Economic Bullshit

By Anjum Altaf

A lovely little book came out in 2005 titled On Bullshit. Written by a professor of philosophy at Princeton, it remained a bestseller for months. Its principal message was that “bullshit is a greater enemy of the truth than lies” because “Liars at least acknowledge that it matters what is true.” Bullshitters, on the other hand, convey impressions without being concerned about whether anything at all is true. They quietly change the rules governing their end of the conversation so that claims about truth and falsity are irrelevant.”

I recalled the book after reading two articles within a week talking up the Pakistani economy in the Wall Street Journal and the Washington Post. Both employed the classic bullshitter’s gambit of throwing out random facts to convey a favorable impression without caring in the least whether the inferences were in any way supported by fact or argument. Had a PR person been paid to write these articles, he or she couldn’t have done a better job.

At the heart of both articles is the blinding vision of a middle class ready to rocket the Pakistani economy into the stratosphere. The WSJ article summarizes its thesis in its title: “Pakistan’s Middle Class Soars as Stability Returns: Consumer spending rockets as poverty shrinks, terrorism drops and democracy holds.” The title of the WP article is more bland –  “Beyond the headlines of terrorism, Pakistan’s economy is on the rise” – but its argument is the same.

Observe how the impression is constructed. First the numbers – 38% of the country is middle class, while a further 4% is upper class. That’s a combined 84 million people.” Then a true fact which means nothing by itself: This size is “roughly equivalent to the entire populations of Germany or Turkey.” And then another less than relevant generalization: “A study by the OECD forecasts that the bulk of the growth in the middle class in the years ahead will come from Asia, which will account for two thirds of the global middle class by 2030.”

Comments culled from international agencies provide a favorable jumping-off point: “What’s more, Pakistan is winning plaudits from the International Monetary Fund, and its economy is forecast for a healthy 5.2 percent growth rate in 2017, according to the World Bank.” That’s enough to conclude that “As Pakistan turns a corner… Three key factors are driving Pakistan’s economic awakening: an improved security climate even despite the most recent attack, relative political stability, and a growing middle class. These three interlocking pieces are fueling Pakistan’s growth story.”

From here the autopilot takes over: “Robust middle classes are vital to healthy societies and growing economies, and Pakistan’s middle class may have reached a tipping point.” Throw in a couple of quotes by experts and the future becomes more than incandescent: “Pakistan’s consumer middle-class market could hit $1 trillion by 2030” and “middle classes are driving impressive 25 percent rates of return for large multinational consumer companies… middle-class growth is sparking increased production of cement, steel, automobiles and the like… one of the key reasons for current bullishness on Pakistan.”

Let us now subject this bullshit to a stool test. First, what does the size of the middle class have to do with anything? Does a population as big as Germany’s mean that a tipping point has been reached fueling Pakistan’s economic takeoff?

Consider several examples in comparison with Pakistan (population 200 million, income per capita $5,100). Singapore, with scarcely any natural resources, has a population of 5.8 million (less than that of Faisalabad) and a per capita income of $87,100. Ask how Singapore’s economy skyrocketed with a middle class that could not have exceeded 5.8 million? Or consider the tiny populations of Dubai and Abu Dhabi which have boomed in front of our eyes. South Korea and Pakistan had roughly the same per capita income in the 1950s (when Pakistan was billed as a model of development with a much smaller middle class). Today, the former with a population of 51 million has a per capita income of $37,900. Does this not suggest that the size of the middle class by itself has very little to do with economic growth? Very clearly it is economic policies and governance that matter much more.

The typical response to such examples is to blame overpopulation for the poverty in Pakistan. Now suddenly the large population has become the magic wand that will even make up for the absence of sound policies. The same fact can fuel very different stories depending on the occasion.

Second, even if the Pakistani middle class is 84 million strong how much purchasing power does it really have? Note that Pakistan’s per capita income of $5,100 is below poverty level income in the U.S.A. Add to that the phenomenon of inequality which is the major issue of the moment. The latest Oxfam numbers inform that in India just 57 individuals own more wealth than the bottom 70% of the population. Isn’t it likely that most of the wealth in Pakistan is concentrated in the hands of the 4% that comprise the upper class. If things were indeed so rosy for the middle class why would almost every member of it want to move to a stronger economy? Can’t they see that Pakistan has turned the corner?

