Shahid Javed Burki article - Page 11

Predator · #**101** 2 Weeks Ago

Catch-up time for dynamic nations

By Shahid Javed Burki
Monday, 01 Mar, 2010

THERE have been catch-up periods before in world economic history when a country that had lagged behind caught up with the leader, sometimes even overtaking it. This is exactly what we are seeing in East Asia.

There is a consensus among the experts who keep track of the relative economic performance of states across the globe that sometime soon – perhaps very soon – the Chinese economy, when measured at the prevailing rate of exchange, will overtake that of Japan and thus become the second largest in the world.

What will be the implication of this for the rest of Asia in particular for the countries that border on China?

In this context three things are worthy of note. The speed with which China has caught up with Japan was without historical precedence. It could happen given the large differences in the structural rates of growth of the two countries

What quickened the pace was Beijing’s response to the economic slowdown produced by what the economists now call the Great Recession of 2007-09. Beijing decided to invest huge amounts of public and bank money in the economy to stop it from slumping. The state provided $585 billion from the budget and encouraged the banks it controls to loosen the purse strings. The banks consequently gave $1,200 billon loans to industries, state and municipal governments and to consumers for purchasing cars and appliances. The result was that the economy bounced back growing at 8.7 per cent in 2009. A double digit rate of growth is expected in 2010.

Second, a significant amount of investment was made in improving physical infrastructure, in particular in the areas that were distant from the east coasts. In other words, the Chinese were using the opportunity created by the need to stimulate the economy to bring about more balanced growth in the country.

Third, from the perspective of a country such as Pakistan that borders on China, a considerable amount of public money went into improving physical connections between it and the neighboring countries. While investments are being made to improve the Karakoram Highway ( KKH), and improve China’s access to the port of Gwadar, the Chinese for the moment are focusing on improving their links with Southeast Asia.

For instance, the construction of a bridge has completed a road link between Kunming, the capital of Yunan province in the south, with Bangkok in Thailand. Another bridge linking Yunan with northern Vietnam is nearly complete. The airport at Kunming is being upgraded with an investment of $3.4 billion. All this activity is one province; other border province, including Xinxiang that is next to Pakistan is also receiving considerable attention.

What this demonstrates is that the authorities in Beijing are not simply throwing stimulus money where it can be absorbed easily and wherever jobs can be created – the Americans call this the “shovel” ready approach. In fact they are turning the need to stimulate into a geo-political opportunity. This is the major difference between their approach and the one followed by Japan. Largely because of the destruction the Japanese brought upon themselves as a result of the activist path pursued in the period leading up to the Second World War, Tokyo has very deliberately followed an insular approach.

A defeated nation tends to become passive and that is what happened to Japan once it signed the armistice treaty with the United States. Also, the Japanese were much more interested in creating markets for their products in the West, in particular in the United States. If the penetration of the western markets produced problems and it appeared that retaliatory action may be taken, Tokyo encouraged the private sector to locate factories where the markets were located. Japan thus became a major automobile manufacturer in the United States.

The Japanese kept an arms-length relationship with the developing world, including the countries in East Asia. The only way they engaged with developing countries was providing aid – an area in which they were more generous than most of the western states. Even here they let the lead to be taken by western aid givers.

When I looked after the World Bank’s China operations in 1987-94, they were happy to leave a great deal of policy advice to us. Also the Japanese were not interested in financing flashy projects with which the country’s name would be associated in the minds of the recipients. China, on the other hand, is happy to be identified with high profile projects. It is well known in Pakistan, for instance, that the Chasma nuclear plant was financed and built by China. China was also deeply involved in the construction of the port at Gwadar and the KKH. One of its companies has won the tender to build the extension of the motorway system to Multan.

In China, we have a very different player arriving at the scene. Having reached the international scene as a victor, it has vigorously pursued its regional and global interests. Some of what it is likely to do and has begun to do to is irking the United States and other western powers but Beijing is not likely to relent. That said, the Chinese are more likely to accommodate the interests of other countries than was sometimes the case with the United States and other major nations when western powers held unchallenged sway.

As China continues to grow its economy at very high rates, it is also restructuring it. Some of what is being done will have great meaning for a country such as Pakistan with which it has had warm and uninterrupted relations for over half a century.

