Professor Hirschman and Pakistan

By Shahid Javed Burki


I was a student of Professor Albert O Hirschman at Harvard in the late 1960s. First at Harvard’s Kennedy School and later at the University’s Economics Department, Professor Hirschman taught me development economics. He was a pioneer in that area of economics, one of the few economists who developed the discipline but was not awarded the Nobel Prize. He was not recognised for the reason that it was difficult to pin down his specialty: was he an economist or a political scientist; an anthropologist or a sociologist; a historian or a philosopher. Professor Hirschman died a few days ago, in New Jersey, at the age of 97. His last affiliation in the academia was with the Institute of Advanced Studies in Princeton University that was made famous by Albert Einstein, the scientist who changed physics and the way we know the world today.

When I was a student of Professor Hirschman’s, he was working on a book that was to have a profound influence on several disciplines. In the several discussions I had with him then, I talked about Pakistan. At that time, the prevailing wisdom at Harvard was that Pakistan under president Ayub Khan had found the road to economic success. Hirschman did not buy that conclusion. He believed that an inflexible political system did not have the capacity to absorb discontent when it surfaced. His book titled Exit, Voice and Loyalty: Responses to Decline in Firms, Organisations and States appeared in 1970 and dealt with the subject of alienation and some possible reactions to it. If people are unhappy with the situation they are in, asked Hirschman, how do they normally respond? This question became extraordinarily relevant with the launch of the Arab Spring in 2011. It is also tremendously relevant for today’s Pakistan.

Hirschman looked at three possibilities. People could remain loyal to the system that has caused them anxiety and despair. In that case, their hope will be that they can work within the system to reform it and thus improve their own situation in it. This happens in most functioning democracies. People use the opportunities inherent in democratic systems to improve what they receive from politics and economics. The second option is to raise their voice. That can be done by stepping out of the system and entering into a different kind of discourse. This is essentially what was done by the participants in the Arab Spring. The Arab street woke up when the realisation became acute that the autocratic structures in several Arab states did not have the space in which the alienated could raise their voice. They took to the streets and to the public squares and brought about regime change in several countries that had been governed for decades by autocrats.

The third option — of exiting the system — is the most radical of the three that Hirschman considered. This has happened in Syria. Earlier, it happened in Pakistan when the citizens of the eastern wing decided to opt out and create a country of their own. They had tried hard to remain within the Pakistani system as conceived by Mohammad Ali Jinnah but the political structure within West Pakistan could not countenance the idea of political power moving from Islamabad to Dhaka. That would have happened had the results of the 1970 election been allowed to create the government that would have been dominated by East Pakistan’s Awami League. What followed is familiar history.

There can be no denying the fact that the level of people’s alienation with the current economic and political systems in Pakistan has, at this time, reached a level never experienced before. And yet, the citizens have chosen to remain within the developing political order, rather than opt out and try for something new. That the people’s response this time around has been different from those in the Arab world is because of their belief in the political order that is under development. But the process of development has been messy which was to be expected. This brings me to another point that Hirschman developed in his long academic career.

He was of the view that progress is never linear. It does not happen in a smooth way, either with the economy or with the political system. Most systems operate through disequilibria making adjustments as they go along. According to Jeremy Adelman, a professor of history at Princeton whose biography about Hirschman will be published next year, the late professor thought “disequilibria creates a problem that you have to solve — and that’s a good thing. Somehow we only think in terms one thing to happen; everything else will coalesce around it and we’ll come out all right”. But change in the world of politics and economics is much more complicated than that. Had he been viewing the situation of today’s Pakistan, he would not have despaired. He would have suggested that in today’s turmoil are to be found the seeds of positive change. The tensions that we see today in the structures of country’s economics and politics will get resolved in time. The important thing is not to exit the system, to stay loyal to it but continue to raise your voice to get the change that would be positive for the entire citizenry. To quote from Adelman again, Hirschman thought that “even the most seemingly immutable, impossible situations could be solved, that you could change things that seemed unchangeable.” There is an important lesson in this for Pakistan.

Source: Professor Hirschman and Pakistan

Sindh’s missed opportunities

By Shahid Javed Burki
January 14, 2013

The story of the use of endowments in Sindh is that of missed opportunities. The province shared Punjab’s two endowments — a rich agricultural base and small, skill-based manufacturing sector. The latter, however, differed from that of Punjab. Much of the province’s small manufacturing base was artisanal, making adornments for buildings and producing colourfully embroidered garments. These could not have become the base for industrialisation. Sindh’s two other endowments took the provincial economy in a different direction. It had abundant supplies of gas and coal and a seafront with a number of natural harbours. Gas reserves were exploited but unfortunately, not in the most productive way. The enormous reserves of coal remain to be tapped. Even with increasing international environmental concerns about the burning of coal for producing power, Sindh has to find a way for developing this rich endowment. Coal remains, and will continue to remain, the major source of energy for such large economies as China, India and the United States. Sindh and Pakistan also need to move forward and use this resource in a responsible way.

