Harness Pakistan’s huge population as an engine of innovation and growth
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It is an indubitable fact that throughout history, innovation arising out of new ideas has not only made lives better, but has also been a key determinant of the wealth of nations. Steam engines perfected in the late 1700’s by James Watt went on to fuel one of the most momentous technological leaps in human history during the Industrial Revolution. The principle of converting energy into motion set the stage for later innovations like internal combustion engines and jet turbines, which prompted the rise of cars and aircraft during the 20th century. It furthermore led to the rise of economic superpowers like Great Britain and the United States.
Innovation has touched almost every sphere of humanity, and generally for the better. Physician and microbiologist Alexander Fleming, having left a plate of staphylococcus bacteria uncovered, noticed that a mold that had fallen on the culture had killed many of the bacteria. This serendipitous discovery of antibiotics in 1928 was a giant stride forward in the field of medicine that has saved millions of lives by fighting nearly every known bacterial infection.
In industry, innovative technologies spur productivity gains that boost the wages of workers, which in turn means they can buy more goods and services. At the same time as businesses become more profitable they can invest and hire more employees, all of which increases economic activity and the living standards of people.
Despite its incontestable role in the progress of mankind, there has been much debate regarding what drives innovation — whether it is governed by a mixture of fortuitous accidents and deliberate indigenous efforts that build on ideas shared in information communities, or is the result of external inputs.
Until the 1980s economists modelled innovation as an exogenous process external to the socio-economic environment. However, the economist Paul Romer, in his seminal work in 1990 on ‘endogenous growth theory’ demonstrated that improvements in productivity were a byproduct of the endogenous processes within the economic system. He argued that it was not simply the result of external forces but rather internally driven by the development of ideas and innate capabilities.
Pakistan’s policy makers need to embrace the concept of creating new ideas as a principal means of driving economic growth and improvements in wellbeing.
Javed Hassan
A key insight was that ideas, unlike tangible goods, are not depleted by use, and it is technologically feasible for any number of people to use them simultaneously once invented. Moreover, each person tends to benefit more when other people also consume it or make use of it. This is in sharp contrast to most tangible factors of production, say a tractor or a machine tool, whose usage by one makes it unavailable to others at the same time. Given that ideas and innovations have increasing returns to scale, they have the capacity to boost economic growth well beyond that which could be achieved by accumulating tangible factors of production such as labor, land and capital.
Romer puts the concept of ideas and innovation at the heart of economic growth. Given that human beings’ capacity to generate new ideas is essentially limitless, he provides a fundamentally optimistic outlook for the mechanics of long-term economic growth. Since each additional mind turned to the task of figuring out better ways to do things potentially adds to our stock of ideas, the more people we can include in the circle of those who can contribute their labor and genius to the economy, the better off we will be. This stands in contrast to the long dominant view that economic growth hinged on, and was limited by the inherently finite nature of physical resources.
This has profound implications for developing countries like Pakistan, which have scarce resources and competing needs, but can bolster long term growth potential by enhancing their innovation capacity by drawing upon its large, fast growing and youthful population. In order to do so he proposes it should adopt tested strategies that richer countries have already used to achieve higher standards of living.
As Romer puts it: “One of the biggest meta-ideas of modern life is to let people live together in dense urban agglomerations. A second is to allow market forces to guide most of the detailed decisions these people make about who they interact with. Together, the city and the market let large groups of people cooperate by discovering new ideas, sharing them, and learning from each other…. People living in a large city cooperate with residents there and through many forms of exchange, with residents in other cities too. Cities connect us all together. China’s growth reflects its rapid embrace of these two big meta-ideas, the market and the city”.
The economist, Nadeem Ul Haque, frames a similar proposition in his book, “Looking Back: How Pakistan Became an Asian Tiger by 2050”. Pakistan’s policy makers need to embrace the concept of creating new ideas as a principal means of driving economic growth and improvements in wellbeing. And to do so, cities can provide the ideal environment in which knowledge creation can flourish.
– Javed Hassan has worked in senior executive positions both in the profit and non-profit sector in Pakistan and internationally. He’s an investment banker by training.
Twitter: @javedhassan
