Other times the belief that if you don't learn from history, you will end up repeating it, is seriously reinforced. Reading about the Ottoman's economic policies as summarised by Tamim Ansary in his book, "Destiny Disrupted", was one such moment when you ask why we don't have the foresight to learn from history.
Traders have taken down our manufacturing sector and brokered the financial crisis we face today.
I keep repeating, not that anyone seems to be listening; no way on earth can our domestic manufacture, or service industry, whether in the private or public sector, compete with multinational companies which enjoy huge economies of scale and have deep pockets to wage a price war.
For the record, recall from history again that trading was the nemesis of the Mughals too!
Curiously, other countries, particularly Japan and South Korea, seem to have learned from the guild system that the Ottoman had, as narrated by Ansary in his book. Apparently each guild under the Ottoman rule had a monopoly on specific manufacture, however the State imposed price limits ensured that this monopolistic advantage could not be abused.
That probably is the solution for Pakistan; a system of private public partnership where the State facilitates setting up of manufacturing units in the private sector, ensuring minimum competition in each industrial segment within business groups, and provides protection through tariff or other policy actions.
In his book, Ansary provides an insight into how the Westerners brought the Ottoman Empire down economically. Since the West was not allowed to sell their goods in the local markets, they started buying raw material for their own manufacturing, which was also needed by the domestic manufacturers to produce; this obviously impacted domestic production. Consequent State action to curtail exports of raw material resulted in, well reverse smuggling. The resultant black economy fostered corruption, with the bureaucracy becoming more bureaucratic for more hush money.
The obvious consequence of the black economy was inflationary impact on asset prices and general consumption goods. The State as a result printed more money so that bureaucrats would not need to take bribes; this meant more inflation; which brings us to the best part. According to Ansary, the Ottoman State than hired management consultants and technical experts from the West to help set things in order.
Hilarious! The West had a forerunner of the IMF way back in the eighteenth century. Guess what their advice was back then? Whilst the book is silent on this part, an educated guess would be free markets! Does all of the above sound familiar?
Add to this the part where the Ottoman borrowed to buy weaponry from the West for their infighting, and the similarities become even more eerily pronounced.
Buying defence equipment to defend ourselves against a much larger and hostile enemy in the east, who has always nurtured hegemonic designs, was probably what started us on external debt way back in the 70s. Waging the war against terror over the last two decades, mostly from our resources, was the end game, economically. But we never had a choice in these instances; where we had, and still have, a choice was how we traded.
And we seem to be doing horribly with our choices.
Today, we are exporting our raw materials, including our mineral deposits, and are in the process of selling off everything nature has endowed upon this nation, and are freely importing finished goods and believe that fiscal discipline alone will reverse the ride.
How?
Contrarily, note that the West was practising mercantilism during the period they were exploiting the Mughal and the Ottoman empires. Imperialism and mercantilism were the reasons for the rise of the West, and imperialism and mercantilism albeit spearheaded by finance, is the reason they continue to dictate to the world today.
Mercantilism is all about bringing the gold home; much like an individual, perhaps even a corporation, where the objective is to spend less than your earn to become rich. I for one, have for some time now, maintained that the trade balance is the true profit and loss of a country; and not it's GDP which by and large is a useless indicator of where the economy is heading. Last time around when we partnered with IMF, we got the GDP going, but it could not warn us that we were heading straight into a financial crisis.
Accordingly, a trade deficit is a loss, and whilst financial or accounting gimmickry that you might practice, may temporarily cloud the decline, but the real loss will eventually come back to bite you hard.
Rationally speaking, if the objective is to balance your trade, why do you need to debase your currency and punish the poor masses with inflation in the process? Why cannot you simply control your spending and import less in the first place?
We do have a choice; we can continue taking advice from Western economic experts and management consultants like the Ottomans did, or we can do what the West itself did back then and continues to do now, and avoid repeating history!
(The writer is a chartered accountant based in Islamabad. Email: [email protected])