The politics of economy
By Shahzad Chaudhry

I thought one was done defending Musharraf (pun intended) with my last piece, “Don’t dig…” carried in this space on January 19, 2014. It wasn’t to be. M Ziauddin, the executive editor of this paper, is the last man one would take an issue with — given that one writes for the same paper — but his column, “Musharraf” of January 22, has brought to fore issues which merit comment. This may have less relevance to Musharraf personally, but recounts the work in the field of economy by his team.

As a banker, Shaukat Aziz, first Musharraf’s finance minister and then his prime minister, understood finance well. He also had a sense of what triggered the economy. He made capital available to private entrepreneurs by liberalising banks. As foreign banks entered a liberated market in Pakistan, and more domestic banks sprouted, they returned reasonable profits, but more importantly, they brought in capital. Within the first decade beginning year 2000, Pakistan’s economy mix changed significantly with the services sector now comprising about 60 per cent of the country’s GDP. Agriculture and industry share the remaining evenly.

Agriculture’s performance remains within normative growth levels simply because it is driven by almost fixed parameters. Area under cultivation and available water over a given period, hardly ever see major variables. As the economy grows further, agriculture’s share in GDP will reduce. Agriculture can grow only if either crop patterns change, or practices modernise. Improving agriculture is a slow process with long gestation periods. Significant research is needed to improve seed quality; this is a long drawn process. Pakistan, usually, is not known to focus effectively enough in these areas; at least not at the speed or frequency which can mean a major shift away from existing patterns.

The share of industry in GDP may have suffered in the prevailing environment of deteriorating law and order and seriously deficient energy state in the country, but it is equally a fact that inconsistent policies and rising costs of inputs have dealt a blow to prospects of significant growth in this sector. Domestic investment is hard to come by while foreign investment has dwindled to minimal levels. The sector also suffers from irregular control, obviating any realistic assessment of its performance.

If this be so, and thus is the recorded performance in the previous years, the money spinner is the services sector which justifiably occupies the dominating presence in our economy mix. As an example, Sri Lanka’s major export is tea, an agricultural product. It took Sri Lanka all of its independent years to reach an export figure of one billion USD for tea; the same could have been arranged in a jiffy through independent financial sources. The services sector is built around quick circulation of money and adds money as it moves. It, therefore, is not without reason that states such as Singapore, Dubai and Hong Kong have emerged as financial hubs enriching themselves first with capital and then becoming the source for quick financing for the region. As established an economy as England, too, boasts of a vibrant services sector. In any modern economy, the services sector will have a dominating presence.

Four separate initiatives by the Musharraf team, namely liberalising the banking sector, opening up IT and telecommunication, enabling private investments in diverse media streams through an open licensing policy, and tax break to the construction industry became the triggers that provided Pakistan’s economy a much-needed break from its dismal past. The construction industry has 28 downstream industries that were favourably impacted. Cheap capital, pervasive communication and increased means of marketing your wares meant greater movement of money, which only added more money. As people became rich, the state too became richer. Jobs today in Pakistan are but only in the three most prominent sectors — banks, IT/telecom and media; I don’t think anyone else is hiring.

The Musharraf team may not have had exceptional ‘prowess’, but it knew what it was doing. There surely is a flip side to it that any economist worth his salt will be able to identify; also, there isn’t one right way of doing things in economics — such being the nature of the beast; what is important is to have a plan and to put it in effect. The Musharraf team had a plan and put it into effect.

The debate between the modernists favouring the newer contours of globalised economies and the traditionalists who still believe in grounded facets of agriculture and industry will continue even as the world seeks a balance between socialist egalitarianism and capitalism. While socialist economics stands trumped, trickle-down spin-offs expected from the modern economic theory are slow and unrealised. Except in China, where the economy not only shifted to embrace the capitalist market but also reinforced industry and agriculture in parallel. The scope and the extent of economic activity was so vast that it impacted the lives of most Chinese, though China still retains the older socio-political order to manage a transitioning society. That keeps social upheavals in check. Then there is the issue of the liberal-left Mazdoor-Kissan Vs Sarmayadarana Nizaam that continues to colour the dialectic in our own debates.

The financial bonanza that the Musharraf team were able to garner via repayment moratorium or loan adjustments went to bolster the reserves, while economic activity came through private enterprise, investments and policy structures. Even today, three of the four triggers in his economic plan remain the only resilient part of Pakistan’s existing economic make-up. Agriculture is stagnated, while industry has regressed. Investment that was the key to regeneration of economy in the Musharraf years, despite the traumatic post-9/11 events seems to have deserted. There is a desperate need to re-anchor the economy around some chosen triggers again. Building reserves is no strategy; it is a need. Rejuvenating the economy needs a different set of tools. Shaukat Aziz seemed to understand that better.

Pakistan’s civil-military discontent is deep and continues to exhibit the overhang of both historical experience and resident sensitivities; this despite an ironic trust that an overwhelming majority of Pakistanis continue to place in the army — read any recent survey. Musharraf was bad for Pakistan on many counts; the economy wasn’t one of them. Also, democracy will not ‘derail’ if Musharraf is tried; Raheel Sharif will know how to manage his army. Just that the ride may be bumpier and turbulent.

Published in The Express Tribune, January 25th, 2014.