Home >> Global Organizations >> World Bank and IMF

     Email   Print 

GDP progress is about the mind set

Iqbal Latif - 1/29/2007

My recent trip to Pakistan and the Middle East was an eye-opener. Most of the top economists I came across are totally entrenched in the gridlock of the old economy. Repression and preoccupation with ideological Puritanism has a direct impact on GDP growth. Economic development is the expansion of human choice, i.e. freedom and capability to do what we want. Closed disconnected minds and insular instincts destroy societies. The recent spurt of growth in the economy, evidenced by numerous at-work tower cranes and flurry of construction activity from the slums of Karachi to downtown UAE or Jeddah, was the result of the right direction of political decision- making; a decision to go along with the world and not to create a separate state long on slogans.

Many have absolutely no idea what the death of distance has wrought for new global economies. Mobility and connectivity is considered as a luxury people cannot afford. Most of the politicians have no idea of the new economy that runs on pixels and cyber specs. This age of knowledge has really missed most of the politicians and the old economic guard of these countries. You ask anybody in Pakistan for example and they will tell you how consumerism is destroying the country. They think that import of mobile telephones and 30 million people connected to a network is naked display of consumerism that will eat the strength of the society. In their opinion, people able to buy cars and motor cycles through credits are basically living on borrowed time. This entrapped mentality of politicians and economic gurus is a shocking display of how disconnected they are with the demands of the modern world.

Human capital is the most important capital of the country that needs to be developed on a war footing basis. A society can give freedom to its citizens, but if they are not equipped with the mental and/or physical capabilities to use these freedoms, then the freedoms are meaningless. Therefore, investing in education, providing health care, equal rights and other social programs that improve the capabilities of individuals are often as important to economic progress as building roads, airports and starting up businesses. Why does technological creativity occur? There are two components in the invention-innovation sequence: "technical problems involve a struggle between mind and matter, that is, they involve control of the physical environment." The other component is social: "For a new technique to be implemented, the innovator has to react with a human environment comprised of competitors, customers, suppliers, the authorities, neighbors, possibly the priest."

The role of religion and priest in society has a direct bearing on the rate of GDP development. There can be no economic progress if priests and religion are going to dictate the future of nations. When one is so dependent on the research made by the "infidels" the hypocrisy in this part of the world becomes startling. To cure cancer, even the most hardcore extremist ends up in the finest medical centers in Houston, whereas, standing on a pulpit to "destroy these infidels" becomes a slogan. The very routers, microchips and networks through which these messages of destruction and annihi lation are spread has its origins indebted to the same infidels. "Every society . . . gets the religion it deserves" the social rigidity of the Hindu religion strongly discouraged innovation, whereas the Judeo-Christian affirmation of man's dominion over nature provided support for technological intervention. Opposition to technological innovation is culturally pandemic. Often it's income- and market-related. Labour combinations and tariffs, over many centuries, document attempts to protect inefficient productive methods. There's also a syndrome of technology aversion. Islam and China after 1400 A.D. exhibit this syndrome after having passed through a long period of technology development. These cultures became progressively more risk-averse and xenophobic to the point of stigmatizing the imitation of foreign innovations. A description of the closure of these cultures helps understand the values and institutional prescriptions that arrest innovation; but what occasioned this turn-about? The optimum recipe was the circumstance of early modern Europe, where a diversity of competing states and domestic institutions removed the option of risk-aversion taken in China and Islam. The prevailing thought is that technological development is fostered best by an environment open to new ideas and new practices, which is not risk-averse and not intolerant, and which accords dignity to inventors and inventions.

This is no longer a world based on agricultural or industrial economy; it is a world based on knowledge and ability of a nation to connect to the rest of the world. A nation that has trust and confidence of other nations and is truly connected to the global patterns of trade is considered as a successful nation today, whereas, a nation that is disconnected with new realities an d has not been able to appreciate the connectivity and death-of-distance concept is a fledgling unable to provide its people the basic necessities of life. What makes India different from other developing countries is its technical personnel. India began training thousands of programmers to handle America's "Y2K" crisis in the 1990s, and soon expanded its educational system to train software engineers, hardware engineers, biochemical engineers, and other technical professionals. The result is that India has one of the largest pool of available scientific and technical personnel in the world.

Never before has prosperity been so widely available for the people of the world to take up. A connected person on the net is connected to the entire world. That unlimited connection can bring the best out of an individual and the best out of a community, and thereby the best out of the nation. So if millions of people are connected, the chances that productivity will increase are immense. The ability to import and export products multiply by that much more. The barriers to trade and commerce drop dead when minds meet. Since technology is widely available and increasingly cheap, this is what economists should expect of every developing country. In a world of diminishing returns, the poorest countries gain the most from new technology, infrastructure, and education. South Korea, for example, acquired technology by encouraging foreign companies to invest or by paying licensing fees. In addition to the fees, the investing companies sent profits back home. But the gains to Korean workers and investors, in the form of economic growth, were 50 times greater than the fees and profits that left the country.

The GDP growth of a nation is directly related to the internet connection and connection to mobile networks. It is considered that an increase of 10 mobiles per 100 people can boost the GDP growth by 0.6%. Ideas can only fly if minds meet. Mobility within a nation is a miracle that is happening. Most of the economists we come across today only know that economic p rogress is dependent on capital, labour and land. They have no idea that intellectual capital and ideas are the real growth engines in today's economy. It is because of this that in India, when a Hollywood film production is finished, the post-production work is done in Bollywood. The world's largest animation company is not located in America , it is Penta Media Graphics located in Chennai India, where all the animation was done for movies like "Spiderman" and "Gladiator". The Indian animation industry is expected to grow at 30% annually in the next couple of years and reach a level of US$15 billion by year 2010. And this animation industry does not need big industrial units. All it needs are mathematical skills, educated workers, and connectivity to the world. The more IT workers we create, the better we serve the service industry that has already become 52% of the Pakistani economy.

