Vision
A Vision for PIDE
Dr. Asad Zaman
1. The Importance of Education:
A recent World Bank publication entitled “Where is the Wealth of Nations?” found the answer to lie in Human Capital. The importance of higher education in the development process cannot be over-emphasized. Only a sound education can provide an accurate appreciation of ground realities in Pakistan and a critical appreciation of comparative experience, without which neither meaningful analysis can be conducted nor efficacious policy be formulated. It is my goal not only to create excellence at PIDE, but to use the prestige and leadership of this flagship institution to substantially improve economics education all over Pakistan. But how? Creating excellence requires taking into account several unique characteristics of the present times.
2. The Crisis in Economic Theory:
The global financial crisis of 2007-8 not only destroyed leading financial institutions, but also the leading macroeconomic schools of thought which could not foresee such a major economic event. In its wake, several Nobel Caliber economists, like Solow, Stiglitz, Summers, North and many others, publicly acknowledged deep flaws in conventional economic theories. For example, Paul Krugman said that the Economics profession as a whole went astray because it mistook the beauty of mathematics for truth. Nonetheless, response to the crisis within the academia has been minimal and negligible. The educational system produces more than 3000 Ph.D.’s deeply trained in obsolete theories every year, and has thousands entrenched in senior positions. This leads to enormous inertia, and strong resistance to change. I have analyzed this crisis and its causes and consequences in many of my articles: for example, The Global Financial Crisis of 2007.
3. A Unique Historical Opportunity
This creates a unique historical opportunity for us, here in Pakistan. In a phenomenon called “leapfrogging,” the Americans could not follow suit when the Japanese led the way to fourth generation steel furnaces. The USA had too much investment in the third generation technology. Similarly, our investment in obsolete economic theory is low, and so it is possible for us to change course and move to the forefront. However this requires having a clear understanding of what is wrong with current economic theory, and how it can be fixed. I have devoted the past decade to a deep study of these issues, and now have a clear idea of what needs to be done and how to do it. I will provide a sketch of these ideas below.
4. PROBLEM: Wrong Methodology Won Battle.
In the nineteenth century, the dominant approach to economics was historical and qualitative. However, the minority which favored a scientific and mathematical approach won a decisive victory in “methodenstreit” – the battle of methodologies – in the early twentieth century. The damaging consequences of this victory of the wrong methodology have been spelled out in a book entitled “How Economics Forgot History.” One consequence is that one can get a Ph.D. in Economics at the finest universities without learning any significant economic history. One can learn extremely heavy mathematics, but not know anything about the Great Depression, Bretton Woods, major monetary crises, World Wars, or indeed any of the historical events which shaped the current economic environment. It is an accepted principle of the dominant mathematical approach that economists should study only those laws which are invariant – they hold in all places and at all times. Specific historical events are automatically ruled out by this methodology as being irrelevant to science. In my paper “Deification of Science and its Disastrous Consequences,” I have discussed how use of the wrong methodology has harmed social science.
5. Changes Required to Improve Economics Education:
Repeated failures of economic theories to predict economic catastrophes, alleviate poverty, or remove massive economic injustice has led many leading thinkers to consider how to improve the situation. Below I have identified five newly emerging fields which will be extremely important in the future of economics. None of these were in existence at the time I was a graduate student in the 1970’s. To the best of my knowledge there exist very few faculty with any knowledge of these fields currently in Pakistan. I have accordingly trained myself and many of my graduate students to acquire latest knowledge of these areas, in order to be able to bring about the desired changes.
5.1 HISTORY & ITS IMPACT ON IDEAS:
It is essential for economics students to study economic history, together with scientific laws governing economic events. The two methodologies in the battle were both extremist: one insisted on purely historical and specific events which does not permit generalization. The other insisted on purely universal and scientific laws and denied any role to history. In fact, a judicious balance is necessary. As a practical step, we need to provide a substantial grounding in economic history to our students. This is essential to develop a good intuitive understanding of the subject. As chair of the National Curriculum Review Committee (NCRC) for economics, I have introduced many relevant books and topics into the regular curriculum which provide grounding in history relevant to economics.
5.2 Behavioral Economics:
The effort to quantify and mathematicize economics led to a drastically simplified model of human behavior – only such simple models could be subjected to mathematical study. Looking at the actual complexities of human behavior shows how wide off the mark these theories are. I have guided many students to do theses in this area, and the topic is gradually becoming popular in Pakistan. Especially relevant for the labor markets is the importance of non-monetary motivations, which have been explored in an award winning Ph.D. thesis on “Non-Monetary Motivational Strategies,” by my student Saima Mahmood.
