OPINION
Uzair Younus
country is committed to maintaining macroeconomic stability. A key driver of economic stability is policy stability, and the data analyzed by Dr. Nooruddin shows that “states in which credible constraints against policy change exist experience lower levels of growth-rate volatility.” So far, the findings seem intuitive. But it is when the author analyzes growth rate volatility across types of governments around the here is a generally held belief in Pakistan, especially world that things get fascinating. According to the research conducted among many within and around the corridors of powby Dr. Nooruddin, “minority and coalition governments in parliamentary er, that the country needs a strong and centralized democracies emerge as the most consistent dampener of volatility.” He government in Islamabad. This, they argue, is a necesalso finds that “the most robust determinant of economic growth is the sity to push through the types of economic reforms presence of coalition or minority parliamentary governments.” In short, the country needs to get out of a decades-long decline. the author’s analysis shows that coalition governments in democracies From privatization of leaky state-owned enterprises to the broadhave a better track record of stabilizing the economy, delivering reforms, ening of the tax net, the argument is that tough decisions require a incentivizing investment, and generating sustainable economic growth. strong leader with a broad mandate where the government cannot be This does not make intuitive sense. After all, coalition or minority held hostage. Research, however, suggests that coalition governments governments are inherently unstable, where reaching consensus on poland a system where power is distributed may be better at delivering icies is a painful and arduous process. But according to Dr. Nooruddin, sustainable growth and reforms. this is exactly why coalition governments deliver stable and sustainDr. Irfan Nooruddin’s book Coalition Politics and Economic able growth with reduced policy volatility. His argument is that while Development makes a compelling argument for coalition governachieving consensus in a coalition government may be a slow and painsments and their ability to deliver growth and reforms. He argues that taking process, reforms pushed through such a process are less likely to “governments’ inability to commit credibly to present and future be reversed by successors who were left out of the process at the outset. policies strongly contributes to growth-rate volatility.” This claim An example of the longevity of such reforms is visible across the resonates with those who follow Pakistan’s economy, where constant border in India, where weak coalition governments set about reforming political and policy volatility undermines confidence in the economy the Indian economy decades ago. These reforms were successful for two and a boom-bust cycle is the norm, not the exception. key reasons: a “widespread recognition” among India’s political elites This volatility, Dr. Nooruddin argues, breeds macroeconomic that economic liberalization was the only path forward and “the stainstability, discouraging investment in the economy, particularly intus-quo-preserving nature of coalition politics.” This has been evident in vestment with a longer time horizon. The higher risk associated with recent years as well, where the Modi-led NDA government in India has investing in such an economy requires higher returns, “which means continued the slow process of liberalizing India’s economy, even when that higher volatility probably deters investments in projects that such liberalization causes disruption that affects the core voter base of might have occurred at lower levels of volatility, something developthe ruling party – the country’s slow embrace of organized retail and the ing countries cannot afford.” successful rollout of the GST reforms under the NDA, despite significant Incentivizing investment by reducing actual and perceived pushback from trader groups who are a key voter base of the BJP, is a risks should therefore be of utmost priority for governments. But case in point. how can this be achieved? Dr. Nooruddin argues that an effective But while these findings push back against the view that a strong, way to do so is by credibly committing to stable policies that reduce centralized government can change the trajectory of Pakistan’s ailing uncertainty and signal to investors, domestic and foreign, that the economy, they do not answer the question of how consensus can be reached, especially in today’s polarized environment. The ruling PMLN’s leaders have long argued for a “charter of the economy,” and many PTI supporters who closely follow the economy agree that reforms are the only path forward. But the current political temperature is running high, meaning that political leaders are simply incapable of reaching The writer is Director of the type of consensus India reached years ago. the Pakistan Initiative Add to this the fact that Pakistan’s political system is inherently exclusionary, meaning that broad at the Atlantic Council, a swathes of underprivileged groups remain shut out of the political system. Which means that the very Washington D.C.-based beneficiaries of the status quo economy, one that is delivering for the few at the expense of the many, must think tank, and host of the be the ones who agree on and push reforms that reduce their own ability to extract rents. Why should they podcast Pakistonomy. He pursue this path when Pakistan’s decades-long secular decline has enriched them? This is a question worth tweets @uzairyounus. pondering over and one that requires more research and debate. But based on Dr. Nooruddin’s research, weak coalition governments may not be so bad for Pakistan’s economy after all.
Can coalitions push through reforms?
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