POLITICAL ECONOMY MODEL,INSTABILITY


By Yousuf Nazar

THE lawyers’ community has shown a remarkable unity in rising against the unprecedented actions against the Chief Justice of Pakistan. The political parties are calling it an assault on the judiciary while the government has maintained that the opposition is politicising, what it calls, a ‘constitutional matter’. This characterisation is an oxymoron because politics, by definition, concerns all matters concerning governance and the three branches of government including the judiciary. The media has been outspoken in its coverage. Prominent former judges have termed this crisis as a defining moment in the history of Pakistan.

Some analysts have described it as a pre-emptive strike by General Musharraf to continue to don the uniform and tighten his grip on power in the backdrop of growing unease in the West over his failure to stop the Taliban insurgency but more importantly the perception that his support in Washington may be waning.

This article argues that military rule, by systematically damaging the rule of law, has imperilled Pakistan’s development prospects and the current crisis needs to be debated in that broader and fuller context. It is old news that the Pakistan’s military rulers have always operated above the law and have never been accountable to the courts despite pretensions to the contrary. The conquest of the judiciary will remove even that pretence and will destroy whatever is left of that institution.

The business community seems to be watching from the sidelines hoping that this crisis will somehow get resolved and it will be `business as usual’. Pakistan’s successive ruling establishments, business elites and many former World Bank trained economists have been admirers of the economic growth achieved during different military regimes and point to the higher levels of aid flows, in particular the aid from the United Stated, as an important element of “better” economic performance.

The role of economic aid has been exaggerated and is not supported by facts. From 1980 to 2007, remittances from Pakistanis abroad accounted for a much greater share of external financing requirement than foreign aid and borrowings from all sources combined. For example, while the US aid package for General Zia’s regime was $3.2 billion during 1982-1987, remittances were five times as high at $15.2 billion during this period. Further more, it must not be forgotten that the remittances during the five years post 9/11 reached an aggregate of $22 billion compared to just $5.3 billion during the five-year period before 9/11.

While it is true that since 9/11, US military aid alone totalled almost $4.75 billion from October 2001 to August 2006 in addition to the $3 billion five-year economic assistance package, one cannot build a model of political and economic development that involves a continuous state of external conflict be it the “jihad” against the Soviets in the 1980s or the “war on terror” since 2001.

It can be argued that costs of the conflict, that is, the breakdown of the rule of law, criminalisation of society due to drugs and arms trafficking, and the decline of the state power due to the rise of powerful non-state actors such as violent extremist groups, have far outweighed the economic benefits that may accrue from such ‘aid’. Equally importantly, the ‘aid addiction’ has encouraged the governments not to undertake critical economic reforms. For example, Pakistan will hardly need any external aid if it could increase its tax-to-GDP ratio from a lowly 10 to 15 per cent.

Going beyond the issue of aid, the question that has not received the level of in-depth attention it deserves is whether the model of the political economy of a security state that Pakistan has followed since the late 1950s, except through a brief interlude during 1972-1977, can survive in the 21st century?

The role of the government, super power or not, is shrinking and the private capital has emerged as a powerful driver of economic change in an increasingly globalised economy with international competitiveness emerging as a measure of a nation’s strength and not its military prowess. The net aid flows to the developing countries account for just 10 per cent of private capital flows.

The power of the World Bank and the IMF is on the decline, the future of multilateral institutions like the Asian Development Bank is being questioned, and the United States has resorted to the use of military power, in part, because its economic power has declined over the past two decades. The spectacular growth of China and India has been underpinned by stable political systems and skilled human resources and not by arbitrary governance, aid, or nuclear weapons.

For those who believe that Pakistan can progress under a military or quasi-military rule supported by the US, the supremacy of the Constitution and the rule of law have been largely academic questions. This school of thought believes that so long as the military can maintain law and order - a euphemism for an autocratic rule - and allow the private sector to do business and make money, Pakistan can do without the ‘luxuries’ like a sovereign parliament, an independent judiciary and the rule of law. Hence, it has never objected to the gradual and systematic emasculation of the judiciary. A top industrialist remarked that he is not concerned about this crisis and only thing that matters is that uncertainty is removed as soon as possible otherwise the economic growth may suffer. But GDP growth is not the most meaningful measure of progress and development.

Pakistan’s average GDP growth rate was 6.66 per cent during the five-year period from 1963 to 1968. The GDP growth rate was 9.79 per cent in the fiscal year 1969-70, the highest ever in the last 50 years. Within the next two and half years, neither the ‘record GDP growth’ nor the military or the famous tilt of President Richard Nixon towards Pakistan could save the country from dismemberment and a complete collapse.

Thirty seven years later, some of us do not appear to have learned that the military and the support of a super power cannot ensure the survival let alone success of a state. In the absence of a truly representative and sovereign parliament, an accountable executive, an independent judiciary and a genuinely free media there can be no hope of building a sustainable politico-economic system that can compete in today’s highly competitive global markets.

The Global Competitiveness Report (2006-2007) published by the World Economic Forum-- the elite club of World’s political and economic leaders-- states that while factors underlying competitiveness of nations are as diverse as they are numerous, the presence of macroeconomic stability is not enough. The report argues that equally important is “the institutional environment within which economic actors operate, including the protection of property rights, the quality of judicial system, even-handedness in the political process, and the reining in of corruption.”

The report lists the institutional environment as among the most basic and critical pillars of development for poor countries like Pakistan; even more important than business sophistication and innovation. Pakistan is ranked 93rd out of 122 countries on the basic requirements while the report lists government instability/coups, corruption and policy instability as the top three most problematic factors for doing business in Pakistan.

Why then Pakistan has received a record amount of foreign investments in the last few years? The answer is not that difficult. The period since 2000 has seen the highest ever level of global liquidity accompanied by an all time high global GDP growth since the 19th century industrial revolution. But even during this period of extraordinary benign global economic environment, foreign investment flows into Pakistan have remained concentrated in three sectors (telecommunications, financial sector, and oil and gas) and have largely come from oil-rich states.

These investment flows together with the US aid seem to have convinced the current establishment that Pakistan does not really need a real democracy and the rule of law. This is a short-sighted and dangerous view and suggests that those who so fondly remember Ayub Khan’s economic performance have not learned the lesson that growth without development of the people but more importantly growth without building strong democratic institutions and establishing the rule of law could not be sustained and failed to stop the precipitation of the crisis that had been brewing under the Field Marshall for a decade and ultimately led to Pakistan’s dismemberment soon after he left the stage.

Source: Dawn, April 9,2007 Economic & Business Review.

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Yasser Chattha