A new economic model

0

The Covid-19 pandemic has posed unprecedented challenges to Pakistan’s economy and exposed the vulnerabilities of Pakistan’s current brick-and-mortar growth model. The fifth wave induced by Omicron began with an exponential increase in positive cases of 3.16% over the past few days.

The pandemic has revealed the resilience of the current growth model and raised questions about its long-term sustainability. Estimates indicate that the pandemic reduced economic growth in 2020 to an annualized rate of around -0.4%, mainly due to a contraction in services and industrial sectors in Pakistan.

The slowing of the economic wheel due to the pandemics, coupled with double-digit inflation due to the deflation of the rupee, has plunged millions of people into temporary poverty and caused a significant increase in unemployment. Economic recovery from the virus-induced economic recession would remain uncertain in the coming years due to the uncertainty of pandemic resurgences.

The world was changing, whether in production models, technologies, labor skills, etc. – and the Covid-19 pandemic has acted as a catalyst to accelerate this process of change. The current economic model has failed to meet people’s needs in a pandemic-like scenario. The pandemic, on the one hand, has exposed the flaws in the economic system to meet the changing needs of society. And on the other hand, it offered the opportunity to reinvent an inclusive and human-centered “New Economic Model (NEM)” to promote inclusive development.

Due to the unprecedented shifts in the value chain of production and people’s economic needs, post-Covid economic recovery efforts cannot rely solely on the existing development model. We need an NMS to overcome economic challenges and help the economy show high and sustained growth. Just as when the laissez-faire economic model failed, it was replaced by the Keynesian model which offered an alternative development model.

However, a broad discussion is needed to develop this NEM. As a starting point, the Pakistan Institute of Development Economics (PIDE) presented a reform agenda for accelerated and sustained growth, namely “Reforms for Accelerated Prosperity and Inclusive Development (RAPID)”. PIDE estimates suggest the country needs to grow at a rate of 7-9% per year for a sustained three-decade period. The NEM should be able to utilize the diverse capacities of our working age population in building inclusive, equitable and sustainable societies.

According to RAPID, deep structural reforms in almost all areas influencing growth are necessary to achieve a high and sustainable growth trajectory. RAPID highlights a transition from a hardware-led development model to a software-led development model for inclusive development. RAPID recognizes that investment and entrepreneurial activity cannot occur in markets without the enabling and facilitating role of government. In the NEM, the role of technology and government is super essential in overcoming the crisis and preparing the country for a post-Covid competition. Building on RAPID, there are six possible paths to reinventing the business model of a post-Covid world.

Transition from physical to virtual economy: Pakistan needs to develop technology-based infrastructure to enable a contactless physical economy. In the future, it is envisioned that daily activities will be conducted with limited physical interactions, supported by technologies such as cloud computing, artificial intelligence (AI) and robotics. The virtual economy reduces transaction costs by enabling working from home, matching buyer and seller preferences at low cost and with wider coverage, and making online shopping possible. PIDE promoted the “Internet for All” program to give all citizens equal opportunities to reap these potential benefits of technologies.

Changing industry demand and structure: Covid-19 has significantly changed the demand for goods and services. The pandemic has caused a shift in consumer preferences and shifted them towards digital and health-conscious. These changes are driving a change in the way industries are structured. During the pandemic, it is evident that the evolution of the global supply has shifted from providing physical goods to more technology-based services. People are becoming more health conscious and buying health related products and services. Demand for services requiring face-to-face interaction, such as hotels, restaurants and retail, has contracted significantly, while businesses that provide on-demand home delivery services have seen an increase drastic demand.

Need for better coordination of federal, provincial and local governments: The pandemic means that there is a need for local governments to be empowered to deliver public services optimally. In addition, well-coordinated efforts are needed to address national-level challenges such as Covid-19.

Expanding the social safety net: Covid-19 signifies the importance of a safety net to protect individuals and the economy during economic and health crises. The government should expand social protection initiatives to protect the economy and the health of the poor by providing direct income support and health insurance at the individual level. At the economic level, the government should continue to develop market-friendly policies and enterprises, enabling the environment to provide equal opportunities for all to develop their businesses. As mentioned earlier, the digital economy is the future of growth. The government should support e-businesses by providing low-cost digital infrastructure, including the Internet.

The transition from import dependency to self-sufficiency: The Covid-19 pandemic has made clear the need for Pakistan to diversify its local production base, strengthen a localized supply chain and reduce its import dependency .

Rethinking cities: It is equally important to revisit the urban development model to promote a remote working model. Cities are seen as the engine of economic growth. Cities that encourage economic activity are dense, high-rise, mixed-use and inclusive. RAPID recommends rethinking the regulatory environment surrounding city zoning, building regulations, car use, public spaces, among others, to liberate as much as possible these cities that facilitate economic activity. Given the ongoing economic recession and the changing world, Pakistan has an opportunity to review its economic model. The NEM provides a starting point for rethinking development priorities and future needs.

The authors teach at the Pakistan Institute of Development Economics, Islamabad.

Share.

Comments are closed.