The country is now engaged in a process of managed urbanisation that has no precedence in human history. It is planning to move hundreds of millions of people from the countryside to towns and cities. A large number of these will go to the already crowded urban belt that stretches from Dalian in the country’s north to Guangzhou in the south. They will live and work in high rise building. Since China is short of livable space it makes sense to go vertical. This is something that Singapore has done with great success.

People work in high rise buildings assembling imported components into finished products for export to foreign markets. The suppliers of these parts are all over Asia, particularly in the continent’s eastern part. This is where a country such as Pakistan has an opportunity. It could develop strategic alliances with manufacturers in China, supplying the parts and components they need. Even in the rapidly expanding automobile industry – last year the largest number of cars was sold in China – while the factories cannot go vertical, the manufacturers will rely on foreign suppliers for the parts that need a lot of space to produce.

China is also moving rapidly towards developing a knowledge-based economy, moving its workers from manual labour to the kind of labour that needs highly developed skills. However, this is being done by pursuing a strategy that is different from the one the Indians followed. The Indians went for the low hanging fruit concentrating on meeting the West’s need for back-office support. The Chinese on the other hand are moving simultaneously in developing and linking software development with the manufacture of hardware. This is one other area where a rising China could help Pakistan in developing a sector in which the country has the potential but has ignored it until recently.

marilatif · #**102** 2 Weeks Ago

Ties based on economics

By Shahid Javed Burki
Tuesday, 02 Mar, 2010

DURING my recent visit to Pakistan and in discussions with senior political leaders, civil servants and prominent business people I emphasised that it was important to use economics as the basis of renewed relations between Afghanistan, India and Pakistan. This was also the subject of an earlier article in this space.

With January’s London conference on Afghanistan and the recommencement of talks with India, we have an opportunity to construct the structure of South Asian ties on economics. Most of what has made it so difficult for Afghanistan, India and Pakistan to work together is rooted in the circumstances that led to the partition of British India.

As is documented, Jawaharlal Nehru, India’s first prime minister, attempted to undo the act of partition by economically crippling Pakistan. In this effort he had Afghanistan on his side. Afghanistan refused to recognise Pakistan’s independence. Kabul was the only capital to vote against Pakistan’s admission to the United Nations. The reason for recalling that bit of history is not to endorse the current tension that continues to define ties among these three South Asian nations. It is simply to stress that this historical baggage has been difficult to cast off.

One way of moving forward is to estimate the economic costs and benefits of the various policies the three countries have pursued vis-à-vis one another in the past. We could begin with the example of Pakistan’s refusal to grant transit rights to India for trade with Afghanistan and Central Asia. The benefits that would accrue to India are obvious; I have made the case on several occasions that Pakistan would also gain considerably. It would, for instance, charge transit fees from the buses and trucks using Pakistani space.

The country would also benefit by servicing Afghan and Indian operators on the transit route. There would be several other advantages including the development of warehousing at certain points; Lahore and some designated places on Sindh’s border with Rajasthan on the one side and in Quetta and Peshawar on the other.

Serious economic analyses of the benefits of this new economic relationship should take stock of the pros and cons of such an initiative. If even in light of the potential benefits, policymakers are reluctant to open Pakistan for transit trade then they would know the economic costs of their approach.

Only once in their troubled history have India and Pakistan taken a particularly difficult decision on purely economic grounds. This was the Indus Water Treaty signed by President Ayub Khan and Prime Minister Jawaharlal Nehru at the urging of a group of experts assembled by the World Bank. The treaty divided the Indus system between Pakistan and India. Pakistan was given access to the three western rivers, the Indus, Jhelum and Chenab. India could use the water in the eastern rivers of the Ravi, Beas and Sutlej.

The treaty also established an elaborate system of dispute resolution which has been used only once even though the two countries have fought two bitter wars since the signing of the treaty. The popular and not terribly well-informed nationalist press on both sides continues to rage against the treaty. A section of the Indian media continues to condemn Nehru for having given away too much; as an upper riparian, it says, New Delhi could have gotten a better deal.

Similar charges continue to be levelled against Ayub Khan on the Pakistani side of the border. This issue could be settled if a careful economic analysis is done to estimate the benefits that have accrued to the two sides as a result of the treaty. These have been substantial for both.

