The World Economic Forum (WEF) has launched the 2019 edition of the Global Competitiveness Report (GCR). The Report was first launched in 1979; its current edition analyzes the performance of 141 countries which, according to the Report, constitutes about 99 percent of the global GDP (gross domestic product, or simply national income).
GCR produces the Global Competitiveness Index (GCI), which according to the Report ‘…is an annual yardstick for policymakers to look beyond short-term and reactionary measures and to instead assess their progress against the full set of factors that determine productivity. These are organised into 12 pillars: institutions; infrastructure; ICT adoption; macroeconomic stability; health; skills; product market; labour market; financial system; market size; business dynamism; and innovation capability’. The overall GCI and its individual components represent a ‘progress score’ and range between 0-to-100; where 100 being an ideal state or ‘frontier’.
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The main takeaways of the Report include: firstly, even after injection of US$ 10 trillion into the global economy through active monetary policy, since the Global Financial Crisis around 10 years ago, this policy has ‘lost steam’ and therefore, countries should primarily look to fiscal policy, addressing the structural issues, and making higher public expenditures for enhancing productivity and fully reaping the benefits of Fourth Industrial Revolution. To quote the Report, ‘In this context, investment-led stimulus appears as an appropriate action to restart growth in stagnating advanced economies.’ This path should be particularly pursued in Pakistan, given where on the contrary, active tight monetary policy over sometime has not yielded satisfactory results on the macroeconomic front; placing in turn a high growth sacrifice-ratio.
Secondly, while economic growth on a sustained basis remains an important factor in reducing poverty, yet decades of policy negligence to a) enable the fruits of growth to be shared in an equitable way by making growth more inclusive; and b) internalize the aspect of climate change consciousness into growth agendas, have taken the global economy to uncertain and testing times. Moreover, deterioration in both these aspects, climate change and inequality, have negatively impacted competitiveness, in ways such as ‘for example, climate change is resulting in lower agriculture productivity, more capital depreciation due to infrastructure damage, and a fall in both labour supply and workers’ output due to higher temperatures… [and that] constraints to specific renewable and non-renewable inputs such as energy and water may have also important productivity spillover effects’.
Hence, growth policy needs to be proactive in internalizing these aspects of immense importance, and that ‘the report demonstrates that there are no inherent trade-offs between economic growth and social and environmental factors if we adopt a holistic and longer-term approach. While few economies are currently pursuing such an approach, it has become imperative for all economies to develop new inclusive and sustainable pathways to economic growth if we are to meet the Sustainable Development Goals’.
With regard to achieving sustained growth, the Report highlights certain areas of policy intervention countries such as a) coming together and offering solutions to deal with the issue of climate change, and in moving towards a “…low footprint global economy’; and b) showing renewed policy focus to (i) place higher taxes on carbon-related emissions; (ii) phasing-out subsidies related with usage of fossil-fuels; (iii) putting in place more effective schemes related with carbon pricing, especially given currently ‘76 percent of emissions are still not subject to carbon pricing’; iv) providing greater incentives for enabling R&D that unlocks a lot more greener energy technologies related with renewable energy, given ‘fossil fuels still account for about 80% of total energy consumption’; and v) making public procurement policies more environment-friendly.”
To tackle the other main challenge – that is inequality, where according to the Report ‘inequality of opportunity, inequality of income and economic growth form a circular nexus’ – to competitiveness and overall sustained economic growth, in addition to the challenge of climate change, the Report suggests four policy interventions. Here firstly, policies that enhance equality should be focused upon, which, among others, include ‘family policies (parental leave and access to quality childcare), equitable access to quality education systems, equal access to quality healthcare, meritocratic processes to access fair and dignified employment, and social safety nets to shelter households from temporary hardship can form the basis for a fairer and more prosperous society’.
Secondly, the environment for fair competition should be improved in the economy, through such initiatives as a) enforcing stronger antitrust policy regime; and b) reducing barriers to entry through greater use of enabling technologies. Thirdly, the redistributive aspect of taxation should be enhanced through not only ensuring progressive taxation, but also putting a lot more burden on higher income slabs through adopting higher top tax rates. Fourthly, ‘as monetary policy is running out of steam, in countries with fiscal leeway, targeted fiscal policy towards productivity-enhancing investments in infrastructure, education and innovation could revive productivity growth, support employment and broaden aggregate demand’, which should be a specifically important aspect to be considered and focused upon, by both the International Monetary Fund’s (IMF’s) EFF (Extended Fund Facility) programme being run in Pakistan, and policy in general here.
According to the Report, Pakistan is ranked 110th (out of 141 countries) in terms of the GCI for 2019. The overall GCI score for Pakistan is 51.4 (out of 100, as earlier explained with regard to the score range), which is less than the average for South Asia. While the GCI 2019 score for Pakistan as compared to GCR 2018, improved by 0.3 points to 51.4, yet in terms of country rankings as per GCI 2019, it deteriorated by 3 places to 110th, which should serve as a source of concern for the government.
(To be continued)
(The writer holds PhD in Economics from the University of Barcelona; he previously worked at International Monetary Fund). He tweets @omerjaved7
(This news/article originally appeared in Business Recorder on October 11th, 2019)