Lessons from East Asia's Woes.
The full scale of the Asian economic crisis has become increasingly visible in Indonesia and Malaysia. The once vibrant and booming economies are rapidly sliding into recession and a period of severe hardship looms ahead. These events provide a dramatic illustration of how quickly an economy collapses and how powerfully and swiftly a major economic shock can be translated into a major social crisis. The unfortunate consequences of unbalanced and ill organised development are now plain to see as a lesson for the rest of developing countries.
According to the Western analysts the lesson of the current crisis is that if Indonesia, or any other economy under stress, is to realise its true potential as one of the leading state in the region, there must be major reforms of its basic economic and political institutions. The question here is to find out the real nature of what is being called as "economic reforms" and make it straight whether IMF was up to its job in East Asia and elsewhere or not?
Instead of highlighting the need for dictated economic reforms, the current crisis in East Asia provides a strong moral argument for ensuring greater attention on social aspect of development. It was not only weaknesses in domestic development policies and regulatory mechanisms that caused the crisis in Asia. The contamination of market processes by politics was also a root cause. The strengthening of democratic and social institutions is thus central to development model. We cannot follow the development model based on foreign loans and investment as is blindly followed by Nawaz Sharif's government to make Pakistan an Asian tiger. Look at what has happened to the little Asian tigers.
We have to ensure social equity in the development process and start relying on our own resources. Otherwise, like the East Asian countries, our social progress would lag far behind our expected spectacular economic growth. We are now seeing the social fall outs of development in East Asia. We are not treading a different path. Just like Asia's ailing economies, we are over borrowing from abroad and for repaying it, we have to cut our economic growth and imports, and have to earn more by raising taxes and exports. The IMF tries to cushion the process with more loans but insists that we shall adopt unpopular reforms and embrace economic austerity.
We have witnessed that the IMF has indeed over reacted to the East Asian crisis by imposing inappropriate models drawn from the Latin American debt crisis of the 1980's. In such situations the IMF starts demanding the impossible. The more austerity the target economies endure, the greater the chances that a political or social explosion will torpedo the much vaunted economic reforms that invariably favour the interest of multinational corporations and rich foreign investors over poor and middle class people in poor countries.
One of our major mistakes is the belief that economists of the IMF and the World Bank know all what is good for us and the rest of the world. While the fact is, just months before the recent crisis, the IMF had expressed great confidence in the Asian economies, citing their "sound fundamentals" such as budget surpluses, high savings rates, low inflation and export oriented industries. This globalized development model must be avoided by Pakistan and other developing countries. The East Asian lessons show where have they failed and we must not repeat the same experience.
A cursory look at East Asian experience show that Thailand's poverty of the last 20 years was mostly concentrated in the countryside; inequality widened despite 7-10% growth rate. Behind the superficial prosperity lies stagnant agriculture, so most visible protests stem from the rural sector. The per capita income stagnated in countries undergoing structural adjustment programmes between 1981 and 1995. In developing countries free from the Western economic model and IMF, the per capita income rose during this period.
The new script of Western economic model calls us for deregulating markets, undermining unions, shrinking and privatising the social safety net, reducing taxes on business and lecturing citizens on their responsibility to make sure that a few people have the opportunity to get fabulously rich. The message is: Do this, and the US-style prosperity is sure to follow.
The ideological hegemony of the IMF dictated US-model is so complete that dissent is largely confined to complaints about the cost of transition to this laissez-faire future. The question among elites in Europe, for example, is more about how fast, rather than whether, to dismantle social protections. The fear is that the social pain of too rapid deregulation might be so great to create backlash against this enterprise. Gaps between the Western European and US unemployment rates are often exaggerated. When adjusted for the difference in definitions of who is unemployed and who is not the rate turn out to be much closer.
Inequality of income, wealth and - as a result - political power is a hallmark of this new model presented as the only option for economic prosperity. In the US, between 1947 and the mid-seventies the ratio of the income of the top 5 percent of families to the lower 20 percent dropped from a ratio of 14-1 to 11-1. Since then, the ration has risen to 19-1. Newly released census data also show that incomes fell on average for the bottom 60 percent of households over the past seven years with such economic models in place.
