“Democracy and competitive capitalism make a difficult, but precious, marriage of complementary opposites,” writes Martin Wolf, associate editor and chief economic commentator of the Financial Times London, in his book ‘The Crisis of Democratic Capitalism.’
Wolf argues that competitive democracy encourages politicians to implement policies that enhance economic performance and citizen welfare. The primary concern of democratic states should be the welfare of their citizens. In contrast, unaccountable rule or the rigid adherence to tradition leads to stagnation and repression.
Recognizing the global significance of this issue, the 2024 Nobel Economic Prize was awarded to three researchers—Simon Johnson, James Robinson, and Turkish-American Daron Acemoglu. They were commended for their work on how institutions are formed and how they affect prosperity, particularly in countries plagued by corruption and dictatorship.
Acemoglu warns that the influence of the super-rich has reached a dangerous level. He critiques the West’s top-down approach to state-building in Afghanistan, which he believes was doomed to fail. Both Acemoglu and Johnson express concerns that technology might be used to replace humans instead of empowering them.
IMF advises Pakistan to end preferential treatment, tax exemptions, and other protections for choice sectors
“When citizens feel seen and heard, their trust in the system is reinforced,” says analyst Farrukh Khan Pitafi. Wolf emphasizes that politics must be influenced by all citizens, not just the wealthiest, advocating for the creation and maintenance of a vigorous middle class and a robust safety net.
A Pakistani political scientist asserts that a nation’s people are entitled to rule through genuine representatives elected in free and fair elections, who are committed to implementing public welfare programs approved by voters.
The International Monetary Fund (IMF) staff report on the $7 billion bailout advises Pakistan to abandon its economic practices of the past 75 years to break free from its recurrent boom-bust cycles. The report urges Pakistan to swiftly end preferential treatment, tax exemptions, and protections for the agriculture and textile sectors, which have stifled growth for decades. As of May 2024, 70 percent of outstanding concessional central bank loans were tied to the textile sector.
“Pakistan’s economy has stabilized, and the macroeconomic situation has improved, but current recovery is neither sustainable nor sufficient,” said Mukhtar ul Hasan, the World Bank economist and author of the Pakistan Development Update (PDU) at its recent launch. Hasan noted that while the IMF’s standby arrangement unlocked external flows, it negatively impacted growth and investment in the country. Despite some nascent recovery, World Bank officials see high vulnerability risks persisting.
With the poverty rate rising 0.3 percent within one year to 40.5 percent in FY24, the PDU warns that the projected economic growth rates of 2.8 percent and 3.6 percent for the current and next years are insufficient to reduce poverty and improve living standards for most Pakistanis.
The PDU notes that output growth will remain below potential over the medium term as tight macroeconomic policy, elevated inflation, and policy uncertainty continue to weigh on economic activity. Cuts in public investment or social spending tend to have a much larger negative impact on growth than poorly targeted subsidies such as those for fuel, says Era Dabla-Norris, the IMF’s deputy fiscal affairs director.
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The IMF notes that Pakistan’s banking sector holds the world’s largest proportion of government securities relative to its total assets. The Fund cautions that the entrenched nexus between the government, the central bank, and the banking sector is detrimental to the country’s economy and financial sector.
Finance Minister Muhammad Aurangzeb states that big companies are responsible for about half of the total tax evasion, amounting to Rs3-4 trillion. “Pakistan cannot achieve sustainable growth with a tax-to-GDP ratio of 9-10 percent,” he says, stressing that this ratio should be about 13 percent. Wolf adds, “Those who manage corporations should understand that they have obligations to the societies that make their existence possible.”
In the chapter ‘Restoring Citizenship,’ Wolf outlines the rights and responsibilities of citizens, asserting that every citizen, especially the successful ones, should pay taxes sufficient to sustain public welfare
