow economic policies ensuring our economic enslavement. The lenders are interested in keeping us enslaved, and will not allow the implementation of good policies. The first step to any solution must be to figure out how we can get out of the debt-trap, so that we are free to implement good economic policies.
Again, the solution to this is simple. To avoid having to borrow, we must either increase exports or decrease imports. Throughout the globe, economists are advising “export promotion” as the right strategy. Policymakers in Pakistan have focused on export promotion for decades, without any success. Actually, this is the wrong policy. Throughout history, development has been achieved only by “import substitution”, or decreasing imports. This involves learning to manufacture, so that we do not need to import from abroad. Export promotion requires learning how to cater to foreign demands in very difficult foreign markets. Import substitution is based on catering to domestic demand. Using demand generated by our masses for cheap basic goods of low quality is the first step towards industrialization. This strategy has been used successfully by Japan, China, and the East Asian Tigers. Catering to domestic demand would lead to the prosperity of the masses, and hence also to the prosperity of the nation.
It is almost obvious that we would do much better if we started producing local goods to cater to domestic demand, rather than exporting quality goods for foreign demand. So why is this import-substitution option never discussed by policymakers? The reasons have to do with politics and power, and these are not discussed in any of the economic textbooks. Poor countries export agricultural products and import industrial goods. As a result, food is more expensive for the poor, and industrial goods are cheaper for the rich. We sell the food of our poor people to pay for the comforts of the rich.
If we could overcome these political obstacles to recognizing and implementing good economic policies, what should we do? Our burning need is to reduce our dependency on imports, so that we do not need to borrow USD. The bulk of our imports are energy and agricultural products. In the short run, we should import energy from Iran and boost agricultural production by eliminating the agricultural mafia. In the long run, we need to develop domestic energy sources and increase agricultural yields, which are the lowest in the region. Creating barriers to cheap imports will allow the development of domestic capabilities.
So, in conclusion, solutions to our current problems are easy. However, as I will explain in greater detail later, these solutions cannot be implemented due to opposition from the domestic power structure and global capitalism. So, instead of finding good economic policies, we must turn our attention to a different problem: What is the source of political obstacles to pursuing good economic policies, and can we overcome these obstacles? Alternatively, is it possible to take steps forward, without overcoming these political barriers? In the remainder of the talk, we will discuss these issues.