There are other areas of cooperation that could be explored such as the easing of the movement of people across the borders, special facilities aimed at facilitating religious tourism and across-the-border investments by entrepreneurs in the three countries. There has been little progress in making the South Asia Free Trade Area a success largely because of India and Pakistan’s mutual suspicions.

Pakistan now recognises that it could become the centre of regional commerce if it allowed regional trade to flow unhindered through its territory. It is foolish not to realise this potential. India has a policy of looking east for developing regional trade, Pakistan favours trade with China on the east and the Middle East in the west.

It needs to be recognised by policymakers on both sides that the two countries are each other’s natural trading partners. At the time of partition India was Pakistan’s largest trading partner. It was dislodged from that position as a result of the trade war between the countries in 1949 when Pakistan refused to follow India in devaluing its currency with respect to the American dollar.

An approach based on economics may provide enough ammunition to those who argue that it is in the best interest of both sides to work together. As Islamabad and New Delhi sat down at the conference table and renewed their dialogue, hostile voices were raised on both sides. India Today published a report under the caption of ‘The Karachi project’. It was claimed that intelligence agencies were using Karachi to train and launch disgruntled elements within the Indian Muslim community to commit acts of terrorism in India.

Serious reservations have also been expressed by some on the Pakistani side that the country, perhaps under the pressure of the Americans, was preparing to give up its claim on Kashmir. These kinds of claims and counter-claims will continue for as long as we don’t base relations between these two countries on economics. The same is true for Pakistan’s relations with Afghanistan.

Predator · #**103** 1 Week Ago

Asian nations in the ‘catch-up game’

By Shahid Javed Burki
Monday, 08 Mar, 2010

AS the Planning Commission continues to work on preparing the Five Year Plan 2010-15, it would do well to carefully study the changes in the global economy, in particular how the chairs are being rearranged on the Asian economic deck.

Two developments are particularly worthy of note: one, the reemergence of the state as an important economic player and, two, the emergence of China as the most significant Asian economy. The planners must reflect on both in designing Pakistan’s economic future.

Two developments, the first decades old and the second very recent, have reshaped – and are reshaping – the global economic landscape. The first is the process of globalisation that reduced the distance among different economies in the world, not in the physical sense, but in the sense of the easy flow of capital, trade, information and technology.

Globalisation has produced a global economy the like of which the world has never known and the process will continue to move forward with enormous consequences. The second development is what economists and people of finance call the Great Recession of 2007-09 to distinguish it from the Great Depression that took such a heavy toll in the 1930s.

What was “great” about this particular downturn in economic activity was that its origins did not lie in the normal working of the large economies that produce trade cycles with some frequency. The slow down that seems to be winding down was great for three reasons. The ferocity with which it struck; it took the form of an economic tsunami not many had predicted. It was caused not by the normal ups and downs in economic activity but by misplaced faith in the rationality of the markets. And it is likely to change dramatically the structure of the global economy. It is the third aspect of the Great Recession that I will explore.

Going back to the analysis of “catch-up” offered by Alexander Gerschenkron, the premier economic historian of the 20th century, the role the state plays in the process acquires special significance. There is the need to put considerable stress on what governments can do to better the lives of their citizens. The government’s role as an economic player was relegated to the back benches in the 1980s by the economic philosophy that accompanied Ronald Reagan to the White House.

Called The Washington Consensus, this view left the private sector to its own devices, even to regulate itself. Forced on the back-bench, that’s where the state remained until it was called upon to act again to save the world economy from collapsing in 2008. Summoned back, the state acted impressively in both developed and developing countries. China was at the forefront of this move closely followed by the United States.

It is interesting that even the Chinese had succumbed for a while to a weaker version of the Washington Consensus. Pakistan during the period of President Musharraf adopted this approach as well. With the state having roared back to life, what will it do to shape the economies of the developing world? In this context what role should be assigned to the state by the planners? One answer to the second question is to be found by looking at the reshaping of the global economy that is currently under way.

Taking cue from those who have studied various episodes of “catch up” in economic history when some of the economies that had lagged behind caught up with the leader, it is hard to escape the fact that China is currently involved in this process. China, which some time in 2010 will become the second largest economy in the world, overtaking Japan that held that position for several decades, will have enormous influence on the developing world, particularly countries such as Pakistan that it borders. This is a particularly relevant occurrence for Asia not because one Asian economy is replacing another. What makes it significant is that the structure of the Chinese economy and the way that structure is changing will matter enormously for the rest of Asia.