While the Karachi port has been developed well, it is the city’s location on the map of international air routes that has not been exploited. This is another case of a missed opportunity. When long-distance air travel became commercially viable, Karachi turned into an important stopping point for several airlines operating out of Europe and the US. It lost that advantage to cities such as Dubai and Doha that were nowhere on the map when Karachi was already an important airport to call on for several Western companies. Now, Karachi is just one of the many links the Middle Eastern airports have developed with near and distant destinations. It was the adoption of wrong public policies that lost Karachi this comparative advantage. But this was not the only missed opportunity.

I will discuss two more. One of these had to do with the Pakistan International Airlines (PIA) whose advertisements once use to boast that they were “great people to fly with”. In the 1970s, the airline earned a reputation for efficiency and good service. It was engaged by what are now some of the 21st century’s more developed Asian and Middle Eastern airlines to get them started. The PIA now has deteriorated to the point that in 2013, its very existence as a separate entity is threatened. It now has the highest ratio of employees per plane, the result of having been used — along with several other state-owned enterprises — as the employer of first resort for the political workers of the parties in power. The Pakistan Steel Mills at Karachi is one other public enterprise that has suffered the same fate as PIA’s.

The Partition of British India and its human consequences produced for Karachi another endowment. The exchange of population between India and Pakistan in the few months around that time brought millions of well-educated Muslims from the urban areas of British India. For more than a decade, these migrants provided the human resource base for the development of the state in Pakistan. That changed with the decision by president Ayub Khan to move the country’s capital to Islamabad. But another type of human resource continued to lend support to Karachi’s sharp development as the financial and commercial centre of the country. During the presidency of Ayub Khan, the Karachi-based banking sector developed rapidly. Several private sector commercial banks developed links with the Middle East and Britain. This process would have continued had it not been interrupted by the ill-conceived nationalisation of banking and insurance by the administration headed by prime minister Zulfikar Ali Bhutto. It was during the Bhutto period that the Middle East went through its first economic boom. Had the banking industry remained with the private sector, it would have enlarged its Middle Eastern operations with Karachi becoming an important regional financial hub for the region. Instead, the financial industry moved in the other direction with the young Middle Eastern banking industry developing a base in Pakistan by acquiring some of the assets that were to be privatised in the 1990s at bargain-basement prices.

Karachi’s mixed ethnicity offers the greatest challenge for the development of Pakistan’s largest city. It can only make the contribution its location and human resource endowment can make to the country’s economic advance if the structure of city politics is developed in a way that it provides the means to settle inter-ethnic disputes. Karachi will remain a troubled and violent city for as long as a new and inclusive political order does not get developed. It will also remain a magnet for the people that will undoubtedly be displaced by the struggle in the tribal areas following the winding down of the American involvement in Afghanistan. This new influx of migrants to the city needs to be anticipated with a view to their economic and political absorption.

Source: Sindh's Missed Opportunities

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Kon Kehta hy k Main Gum-naam ho jaon ga
Main tu aik Baab hn Tareekh mein Likha jaon ga

Punjab’s endowments and economic development

By Shahid Javed Burki
January 06, 2013

I will begin by first defining what the term ‘endowments’ implies. Does it mean the various inheritances by the provinces from the century-long British rule of the Indian subcontinent? If that is one of the meanings then Punjab — and to a lesser extent Sindh — came to Pakistan with richly endowed surface irrigation infrastructures. If endowments mean the minerals that lie under the surface waiting to be exploited then Sindh and Balochistan are particularly rich and Punjab relatively poor. Should we stretch the word endowments to include the human resource? If that is the case then each of the four provinces have different kinds of human endowments, each with a different potential.
The word endowments should also perhaps include geographic location. If that is the case then each of the four provinces have different positional advantages. In that case, it is interesting to note that all the four provinces have international borders — the Punjab and Sindh with India, Balochistan with Iran and Afghanistan, and Khyber-Pakhtunkhawa (KP) with Afghanistan and China. Two provinces — Sindh and Balochistan — border the sea. The two other — Punjab and KP are landlocked. I will discuss below what each of the four provinces possess by way of endowments, how these have affected their economic and social development, how they have influenced their view of the world, and how their future could be shaped by their use.
Punjab inherited a vast and intricate system of surface irrigation that had turned its vast virgin plane into the granary of British India. It was in the potential embedded in the vast amount of water that flowed though the six major rivers of the Indus system that the colonial administration in India found a solution to a major problem it faced. The northeastern parts of the Indian colony had suffered from several severe famines that took the lives of millions of people. The British had just recovered from the mutiny of 1857 and they did not want another series of events to agitate the citizens of their expanding Indian empire. Having tried several different approaches, they settled on the one that involved huge investments aimed at turning the Punjab plane into a large food surplus area.
Water brought by well engineered works on the Indus and its tributaries quickly increased the output of food in the newly colonised lands. Since these surpluses had to be transported to the food-deficit areas, the British also invested large sums of money in building a network of railways and roads. The strategy worked and for several decades northeast India received large amounts of food from the Punjab.
The partition of the subcontinent need not have disrupted Punjab’s economic links with India’s food-deficit provinces and its industrial belt. But that happened largely because of the actions taken by the new government in India. The Indians, through a series of actions, sought to show Pakistan that it was a mistake for a significant number of Muslims to leave India. The Pakistani reaction was based on the assertion of the rights of a newly formed state and to convince India and its own citizens that the pursuit of the demand for a separate state for the Muslims of British India was the right way to proceed.
These were not the right choices to make. The series of actions and reactions led to the severance of the Pakistani economy from that of India. Most of the fault lay with India that took a number of aggressive steps in the area of trade. These led to the detachment of Punjab from the Indian economy. Had that not happened, what is now Pakistan’s Punjab would have remained primarily an agricultural economy supplying various items of food to the Indian population and industrial and various raw materials to the industries in India. An economy based largely on agriculture is not necessarily inferior to the one that draws its strength from manufacturing or from modern services. Denmark and the Netherlands, for instance, are more economically and socially developed than many parts of industrial Europe.
The Punjab’s other endowment was the skill base of its population. The small towns and medium-sized cities situated along the famed Grand Trunk Road had well-established small metal working industries at the time of independence. These supplied manufactured products for everyday use, as well as parts and components for large industries. The area that has come to be called the ‘Golden Triangle’ — it includes the cities of Gujranwala, Gujrat and Sialkot — could have played a much more important role than it did in developing the Pakistani industry. The small manufacturing concerns located in the triangle could have created supply chains for large industries in East and South Asia.

