By Dr. Muhammad Zeshan
Stroll through Islamabad’s bustling Jinnah Super Market, the air thrums with the bargaining of local garments. Nestled amongst these local stalls are others, their wares seemingly untouched, shielded by a barrier far less tangible than the rickety metal shutters lining the street. These “sheltered shelves” are emblematic of a deeper issue plaguing Pakistan’s economy – a system rife with protectionist policies that stifle competition and hinder our true potential.
The culprit? High import tariffs and export subsidies distort the market and impede growth. Imagine these tariffs as towering walls erected around select stalls, making their foreign counterparts’ goods less affordable. Conversely, think of export subsidies as overflowing baskets of coins showered upon specific vendors, giving them an unfair advantage. This skewed marketplace, as the Costonomics research project by the Pakistan Institute of Development Economics (PIDE) reveals, comes at a hefty price tag – an estimated Rs. 1.7 trillion annually, 70% higher than the annual budget for pension in the fiscal year 2024-25.
This financial burden is just the tip of the iceberg. The true cost lies in the stifled innovation and inefficiency fostered by a non-competitive environment. The PIDE study paints a compelling picture: dismantling these artificial barriers could unlock a growth surge of 2.4% in domestic industries and a near 5% increase in exports. Imagine the transformation – a vibrant manufacturing sector churning out high-quality goods, a thriving export market showcasing Pakistani ingenuity on the global stage.
Now, some may argue that these protectionist measures act as a nurturing hand, shielding nascent industries from the harsh winds of global competition. Yet, this argument rests on a flawed premise. Sheltering businesses from international competition hinders their ability to adapt, innovate, and become truly competitive.
Consider the cautionary tale of import-substitution industrialization (ISI), a strategy heavily employed in Pakistan during the mid-20th century. By erecting high trade barriers, the government aimed to stimulate domestic industries. However, the lack of external pressure led to inefficiencies, poor quality control, and a disconnect from global market demands. The result? Stagnant growth and a reliance on outdated technologies.
This stands in stark contrast to the success stories of nations like South Korea. From the ashes of war, South Korea embraced open markets and free trade, transforming itself from a developing nation into a technological powerhouse. By fostering competition and integrating into the global economy, it spurred innovation and efficiency, propelling its industries to the forefront of the world stage.
The road to dismantling these walls of protectionism won’t be a walk in the park. Transitioning to a more open market requires a well-defined strategy. Additionally, fostering a culture of innovation through targeted investments in research and development is crucial.
However, the potential rewards far outweigh the challenges. By creating a level playing field, we unleash the true potential of Pakistani entrepreneurs and businesses. Imagine the transformation of Saddar Bazaar, Karachi – shelves overflowing not just with subsidized goods, but with the ingenuity and competitive spirit that defines our nation. Picture Pakistani products not just gracing local stalls, but adorning international runways. Imagine a new generation of tech startups disrupting global markets with their cutting-edge ideas.
This is the future we can build. A future where Pakistani businesses compete not on the basis of artificial advantages, but on the strength of their products, their innovation, and their ability to adapt to changing market demands.
The benefits extend beyond economic growth. Open markets foster greater international cooperation, leading to knowledge exchange and technology transfer. Imagine Pakistani engineers collaborating with global counterparts, pushing the boundaries of scientific progress. Imagine Pakistani students receiving international internships, honing their skills on the world stage.
Some may express concerns about the impact on vulnerable segments of society. However, a more competitive economy ultimately leads to job creation and rising wages, benefiting the entire population. Additionally, the increased government revenue generated by increased trade can be directed towards social safety nets and targeted welfare programs.
The path to dismantling the walls of protectionism is not without its challenges. Powerful vested interests may resist change. But history has shown us that true prosperity comes not from shielding ourselves from competition, but from embracing it. It’s time for Pakistan to break free from the shackles of a non-competitive economy and step onto the global stage, not as a sheltered vendor, but as a confident competitor, ready to showcase its true potential to the world.
The author is a Research Fellow at the Pakistan Institute of Development Economics (PIDE), Islamabad. He can be reached via Email: zeshan@pide.org.pk
