On April 15, 2024, Dr. Safdar Ali Sohail, Executive Director of SPRC, chaired the Allama Iqbal Memorial Lecture at the 38th Annual Conference of Pakistan Society of Development Economists, Pakistan Institute of Development Economics. The session featured an insightful lecture by Professor Pier Paolo Saviotti, titled “Variety, Structural Change and the Emergence of AI,” where he presented his well-known economic model, TEVECON.

Professor Pier Paolo Saviotti maintains that the analysis of demand is inseparable from that of economic development and that economic development itself proceeds more by creating a wider range of distinguishable types of goods/services whose properties are only imperfectly known by consumers at the beginning of their life cycle than by creating superior substitutes for existing goods/services about which consumers have perfect knowledge. In other words, development happens more through innovating and creating new types of goods and services, which consumers don’t fully understand at first, rather than making better substitutes for existing products that consumers already know well. Such a development is based more on the variety in the product space than the efficiency of the superior substitutes. Professor Saviotti, an evolutionary economist, imagines a co-development of demand and supply on the one hand and of the development and institutions on the other hands once the ‘variety’ transforms the economic structure.

As the provision of more goods and services results in economic development, the Firm should have the imagination and capacity to produce new products. This spurs more consumption because the new product adds variety, leading people to buy more things instead of just replacing old ones. That drives economic growth because more products mean more transactions and new markets. The state therefore should help Firms become more innovative.

In his remarks, Dr. Safdar Sohail summarized Saviotti’s model, emphasizing that firms innovate to meet latent consumer demand—even when consumers themselves are unaware of their needs. This process often involves substituting existing products, which eventually leads to efficiency saturation. New products are introduced to meet evolving needs, shaping economic structures over time.

Dr. Sohail applied these insights to Pakistan’s context, arguing that despite perceptions of weak GDP and exports, field evidence shows strong economic expansion through urbanization, retail growth, and rising land prices. He noted that much of this growth was driven not by domestic firms but by foreign companies and FDI that created demand through advertising, later fulfilled by local producers. He used the detergent industry as an example of induced demand, where foreign ads created a need for machine washing, leading to a local production boom. However, he cautioned that this type of demand creation raises concerns about equity, especially when influenced by elite preferences.

Drawing on the work of sociologist Pierre Bourdieu, Dr. Sohail explained how cultural capital helps maintain upper-class tastes, leading to resource capture. He highlighted six key issues: induced markets, limits of efficiency, elite capture, excessive elite consumption, Pakistan’s catch-up with foreign-defined needs, and risks of AI reinforcing inequality.

He concluded by questioning how Saviotti’s model applies to a “servitized” economy, where perceived co-creation often benefits advanced producers, and called for deeper understanding of evolving consumption patterns and development paths.

Watch Dr. Safdar Sohail’s remarks here: https://youtu.be/hfTl-4ATtQY