If economists working on Pakistan stay alert to the changes occurring around them, they too could one day aspire to be recognised. The three latest recipients of the prestigious Nobel Prize for Economics whose names were announced on October 11 had demonstrated how observing every day changes could improve our understanding of economic and social behaviour. Expensive and controlled experiments don’t have to be conducted to develop a better understanding of how economic managers at the national level or working in private enterprises behave in dynamic economic and social situations.
Controlled experimentation is expected of natural scientists before firm conclusions can be derived that affect the making of public policy. Much of the impressive advance in developing vaccines to equip the human body to fight the novel coronavirus that causes Covid-19 was done in laboratories. They divided volunteers into two groups – one that received the vaccine being developed, and the other injected with saline water. Those participating in the experiment did not know to which group they belonged. Only when significant differences were observed between the response of the two groups did the researchers feel confident that they could recommend wider use of the vaccine. The latest economics laureates didn’t carry out controlled experiments. They only studied what was happening around them. What impressed the Nobel Prize Award Committee about the work done by the economists whose work was identified? What are the changes that are occurring in the Pakistani economy and society that could bring academic recognition to some of those working on developments in Pakistan? I will answer these two questions in turn.
“Sometimes nature, or policy changes, provide situations that resemble randomised experiments,” said Peter Fredriksson, chairman of the Nobel Prize Committee, while announcing the names of the 2021 recipients. “This year’s laureates have shown that such natural experiments help answer important questions for society.” David Card, one of the three recipients, did his pioneering work in association with Alan B Krueger, a Princeton University economist and former White House adviser who died in 2009. In accepting the award, Card said that had “Alan been alive, he would have been honoured as well”. Card and Kruger worked on the effect of wage increases on employment. The other two recipients – Joshua D Angrist and Guido W Imbens – studied the impact of education on life-time earnings.
Card’s work challenged conventional wisdom in labour economics that higher minimum wages result in lower employment. He and Krueger used the border between the neighbouring states of New Jersey and Pennsylvania to test their hypothesis. New Jersey had raised the minimum wage for the workers employed by the enterprises in the state. The researchers found that employment at fast food restaurants in New York was not affected by the rise in the wages New Jersey employers were obliged to pay. Card also looked at the effect of an influx of immigrants on employment among local workers with low education and found the impact to be minimal.
In their research, Angrist and Imbens found that an additional year of education resulted in a 9 per cent increase in income. The pair showed that it was possible to identify a clear effect from an intervention in people’s behaviour even if the researcher could not control who took part in the experiment. Their work has had profound impact on the design of public policy. In rewarding observation rather than experimentation, the Nobel Committee was following the tradition that by now is well established.
Turning now to Pakistan, I would identify the potential of the country as a laboratory for doing serious economic and social research. It has a number of attributes that are unique to it among the world’s emerging economies. Four of these are worth mentioning and all four could be the subject of research. It is one of the two countries in the world that was carved out of a larger geographic entity. The other is the state of Israel. Both were created to satisfy the aspirations of a community that wanted separate living space for itself. Second, Pakistan has accommodated the largest flows of migrants from abroad. The first wave arrived at the time Pakistan was carved out of British India to separate the large Muslim minority from the large Hindu majority. When the British left and went home, the population of their colony was estimated at 400 million people. Of this, 100 million were Muslims. However, the Muslim community was divided into three almost equal parts. One was concentrated in the northwest; another was located in the northeast; and the third was spread all over the colony. The first two communities found their homes in what were to become Pakistan and Bangladesh. The third lost a significant number of people to migration. Eight million people came into what is now Pakistan.
In 1947, the year Pakistan was born, refugees made up one quarter of the country’s population. The second wave was made up of the Afghans who left their country after the Soviet invasion of 1979 and continued to arrive in Pakistan for more than four decades. At this time some 3 to 4 per cent of Pakistan’s population is made up of refugees from Afghanistan. Third, Pakistan has a large proportion of its population living outside the country. Overtime, Pakistanis have developed three diasporas – one, in the Middle East; two, in Britain; and three, in North America. Each of these react with their home country in different ways. Fourth, for a decade Pakistan experimented with a system of local government that helped it to apply new technologies into the farming sector. The system was called the Basic Democracies (BDs) and was the brainchild of President Ayub Khan, Pakistan’s first military leader.
There are several sources of data and information that researchers could use to draw important conclusions about several aspects of social and economic developments in Pakistan. There is enormous amount of information available in the records that have been kept by patwaris for decades. These have information on changes in landownership as well as the amount of production produced by the farming community. I once used this data to calculate the increase in land productivity of the areas that adopted high-yielding wheat and rice varieties in the 1960s. This period came to be known as the “green revolution”. What made one set of framers to adopt these crop varieties while the other set continued to use conventional technology? Did the system of Basic Democracies play a role in bringing about this change? These are important questions that research could answer.
Remittances sent by Pakistanis working abroad are a major source of foreign capital flows into the country. Who are the beneficiaries of these flows and how has this flow of money affected their social and economic status? These questions are waiting to be researched. Another aspect of the movement of people into the country and out of it provide valuable information on why people move and how they select their destinations. These are just as few examples of how observation of human behaviour could lead to some valuable insights that policymakers could use for doing their work and win recognition for themselves.