The role of politics in Pakistan's economy.

• Author: Husain, Ishrat

Economic and social outcomes in Pakistan over the last sixty years are a mixture of paradoxes. The economic growth rate has averaged 5 percent annually since 1947--a feat achieved by very few countries. Politically, however, the interplay of religious fundamentalism, sectarianism, ethnic cleavages and regional economic disparities has made the country volatile and unstable. Various East Asian countries that were behind Pakistan in the 1960s have surged far ahead in most economic and social indicators. Pakistan has thus been unable to realize its potential.

It is usually believed that economic growth can take place only in the presence of political stability, but the Pakistani case contradicts conventional wisdom. In order to explain these paradoxes and contradictions, this article attempts to address the following questions:

How can a country that has suffered from political volatility and instability for such a long period achieve high economic growth?

* Have periods characterized by stable authoritarian regimes in Pakistan provided the means for long term economic performance?

* Have external influences, particularly the United States, played a constructive role?

Despite sharing a common historical, cultural and social milieu, Pakistan and India have pursued different paths since independence in 1947. Both countries have done reasonably well in improving their economies and reducing absolute poverty levels. India has, however, emerged as a stable and vibrant democracy while Pakistan has spent half of its post-independence years under military dictatorships and is currently struggling to quell an Islamic insurgency in the northwest part of the country. The democracy-development nexus appears to be well entrenched in the case of India, while it is faltering in Pakistan. A great deal of recent literature has suggested that China and India are the typical representatives of authoritarian and democratic regimes, but fewer attempts have been made to resolve this puzzle in the case of India and Pakistan, two countries that are more akin to each other and share a common legacy.

In order to address these questions it is useful to revisit the essential dimensions of Pakistan's economic and political history, a history which can be divided into six distinct periods:

* The Flat Fifties, 1947 to 1958

* The Golden Sixties, 1958 to 1969

* The Socialist Seventies, 1971 to 1977

* The Revivalist Eighties, 1977 to 1988

* The Muddling Nineties, 1988 to 1999

* The Reforming Hundreds, 1999 to 2007

PERIOD h THE FLAT FIFTIES, 1947 TO 1958 (1)

Pakistan came into existence as a moth-ridden country at the time of the partition of India. The British-controlled provinces of Punjab and Bengal were each divided into two parts. East Punjab and West Bengal formed part of modern-day India; West Punjab and East Bengal, along with three other provinces, together formed Pakistan. The physical separation between eastern and western Pakistan, with Indian territory in between, put Pakistan at a serious disadvantage from its inception.

The foundation of an authoritarian streak in the polity was laid fairly early in Pakistan's history. After the death of the first prime minister, Liaquat All Khan, and the ascent of bureaucrat Ghulam Mohammed to the office of Governor-General, the supremacy of politicians in the political order was lost. (2) In February 1953, martial law was imposed in Lahore to quell the anti-Qadiani movement. (3) Prime Minister Khwaja Nazimuddin was dismissed by the governor general. Scholar Keith Callard termed this a "governor-general's coup. (4) He observed that three major conventions--the impartiality of the governor general, cabinet and party solidarity and the role of legislature as the maker and sustainer of government--had been destroyed or gravely weakened.

Pakistan's ambassador to the United States, Mohammed Ali Bogra, was foisted as the new prime minister and six of the nine ministers of the dismissed cabinet joined the new government. Changing political loyalty has since become one of the main causative factors of political instability. Pelf, patronage and power have dominated the political scene.

The seeds of separation were further sown when the Muslim League lost the 1954 provincial elections in East Bengal due to a growing disaffection with the ruling political elite in West Pakistan. This elite from the Punjab province, instead of coming to grips with the grievances of East Bengal, adopted a confrontational strategy to consolidate their power by merging all four western Pakistan provinces into one province. As a result, East Pakistanis were antagonized when their province, which contained the majority population, was forced to accept parity with newly-formed West Pakistan in the Parliament. The three smaller consolidated provinces--North-West Frontier Province (NWFP), Sindh and Baluchistan--also protested Punjab's attempt to establish hegemony.