Moreover, poverty rates in the US, despite the recent economic expansion, is two to three times those of Western Europe. The poverty rate for children under six in France is 6 percent. In the US it is 22 percent. Which economy is performing better? The promise of the new economic model is that deregulation, privatisation and the shift of income from labour to the capital will eventually bring about rising living standards for ordinary people. We cannot afford such imported models. Even in America, after waiting for about two decades for the benefits to start flowing, the typical worker is ow making 10 percent less than he or she was in 1979. The nations who have been forced to embrace US model in a bid to pave the way for global economy are facing the similar problems.
In Mexico, the government has been following the US model of uncontrolled trade, deregulation of finance and privatisation for more than a decade. The result: A collapse of its currency in the wake of a speculative boom, a 40 percent drop in real wages and the impoverishment of its middle class. Instead of helping Mexico get out from under the international debt, the adoption of new IMF model has raised that nation's debt burden, which the poor will eventually have to pay off, by another 50 percent.
The recent economic meltdown in East Asia is yet another example of failed global capitalism. As a result of this system America's wealthiest 1 percent control 40 percent of the nation's wealth (up from 21 percent in 1949), the chief executive salaries have soared from 44 times the average wage of workers in 1965 to 212 times the average pay, and the Phil Knight of Nike have pocketed $5.2 billion while his Indonesian employees and employees in Sara Textile Mills at Lahore earn 31 cents or less an hour. This is the economic model that stands on feet of clay and makes our lives miserable.
Countries, like Pakistan, which are teetering on disaster must think wisely before choosing a development model to follow. The poor and middle class Pakistanis are done in by elite, money-grubbing politicians and bureaucrats, who push a transitional economic order that squeezes the standard of living for the average citizen. As a result we are now many nations, the dividing line is not of language or culture; it is class. Our Prime Minister is coughing up vague visions of economic prosperity that seem to be impossible without ramming an IMF and World Bank's dictated global, capitalist economic model down the throats of faceless and nameless people - the victims of globalization.
Thinking that the recent crisis is some strange "Indonesian flu" and thus is of no concern to Pakistanis is both condescending and ludicrously wrong. We would soon be paying, directly and indirectly, for our own unstable economic policies in multiple ways. Forcing the same East Asian type financial remedies and development policies upon our troubled developing economy may simply feed the imbalances that already exist, aggravate instabilities and possibly set off a chain reaction of collapsing credit and economic activity that not even the IMF and World Bank will be able to reverse.
We have a great strategic opportunity before us to set our priorities right and follow an appropriate development model. We have to produce stability and equity through lifting community level efforts to macro-level efforts so that they are not left at the grassroots but become part of a national network for development. We must stop thinking of foreign investment and total privatisation as the panacea for development. There shouldn't be full capital account liberalisation and our policies must discourage the speculative capital coming in. We must not let the IMF use the corruption issue to advance its own agenda of diminishing the creative role of the government in directing development. Community level initiatives encouraging self-sufficiency and cooperation to make rural areas productive should be the main pillars of a development process in Pakistan.
We already know the bad news. It's time for us to face up to the damage that has been wreaked by the IMF. We are not ready to sacrifice a whole generation before we reap fruits of the IMF's microeconomic policies. It must drop its one-size-fit-all economic model which runs counter to our efforts for real development. We are laden with insecurities, doubt, debt and resentment. We are told repeatedly that there is nothing we can do except tightening our belts on the spineless backs and passively accept whatever the global system deals out. Yet we have a solution - a solution through particpatory approach at the grassroots which will ensure greater attention on social equity in the process of development and the strengthening of democratic and social institutions.
We must make the domestic markets the main engine for development rather than seeing export markets as substitutes in which domestic markets are allowed to collapse so long as exports thrive. We must get rid of all such WTO, IMF and World Bank's philosophies that seriously affect our development process. We must get of the self-imposed Third World trap. Once people win a few victories, the global problems will not seem unsurmountable, the established powers will no longer seem invincible.
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