Since independence, Pakistan has largely remained a consumption-oriented economy, and together with this, growth mostly has come from light industrial base. This is because government has sub-optimally played its part – under the overall neoliberal or neoclassical policy mindset – in regulating markets, and in improving economic institutional quality to significantly decrease transaction costs.

As a consequence, practice of market fundamentalism resulted in price signals that created a consumption-oriented society rather than one that had enough savings – along with putting pressure on imports in the absence of import-substituting industry of any note – at the back of better price discovery, and much higher economic institutional quality that put in place an optimal incentive structure that significantly reduced transaction costs, and incentivized those savings to be invested into long-gestation, heavy industry.

On the contrary, practice of neoliberal economics kept the role of government limited in regulating prices, and in evolving more effective economic institutional quality on one hand and, on the other hand, pushing for greater trade, and capital flows liberalization competed out local industry in the face of highly competitive foreign companies. Also, lack of both overall good-level economic institutional quality, and meaningful regulation did not allow creating an environment that while safeguarded the domestic industry, created enough competition among enterprises locally to see improvement in their capacities.

Instead of following the policy of ‘price shock therapy’ the country should follow the ‘dual-track’ pricing mechanism as was done by China during the 1980s, and beyond, to avoid frequent episodes of boom-bust growth cycles

Hence, the heavy industry could not create attraction for both investment, and better skilled labour supply – since both of them went to light industry for quick profit, and fast-increasing wage gains, as a result of high-momentum price-wage spiral – and therefore, both the positive outcome from them in terms of creating needed import-substitution industry, along with producing high quality domestic production, and create exports in an enhanced way, could not be created.

Therefore, Pakistan treaded the path of becoming a highly consumption-oriented society – and not just because people were buying a lot more commodities, but because prices relative to average incomes remained not only........

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