Pakistan’s Great Escape: Can Industrialisation Break the Poverty Trap?

Pakistan’s Great Escape: Can Industrialisation Break the Poverty Trap? DURING​‍​‌‍​‍‌ the about 150 years period of 1760s to World War I England, northwestern Europe, and USA experienced major economic change through a wave that is known as Industrial Revolution. The real percapita GDP that had been around $2-3 a day for very long a time started rising. The wages which had been just a little bit over subsistence level, got doubled at this time.

Very quickly the labor force was not engaged anymore in agriculture almost half. It was the West's share in the making of world goods that had been about a quarter just before the Industrial Revolution, which by 1914, was over 80 percent. One historian of economics has called this change as the great leap from poverty, illness, and squalor.

In the recent two centuries, non-European countries such as Japan, South Korea, and China have managed to close the gap with the Western ones in terms of economic power. They managed it in a few decades only, achieving growth of the kind sustained for quite long that would be the highest Western countries’ one for centuries.

After the war had devastated Japan, the country managed to grow at the rate close to 10 percent a year on average for the whole period from 1955 to 1973. In the year 1968 Japan surpassed Germany and became the second-largest economy in the world. In the early 1960s South Korea entered a phase of growth that would last for many years, this period was also known as ‘Miracle on the Han River.’ Real GDP had almost 25 times in three decades and in the year 1996 South Korea was already one of the countries from the OECD. China's economy grew by 9.5pc every year for 40 years after the 'reform and opening up' had started in 1978 leading to its real GDP increase by 35- to 40-fold. As a result this transformation brought almost 800 million people out of poverty whereas it was the same year that China first overtook the US at world largest economy based on PPP. The East Asian economies that grew so fast were characterized by several common factors. One was that, after major modifications of political and cultural systems, a period of continuous and very high economic growth was initiated. Second, state policy in agriculture had major impacts on industrial transition. Third, political rights were less emphasized than economic issues even during the transformation period. Pakistan’s Great Escape: Can Industrialisation Break the Poverty Trap?

If Pakistanis are to live better, the economy is to be growing at near double-digit rates for many decades.

Japan from 1945 to 1951 was led by Gen Douglas MacArthur as the Supreme Commander of the Allied powers. Through Emperor Hirohito who signed a document denying his divine status, a New Constitution was drafted, land reform carried out, the educational system transformed, and many aspects of American culture introduced. In South Korea, land reform had already occurred before President Park took office in 1961 with the help of the United States Army Military Government in ​‍​‌‍​‍‌Korea.

South​‍​‌‍​‍‌ Korea had a strategy of export-oriented growth, which Gen Park achieved by giving loans to big businesses, limiting the use of household money, and making workers join unions difficult. Meanwhile, China, with help from the Soviet Union on matters of money, technology, and so on, got started on building a strong base of both industries. Not only that but even after Deng Xiaoping's liberalization, a major part of China's economy was still state-controlled and the government was the main driver of new tech development. The country, at the time of its post-WW2 economic change, was officially a parliamentary democracy, yet the ruling Liberal Democratic Party never left office for 38 years and that situation became known as a “one-and-a-half party” system. Following a change in the constitution, which gave him practically unlimited powers without being held accountable after any given term, Gen Park, who was the military dictator of South Korea, became also its president. China, however, continues to be a one-party state since 1949 when it was first founded. Deng Xiaoping, the leader who was behind the “open” policy of his country launched in 1978 and a reform movement in economic policies, not only turned down appeals for Western-style democracies but also quelled the 1989 Tiananmen Square protest movement.In countries, which successfully industrialised themselves, there were variations in how much these characteristics were present. Pakistan was at a time quite like that, but only to a certain degree, in its first two decades when the country was trying to enact land reforms, introducing the Muslim Family Laws Ordinance, and, with Harvard Advisory Group being of help, launching a five-year planning system. Pakistan’s Great Escape: Can Industrialisation Break the Poverty Trap?

The trend that characterized those years of social and economic growth has, however, turned around since the 70s. After the government stopped the preparation of five-year plans in 1998, the country started adopting the concept of medium-term development frameworks. Over the last 20 years, a weak rate of growth kept the country at quite a distance from living standards in neighboring countries of South Asia. At present, more than 80% of Pakistan’s labor force is in the informal sector with a very limited level of protection in their working arrangements in terms of wages and conditions. Manufacturing in Pakistan, now barely contributing to more than 13% of GDP, remains one of the sectors with the slowest growth rates compared to other sectors of the economy. The country is also recording an approximate trade deficit of about $30 billion per year.

Thanks to aggressive and stringent policy measures, it was finally possible to get Pakistan’s economy under control. The nation enjoyed a current account surplus which is backed by import controls and high levels of remittances during the FY 2023-2025 period. Besides, the fiscal gap has dropped and is at a historic low of 2.6% of GDP as of the 2025-26 financial year. After a period of being record high, inflation has dropped to manageable levels without being too worrying anymore and the rating of Pakistan has been revised upwards on the grounds of a lower perception of external risks. Pakistan’s Great Escape: Can Industrialisation Break the Poverty Trap?

Despite all this, annual economic growth has remained around 3.6pc for a decade now.If we want the improvement of living standards among people in Pakistan to be more noticeable, the pace of expansion should continue to be quite high to say “double-digit” rate for many years to come.

To break out of the situation of poverty, the country will definitely need a complete transformation at a fundamental level. This will involve an enormous investment in the creation of industrial facilities, and in that context the political power should lead the way so that it could be a major factor of change in industry development. At the same time, political conflicts in the country would be secondary concerns to national interests in a broad economic ​‍​‌‍​‍‌sense.