The neoclassical model of infinitely rational agents fails to explain many observed patterns in market prices, like heterogeneity of prices, failure of markets to clear, and others. This simulation based quantitative methodology can provide new insights. I have developed contacts with leaders in this field, and encourage some students to study the topic and design courses in the area. This will allow us in Pakistan to develop expertise in this highly demanding area, which supercede currently dominant Dynamic Stochastic General Equilibrum models.
5.4 Normative Aspects:
The attempt to adopt scientific methodology led economist to bury norms within the framework of economic theory without explicit acknowledgement. After rejecting claims that economics is a positive theory, it becomes essential to provide an explicit normative framework for such theories. This is a task which Islamic Economics is well adapted to do, as described in my paper: “Islamic Economics: A Survey of the Literature.” An excellent textbook (Hausman and MacPherson: Economic Analysis, Moral Philosophy, and Public Policy) shows that even secular economists have become aware of the necessity of incorporating morals. I have recommended this book for adoption in a revised syllabus for economics education designed by the NCRC committee of HEC.
5.5 Welfare, Capabilities & Happiness:
Widespread consensus has emerged that growth is a multidimensional process, and not merely the accumulation of wealth. The famous Sen-Stiglitz-Fitoussi report highlights the myriad shortcomings of GNP as a measure of progress. Nonetheless, these insights remain peripheral in mainstream economic curricula. Moving these ideas to the core would create an educational revolution. Several students of mine have written Ph.D. theses on latest developments in these areas, so that I am well prepared to move PIDE to the forefront of this field.
6. Creating Institutional Change
To move PIDE to a position of regional leadership – even more ambitiously, to world leadership – will require hard work. Numerous studies have pointed out that a common vision and inspiration is a key first step in creating lasting change. Unfortunately, the common approach of putting together a visionary document with high flying ideals and posting it on bulletin boards and catalogs does not work. The energy required for change can only be generated by winning hearts and minds and creating enthusiasm within students and faculty to work together for distant and difficult goals.
During my ten years at IIIE – International Institute for Islamic Economics – I have not only studied institutional change management, but have had the opportunity to implement these techniques as the Director General of the Institute. As a result, over the last few years, very radical changes have come about at IIIE. Whereas over a quarter century, a total of about five Ph.D. theses were written at IIIE, about fifteen Ph.D. theses have been produced in the past three years. Furthermore, these theses have received praise and recognition, as well as awards, from leading international experts. The strength of the Ph.D. faculty has dramatically increased and correspondingly, publications in international impact factor journals has also risen sharply. A research atmosphere has been created in the university, so that even MS students are producing excellent research, as many external evaluators have noted. Furthermore, these changes have been embedded in the institutional culture and ethos, so that it is my hope that these will persist long after I am gone.
It is my hope to carry out a similar, but even more far-reaching revolution at PIDE. This central institution is positioned with the capability to be a leader both nationally and regionally. Structural changes along the lines discussed earlier would have far reaching impact. A recent report by leaders in higher education entitled “The Avalanche is Coming” discusses radical changes required in university teaching to deal with several new elements of the modern age. At IIIE, I have initiated a response to this challenge by incorporating lectures from available MOOC (Massive Online Open Courses), creating such courses, and familiarizing students and faculty with essential elements of these revolutionary pedagogical approaches. It is my hope to be at the forefront of the avalanche, rather than be taken unawares by it.
7. Creating a Capacity for Advice on Policy & Planning
The raison d'être of PIDE is to provide an intellectual and academic basis for formulating plans, policies and development strategies. The relationship between academic research and policy is too tangled and complex to be handled in a few paragraphs. A difficult mismatch is created by pressing needs for action on the policy front, and the time required for careful academic work, based on solidly established and reliable research techniques. There is no doubt that the best academic work is inspired by genuine real world problems. It is essential to strengthen existing traditions at PIDE for policy oriented research. In fact, it is precisely the ivory tower nature of economic theory which will be changed by the implementing the syllabus reforms outlined in section 5. All of these changes are designed to create economic theories capable of solving real world economic problems, instead of confidently and blindly predicting growth a few steps before a catastrophe – as occurred just before the global financial crisis.