Trading ideas with neighbours
By Shahid Javed Burki
Monday, June 08, 2009
THE movement of goods and people across borders can be blocked by the use of administrative fiat. This is difficult to do in the case of ideas. This is also true for South Asia.
The region has erected all kinds of barriers to inhibit the movement of people and to discourage trade. This is not just the case for the way India and Pakistan have managed their joint borders.There is not as much trade among other countries of the region as the gravity model of trade will have us believe.
According to the model, trade is determined by two things: the mass of trading partners and the distance among them.The size of India and the fact that it shares borders with all countries of the region save Afghanistan and the Maldives, should have meant that India would be the dominant player in the pattern of international trade for the region.That has not happened; the gravity model has not worked for South Asia.
Politics and bureaucratic hurdles – and to some extent protectionist instincts of the policymakers – have come in the way. India should be the main destination of exports for the countries of the region and also the origin of a significant proportion of their imports. This is not the case for Bangladesh, Pakistan and Sri Lanka.
The only countries where this is true are the landlocked Bhutan and Nepal. For them trade links are the consequence of their geography not necessarily the product of public policy.
The South Asian countries, on the other hand, have looked across their borders and learnt a great deal from one another. Most of this learning was done by watching what was happening in other countries. There was little formal exchange of ideas by policymakers – even by think tanks. The forums from where such exchanges could have been exchanged simply did not exist. This was certainly the case with India and Pakistan.
There are some links between Bangladesh and India but even these are sporadic and relatively infrequent. There are no such links between, say, Pakistan and Bangladesh or between Pakistan and Sri Lanka.
In the domain of ideas, although India has been the main exporter, Bangladesh has also been fairly active. Pakistan also briefly played that role when, during the presidency of Field Marshal Ayub Khan, it had begun to be taken seriously as the model of economic success. This was the line taken by the experts drawn from the Harvard University’s Development Advisory Service who had helped with the development of the Pakistani approach to economic progress. Some of the books they wrote were read with a great deal of interest by the development community.
Pakistan, it appeared, had managed to find a cure to a disease that the Swedish economist Gunar Myrdal called the prevalence of the “soft state” in South Asia. This was the state that neither had the political will nor the bureaucratic competence to deal with the strong vested interests that were not keen to see structural changes take place in their societies.
Initially the main idea imported from India was that of the use of central planning to allocate capital among the users favoured by the state. Jawaharlal Nehru, the first Indian prime minister who remained in that position for 17 uninterrupted years, was enamored of the Soviet style of centralised planning.
He had bought the Soviet belief that the only way time could be compressed for converting an agrarian society into an industrialised one was by allowing the state to manage the economy. This was done by Moscow by nationalising all economic assets owned by the private sector. This included land agricultural as well as urban.
In borrowing the Soviet style centralised planning Nehru did not go that far; he did not nationalise private property. But he did put the Indian state on the “commanding heights of the economy”.
What the phrase meant was that the state had the right and the duty to control and guide the private sector – to determine how much it will invest, where will it invest, what and how much it would produce, how it will obtain the inputs required for production, and how would labour be compensated and what would be the conditions under which the workers would work. Thus was ushered in the “licence raj” in India.
What it actually meant for the Indian private sector was described in vivid detail by Gurucharan Das, one of the senior executives of a transnational corporation that had large operations in India. Das’s book appeared after the “raj” was dismantled by then finance minister Manmohan Singh.
Pakistan borrowed the idea of central planning from India and started work on the First Year Plan for the period 1955-60. The document could not be produced for the reason that politics got in the way. It was only in 1958 that the plan’s draft was produced but it was no longer consequential since the period covered by it was almost over.
However, the military government that was in power at that time empowered the Planning Commission to begin serious work on the Second Five Year Plan for the period 1960-65. This was done and the plan began to be vigorously implemented.
It was a great success in terms of producing an unprecedented rate of growth in the economy. Although the idea of centralised planning came from India, the strategy that Pakistan adopted was not Indian in origin. In Pakistan, the government wished to focus on igniting growth in the economy and placing its faith in the “trickle down effect” for helping the less advantaged segments of the society.
There was a different set of objectives in India. There the constitution obliged the planners to focus on the poor. The constitution had directed “the ownership and control of the material resources [should be] as best serve the common good” and that “the operation of the economic system does not result in the concentration of wealth and means of production to the common predicament.” There were no such constraints on the Pakistani planners.
The government headed by Ayub Khan also bought some aspects of the licensing system from India but it was less vigorous than the one the Indians had operated. Pakistan allowed much greater space to the private sector than the Indians did.
It was only after Zulfikar Ali Bhutto assumed power that the private sector came to be tightly regulated. Bhutto in that sense was a “Nehruvian”. But he went a step further. Nehru had eschewed nationalisation as a way of increasing the presence of the state in the economy, preferring to do it by expanding investment in industry by the public sector. Bhutto, on the other hand, resorted to wholesale takeover of private assets by the government. The two-year nationalisation spree by the government in 1972-74 changed in a fundamental way the structure of the economy.
In the early 1990s, both India and Pakistan changed the way they looked at the state as a player in the economic field. Both adopted a series of measures to reduce the presence of the state in the economy.
In that respect, the policymakers did not borrow from each other but followed what was being advocated by development economists working in a number of Washington-based institutions.
Some of the members of the Manmohan Singh team that instituted reforms in India had worked at the World Bank and had participated in the development of the thinking that came to be known as The Washington Conesus. Later, in the early 2000s there was a significant amount of borrowing from India by the government of President Pervez Musharraf as it gave even more space to the private sector.
The conclusion is clear. While the South Asians may not have traded much with one another, they have been quite active in learning from each other’s experiences. If this were to be recognised explicitly it could perhaps help to improve cooperation in other fields as well.