Reconstruction for economic democracy — I

The writer is distinguished professor of economics at Beaconhouse National University in Lahore

Consider the scale of the destruction resulting from the great flood: over 20 million people affected, homes destroyed, livelihoods lost, canals, barrages, water courses, tube wells and electricity stations damaged, roads and bridges wiped out. My own rough estimate of the reconstruction cost is about $18 billion.
The scale of the required reconstruction effort, while it presents a formidable challenge, also provides a great opportunity. The opportunity is to undertake the structural reforms necessary to place Pakistan’s economy on a new path of sustained and equitable growth. Such a growth process, if achieved, could give a stake in the economy to all of the people rather than a small elite and thereby lay the basis of what in my recent work I have called economic democracy. In this part of the article, I will indicate some of the immediate policy initiatives required, and in the second part, an outline of strategy to achieve economic democracy will be articulated.
For short-term policy imperatives, four immediate economic policy measures may be considered in the context of the reconstruction effort:
1. If the winter (rabi) crop is to be planted and a serious food deficit next summer is averted, immediate measures must be undertaken to provide farmers in the flood affected areas, good quality seed, fertiliser and pesticides together with timely provision of tube well water to enable the planting of wheat in the month ahead.
2. It is time now to consider shifting away from the IMF approach of economic contraction to a new policy of economic stimulation that aims to revive economic growth. Pakistan’s GDP growth has declined sharply to two per cent this year and the per capita income growth has become negative. Not only has this sharply increased poverty and unemployment, it will also result in a slowdown in the growth of government revenues. The former will place further stresses on the fragile democratic structure and the latter will increase the budget deficit. The earlier attempts to cut down the budget deficit (6.3 per cent of GDP this year) through expenditure reduction have failed, and in the years ahead the only viable policy of controlling the budget deficit is by increasing revenues through accelerated GDP growth. Infrastructure projects in the flood affected areas provide an opportunity of doing so.
3. Just before the flood, the food insecure population had been estimated at about 77 per cent, it may now have reached over 85 per cent. There is clearly an urgent need to provide food security to the people of Pakistan in general and in the flood-affected areas of the country in particular, where food insecurity is most intense. In this context the coverage of the social protection measures needs to be enlarged, and the identity and locations of the flood-affected population quickly established so that ATM cards under the Benazir Income Support Programme can be issued as soon as possible.
4. At the same time an employment guarantee scheme in the form of a cash for work programme ought to be launched in the flood-affected areas in the first instance, followed by the rest of the country.
Published in The Express Tribune, October 6^th, 2010