AS a response to sluggish growth, a well-trodden and worn-out narrative regarding the need for an industrial policy is again making the rounds in official circles. It is being proclaimed as the centrepiece of the remedy and designing a forward-looking growth strategy. From reports that are finding their way to the media, it is not clear what an industrial policy would actually represent. What would be its scope? Will it be only manufacturing or will its domain extend to the huge and varied services sector — IT, digitally delivered services, tourism, medical treatment, etc? This article assumes that its compass is essentially confined to the industrial sector.
The case for an industrial policy stems from the belief that reliance on the markets alone cannot deliver growth and bring about a fundamental transformation of the economy. Hence, the government should ‘pick winners’ or some ‘strategic industries’ by supporting and protecting them against well-established manufacturing enterprises globally and enabling them to go up the value chain, while providing employment opportunities domestically.
In the view of this writer, the concept of an industrial policy belongs to an antiquated era. The examples that are generally quoted are that of Japan and South Korea — and much earlier, the US and Europe — which adopted this approach and provided selective shelter and achieved remarkable success.
However, this was accomplished in a different era — one of closed or semi-closed economies and at a time when technologies developed at a laggardly pace. But more importantly, preferential policies were operational only temporarily — the objective was to assist them to grow to eventually become competitive internationally.
In our case, however, while a handful of industries have profited enormously from government interventions — including subsidies, tax and lending rate concessions and tariff protection — it is notable that, despite decades of support, none of the state-assisted industries, for example, automobile, fertiliser, steel, sugar, polyester and energy, failed to grow up to become competitive internationally.
These infants have not become adults; none have grown up to get recognition as ‘winners’. And policies have merely ingrained their dependence on continued sustenance and handouts.
Pakistan does not need more attempts at assisting, through subsidies and protection, industries which cannot stand on their own feet.
Therefore, in today’s highly competitive world, in which global trade is anchored in supply chains, protecting the domestic industry will not only make us uncompetitive globally, it can also induce a reciprocal retaliation. Industrial policy, therefore, is not a strategy for growth; it is a recipe for stagnation and inertia.
One dreads the thought of our control-freak bureaucrats, with their limited knowledge and lack of versatility, being tasked to pick winners — specific industries — for direct state support. There is a greater likelihood of the sectors being selected entailing the adoption of policy measures and actions replete with freebies. The result will be an industrial structure which is inefficient and uncompetitive globally, and one that fails to exploit new openings with promising potential. Moreover, given our own experience, there is every reason to fear a strategy being driven by political convenience or captured by well-connected special interest groups.
In other words, the economy will end up encouraging losers, leading to the diversion of resources from advantageous and productive uses in order to keep afloat those destined for extinction. Rapid technological change is likely to make the supported industries redundant and archaic sooner rather than later. In fact, the uncertainty induced by technological advances will cause massive disruption, fast rendering irrelevant and outmoded even the best-crafted interventions. Such intermediations will be made ineffective, and the competitive advantage, if any, arising from the policy interventions will be neutralised. Lest we forget, it will be markets growing at a mindboggling speed and not governments that will determine the comparative advantage of a country.
Moreover, the fiscal cost of propping up industries that can only survive on crutches, will be high — all at the expense of sustainable growth-boosting objectives like export enhancement. Bolstering such industries will not only burden the consumer, it will also drain the government’s scarce financial resources and divert investible funds from areas that could have pushed the economy onto a higher sustainable growth path and enhanced its competitiveness.
Pakistan no longer needs more attempts at assisting, through subsidies and protection, industries which cannot stand on their own feet. What is required in this era is a governance system which is characterised by nimbleness and flexibility so that it is able to adjust and adapt to rapidly changing circumstances.
Therefore, we should be focusing on creating an open competitive modern economy that can quickly acclimatise to the fast-transforming global economic environment.
This would involve necessary support and encouragement in complementary areas and factors — such as education and skill development (that is in keeping with the emerging ecosystem), digital connectivity infrastructure, reliable and affordable energy, modern infrastructure and innovation. Only these factors will be able to erect a competitive economy — and not tax concessions, subsidies and protection. Admittedly, all easier said than done.
To conclude, for us, industrial policy is a concept that has come to grief and can at best serve as a case study of the past. It should not underpin any future growth strategy.
The writer is a former governor of the State Bank of Pakistan.
Published in Dawn, September 12th, 2025