While Japan is from Asia, when its economy became “developed” it joined the ranks of those that were similarly placed. Japan’s linkages with Asia were weak; those of China are becoming strong. One good indication of this is the inauguration of the China-Asean Free Trade Area in January 2010 that will have profound consequences for the economies on its periphery.

Unlike some of the earlier catch up incidents, China, having almost overtaken Japan and may in the next several decades bypass the United States as well, will remain a relatively poor country dependent on the rich for markets and technology. This introduces an entirely new dimension in the “catch up” game.

For many decades to come, the global economy will be dominated by two economies that will not compete as much – as Britain and France did during the first catch up episode a couple of centuries ago – but complement one another.

Notwithstanding the current exchange of difficult words between Beijing and Washington, I believe that the global economic architecture will neatly arrange itself into three tiers: the United States and China at the top (the G2), a number of secondary powers in the middle (the G20), and the rest of the world forming the base of the pyramid.

Those who believe that such a system dominated by two economies will not be stable derive the wrong lesson from the Cold War when for four decades the United States and the Soviet Union confronted one another, sometimes with murderous intent. It was only the mutually assured destruction made possible by the possession of thousands of nuclear weapons by the two sides that prevented the globe from being reduced to a giant mushroom cloud. It is not necessary that a great power must always beat back competition and seek total domination. When competing powers need each other as do the Americans and the Chinese, they will learn to work with another. This is likely to happen within the context of the global architecture for economic management that is being put in place.

While mutual dependence is likely to create equilibrium in the global economy – and also keep the political system in balance – could the same be expected in Asia? The continent has not one, not two but three great economic powers.

While Japan seems not concerned with the second rank it is soon likely to assume in the continent in terms of the size of the economy, would India be content to be the third? More important will it be prepared to be relegated to the second tier in the hierarchical structure I see emerging to manage global economic affairs?

I would like to emphasise that for India to gain the economic and political stature it desires, it will need to achieve a number of things: tranquility around its borders, an economic system that delivers to the less advantaged segments of the population, particularly in terms of education and skill development, development of physical infrastructure that can support a rapidly growing and modernising economy, and an economy that is more outwardly oriented so that it can take full advantage of the rapidly changing systems of trade and production. If it is able to do most of these things there is no reason why some time in the future the system’s apex can’t expand from the G2 to the G3.

Predator · #**104** 6 Days Ago

Persistent economic woes

At this stage, three types of investment are particularly important. These are: developing the human resource, improving the technological base of firms and improving physical infrastructure.

By Shahid Javed Burki
Tuesday, 09 Mar, 2010

PAKISTAN remains in the de pths of economic gloom and des pair while most of the rest of Asia is bouncing back from the slowdown economists call the ‘Great Recession of 2007-09’. Pa kistan’s two giant neighbours are performing particularly well.
China’s rapid recovery has surprised even the most informed observers. In the last quarter of the previous year the economy expanded by 10.7 per cent. The rate of growth in 2010 is expected to be 10 per cent, perhaps even better.

The Indian economy has also begun to recover. The country’s finance minister, while presenting the budget for the year 2010-11, forecast that the rate of growth during the year will be 8.8 per cent. He believes that the country will touch 10 per cent GDP (Gross Domestic Product) increase in a couple of years. Industrial output in the fourth quarter of calendar 2009 increased by 17 per cent. Even Bangladesh is looking forward to a rate of growth of six per cent.

The picture in Pakistan is very different. The rate of increase in GDP in 200910 was about two per cent. It would have come out lower had the government not revised downwards the rate of increase for the previous year. For the current year, even the more optimistic government officials don’t expect the rate of increase to be more than 3.5 per cent. The Planning Commission is currently drafting the 10th five-year plan which will cover the period 2010-15. It would like to see growth pick up, perhaps, to five per cent average for the period. Even if this more optimistic projection is realised, the per capita income gap between India and Pakistan will widen considerably and Bangladesh could soon catch up with Pakistan. What is more worrying is that the impact on the incidence of poverty with this kind of growth rate will not be significant. This has all kinds of nasty implications for social and political stability.