Looking at today’s Punjab from the perspective of its initial endowments suggests that the province could have made better use of them than it did. Sometimes it was forced into other directions by the circumstances over which its policymakers did not have any control. At other times, it took a different route by choice. The results would have been more satisfying if the province’s rich endowments had become part of a well thought-out development strategy.

http://tribune.com.pk/story/489951/p...c-development/

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Governance woes in Balochistan and K-P

Published: January 20, 2013

If any evidence was needed to demonstrate that Pakistan’s two relatively backward provinces — Balochistan and Khyber-Pakhtunkhwa (K-P) — were in that situation on account of poor governance, it came on January 13. On that day, President Asif Ali Zardari exercising “the powers conferred on him by Article 234 of the Constitution” imposed governor’s rule in Balochistan. Only time will tell whether that action will bring stability and good governance to that province. Deprived of both for decades, Balochistan and K-P, the former’s neighbour, have not been able to exploit their enormous mineral endowment for the benefit of their deprived citizenry.
While some of the mineral wealth, such as the large natural gas deposits found in Balochistan’s Sui fields, has already contributed significantly to Pakistan’s economic growth, several other remain on the books of geologists. A couple of years ago, America estimated the value of Afghanistan’s mineral wealth at more than a trillion dollars. This has relevance for Pakistan since mineral seams don’t stop at political borders. Moreover, the Chinese have been involved in the exploitation of extensive copper deposits in Balochistan. However, in early January, the Supreme Court stepped in to void a major foreign contract aimed at exploiting the Balochistan’s rich copper and gold deposits. The Court said that the contracts were drawn up in total disregard of the Constitution. This was one other evidence of poor governance blocking economic development in this part of Pakistan.
Present in K-P is another kind of mineral wealth. In a report, prepared by the Asian Development Bank a few years ago, it was suggested that the tribal belt straddling Afghanistan and Pakistan has large deposits of marble and other semi-precious stones. Some of these are being exploited but not in the most productive way.
It will, of course, take a great amount of investment to reach these resources. An extensive communication and transport infrastructure will have to be built to access them and to take them to the processing and consumption centres. In most cases, these types of investments are made by the state, which then attempts to recover some of what it has invested by selling leases to the areas where minerals are believed to be present. The Pakistani state, however, is financially weak and may not be able to make the needed investment. It may have to rely on external capital. However, a very difficult security situation may even prevent such an arrangement from materialising.

By intelligent strategising, the Pakistani state may be able to simultaneously address two problems it faces in these two provinces. One reason for the persistence of insurgency in Balochistan is the ability of the province’s tribal chiefs to satisfy their material ambitions while creating a deep resentment against the state. The bulk of the royalties paid by Islamabad for bringing gas out of the ground in Balochistan have gone into the pockets of a small group of people who have then used the control they have over the tribal people to convince them the state has indulged in predatory behaviour.

One way of dealing with this situation is to take out the tribal chiefs from these transactions. Agreements with the companies invited to work on the mineral deposits should be concluded in a totally transparent way. The proceeds from the sale of leases or the royalties paid by the firms should be deposited in a Fund for Future Generations (FFG). The FFG should be professionally managed and its proceeds should be used for developing the relatively backward human resource in these provinces.

In sum, the country’s two poorer provinces have rich endowments that could relieve them of their relative backwardness. But that would need good governance and state involvement. It will also require a significant improvement in security so that foreign capital and expertise can be used to fully exploit the immense wealth that lies below the surface in the two areas.

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