From Consumption to Capability |
In Lahore, Dhaka, or any fast-growing city of the Global South, the story of “growth” is often narrated through the lens of consumption: the new motorbike on instalments, the crowded malls on weekends, the rising imports of phones and fuel, and the political temptation to keep demand running-whatever the fiscal or external cost. It is an understandable impulse. When incomes are squeezed, and aspirations are rising, consumption feels like relief, and for governments it feels like proof. But for developing economies, consumption-led growth is frequently a treadmill: it can lift activity briefly, yet it rarely builds the productive muscle-skills, technology, export capacity, and institutional competence-that sustains prosperity across shocks.
The uncomfortable truth is that many developing countries are not suffering from a “lack of spending”; they are suffering from a lack of capability. Capability is the economy’s ability to produce competitively (at home and abroad), to move workers into higher-productivity tasks, and to continuously learn-through firms, farms, and formal institutions-how to do more complex things. When capability is weak, consumption becomes increasingly import-intensive, external deficits widen, currencies come under pressure, and the state oscillates between stabilisation and stimulus. The cycle is familiar across decades: demand surges, imports surge, reserves fall, austerity returns, and social trust erodes.
Consider Pakistan’s macro structure in the most recent global datasets. Household consumption is extraordinarily high relative to the size of the economy: World Bank data show households’ final consumption near 84.8% of GDP in 2024. By contrast, the investment engine is thin: gross fixed capital formation is reported around 11.23% of GDP in 2024-a level that makes sustained productivity catch-up extremely difficult. Export dynamism remains constrained as well: exports of goods and services are about 10.4% of GDP (2024), a modest base for a country of Pakistan’s scale and demographic pressure. These are not abstract ratios;........