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October 1, 2018

Lessons in development


October 1, 2018

“A country’s potential for rapid growth is strong not when it is backward without qualification, but rather when it is technologically backward but socially advanced” – Abramovitz (1986)

In late 2003, when I reached Beijing to work for the UN in China, there was much debate as to whether other countries could learn from the remarkable Chinese development experience. The country had, after all, lifted over 600 million people from poverty and managed 9-10 percent annual growth rates for more than 30 years, even if growth rates have slowed down of late (around 6.5 percent of a much larger economy).

As a country China had emerged from a low-income, low-human development status in the 1960s and 1970s to a prosperous, confident country by the early 21st century. The lives of the Chinese people are immeasurably transformed and they are living healthier, longer lives. Yet, most of their policies can hardly be classified as belonging to the standard Washington Consensus tool kit.

My belief that developing countries have much to learn from China led me to help found a new global institution in Beijing, the International Poverty Reduction Centre (IPRCC), dedicated to sharing Chinese lessons, now housed in a gleaming 20-storey building. And it led me to dig deeper into understanding the Chinese experience itself, a process culminating in a book entitled ‘Why China Has Grown So Fast for So Long’ ( OUP), now available in Chinese as well.

So, what is the ‘Tao’ of development, and what are Chinese lessons of interest to Pakistan:

The first would be ownership and long-term commitment to reform. In the end, development vision has to be home-grown and grounded in national realities. There are few examples, perhaps even none, where development has been ‘delivered’ by outside experts or institutions or even large transfers of resources. Development seeks to transform people’s capabilities and the nature of institutions. It takes time and requires long-term commitment for the process to succeed.

The ‘four modernisations’ introduced in the 1950s and 1960s in China, and Deng Xiaoping’s leadership in the 1970s and 1980s, to open up the economy kept the focus on improving the lives of people. And remarkably the system kept that vision stable for over 50 years, recognising that each stage of development needed new reforms.

The second, lesson is an active developmental role for the state, where the state becomes a ‘helping’ hand, rather than a ‘grabbing’ hand. For the Chinese Communist Party, this was a matter of long-term survival. The party recognised that without constant improvement in people’s lives, it would not be able to hold onto power.

Third is a pragmatic, locally-based approach to policy-making, focusing on what works and what does not, based on real-life conditions, rather than following someone’s grand idea or theoretical principle. And part reformation was fine, even if reforms worked in one area of the economy.

Fourth, building constituencies for reform. Chinese leaders were very aware that change produced both winners and losers. Subsidies and even inefficient enterprises were deliberately kept on, despite much Western criticism, to ensure that those losing out were explicitly taken care of.

The fifth lesson is that the focus was on results and larger development outcomes, rather than the means or even, for that matter, principles. The civil service was transformed into a development service with strong accountability at all levels. If a county or province did well, the leaders were recognised and moved up. If a county was developmentally lagging, the best officials from the fast-moving areas were redeployed there.

The final lesson is that macro-economic policy was explicitly expected to serve development purposes. Finance ministries and central banks were important but the driver was the National Development Reform Commission. Unlike in most countries, the priority for monetary policy, for instance, was on job creation first and then on money supply and interest rates. And, it recognised the critical importance of social policy. Investing in human capabilities was almost a pre-condition to both start and sustain development progress.

These days there is much debate in Pakistan about if not why but when the country goes to the IMF for financial support. Whatever might be the merits of that step, it is worthwhile noting that China refused any such external support, even when it had limited financial strength. Instead, it relied heavily on the Chinese diaspora for advice, technical support and investment. Financial infusion from the IMF may buy a respite, but essential reforms will buy back a country its future. Hard decisions, hard choices on fixing institutions, on reversing past neglect of people’s capabilities, on an active developmental role for the state – especially in creating local manufacturing capacities – are all now needed to put Pakistan back on track.

The writer is the former director of the UNDP Human Development Report Office.

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