Two sets of numbers have landed recently, and neither makes for comfortable reading.

The World Bank’s new MENAAP Economic Update says Pakistan accounts for about 48 percent of the region’s extreme poor, those living below the $3-a-day poverty line. Poverty at that line rose by 6.4 percentage points between 2018-19 and 2024-25. The Bank attributes the deterioration to a succession of shocks, including Covid, the 2022 floods, high inflation, and currency depreciation, as well as a prolonged adjustment period that eroded real incomes and jobs.

Some of Pakistan’s share is simply arithmetic. It has more than 250 million people, and Afghanistan, Syria, and Yemen together account for most of the rest, another 47 percent. But the direction is the problem, and Pakistan’s own statisticians confirm it. The Bureau of Statistics’ Household Integrated Economic Survey (HIES) 2024-25 shows that moderate-to-severe food insecurity among households rose from about 16 percent to 24 percent. Severe food insecurity more than doubled, to roughly 5 percent. Wheat and rice consumption also fell. Households have less purchasing power and are hungrier than they were six years ago.

Into this anxiety comes a familiar remedy. A recent post on X, built around a clip of Milton Friedman, argued that people build prosperity by investing, innovating, competing, and creating value, not by a state trying to do everything itself. I have made versions of that argument myself, and much of it is right. The post also grants government an essential role in the rule of law, education, health, infrastructure, a safety net, and fair regulation. Its diagnosis rings true as well. A state that is the dominant borrower, owner, employer, and allocator of opportunity does crowd out enterprise.

But “follow Friedman” is a slogan, not a policy. Pakistan has already done the adjusting. With reserves nearly exhausted, stabilization was not optional. Yet when stabilization turns into a squeeze on incomes and investment, it stops being the start of a growth strategy. A country can balance its books and still leave families worse off if nothing turns stability into jobs and productivity. The World Bank itself lists prolonged adjustment among the reasons incomes weakened.

China offers a more useful lesson, though not the one usually drawn: pragmatism matters more than ideological purity. Its leaders followed neither Friedman nor Marx as a catechism. They experimented, in the spirit of the saying associated with Deng Xiaoping about crossing the river by feeling for the stones. They tested policies in special economic zones before scaling them up. They ran dual-track pricing, keeping planned prices for some goods while allowing market prices at the margin, so the economy could grow out of the plan rather than be shocked out of it. They invested heavily in roads, ports, power, and schooling, opened up to foreign capital and technology, and let firms, and even local governments, compete fiercely. The result was extraordinary. The World Bank estimates that roughly 800 million Chinese people escaped extreme poverty in four decades, about three-quarters of global poverty reduction over that period.

China is not a template, and its limits only strengthen the case for pragmatism. Its history and political system cannot be replicated in Pakistan. Its state enterprises remain large, and its

recent property and debt troubles show that the same state that helped build the boom can also misallocate capital on a vast scale. What transfers is not the model but the method: treat policy as trial, measurement, and correction, and keep what works.

A country can balance its books and still leave families worse off.

-Javed Hassan

The same World Bank report suggests where Pakistan’s real gap lies. Pakistan has substantial entrepreneurial and technical talent, including a growing base of digital and AI skills. Yet weak innovation, limited private-sector dynamism, and shallow economic integration hold that talent back. Talent is not the missing ingredient. The enabling environment is. That is what a capable state is for: predictable rules, competitive markets, reliable energy, openness to trade, and enforced property rights and contracts.

This implies a more demanding agenda than “shrink the state” or “expand the state.” Fix the tax system so the burden falls on those who can bear it. Restructure or privatize state enterprises that bleed the budget, with regulators strong enough to stop private monopolies from replacing public ones. Invest in what markets underprovide: nutrition, schooling, health, and a safety net that catches families before hunger becomes stunting. Pilot new programs, measure them against a comparison group, and scale only what works. And judge every policy by one simple test: are households becoming more secure, better fed, and better educated?

The real debate is not state versus market. It is how to build a capable state that lets competitive markets work. The danger for Pakistan is not in using Friedman or learning from China. It is in following either, or anyone else, blindly.

Economics is not a religion. It is a toolkit. A household that cannot afford its next meal will not care which school of thought we belong to, only whether we measured the results and changed course when the numbers told us to. Getting there requires a political system that not only represents the aspirations of the majority but also lets them shape the policies that follow. Without that, even the best toolkit stays in the box.

Javed Hassan has held senior executive roles in both the for-profit and non-profit sectors in Pakistan and internationally. He is a former Senior Visiting Fellow at Fudan University, Shanghai.

X: @javedhassan