The political atmosphere was too vitiated; political instability was too acute; tensions between the different tiers of the government were so damaging; the challenge of setting up the organs of a new state was so formidable; and the influx of millions of refugees from India was too demanding. As a result, economic management took a back seat in this formative phase of Pakistan's life.

PERIOD II: THE GOLDEN SIXTIES, 1958 TO 1969 (5)

Ayub Khan, the first military dictator of Pakistan, assumed complete control of the state in October 1958 and reigned over the golden period of Pakistan's economic history. With the help of Harvard advisors, Khan vigorously implemented the Planning Commission on Economic Management and Reforms with impressive results. (6)

GDP growth in this decade jumped to an average annual rate of 6 percent from 3 percent in the 1950s. The manufacturing sector expanded by 9 percent annually and various new industries were set up. Agriculture grew at a respectable rate of 4 percent with the introduction of Green Revolution technology. Governance improved with a major expansion in the government's capacity for policy analysis, design and implementation, as well as the far-reaching process of institution building. (7) The Pakistani polity evolved from what political scientists called a "soft state" to a "developmental" one that had acquired the semblance of political legitimacy (8) By 1969, Pakistan's manufactured exports were higher than the exports of Thailand, Malaysia and Indonesia combined. (9) Though speculative, it is possible that, had the economic policies and programs of the Ayub regime continued over the next two decades, Pakistan would have emerged as another miracle economy.

However, the perception that income inequalities between the East and West had increased substantially and that wealth was concentrated in the hands of twenty-two families fuelled resentment among Bengalis who accused Ayub's regime of reducing the East to an internal colony. (10)

Authoritarian regimes devoid of legitimate political power use the instruments of state power to win or maintain coalitions, build up new alliances or take coercive measures against recalcitrant individuals and groups. Ayub's attempt to win legitimacy, introducing the Basic Democracies system, in fact caused his regime a loss of popularity and credibility. This disaffection with the military regime was exploited by Sheikh Mujibur Rahman and his Awami League Party. The arrest and trial of Mujibur under the Agartala conspiracy case turned him into a popular leader in East Pakistan. His six-point agenda of autonomy became the manifesto of the Awami League which swept the 1970 elections in East Pakistan with a resounding majority. The reimposition of martial law and transfer of power to the Army chief, Yahya Khan, exposed the fragility of the guided democracy system.

Yahya Khan's reluctance to transfer power to Sheikh Mujibur, the elected majority leader, reinforced Bengali suspicion and mistrust toward the Pakistani Army and West Pakistan. The post-25 March 1971 events led to a civil war that, with India's strong backing, ended in the emergence of the independent state of Bangladesh. (11) The break-up of Pakistan had a traumatic effect on the national psyche and negated the very concept upon which developing Pakistan was founded. Although East Pakistan benefited from Ayub's economic reforms, the fact that these benefits were perceived as a dispensation from a quasi-colonial military regime to its colony--East Pakistan--proved to be lethal. According to I.A. Rehman, "[The] Central Establishment decided on a trade-off between autonomy and development but this maneuver failed in East Pakistan and it is unlikely to succeed in Balochistan and the tribal areas. The lesson is: no federating unit will surrender its rights to autonomy in exchange for any development works however huge their fall out." (12)

The overthrow of Ayub's political system also reversed the economic system that had served the country so well. To outsiders, Pakistan was a model developing economy to emulate, but domestically there was a total rejection of this economic model.

PERIOD III: THE SOCIALIST SEVENTIES, 1971 TO 1977 (13)

Zulfikar Ali Bhutto took advantage of the resentment against Ayub's economic policies and promised to restore the principles of distributive justice and equity to the forefront of Pakistan's development strategy under the slogan of Islamic socialism. (14)

Bhutto's populist policies of nationalizing industries, banks, insurance companies, educational institutions and other organizations, derailed Pakistan's journey toward modernization and faster economic development. This setback hit Pakistan so badly that the East Asian countries that were lagging behind Pakistan in growth and economic indicators in the late 1960s not only overtook it but also became huge success stories. The oil price shock of the 1970s as well as droughts, floods and the withdrawal of external assistance did not help the situation...