Pakistan's economic debate is dominated by the wrong questions. Policymakers routinely discuss exchange rates, tariffs, subsidies, tax concessions, financing packages and energy relief measures. Yet despite decades of interventions, exports remain stagnant, industrial competitiveness continues to weaken and economic growth repeatedly runs into structural constraints. The problem is not a shortage of incentives. The problem is that Pakistan has neglected the single most important determinant of long-term prosperity: productivity.

Productivity growth is what separates successful economies from stagnant ones. Countries become richer because they learn how to produce more value from the same labour, capital and resources. Pakistan once experienced meaningful productivity growth. Over time, however, policy shifted toward protection, subsidies and administrative interventions rather than productivity enhancement.

The result has been predictable. Export growth has lagged behind regional competitors. Industrial value addition has stagnated. Logistics costs remain high. Energy intensity remains excessive. Firms often devote more effort to securing concessions than to improving efficiency. Perhaps the most damaging misconception has been the belief that infrastructure automatically creates development. Roads have been built, ports expanded, industrial estates established and special economic zones announced. More recently, major investments under CPEC were expected to transform the economy and trigger rapid industrialization.

Infrastructure is necessary, but infrastructure alone does not create industrialization. Industrial development emerges from ecosystems rather than physical assets. Successful manufacturing clusters contain suppliers, engineering firms, testing laboratories, logistics providers, universities, vocational institutions, research centres and pools of skilled labour. Pakistan has often focused on constructing the physical shell of industrialization while neglecting the ecosystem required to make it productive.

This failure is evident in many industrial estates and special economic zones. Too often these projects function primarily as real-estate developments. Land is allocated. Roads are constructed. Utilities are........

© The Friday Times