Pakistan needs an economic charter before an economic charter. Recently, there has been a lot of debate about the need for all political parties to come together and formulate an economic charter for Pakistan. Proponents have argued that such a consensus is essential for the country to get through its current crisis to create a period of stability needed to help Pakistan. But how to go about formulating an economic charter? A good first step might be to ensure that all political parties have a common definition of the economy.
They can decide to define economics as one of four definitions so that all parties can exercise their democratic right to choose the definition that best suits them. Such a definition is important because it would help them determine whether they should bother to place much importance on knowing, reading or discussing classic texts in economics and historical case studies on their application in the countries in the context of such debates, which is for example a common phenomenon. in China during the elaboration of a “Charter of the economy”.
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Definition 1: Economics allows us to look at major political and economic changes in history and explain them using economic factors. In other words, it is a branch of historical materialism. Decisions motivated by economic factors shape societies and cause them to change. In this case, it is necessary to discuss the classics and historical case studies of their application in the countries.
Definition 2: According to Alfred Marshall’s definition, economics deals with our ordinary life and its objective is to improve this ordinary life, to increase our income, to allow us to have more free time and to eliminate poverty so that we can enjoy other activities. that we love while having a satisfying standard of living. Next, we should consider discussing the classics and historical case studies of their application in countries, but perhaps not as thoroughly as in the first definition.
Definition 3: Economics helps us to allocate scarce resources between alternative ends. Next, we are to discuss only selected classical texts and historical case studies of their application in countries.
Definition 4: Economics is exactly what business and finance currently do. So maybe we shouldn’t care about classic texts and historical case studies of their application in countries.
If you think these distinctions are too abstract, here is an example to show how they are very concrete and are actually being applied right now. This is important because recently Planning Minister Ahsan Iqbal also called on Pakistan to follow the Chinese model of economic development.
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But is the model socialist or capitalist?
The socialist vs capitalist model
You can study China asking yourself whether it is capitalist or not, whether its opening up and commodification that began in 1978 is just a very long new economic policy or an irreversible change; whether China’s economic history leads us to believe that the country will move in one direction or another. You then apply definition 1.
Or you may not care about the decisions that led China to liberalize in 1978, but focus on the policies that reduced poverty, increased its incomes, or widened the disparities between rich and poor. You apply definition 2.
Or you can discuss whether China’s state-owned banking system allocates loans in the best way or not: here you are working according to definition 3.
Or you can write an article explaining whether or not Evergrande will pay its creditors next week. You are in the world of Definition 4.
What do these definitions mean? The first definition is clearly Marxist (not communist or socialist) in its writing, but it is substantially the same definition found in works as historically and even ideologically distant as Adam Smith and Kenneth Pomeranz. In this vision of the economy, its role is to shed light on the economic factors that have led to systemic changes, to people moving from one way of organizing production to another. It is therefore not a predetermined ideological position, but the methodological approach that is important here.
The second definition (due to Alfred Marshall) is much more pragmatic. It examines ways to improve people’s lives. It is related to the first definition when, according to the first definition, we believe that societies tend to choose more efficient modes of production rather than less efficient modes of production. Through the Darwinian struggle of different modes of production, the most efficient wins, and this most efficient mode increases people’s income the most. The second definition allows you not to worry about great historical strengths but to focus, here and now, on how to make things better.
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The third definition is called Lionel Robbins. This definition greatly restricts the economy. Economics becomes similar to operations research. He is not interested in the succession of the different systems, not even in improving well-being as such, but in optimization. It can be used under any system. Not surprisingly, Tjalling Koopmans and Leonid Kantorovich, working in two different systems but both interested in optimization, came up with very similar results. The definition of “scarcity ends” can be used to best distribute inputs and people in a factory, whether private or public, to maximize the labor effort of labor camp inmates or slaves cotton pickers.
The fourth definition is beyond pragmatics. It is about the immediate maximization of income for oneself or for the people one works for. It ignores anything that isn’t useful for that purpose and blurs the difference between social science and single-corporate profit. This is Gordon Gekko in action.
The author is an economist and strategy consultant who writes regularly for Forbes, LSE Business Review and Profit Pk. He also acts in an advisory capacity for the London School of Economics Lean Launchpad and sits on the boards of two global think tanks, GAIEI and IGOAI.
The opinions expressed in this article are those of the author and do not necessarily reflect the editorial policy of Global Village Space.