Dr. Ahmed Pirzada, an economist from Bristol University, and his colleagues note that, between 1990 and 2018, Pakistan’s labor productivity increased by only 45%, implying an average annual growth rate of a mere 1.33%. In contrast, other South Asian economies experienced more than a doubling of labor productivity. Specifically, Bangladesh and India saw increases of 191% and 263%, respectively, while China’s labor productivity surged over eight times during the same period, with average annual growth rates of 3.88%, 4.72%, and 8.12% for the respective countries.
The substantially higher productivity growth among peer group countries relative to Pakistan has resulted in these countries seeing a significant shift of the workforce away from agriculture towards manufacturing and services. Such a shift has been conspicuously absent in Pakistan. While the share of the agricultural sector in employment decreased by about 10% from the 1990s to the present, this contrasts starkly with a 40-percentage point decrease in Vietnam and China and a 20-30 percentage point decrease in countries like Bangladesh, India, Thailand, Indonesia, Turkey, and Sri Lanka over the same period.
Pakistan has also witnessed a stagnant composition in its trade basket over the last three decades, both in terms of exports and imports. This data shows that the overall structure of the economy has undergone limited transformation and that too at a sluggish pace compared to other rapidly growing developing countries.
However, in Pakistan, economic policies have acted to disincentivize such reallocation. Businesses continue to thrive without investing in productivity enhancement or global competitiveness, as state policies perpetuate them through a combination of protection and subsidies. Unlike in other countries, the cycle of business closures and the emergence of more productive enterprises is notably absent in Pakistan, preventing economic resources from shifting to innovative and globally competitive businesses. In the wake of trade and financial sector liberalization in the 80s and 90s, business closures that should have been unavoidable through price signalling were kept going through fiscal and monetary packages. This policy of perpetuating zombie firms continues to date.
Pakistan is not merely a technical or administrative issue but is deeply intertwined with power relations between ruling elites and the disenfranchised masses.