Given this what should the authorities do to revive growth? There are many an swers to these questions. However, instead of listing all the imperatives for economic revival and growth, I will today focus on one contributor: increasing the economy’s productivity. The rate of GDP growth, of course, is a combination of the increase in population and the accompanying increase in the size of the work force and productivity. If the population is increasing at the rate of two per cent — Pakistan’s growth rate is said to be a bit lower than that — and total factor productivity is increasing by three per cent, the GDP will increase by five per cent.

What can be done to increase the rate of productivity of the work force? What can be done to improve the productivity of the capital employed in the economy? What should be done, in other words, to improve the efficiency of the economy?

In the spring of 2006 I had two interesting conversations on this subject with the country’s two top leaders — President Pervez Musharraf and Prime Minister Shaukat Aziz. I challenged the statements the two were making according to which their policies had put the Pakistani economy on the trajectory of high and sustainable rates of economic growth. Both had said that the Pakistani economy was in a position to increase at the rates between seven and eight per cent a year. Aziz had even persuaded the Newsweek about the validity of the story he was telling.

Calling Pakistan a “sleeping giant that was waking up”, the magazine put the Pakistani story in a large spread in one of its issues in March 2007. I told the president that it was highly unlikely that the Pakistani economy could grow at the kind of growth rates he and his prime minister were implying in their speeches. These growth rates would be possible only if the economy was operating with remarkable efficiency.

While I have not seen a recent esti mate of the efficiency of the Pakistani economy my guess is that in the current situation the ICOR (Incremental Capital Output Ratio) is perhaps as high as five to six. This means that the country has to invest five to six per cent of GDP to produce a one per cent increase in GDP.

Several types of investments need to be made in order to lower the ICOR. Of these three are particularly important: developing the human resource, improving the technological base of firms and improving physical infrastructure. In developing the 10th five-year plan the Planning Commission should clearly make provisions for these three types of investments and provide estimates of how they will increase economic efficiency.

The effects on the economy of power and gas shortages, of a poorly function ing railway system, of ports that can’t handle large ships so that cargo bound from or to Pakistan has to be offloaded in places such as Colombo and Dubai and then shipped to Pakistan, of conges tion on the roads, are apparent. What is not easily seen and hence not demanded by the citizenry are actions aimed at increasing the efficiency of the firms. Their improvement has to be the focus of public policy.

The Musharraf government appreciated at least one of these shortcomings. In the Higher Education Commission (HEC) it set up an institutional mechanism that promoted higher learning in technology and science. Much of significance was achieved.

However, as has happened so many times in the country’s history, the successor government discontinued some of the more ambitious and imaginative initiatives the HEC had taken. It is interesting to note that India has now decided to set up an HEC type of body so that the country keeps up with the advances being made in other parts of the world. Perhaps a public debate on the importance of the issues I have identified today as deserving of government attention will lend continuity to the policies once they are adopted. ¦

Predator · #**105** 2 Days Ago

Targeting high growth with equity

By Shahid Javed Burki
Monday, 15 Mar, 2010

THE two continental Asian giants – China and India –seem to be adopting basically the same set of policies for moving forward the two large economies.

At first glance, Beijing and New Delhi, having recently announced policies they will be following as the recovery from the recent downturn takes hold, appear to be embarked on the same course. Parnab Mukherjee announced the budget for the year 2010-11 on February 26 and promised that the rate of Indian economic growth was headed towards double digits. He also opened the economy a little bit more to those outside the country who would like to place their bet on an expanding economy. Prime Minister Wen Riabao delivered his annual economic speech to the National People’s Congress on March 5 and also saw his country’s economy moving ahead briskly.

Both leaders were cautious about the international environment in which the two economies will be functioning. “While the global financial condition has shown improvement over the recent months, uncertainty about the revival of the global economy remains. We cannot, therefore, afford to drop our guard”, said Minister Mukherjee in his Lok Sabah address.

Much the same sentiment was expressed by the Chinese leader. “We must not interpret the economic turnaround as a fundamental improvement in the economic situation. There are insufficient internal drivers of economic growth” said the Chinese leader in his two-hour long address. In other words both capitals were indicating that they will not be pulling back on the efforts to stimulate their respective economies. These efforts had paid off but it was not the time to ease off.

