Zafar Iqbal
Since its independence, Pakistan has largely remained a consumption-driven economy, with growth primarily fueled by a light industrial base. This has occurred due to the government’s underperformance in regulating markets and enhancing economic institutions. Neoliberal policies have prioritized liberalized markets and trade, creating a system that incentivizes consumption over savings, while failing to promote long-term industrial development. As a result, Pakistan’s economy has been exposed to significant vulnerability, relying heavily on imports to meet both domestic consumption and industrial production needs.
The lack of regulation and insufficient institutional quality has led to a consumption-oriented society, where real wages have stagnated, and inflationary pressures have increased. Despite this, the country’s light industries have attracted investment and skilled labor due to quicker profits, creating a price-wage spiral that further distorts the economy. This short-term growth has been unable to develop a robust heavy industry sector that could drive long-term economic stability, import substitution, and competitive exports.
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The country’s adherence to neoliberalism has hindered the development of a diversified economy. Price liberalization without adequate regulation has resulted in a boom-bust cycle, increasing the risk of external shocks. Unlike Pakistan, China’s approach in the 1980s, known as the ‘dual-track’ pricing mechanism, allowed for selective price liberalization. This strategy regulated critical goods like energy and raw materials while letting the market determine the prices of non-essential commodities. As a result, China avoided the pitfalls of ‘price shock therapy’ and achieved rapid economic growth.
Pakistan, by contrast, has not taken a similar approach, resulting in persistent economic instability and inequality. To avoid further economic stagnation and vulnerability, Pakistan must abandon neoliberal policies and consider adopting a ‘dual-track’ pricing strategy, similar to China’s, to foster sustainable industrial growth and long-term economic resilience.
