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Economic Progress, Stability are Key to Pakistan’s Future

President General Musharraf and former prime ministers Benazir Bhutto and Nawaz Sharif all claim they should be given another chance. The question is whether any of our discredited potential leaders can see that the economic tools such as property rights (including intellectual property), lowering trade barriers and cutting corruption and bureaucracy, are their only hope of saving the country and staying in power.

by Dr. Khalil Ahmad

The impassioned debate about Pakistan’s presidential nomination in October is all about elections and leaders but the incumbent and sole candidate as well as the former prime ministers who are jostling for the position have all let us down in the past: the real condition for Pakistan’s survival is stability and economic progress.

An ally of the West, but a big factor in regional instability, Pakistan teeters on the edge of being a failed state, with a military leader, corrupt and violent political parties, and separatist tensions.

Surprisingly, there is just a chance that the basic notion of the rule of law has survived enough to underpin the stability needed for an economy to thrive, in an economy that is only just keeping afloat.

Pakistan’s economy ranks low on any score sheet but there are, nonetheless, signs of gradual improvement in the Economic Freedom of the World Annual Report from the Fraser Institute in Canada: it sets out criteria for measuring the openness, flexibility, stability and state interference in the economies of 141 countries — because it is businesses and not governments that create prosperity.

We saw an unexpected boost this year in accountability and the rule of law when the Supreme Court reversed military ruler Pervez Musharraf’s attempt to sack the Chief Justice of Pakistan, Iftikhar Mohammad Chaudhry — and Musharraf had the good sense to respect the decision in the face of a popular outcry.

It is amazing that, after six decades of turmoil and corruption, there are still people in our institutions who believe in defending the Constitution, and it gives us hope that there are still foundations strong enough to build a functioning state on.

But all this will remain quaint political theory if Pakistanis are not given the opportunity to improve their lot, to claim the support of law and to register and protect their private property.

The Economic Freedom index frees the arguments from theories and concepts, especially that elusive notion, democracy. There are nominal democracies that are doing badly for their citizens (such as Turkey or Bangladesh) and authoritarian regimes that are doing well for them (Singapore, Kuwait or, to some extent, China.)

By sticking to measurable criteria and avoiding political theory, we should not be surprised to discover that economic freedom benefits the lives of all citizens including the poor: the poorest Singaporeans, Swiss or Americans earn two-and-a-half times as much as the average Russian, Turk or Syrian.

The bad news is that Pakistan ranks 101 out of 141 countries, scoring 6 out of 10 — worse than Indonesia and alongside Ethiopia and Haiti — but the good news is that it has crept upwards from its 5.7 points in 2006.

We desperately need substantial progress in the rule of law, property rights (including intellectual
property, despite some improvement), lowering trade barriers and cutting corruption and bureaucracy. State enterprises still absorb too much money and generate inefficiency, corruption and protectionism just like state regulations: a tradition of heavy, interfering and controlling government permeates the economy.
On the other hand, we must give credit for progress in freeing investment into manufacturing, removing some hidden import barriers and allowing capital transactions with foreigners. The poor availability of private finance and credit started improving in 2004.

In fact, it is easier to do business in Pakistan than in India: World Bank “Doing Business” figures just released put Pakistan at 78th and India down at 120th out of 178.

This slow progress is actually quite good in the context of Pakistan’s history of political and economic excess and statist government: from independence, the very notion of economic development has been inseparable from government control.

The big issue in the Economic Freedom rankings and in the history of Pakistan is the level of government interference: governments can do little good but they can do much harm. Government creates nothing, grows nothing but only consumes, living on what other people produce and spending their money: it can only do good by allowing the creation of wealth by ensuring the public peace and protecting its citizens.

With a heavy historical burden of roller-coaster policy and performance in Pakistan, the Economic Freedom index gives us the tools to consolidate what is going right and to correct what is going wrong: a functioning economy would bolster attempts at democracy and the rule of law, all strengthening each other in a virtuous circle.

President General Musharraf and former Prime Ministers Benazir Bhutto and Nawaz Sharif all claim they should be given another chance.

The question is whether any of our discredited potential leaders can see that these economic tools are their only hope of improving the country and staying in power.


Dr. Khalil Ahmad is the founder and Executive Director of the Alternate Solutions Institute, Pakistan’s first free market think-tank

This article appeared in The China Post Taiwan on September 30, 2007.