Mobile revolution is one that is totally misunderstood in Pakistan. Old gurus are still entrenched in the ideas of agricultural bumper crops, deadly carbon emission-based industries that belch sulphur and carbon. They have totally missed the new economy that has emerged and is working in disguise as a knowledge economy. In this knowledge-based economy, inputs are more mental; it is freedom of mind that counts more than production of a mill. The productivity of a worker is dependent on his ability to connect to the world. A nation is rich if its workers are connected to the world and are able to export their mental prowess to the entire world, but poor even when gifted with all the natural resources of the world, if disconnected to the rest of the globe. A connected nation in this new form of economy has the best chance of survival. A nation that has a political co-habitative philosophy has the best odds to survive but a nation which has a Jihad-based combative agenda will become a pariah state and will not be able to sustain the progress that is an integral part of the society. How does one explain until recently the gulf in economic progress between authoritarian yet fast-growing China and democratic, economically laggard India? India, with its massive neglect of public education, basic health care and literacy, was poorly prepared for a widely shared economic expansion; China, on the other hand, having made substantial advances in those areas, was able to capitalize on its market reforms. There are other benefits, and potential benefits, that may not be fully captured by GDP statistics. There is the psychological benefit of being able to talk to relatives living far away, for example. And there is enormous potential for mobile telephones to transform the efficiency of healthcare provision in poor countries. In Kenya and Tanzania, the African Medical and Research Foundation (AMREF) is using phones to allow patients in remote areas to be diagnosed by specialist doctors far away in AMREF's headquarters. Another project has built a management structure based on mobile phones to enable doctors in AIDS clinics to monitor patients far away to ensure they are taking their drugs.

People in Pakistan worry about the lack of industrial investments and agricultural production, much as it is that industrial development is totally dependent on availability of sustainable energy which, in case of Pakistan, is hydroelectric power, the economic gurus of Pakistan have totally overlooked the fact that the core of the problems stems from specific issues: the industrial growth cannot happen meaningfully if we are unable to harness the hydroelectric potential of the country. The perennial flow of water which flows 70% in four months of a year and 30% in the other eight months needs to be harnessed. Like in Brazil, the Am azon's power has been harnessed through hydroelectric generation and storage reservoirs; similarly, Pakistan needs to have storage reservoirs to provide cheap energy for cheap input in our industrial processes so that it is able to compete globally on a level playing field. Moreover, if the chronic problem of the seasonal water flow is resolved and storages sensibly applied, there will be a boost in the agricultural potential which the country has to increase.

GDP/person and freedom are related. When people act responsibly because they have capabilities and can a find job, GDP will increase automatically, like Japan, Korea, and the US itself; three countries where industrialization and economic growth came after social reform, the spread of basic education, and equalization of rights between genders. To achieve that goal requires the removal of "unfreedoms" like poverty, lack of ability to be accepted for a job, lack of economic opportunities, health problems, discrimination, repression and arbitrary justice. Freedom is an end in itself, a means to be able to lead a satisfactory life. Individual freedom is also a condition for being able to act responsibly. Increasing freedom as a goal is more complete than increasing the GDP per person.

So, to go forward, the challenges are very clear for Pakistan or for any Muslim country for that matter: that knowledge-based economies will only let those nations live within the ocean of activity which are alive, and living means they have tolerance, respect for gender, trust, respect for proprietary rights and rule of law. If nations promulgate their ideological supremacy as a tool of strategy, then they will be alienated, ostracized and their populace will become outcasts. Outcast nations end up in fragmentation and demise; they cannot sustain to become a part of the civilized world. For the future good of the nation, people have to be trained; their potential has to be brought up to the best level of performance and they have to be educated, provided basic health care, and they should be connected to the world at large. That is the kind of enlightenment that will turn nations around. The material resources will fall in place once there is tolerance and acceptability of knowledge-based ideas.

The reason Pakistan is not able to harness its niche resource of water is because of lack of understanding between the provinces and the lack of trust. An educated and enlightened society will understand that the basic reason of our national poverty is the inability to harness our resources; the biggest resource is our intellectual capital which is being wasted at the altar of bigotry, sectarianism and extremism. And hence, poisonous minds cannot reach a settlement on the basic conventional wisdom that Pakistan's niche capability is water and that to develop, we need to harness our water resources.

Poverty will become a distant dream if the entire Middle Eastern region can help its people to understand the dynamics of the new knowledge-based economy and understand that the old economy will only kick in if basic resources are made available to kick-start the old economy which will provide energy and food to people. Today's economy's first priority is neither capital nor land nor labour, it is tolerance, connectivity with the world and understanding of complex issues. Nations who will understand this in totality will be the tigers of tomorrow. Taiwan, South Korea, Malaysia, Singapore and China are examples of nations that have put their political agendas in cold storage and given due respect to their populace and trained them to become the avant-gardes of knowledge-based economies. Nations like CHARD, Somalia, Afghanistan, Ethiopia, Rwanda, and now Iran, are deliberately moving towards a path of self-flagellation and disintegration. What matters most is connectivity to the world, and tolerance towards opposing ideas. Nothing can hurt an economy more than a confrontationist and alienist approach towards the multinational actors within the global community.

If Pakistan's or Middle Eastern stock market has to move from present billions of $'s capitalization to next level of $100's of billion, the next steps have to be clearly defined and it has to be rational thinking within the political leadership of the region; the future of the region shall not be decided in the long monologues and trench battle fields of Gaza, rather, in the cradle of LUMS and IBAs. Let's create more of them, let's help to connect the region to the rest of the world.