Both leaders, while emphasising the importance of high rates of growth in their economies, gave a great deal of attention to distributive aspects. While the emphasis on redistribution was not new in the Indian way of thinking on economic issues – it was the platform on which the Congress Party was elected last year to another term in office – the stance adopted by the Communist party of China was a relatively new one.

A Communist country was supposed to look after its poor and the less advantaged. It didn’t have to make an explicit commitment to such a policy in its pronouncements and plans. But Prime Minister Wen went some distance in ensuring his citizens that meeting their social needs will be a high priority of the administration he was heading.

“We will not only make the pie of social wealth bigger by developing the economy, but also distribute it well. We can ensure that there is sustained impetus for economic development, a solid foundation for social progress, and lasting stability for the country only by working hard to ensure and improve people’s well being” he said in his address.

Reading together the two statements it is striking how much the Indian leadership emphasised the need to maintain high levels of growth rates while the Chinese leaders were promising to care for the poor.

Until recently – in fact up to the Great Recession of 2007-09 that shook the global economic system – the two countries had followed different models. China had relied much more on using external markets to develop scale for its industrial system. In that and several other respects, it had followed the East Asian model of export oriented industrialisation.

India, on the other hand, had pursued import substitution for industrialisation for more than first 40 years after achieving independence. When it opened its economy to the world outside starting in the late 1980s but more fully after 1991when the then Finance Minister Manmohan Singh had to deal with a serious balance of payments crisis, the Indians continued to be cautious about foreign participation.

Although the “license raj” that owed its existence to Jawaharlal Nehru’s socialisation of the Indian economy was dismantled, the participation of foreign capital remained constrained. It was allowed in a limited way into some sectors of the economy. Its involvement in the sectors of finance and retail trade was quite severely constrained. Foreigners were also not encouraged to participate in the development of the social sectors, in particular education. The Indians were now making an effort to open their education sector. They indicated that new incentives will be offered to private operators from the outside to enter the education market.

The Indian budget also promised a major effort in improving the quality and reach of physical infrastructure. The development of high-class highways was to be given special attention. In the budget for the railways, there was promise that quality of the services provided will be greatly improved by developing high speed railways. Here the two countries have adopted different approaches. The Chinese, having anticipated that a rapidly developing economy will need a well functioning transport system, began to invest in highways and railways early on. The Indians were now playing catch-up.

There are subtle differences in overall direction of public policy in the two countries. It is growth with continued emphasis on poverty alleviation in the case of India. It is considerably greater focus on distribution while maintaining a reasonable rate of growth in China’s case.

The Indian policy statement can be read as more directed at foreign audiences while that of the Chinese was more aimed at its own citizenry. New Delhi seemed anxious to make the case to foreign investors that the country should be a major destination for the funds they controlled.

With a high trade deficit and with still lower rate of savings than China’s, New Delhi was more dependent on foreign capital flows. It would like these to take the form of foreign direct investment. Portfolio investments were welcome but they had proven in the past to be a very volatile source of external flows.

However, to receive FDI in large amounts, potential investors had to be convinced that the Indian economy could expand at the rates that were comparable to those achieved by China and sustained over a long time. Minister Mukherjee, by repeatedly underscoring that a double digit rate of growth was well within India’s grasp and that such a rate of expansion could be sustained over time, was speaking to the foreign investor.

The audience for Prime Minister Wen was mostly within the country. He and his colleagues had heard the people. The people had voiced many concerns. The escalating price of urban housing was one of them. The discrimination against migrant workers said to number 240 million was another. Not only were their wages relatively low, they did not have access to the many social services that were available to the common urban dweller. They were also not secure about their place of residence. The Chinese law and practice required the unemployed to return to their place of origin.

Voices had also been raised about corruption in the ranks of the Communist party. The more informed public opinion that had the knowledge of such affairs was also worried about the widening income disparity. While Deng Xiaoping had famously said that it was glorious to be rich, he did not envision the kind of wealth accumulation that had occurred under the watch of his successors. It was interesting that an authoritarian structure was being so sensitive to the concerns of the common men and women. The Chinese prime minister promised to reduce the gap between the rich and the poor and between the more advanced parts of the country and those that had fallen behind.

