27th Annual General Meeting and Conference of the Pakistan Society of Development Economists (PSDE) organized by Pakistan Institute of Development Economics, (PIDE) Islamabad.
Missed Opportunities and Challenges: Road to Growth Recovery
Prof. Jomo Kwame Sundaram, Assistant Secretary General, United Nations, delivered the Allama Iqbal Lecture on the second day of the 27th Annual General Meeting and Conference of the Pakistan Society of Development Economists, organized by Pakistan Institute of Development Economics (PIDE). The lecture was on the theme “Global Green: A New Deal of Economic Recovery”. He said that the question of economic recovery reminds us to reflect on missed opportunities, which were presented by the East Asian crisis. He tipped flawed Breton-Woods system as the root cause of the current crisis. Prof. Sundaram argued that the current crisis was triggered by the collapse of the US housing market. He warned that the current system has become fragile and has become pro-cyclical and there is a possibility of double-dip recession. Therefore we need a sustained and concentrated recovery effort, which has to come from fiscal stimulus. However, the coordination at global level does not exist and even G20 has not made any progress for the reformation of the system in this regard.
The distinguished speaker further highlighted the lack of policy and regulatory reforms to tackle the problem which has serious implications for poverty too. In the context of recovery, which he termed as global green new deal, Prof. Sundaram emphasized the importance of production of bio-fuels. He further added that emissions in rich countries should be reduced and slowed down in developing countries. We need investment led and not market led approach to achieve climate change and development growth through tapping renewable energy resources. In this regard, Public investment to crowd-in private investment is required to sustain new development pathway. Further, significant transfers in finance and technology are required for big push. Furthermore, the global green new deal for recovery requires national stimulus packages to generate infrastructure especially in developing countries.
In the Gustav Ranis lecture, Prof. Asim Khawaja of Kennedy School of Public Policy, Harvard University, shed light on the issue of financing entrepreneurship in Pakistan. He said that sometimes, contrary to the popular belief, too much liquidity in an economy can create problems. According to the conventional view of development the lack of capital impedes development in developing countries but now there is a realization that increasing capital may not be sufficient. In fact, too much money can create problems because of lack of adequate financial markets. Speculation and rent-seeking can exacerbate the problems, he added. He pointed out that after 9/11 too much money came into Pakistan, however lending to firms did not increase due to lack of firm collateral. This has slowed down lending to small scale firm and only those firms having political clout have been benefited. Resultantly a loss mounting to 1.5% of GDP to the economy has been incurred.
Prof. Khawaja argued that financial intermediation is needed to match money to new, innovative ideas because those entrepreneurs who have innovative ideas are mostly small scale firms. To fund those firms is hard due to screening and monitoring problems, which entail high costs. He highlighted the fact that in developing countries mostly firms are small but there are not a lot of middle-sized firms. These middle firms report finance as the biggest constraint yet the rate of return for these firms is very high. He argued that even microcredit does not solve this problem, which is mainly for poverty alleviation and not for entrepreneurship which is a risky venture. Also, banks only lend to those who have money and venture capital does not exist in Pakistan. Prof. Khawaja said that venture capitalists do care about entrepreneurs and have appetite but we need to find cheaper ways to solve screening and monitoring problem. We can learn from developed economics, where cheap ways to identity ideas and entrepreneurs, without relying on wealth, credit history, and family links. He further tipped Musharika (micro-equity) as the solution which is also close to the idea of Islamic finance to tackle the problem.
Later on a panel discussion on “Inclusive Growth” was also held. The discussion was chaired by Qazi Azmat Isa, Chief Executive Officer/Managing Director, Pakistan Poverty Alleviation Fund (PPAF). The distinguished panelists included: Sania Nishtar, Founder and President, Heartfile Organisation, Andrea Vermehen, Senior Social Protection Specialist, SASHD, Germany, Asad Sayeed, Collective for Social Science Research, Karachi, and Ahmed Jamal, Senior Section Head, PPFA. The panelists discussed how can public policy be geared towards fostering private sector led growth while at the same time ensuring that the growth is broad-based and inclusive.
Last but not the least, the second technical session of day two of the conference presented insightful research on labor market dynamics. Papers presented covered issue discussed how well education serves as a signal for placing people to right kind of jobs according to their respective training, what implication evidence of factor under utilization and jobless growth has in manufacturing sector, low schooling is relied to wage and disability risks besides long-run wages, and finally the impact of trade liberalization on wage inequalities. The research on job placement in accordance with attained education reveals considerable mismatch in proportion of 1/3 graduates being misplaced. This finding highlights critical before in our education and employment nexus which policy makes should try to resolve as this has huge negative consequences for labour productivity and hence growth.
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