Science and Technology for Raising Income: The Choice of Activities, the State and the Private Sector

1.IntroductionAwareness of the need to improve Pakistan's capabilities in the natural sciences and technology is now practically universal. This was not always so. On the contrary, there is an embarrassing history of how education and science were ignored, even looked down on, during the first decades after Partition and the result has been the present deficiencies in these capabilities.This new awareness is partly the result of efforts by some economists to draw attention to the importance of science and technology (S&T), an early example being the workshop organized by the Lahore School of Economics and Dr Irfan ul Haque in 1997. Since then, there have been some extensive reports on the subject, notably that of the collaboration between the Pakistan Institute of Development Economics and the Higher Education Commission of 2003 and that of the Ministry of Science and Technology of 2013. Part of the reason for this awareness has been concern about military and security matters - this has resulted in achievements that go far beyond what has been achieved in mundane economics, but yielded little direct economic benefit.Since S&T have been generally neglected, the two reports just mentioned are intended to be comprehensive. They try to assess the needs and possibilities of the whole country, covering a wide range of topics, including electronics, microbiology, new weaving techniques and the Large Hadron Collider. This conference's agenda is more specific: it is concerned with the S&T needed for economic progress, especially productivity. The purpose of this paper is to discuss one question: what S&T do we need to raise incomes in Pakistan? This leads to other questions: how do we get the S&T needed and what can and should the public sector do?2.Diversifying Out of Low-Wage Goods: Why and HowFirst, the question of raising income. In the long run - and even in the short run - the sustained growth of income must come from manufacturing and, when possible, from technical services. However, the kind of manufacturing done here will not raise incomes. To take textiles and garments as an example, the types that are produced in Pakistan are produced here because wages are low in foreign exchange terms. High-wage countries no longer produce them and Pakistan would not produce them either if wages here were to rise. In addition, the main markets for Pakistan's textiles levy import duties on them, which lowers the prices and income received from this kind of manufacturing even more.A good rule for manufactures is that those that are simple to make are already being made by many firms in many countries with low-wage labor and competition keeps their prices from rising. Improving productivity is of little use here. If Pakistani textiles producers are simply inefficient in the sense that they could produce more with the same labor, equipment and raw materials, there may be some gain in income from reducing that inefficiency, but this is clearly not the road to riches.Alternatively, productivity may be improved by using more advanced production techniques, but the same can be expected of competitors in other low-wage countries. There may be a transitory gain of income, but after that the high-wage countries benefit from lower prices. Textiles, other than some special fabrics, will not become high-wage goods and the cost of capital equipment needed for the new techniques should be counted against any gain of income.If wages and, therefore, income per head are to rise, the country must move to making other types of goods - ones that are less simple to make. This raises the question, what has prevented Pakistani firms from making these goods already? As the theme of this conference indicates, one answer is Pakistan's low level of S&T, both in the education system and in the workforce.To formulate this more precisely, most manufactures - leaving aside the ones that are simple to make - are constantly evolving as the firms that produce them spend on research and development (R&D) to improve their designs. …