How Poor is
Poor?
Pakistan’s Growth Moment
Aug
03, 2006
Pakistan has
entered into the most critical and trans-formative
phase of its economic development. The first 60
years of the country’s history have been
mere prelude to what comes next. Over the next
twenty-five years, Pakistan will change into a
modern developed country, and the consequences
of that change will be profound not just for Pakistanis,
but for the rest of the Muslim world and for global
relations.
When Pakistan became independent in 1947, it was
a country with very little economic activity other
than subsistence agriculture. In fact, it had
much less industry and urban civilization than
India. And even India was extremely poor. At about
700 dollars per person, the annual income of Indians
and Pakistanis was roughly the same as that of
Americans and Englishmen in 1800, just before
the industrial revolution (I am using current
2006 dollars and exchange rates adjusted for purchasing
power to give a true frame of reference). In 1947,
the average American had an income of about 14,000
dollars. Since then, income has tripled in the
United States per capita, but has risen almost
five-fold in Pakistan. Even still, this means
that the average American earns an extra 30,000
dollars per year compared to 1947, but the average
Pakistani has added less than 3,000 dollars.
This relatively modest gain is due to the effect
of growing off a small base. If your current income
is 700 dollars, then even a great year in which
it rises 7% only means an increase of 50 dollars.
But if your income is already 30,000 dollars,
even a 3% rise is 900 dollars in extra income.
For very poor countries this means that they must
struggle for years in which they generate modest
increases in living standards, despite the economy
expanding very rapidly in percentage terms. And
if the country is sidetracked by bad economic
policies (i.e. socialism), corruption, civil war,
or international conflict, then growth is even
more modest.
The social effects of economic growth are not
smooth throughout the process. In the initial
stages, it has very little effect on the society.
And once the nation is modern and prosperous,
then additional growth does not fundamentally
re-order society. But in between is a period of
transformation, where the old ways are washed
out and a new urban, literate, industrial, democratic,
and affluent society takes shape. This occurs
when incomes make a 10,000 dollar jump from about
3,000 dollars to about 13,000 dollars per person.
And with good economic policies, this can be done
very rapidly. It takes two doublings of per capita
income.
When the economy is just starting out at 700 dollars,
there are very few modern resources in the society.
Banks, doctors, bridges, railroads, functioning
courts, universities, foreign investment, even
the basic knowledge of business management etc.
are all paltry to non-existent. It can be very
hard to generate any economic growth. But once
a country gets to the 3,000 dollar mark, like
Pakistan, it has a wealth of economic and human
resources to build on. In 1947 there were only
about two million literate people in Pakistan.
Today there are 60 million.
In Pakistan’s first 60 years the growth
rate fluctuated wildly, but averaged about 5.5%
per year. If Pakistan just matched that performance
for the next 60 years, it would raise its standard
of living to the current American level. But it
can do better. It can modernize, and by that I
mean reach the point where the US was in 1947,
in less than 25 years.
The country is well positioned to grow rapidly.
At 8% per year, with per person growth of 6% after
adjusting for population growth, the economy doubles
in size in 11 years. In 22 years, Pakistan will
reach the standard of living of the United States
in 1947. It will be a prosperous, confident, modern
Muslim state, and will be an example to the rest
of the Muslim world.
But to get there, Pakistan needs 22 years of peace,
stability, and sound economic policy. I am not
in favor of 22 years of Musharraf as military
dictator. As we look to Pakistan’s future,
the political system must be carefully altered
to reach a democracy that does not derail this
golden opportunity to create a prosperous and
affluent Pakistan. A Pakistan in which deep poverty
and human misery will no longer haunt the landscape.
Comments can reach me at Nali@socal.rr.com