Yes, of course, more cement and steel is being purchased but is it consumption per capita that is going up or simply a reflection that the population of Pakistan has skyrocketed – from 61 million in 1971 to 200 million today. Just keeping up with the additional needs (food, clothing, houses, schools, colleges, hospitals, roads, electricity, etc.) means that commodity sales would increase. And yes, many companies providing these commodities are profitable. But does one see foreign investment rushing into new projects? Even the Chinese have to be guaranteed exorbitant returns to be tempted. In fact, Pakistanis themselves are avoiding new investments preferring to put their money in land or buying property in the Middle East or parking cash in tax havens. Some are even shifting existing manufacturing capacity to foreign countries where costs of doing business are lower.

Ask the middle class if the skyrocketing economy is generating enough acceptable jobs to accommodate those entering the labor force every year let alone the poor who are still in a majority? Is that the reason why more and more people wish to leave to send back money for their families to consume and keep the bleeding economy on life support?

Snake-oil will continue to be sold and there will never be a shortage of buyers. Allah be praised.

This opinion appeared in Express Tribune on March 4, 2017 and is reproduced here with permission of the author.

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7 Responses to “Economic Bullshit”

  1. Vikram Says:

    I would like to reiterate here, the focus has to be on the labor force, and not the indulgences of a few of the rich. We should not succumb to such moralistic arguments.

    In 1820, the population of the US was 10 million, with 80% of the population in agriculture and 20% industry. The first steam rail was introduced there in 1828, indicating that industrialization had begun.

    By 1930, US population was 123 million, with 20% of the population in agriculture, and 80% in industry, the US was by far the richest country in the world. Its industrial workforce had increased by a factor of nearly 50.

    The old, landed and aristocratic elites played the most important part in this transformation. Every major name that emerges in the US in the 1800s and early 1900s, Ford, Colgate, Stanford, Cornell, Heinz, Merrill-Lynch is an example of the old elite transforming into a new elite and helping a lot of others become more productive and richer.

    In the subcontinent, participation in transnational endeavors like the British empire, Marxism, Third Worldism and today Western centred green cardism has consumed our elites.

    The selfish attitudes of the landed elite are the direct result of colonial policies: https://www.aeaweb.org/articles?id=10.1257/0002828054825574

    Its not that India has too many billionaires, its that it has too few millionaires.

    • Anjum Altaf Says:

      Vikram: I couldn’t figure out how your comment is related to the article. I was just making the point with examples that the size of the middle class is not necessarily related to development. This is even more so when there is great inequality of wealth which is at the expense of the purchasing power of the middle class.

      The only relevance I could relate was in the last sentence. Do you believe it is just an accident that India has too few millionaires and too many billionaires? Could there be a connection?

      • Vikram Says:

        “Do you believe it is just an accident that India has too few millionaires and too many billionaires? Could there be a connection?”

        You seem to think that India has too few millionaires because it has too many billionaires. I dont think this is the case.

        Please see the list of Indian billionaires: https://en.wikipedia.org/wiki/Forbes_list_of_Indian_billionaires

        The biggest billionaire generating sectors are pharmaceuticals, consumer goods and software services. Only then do we find the rent/resource based sectors like Real Estate and possibly ‘Diversified’. The remainder is made up of non resource sectors like Automotive, Paint and Broadcast.

        I am quite sure the ratio of millionaires to billionaires is quite normal among Gujaratis, and possibly some South Indian communities. The other communities probably have neither in large numbers.

        • Anjum Altaf Says:

          Vikram: I was responding to a remark you made in an earlier comment that “Its not that India has too many billionaires, its that it has too few millionaires.”

          There is no good way to confirm this since there is no data on income distribution in India. However, it is generally accepted that income inequality is very high in India (comparable to Brazil rather than US according to Piketty) so my guess was that the disproportion was the result of inequality – wealth being sucked up to the top. The Oxfam figures tend to support that hypothesis.

          Further breakdowns are not possible without data. What one would expect is that under normal circumstances the billionaire generating sectors should also have millionaires – more of the latter than the former.

  2. Anjum Altaf Says:

    From a recent Pew Research Centre report:

    “As far as middle-income Indians go, only 2% of the country actually falls into this zone.”

    So much for the Pakistani middle-income population exceeding the population of Germany!

    https://scroll.in/article/740011/everyone-in-india-thinks-they-are-middle-class-and-almost-no-one-actually-is

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