Tuesday, 4 August 2009

Political Economy of Pakistan

We readily blame feudalism for most of our problems. In my view, such knee-jerk analysis is flawed. Let me explain.

Feudalism is a particular historical term that captures the obligatory relationships between a monarch (state), and the feudal lord on the one hand, the feudal lord, and the peasant on the other. The feudal lord supplied tax collector, administrator and supplier of soldiers to the monarch. In return, he got land and power over the peasant.

This has never prevailed in Pakistan. The colonial government did leave some princely states behind but both India and Pakistan got rid of them fast! Much has been made of irrigation land grants given out by the British. These also included land for military supplies program! The result was that some prominent families accumulated large landholdings!

Does this mean that they have had dominant political and economic power? To answer this question, recall that the colonial masters for their own administrative reasons had made their state infrastructure dominant over everyone including the landed aristocracy! The landed aristocracy was only marginally involved in the policy formulation and legislative process and that too mostly as a handmaiden of that state.

Immediately after independence, the post-colonial state adopted the mantle of economic development and, for a while, even of modernization. In this context, the agrarian economy was considered backward and in need of transformation. The term feudalism was vilified and we continue to vilify it even today.

But note that from the very beginning there were signs that the feudals were on the decline. Early on a system of controlled agricultural prices was put in place to the detriment of the landowner but to the advantage of the urban dweller was put in place. Until recently, agricultural prices have been kept low taxing the landowner. Further government interventions such as restrictions on marketing and on input supply continue to choke the profitability and productivity of land.

Through our history, we have also debated some quite vigorously the issue of land reform. At least one attempt has been made at it. Their still remains a 100 acre ceiling on the books. Even though it is not enforced, it remains a threat and affects the scale and productivity of agriculture.

Since independence, the trend of government gifts of land to the army and bureaucracy has created a whole new class of landowners. In many districts, these new ‘landlords’ may now not be less powerful than the feudal lord.

In thinking about the power of the feudal, we also need to ask why landlords always seek to cultivate the local DC and administrators? Now all of us are beholden to army officers?

Recall that in our post-colonial era, the developmental state has been increasing the power of the administration. The state through its public servants controls the distribution of wealth, the dispensation of all rights, access to services, credit, even the ability to engage in market transactions. Despite the fact that some liberalization has taken place thanks to international pressure in areas such as some utilities (telephones) and imports, administration still controls a large part of people’s lives. All the influentials include the landlords do play the intermediary between the state and the people. This is not reserved to the landlord! A number of other innovative individuals have made their political careers in this way.

But then we have to be clear that we are living in a country where the military-bureaucratic alliance has all the power (the Hamza Alvi thesis). They control most of the rule-making, administration and state resources. During the independence period, state resources have increased enormously because of greater international borrowing and aid.

Working the bureaucracy for wealth gains is what economists call “rent seeking.” Remember till the nineties, a bureaucratic dispensation like a license for imports or a textile mill used to convert people to overnight riches. Despite liberalization, many mechanisms remain in place for dispensing wealth through administration rather than the market. These include, land scams, insider trading, rigged privatization, state licenses on various monopolies.

Rentseeking mechanisms are therefore still intact and this activity still remains strong for gaining wealth and power. In a recent study, I could not find entrepreneurs in Pakistan. People get rich only through rentseeking.

How different is our industrialist from our landlord? Industrialists were built on licenses and continue to profit from subsidies. Even today, the car, sugar, textile and flour industries are subsidized. There have been very few years in our history that these people have not been subsidized. They are given protection dispensations at will. They are given subsidized land in industrial estates. They are given insider deals in privatization.

The landlords are nowhere near these rentseeking industrialists in terms of financial wealth and bureaucratic influence. No landlords make it into the lists of the richest people.

Why do the rich industrial elite not enter politics? Learning from the famous memon and the bora sects, our industrialists have learnt that bureaucratic favors flow if they work the system silently. Standing for issues means nothing to them.

Somehow, all this debate about feudalism has kept us form making a serious analysis of our state. Prominent names may become ministers but what power do they have? The power lies in the military-bureaucratic complex. Even today, the Rules of Business of the secretariat give the minister less power over the bureaucracy than the secretary. The secretary in many ways is the crucial decision-maker.

And why do we ignore the silent city wealth. The silent industrialists and now the financial musclemen are a power (the latter have removed 2 SECP chairmen). In any case, most policy decisions are made for the benefit of these rentseekers to the detriment of the ordinary people. We have all seen sugar, flour and cement price manipulations. Car imports have been manipulated for the benefit of the silent mafia. The result is that the people keep getting substandard cars. And so on.

We are also very confused about what the middle class is (which is very small)! Not to mention poverty (which is always overestimated)!