The concept of neoliberalism is part of capitalism that spread widely soon after the overwhelming defeat of socialism against the backdrop of the disintegration of the former Soviet Union, known as the USSR.
The global political economic system has undergone some of the most significant transformations. The journey of capitalism, from regulated capitalism to neoliberalism and eventually to gangster capitalism, has seen multiple changes. Pakistan is part of an economic system where a new crony capitalism has grown in popularity and importance beyond the unbridled imagination of supporters of the neoliberal economic system led by Milton Friedman. The Pakistani experience of neoliberal economic transformations is quite interesting to study as a subject.
There are three distinct periods of Pakistan’s experience with its economic system. One is from 1947 to 1971; the second is a short period that lasted only six years of the Bhutto regime in the 1970s; and the third started in the late 1970s and is ongoing. How historians will judge the country’s economic performance over these years is quite a debate.
The first period from 1947 to 1971, particularly from the end of the fifties to the end of the sixties, was a period of strong growth with the promotion of exports and the substitution of imports on the basis of the laissez-faire economy. do it the old fashioned way. During this period, the economic trajectory was quite impressive as Pakistan was going through five-year medium-term economic planning (plans) which was later copied by South Korea which became an Asian tiger. It was the period of industrialization and economic growth.
The second period, spanning six years, was that of the Bhutto government, when Pakistan nationalized major industry and corporations / corporations under a policy known as the Nationalization Policy. It was the period of welfare economy based on a socialist economic model and its performance was not so impressive, rather it can be called the worst in Pakistan history. The nationalization policy set back all economic progress and developments made during the first period of economic growth. State ownership instead of private sector ownership could not work well and ended up destroying the economic progress made so far. It was the worst period in Pakistan’s economic history.
The third period began from 1977 and continues until today, with slow and rapid processes of a mixed economy integrated into a liberal and neoliberal economic format. The economic reforms of the early 1990s gave birth to crony capitalism and kleptocracy in Pakistan. Neoliberalism is in fact a gangster capitalism that can be described as a new economic fascism disguised as privatization, where the role of the state is limited to the duties of regulation. In this neoliberal economic system led by the Americans, the role of the state is only a regulator and all other functions are performed by the private sector and individuals.
The golden age of capitalism was quickly overtaken by free markets, where free trade became the hallmark of the system. Corruption by leaders of developing countries is endemic in this free global economy. The kleptocrats enjoy private property based on neoliberalism, globalization and financialization. This gangster crony capitalism has made headway in third world countries like Pakistan by manipulating the flaws in this hybrid model of economic system called neoliberalism.
The economic system has gone through different phases of evolution from Bretton Woods to the World Bank and the International Monetary Fund controlling almost everything, as far as the international regulatory framework determining the exchange rate is concerned. The dollar took over the role of reserves, replacing gold and bronze with a foreign currency backed by green funds.
Monetary and fiscal policy has now assumed the dominant role of determining exchange rates, the parity of the local currency with the dollar, and interest rates controlling inflation and investment in the country. Foreign direct investment also depends on the stability, strategy and performance of fiscal policy in line with the implementation of monetary policy. It all depends on the country’s overall economic growth directly linked to exports, imports, the current account and the balance of payments. GDP growth is one of the indicators of this performance and the other is large scale manufacturing as well as SMEs which are all the gimmicks of economic performance.
The situation in Pakistan is dire as the economy reforms are less factor-driven, even more marred by a debt-ridden economy still going through transitions facing debt management challenges. Debt servicing is the number one problem as it takes up almost 40% of our annual budget.
IMF facilities have always been a problem for developing countries, from Egypt to Pakistan. The IMF package has never been a relief for the poor, rather it is a kind of undercover operation in the name of stabilization and economic viability. The latest Extended Finance Facility (EFF) for Pakistan turned out to be a pain in the neck, breaking the backbone of Pakistan’s economy and poor. But the question is how to balance everything – optimal policy coordination, maximizing the impact of monetary and fiscal policy. The Central Bank – in Pakistan’s case, the State Bank of Pakistan (SBP) – is the fulcrum to maximize this impact, notably through the implementation of monetary policy.
The role of the IMF has always been very controversial, as everything has gotten out of hand, from inflation to investment to GDP growth. The conditions set by the IMF are so harsh and unrealistic that they cannot be accepted. Poor countries like Pakistan agree to such terms to avoid unnecessary default that could damage a country’s confidence and credibility as a sovereign state.
Neoliberalism and the economic reforms envisioned and implemented by the developed countries of the world are still awaiting the final tests, even if they seem to practically pave the way for developing countries to achieve maximum inclusive economic growth. Pakistan’s experience on the ground is quite interesting but at the same time intriguing for the obvious reasons that it could not bring proper relief to the people.
Crony capitalism in the context of the privatization policy gave birth to the kleptocracy, which is more dangerous in all its forms and designs. The kleptocrats took away all the wealth and money collected through corruption and corrupt practices and hid them in foreign banks. How to get rid of this perennial problem of plundering and plundering national property giving way to private groups of companies and individuals by privatizing public entities (SOE) – not for the well-being of the people but for the benefit of wealthy people of the country. This has generated a vast debate in developing countries, especially after the Covid-19 pandemic: how to bridge this ever-growing gap and disparity between the country’s haves and have-nots in this neoliberal economic system.
The writer is an economist.
Originally posted in The News