Nadeem-ul-Haque
For too long, Pakistan has pursued development through planning, patronage, and projects. The emerging global economy is increasingly networks of knowledge, experimentation, and entrepreneurship.
Pakistan’s policy debate remains trapped in a twentieth-century conception of development. We continue to believe that prosperity is built through government projects, subsidies, industrial policy, annual budgets, patronage and ever-expanding public expenditure. Success is measured by kilometers of roads, megawatts installed, tax targets achieved, welfare transfers distributed, and money spent. Yet the world’s most dynamic economies are investing less in projects than in ecosystems where ideas, entrepreneurs, and innovation can flourish.
Three recent books—Geoffrey West’s Scale, Sebastian Mallaby’s The Power Law, and The Infinity Machine—offer a remarkably coherent alternative vision. One explains the mathematics of cities and complex organisations, another traces the evolution of venture capital, and the third tells the story of DeepMind and the race for artificial intelligence. Together they point to a single conclusion: prosperity is not engineered through projects but emerges from institutions that continually generate innovation.
The first lesson comes from Geoffrey West. Cities are not merely concentrations of people; they are networks of interaction. As they grow larger and denser, productivity, innovation, and incomes increase faster than population because ideas circulate more rapidly, firms specialize, knowledge spills across sectors, and new combinations continuously emerge. Growth is therefore fundamentally a network phenomenon.
Pakistan has systematically undermined these network effects. Our major cities remain fragmented by overlapping authorities, rigid land regulations, poor public transport, and planning systems that separate homes from workplaces while pushing commerce into isolated industrial estates. Local governments possess neither authority nor financial autonomy, and the colonial administrative structure—designed for extraction and centralised control rather than urban development—continues to dominate governance. Development policy should therefore begin not with industrial sectors but with empowered cities capable of creating ecosystems where enterprise can thrive.
The second lesson comes from The Power Law. Innovation is financed very differently from the way Pakistan finances economic activity. Here, banks have been allowed to become virtually the entire financial system. They lend primarily against collateral, largely to government or established businesses, while young firms possessing ideas but few assets struggle to obtain capital. Our stock market, at barely ten percent of GDP, remains too small to play a meaningful developmental role, while regulators have concentrated fund management, debt markets, foreign exchange markets and much of financial intermediation within the banking sector, actively discouraging competing non-bank institutions.
This represents a profound misunderstanding of finance. The purpose of financial markets is not merely to preserve capital but to allocate and price risk. Venture capital, private equity, active equity markets and other non-bank institutions succeed precisely because they accept that many investments will fail while a handful of exceptional firms generate extraordinary returns. Their objective is not to eliminate failure but to maximize exposure to transformative success. Pakistan’s financial architecture, by contrast, has been designed to eliminate risk and has therefore eliminated much of the innovation that accompanies it.
This is not an argument for reckless speculation. It is an argument for recognizing that banks and capital markets perform different but complementary functions. Banks preserve wealth and finance mature businesses; capital markets, venture funds, and private equity finance discovery, experimentation, and technological change. A country seeking sustained growth requires both.
The third lesson emerges from The Infinity Machine. DeepMind’s success did not arise because the British government declared artificial intelligence a priority sector and instructed civil servants or universities to produce it. Nor was it simply the result of generous subsidies. It emerged because world-class universities, ambitious researchers, patient investors, advanced computing infrastructure and entrepreneurial freedom combined within an ecosystem that rewarded curiosity, experimentation and risk-taking.
DeepMind’s founders were pursuing a fundamental scientific question—how intelligence itself works—not implementing a government development strategy. Commercial success followed intellectual inquiry rather than bureaucratic planning. Pakistan, unfortunately, has moved in precisely the opposite direction. Universities, intended to be communities of scholars, have increasingly become bureaucracies preoccupied with compliance, accreditation exercises, rankings, procedural requirements, and administrative control. Faculty devote growing amounts of time to satisfying regulatory processes rather than pursuing original research, while vice chancellors increasingly resemble civil servants rather than academic leaders. We nevertheless expect these institutions to produce frontier innovation after organizing them to minimize risk instead of encouraging discovery. Breakthroughs emerge where universities are trusted as centers of inquiry, closely connected to entrepreneurs and investors, and free to pursue bold ideas—not where they function as extensions of the bureaucracy.
The contrast with Pakistan’s policymaking is striking. Ministers and civil servants routinely begin by deciding which industries deserve incentives, which products should be exported, and how commercial risks can be transferred to taxpayers. Rarely do we ask how to create an environment in which thousands of entrepreneurs pursue their own ideas, compete freely, fail without stigma, and begin again. Yet innovation cannot be planned because genuine breakthroughs are, by definition, unpredictable. This is the central message shared by all three books.
Governments perform indispensable functions. They build hard and soft infrastructure, protect property rights, fund basic research, maintain macroeconomic stability, and provide public goods. They perform far less successfully when attempting to identify tomorrow’s winning technologies, firms, or industries. Markets discover opportunities through countless decentralized experiments; governments create the institutional conditions that make those experiments possible.
The policy debate must therefore change fundamentally. Instead of debating which sectors deserve subsidies, we should ask whether entrepreneurs can establish businesses within days rather than months. Instead of producing increasingly detailed plans and targets, we should ask whether universities generate research that investors wish to commercialize. Instead of celebrating industrial estates and PSDP allocations, we should measure success by innovative firms created, a growing stock market, venture investment mobilized, patents commercialized, exports generated, and ideas translated into globally competitive products.
Artificial intelligence makes these lessons even more urgent. AI will not reward countries simply because they purchase software or announce ambitious strategies. It will reward those with world-class universities, competitive firms, sophisticated financial markets, open research environments and well-governed cities that maximize interaction among talented people. The competitive advantage will belong to ecosystems rather than projects.
Pakistan therefore requires a fundamentally different philosophy of development: regulatory reform that removes barriers to experimentation instead of creating new permissions; empowered local governments that manage cities as engines of growth rather than administrative districts; financial reforms that allow venture capital, private equity and deep capital markets to complement commercial banking; universities governed by scholars rather than bureaucracies; and, above all, a state that understands its greatest contribution to innovation lies not in directing discovery but in enabling it.
For too long, Pakistan has pursued development through planning, patronage and projects. The emerging global economy is increasingly organized around networks, knowledge, experimentation and entrepreneurial discovery. Countries that understand this transition will create the technologies of the future. Those that continue measuring progress by expenditure, projects and administrative control will remain occupied with financing yesterday’s economy while tomorrow’s is invented elsewhere.
The Writer is the former deputy chairman of the planning commission
