For decades, Pakistan's economic experts have sought a formula for sustained prosperity, with industrialisation often seen as the key. The logic is clear: build factories, boost exports, absorb surplus labour, and growth will follow. This approach transformed East Asian economies like South Korea, Taiwan, and China. Pakistan has spent years trying to replicate that success.
The Changing Global Landscape
However, the world that enabled East Asia's industrial rise has changed. Automation, robotics, and advanced production systems mean manufacturing now produces more with fewer workers. Global value chains are more competitive and technologically demanding. Even when manufacturing expands, it no longer absorbs labour on the same scale. Economist Dani Rodrik has questioned whether manufacturing can still be the primary engine of development for countries with growing labour forces.
Pakistan's Unique Challenge
For Pakistan, this debate is crucial. The country's development challenge is not just about building more factories. It is about fostering productivity across an economy where millions work outside large industrial enterprises. Farmers, retailers, transport operators, home-based entrepreneurs, service providers, and small manufacturers make up a significant share of economic activity. Most are unlikely to become employees in export-oriented factories soon. The central question is not where people work, but how productive they are wherever they work.
Institutional Barriers to Productivity
Pakistan's economic discussion often misses the mark. The main obstacle to productivity growth today is institutional rather than technological. Research from the Pakistan Institute of Development Economics (PIDE) shows that total factor productivity growth in Pakistan has weakened over the long term. While high-growth countries become more productive over time, Pakistan's growth has relied on accumulating labour and capital rather than using them efficiently. This has led to boom-bust cycles, weak export competitiveness, and balance-of-payments crises.
Technology Access vs. Delivery
Pakistan's next growth breakthrough will not come from a single mega-project, industrial zone, or technology park. It will come when millions of farmers, shopkeepers, service providers, and small entrepreneurs become more productive than they were yesterday. This is not because Pakistan lacks technology. Mobile phones are widespread, internet penetration has grown, digital payment infrastructure is improving, and AI, cloud computing, and data analytics are becoming cheaper. The challenge is elsewhere.
A small retailer in Gujranwala may own a smartphone but lack affordable inventory management tools. A wheat farmer in southern Punjab may have internet access but no reliable digital advisory service in Urdu or Saraiki. A small manufacturer in Sialkot may want to modernise production but lacks affordable quality-control technologies and technical support. Technology exists, but effective delivery mechanisms often do not.
Diffusion Over Invention
Productivity growth increasingly depends on diffusion rather than invention. Pakistan does not need to lead in AI to benefit from it. The opportunity lies in helping ordinary workers use existing technologies to become more productive. Imagine a farmer receiving localised AI-powered recommendations on irrigation, pest management, and fertiliser. Imagine a retailer using demand forecasting tools to reduce waste. Imagine a small garment producer using low-cost computer-vision systems for quality control. These innovations do not require a university degree, large capital investments, or workers to abandon their occupations. They require an institutional ecosystem that makes such tools accessible, affordable, and useful.
Policy Priorities
First, digital tools must be localised. Technologies designed for English-speaking users in developed economies will have limited impact in Pakistan. Productivity-enhancing applications must work in Urdu and regional languages. Second, business models must reflect economic realities. Most Pakistani enterprises are small with thin margins. Digital services for large corporations will not reach the small businesses that need them most. Third, digital tools must integrate with Pakistan's evolving financial architecture. Platforms like Raast and mobile wallets can link productivity tools with payments, savings, and credit. Fourth, policymakers must ensure productivity gains are broadly shared. If digital platforms extract value from small businesses instead of increasing their incomes, technology will reinforce inequality.
Beyond Industrial Policy
Pakistan's productivity challenge cannot be solved through industrial policy alone. Manufacturing remains important for exports, foreign exchange, and technological learning. But it should be one component of a broader productivity strategy, not the sole engine of development. The future of economic growth will depend on whether countries can put productivity-enhancing technologies in the hands of ordinary workers. The countries that succeed will not necessarily invent the most advanced technologies. They will build institutions capable of spreading those technologies throughout the economy.
Pakistan's next growth breakthrough is unlikely to come from a single mega-project, industrial zone, or technology park. It will come when millions of farmers, shopkeepers, service providers, and small entrepreneurs become more productive than they were yesterday. That is an institutional challenge, and it may be the most important economic challenge Pakistan faces in the decades ahead.