In sum, Beijing and New Delhi were moving forward but were taking slightly different routes. For India achieving high growth rates was critical; for China, there had to be renewed commitment to improving the lot of the poor.

Predator · #**106** 2 Days Ago

Know your history

By Shahid Javed Burki
Tuesday, 16 Mar, 2010

WE don’t write much history; we read even less of it. Not much history is taught in schools and the little that is taught is not very accurate and reflects many biases that don’t help us to understand what we are and where we are headed.

I write all this as a prelude to expressing my strong belief that a society that does not come to terms with its past is not only destined to repeat it. It will also fail to draw any lessons from history.

As a person who has been in the field of economic history for decades, what is it that I think we should note from our history that can help us with our present and also give us the tools to fashion the future?

Probably the best way to answer this question is to define the ‘Pakistani way’ of managing the economy. Today I will focus on one aspect of our economic history: how we have allowed ourselves to come under foreign influence in the making of policy. We have done that in spite of a great yearning to be free of external influences. However, we are not prepared to recognise that the two positions are contradictory. To recognise this we have to be more conversant with our history, in particular our economic history.

A number of elements comprise the Pakistani way. The first, of course, is to put far more emphasis on the present than on the future to determine how we wish to spend our time and money. This attitude lends to emphasising consumption over savings and investment. For a person who does not live in Pakistan but travels to the country frequently, I am always struck by our lavish way of entertaining and the way we spend on occasions such as weddings, birthdays, anniversaries, even on events such as Valentine’s Day.

One direct corollary of this is that we have become very dependent on external capital flows for investing in our future. If foreign governments are the source of this flow of money then it is obvious that those who provide it will exact a price for it. Governments don’t normally provide charity. The only time they do that is when they face a natural disaster such as the earthquake in Pakistan’s north in 2005. On these occasions there is enough concern about fellow human beings for rich countries to come to the aid of those that are less fortunate.

In the normal course of things, however, the governments that give large doses of development aid seek to advance their strategic interests. If there is some truth in these assertions, the Pakistanis — or for that matter the citizens of any country — can’t have it both ways. They can’t continue to depend on foreign largesse to finance economic development and, at the same time, crave for an independent foreign policy. To be independent in foreign affairs, a nation has to be self-reliant. This was the basis on which leaders such as Mao Zedong in China and Jawaharlal Nehru in India built their nations.

In the case of Pakistan the leaders who were temporarily successful in the field of economics were those who were able to obtain large flows of external finance from abroad to meet domestic needs. This is why the rates of GDP growth in the periods of Ayub Khan (1958-69), Ziaul Haq (1977-88) and Pervez Musharraf (1999-08) were considerably higher than those at other times.

The fact that all three headed military administrations does not necessarily mean that the armed forces were more inclined to align the country with the West, in particular the United States. What it really implies is that the military did not have to bother about public opinion; it could forge relationships it regarded in Pakistan’s interests and also in its own interest. Sometimes the latter differed from the former.

Various public opinion surveys have shown that the Pakistani public does not approve of the United States and the policies Washington has been pursuing in various parts of the world. This view has not changed in spite of the change of administration in the United States.

There was a view when President Barack Obama took office that he would be able to improve the way the Americans were viewed by the people in the Muslim world. Last June he went to Cairo where he delivered a speech that addressed the main concerns the people of the Islamic faith had about the way his country had conducted itself in world affairs. He said that he was sensitive to the way Muslims viewed Washington’s policies. He had many friends from the Muslim community and several members of his family were Muslims. He had, in other words, heard it all. That was one reason why he travelled to Cairo — to try to build a strong bridge between two cultures; the Islamic culture and the West — so that mankind could work towards the achievement of common goals.

This message resonated well with most of the Muslim world but it seems not to have made any difference to the way the Pakistanis view the United States. Among the many different peoples of the Muslim world, President Obama is least popular in Pakistan. And yet, because of the way in which Pakistanis have managed their economy, they remain dependent on America and institutions such as the IMF and the World Bank over which Washington has considerable influence. This leads me to raise two questions.

First, why are the Pakistanis so critical of the United States and what the country stands for? Two, what needs to be done to translate this antipathy towards Washington into the right set of public policies? I will return to these questions over the next several weeks.