Academic journal article The Lahore Journal of Economics

The Political Economy of Industrial Policy: A Comparative Study of the Textiles Industry in Pakistan

Academic journal article The Lahore Journal of Economics

The Political Economy of Industrial Policy: A Comparative Study of the Textiles Industry in Pakistan

Article excerpt

1. Introduction

It is often assumed, but much less often explained, that being self-sufficient in raw cotton is good for the textiles industry in Pakistan. It may be true that Pakistan, among only a few other developing countries, has "a fully developed textile value chain from fiber to fabric to garment exports and a low import intensity of only 1%" (Tewari, 2005). Yes, this does mean that the country's textiles industry has its cotton nearby but also means that the industry is tied to a local cotton monopoly. In Pakistan, cotton yields are much lower than among other producers and quality has long remained below international standards. The textiles industry in nineteenth-century Britain, by comparison, was a leading sector in a much wider process of industrialization and Britain's cotton was always imported from the most competitive supplier. When the prices of US cotton increased during the 1860s Civil War, Britain switched suppliers to colonial India.

The domestic value chain is not just a source of inputs, it is also a source of vested interests or what Amjad (2005) calls "cottonomics." This, he argues, is a story of the conflict between the textile industrialists who want cheap raw cotton and the landlords and farmers who want higher prices paid by domestic users or at least the freedom to export at higher world prices. During the 1990s, argues Amjad, "this classic battle was fought between the industrial classes represented by the Nawaz Sharif government and the cotton-producing belt of southern Punjab and Sindh represented by Benazir [Bhutto]'s People's Party. Who got a better deal depended very much on which party was in power" (2005, p. 389).

For whatever reasons-and many have been suggested-the textiles industry in Pakistan has not (yet) fulfilled its historical mission. Whether in nineteenth-century Britain, 1920s Japan, 1960s Republic of Korea, or 1980s China, the textiles industry functioned as a "lead sector." Textiles in these examples were associated with a number of developments: (i) the rapid growth of exports, (ii) being a conduit for the introduction of new technology, (iii) drawing low-skilled labor into formal sector employment and so reducing poverty, (iv) facilitating the structural change to an urban-industrial economy, (v) creating jobs for young women and so promoting female mobility empowerment, and (vi) wider indirect developmentally positive impacts on female education and children's health. While acknowledging that the reasons for the sector's failure are manifold and the resulting policy conclusions potentially overwhelming, this paper makes a case for market failures in technological learning as being a "key reason" for this historical failure in Pakistan. This reason is "key" in the very specific sense that targeted policy interventions to reduce this market failure are feasible and low-cost, and would require only a manageable amount of political and administrative effort to implement.

The paper is organized as follows: Section 2 outlines a brief history of the textiles industry in Pakistan. Section 3 critically reviews factors that are currently seen to constrain growth and upgrading in Pakistan's textiles sector. Section 4 explores the link between technology and learning in the textiles sector. It starts by problematizing a typical form of economic "analysis" in Pakistan: that of compiling long lists of problems and advocating their solutions. It then focuses on a key market failure, that of technology acquisition and learning, and finally part explores some potential solutions that are both feasible and draw useful lessons from elsewhere. Section 5 concludes the study.

2. A History of the Textiles Sector

This section reviews the "historical failure" of the textiles sector in Pakistan after independence, from its promising start in the 1960s to the long era of stagnation after 1970.

In 1950, Pakistan was a predominantly agrarian economy: agriculture comprised 53 percent and manufacturing only 6. …

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