A bleak economic future

ROBERT Lucas, a towering figure of 20th-century macroeconomics and a Nobel laureate, opined on economic growth and the standard of living that “the consequences for human welfare involved in questions like these are simply staggering: once one starts to think about them, it is hard to think about anything else” (On the Mechanics of Economic Development, 1988). The context of his observation was the significant differences in standards of living across the globe. I contemplated the same — specifically, whether our economic future might offer us some respite from our perennial failures. Sadly, it does not look good. What follows is a brief narration of various considerations that led me to this conclusion. The incentives and structure of the economy resemble anything but a viable plan for sustained improvement in living standards and chances of shared prosperity.

Tellingly, Pakistan now has the unique distinction of being the only country in the world where three different arrangements compete for a limited set of resources. The first is the formal sector, which mainly comprises an extremely unproductive and extractive public sector. The second is the ‘deep state’, growing within the bosom of the public sector (formally and informally) and meeting its growing economic interests through forced ingress. The third is the ‘informal’ sector, estimated at about 35 to 40 per cent of the formal economy, that tries its best to stay away from formality. The implications of continuing this arrangement now and in the future are not well understood. There is little, if any, chance, for example, of an entrepreneur arising who could upend traditional industries and usher in economies of scale or creative disruption. It follows, then, that we will remain stuck with low-productivity,…