Shahid Javed Burki is a world renowned Pakistani economist. He has served as Vice President of the World Bank and Finance Minister, and his economic insights have been both appreciated and promoted by this blog. However, in his latest piece, the respected economist steps out of his area of expertise, and the political analysis that he offers is not only misguided, it poses a danger to national security.
In a recent opinion piece for The News, former operations advisor at the World Bank Abid Hasan argues that Pakistan needs a new aid strategy, one that prioritises grant aid over loans and gives more attention to the effectiveness of aid programs. Whether you agree with some, all, or none of Hasan Saheb’s points, he makes a mostly reasoned case for his position. I say “mostly”, though, because at the very end of his piece he repeats a mantra that I hear fairly often which simply doesn’t make any sense.
Mr Abid Hasan ends his piece about aid strategy with the following sentence: “As a nuclear state, and the sixth largest state in the world, Pakistan should be an economic powerhouse rather than an international beggar.” Like I said, this is something that we’ve have heard before, specifically when spoken last year in a speech by Shahbaz Sharif.
It was particular ironic to read this as the day before, it was reported that American President Barack Obama is planning to slash America’s nuclear programme. At the same time, the US economy grew slightly. So what’s the connection between a country’s nuclear programme and its economy?
During the Cold War, renowned Canadian-American economist John Kenneth Galbraith explained that accelerated military spending actually hurts the economy.
The general effect of massive military expenditures has been a transfer of capital away from civilian industry over the years and a resulting weakness that is easy to see. The specific effect within the industrial system is even more visible. Modern military spending concentrates on , and certainly benefits, the narrow range of industry and the highly specialized technology that serve missile, aircraft, and marine weaponry. But this development and the associated distortion in the allocation of resources–the technical competence, capital, labor, and other resources lavished on this small specialized sector of the economic system–have been at heavy cost to the industries on which we depend for domestic or international competitive performance. As we have pressed ahead on a narrow band of industry that serves our weaponry, we have left behind, left competitively vulnerable, our steel, automobile, textile, chemical, and a great range of other industries.
Sounds familiar? Obviously this doesn’t mean that the we should slash military spending – just ask India. But it means that we need to take a rational approach to military budget and let logic and not emotions determine spending priorities. We have nuclear weapons, and no one is going to take them from us. But investing in more nuclear weapons isn’t going to improve our economy. Investing in education is.
While backwards-looking groups like Difa-e-Pakistan are demanding that Pakistan limit trade with India, Bangladesh is taking a reasoned economic view of their relations and reaping the benefits – benefits to the tune of $1 billion.
For the first time in history, Bangladesh’s exports to India will cross the $1 billion mark in a 12-month period next July, a top Indian official has said at a conference jointly held by Indian Council of World Affairs and Association of Asia Scholars.
This is made possible because Bangladesh is willing to separate its economic interests from foreign policy matters. It does not mean that they are unwilling or unable to criticise India openly, though, even on matters of trade. When India imposed a ban on cotton import, Bangladesh spoke out against this violation of trade norms. Actually, Bangaldesh has moral authority on their side in this complaint because they are seen as a ‘good faith’ trading partner, and not one that uses trade as a tool of foreign policy.
Consider also that Bangladesh has benefitted to the tune of $1 billion and their national economy is almost half the size of Pakistan’s. Imagine how much we would benefit from taking a rational, unemotional approach to intra-regional trade. According to India’s National Security Advisor Shivshankar Menon, Bangladesh is only the latest country to take advantage of the fast-growing market within South Asia.
“Intra-regional trade within South Asia has begun to grow and has doubled over the past five years. We are therefore at a point where it is increasingly evident to all the countries in South Asia that there are substantial costs to not moving forward by lowering tariffs, minimising sensitive lists, and tackling non-tariff barriers. Each government has taken significant actions in the recent past,” he added.
Analysts much smarter than me have made convincing arguments for why trade with india is a rational policy choice. If that’s not convincing enough, though, $1 billion certainly should be.
“No country that wishes to become developed today can pursue closed door policies. We have tasted this bitter experience, and our ancestors have tasted it. In the early Ming Dynasty in the reign of Yongle when Zheng He sailed the Western Ocean, our country was open. After Yongle died, the dynasty went into decline. China was invaded. Counting from the middle of the Ming Dynasty to the Opium Wars, through 300 years of isolation China was made poor, and became backward and mired in darkness and ignorance. No open door is not an option.”
1984 speech to the Communist Party’s Central Advisory Commission
As political season gets into full swing, one of the top issues is certainly the weak economic growth that the country has been suffering. Obviously there are many reasons why the economy has sputtered instead of taking off, but one important reason in particular is being overlooked. Arif Habib Group Chairman and CEO Arif Habib warned this week that economic growth is suffering due to negative perception of the country by foreign investors.
Speaking at a reception held in his honour by Ruhi Farzana Shafi, he said that “our capital markets are one of the best in the world providing 31 percent average return in the last 10 years, but it has been marred by image issues.”
Image issues? What issues could possibly mar our image with foreign investors? Could it be the image of two government officials – a governor and a cabinet minister – being assassinated for standing up for minority rights? Could it be the image of lawyers throwing flowers at confessed assassin Mumtaz Qadri? Could it be the fact that Osama bin Laden was found living outside Kakul? Perhaps. And perhaps instead of ignoring this growing threat, the judicary should take notice and put militants in jail rather than allowing them to go around shooting up the streets.
Or perhaps it could be the never ending stream of cynical media reports and political slogans terming the government elected by the people as the most corrupt, incompetent rulers. Or the media predictions that the government will fall any day now. Perhaps it is the statements of anonymous military spokesmen who claim that Army is using the judiciary to unseat a democratically elected president.
Could it be that the ‘image issues’ we have come from the fact that in the modern media age, all of our political hyperbole, constant complaining, and drawing room gossip is now available for the whole world to see? And maybe, just maybe, foreign investors don’t want to risk their money in a nation that can’t hold two elections in a row? Actually, there may be something to this.
According to research by economist Ishrat Husain published in the Columbia Journal of International Affairs, political instability – or the expectation of it – is a key obstacle to economic growth in Pakistan.
The tour d’horizon of the past sixty years of Pakistan’s economic history lends credence to the argument that interruptions to the orderly political process whereby elected governments were dismissed, forced to resign or overthrown further accentuated the tendency of risk aversion. Besieged with a feeling of uncertainty over their future, elected representatives have indulged in distribution of patronage to their supporters as well as to self-enrichment. Both the preoccupation with keeping power—applied to both the military rulers and the elected regimes—and fending off attacks from the opposition by co-opting them through state patronage or by coercion has led to laxity in fiscal and monetary policies and to the concentration of economic and political power. The excessive use of discretion in case-by-case policymaking to favor narrow interest groups has derailed institutionalized decision-making based on well-established rules and transparency in transactions.
The solution, Ishrat Husain says, is obvious:
The lesson to be learned from this experience is quite obvious but worth repeating. Democracy, with such flaws and shortcomings as corruption and patronage, may cause economic disruptions and slow down development in the short-term. But it should be allowed to run its course as the inherent process of fresh leadership and governmental accountability through new elections provides a built-in stability to the system that eventually brings the economy back to equilibrium. Interruptions to the democratic process in the name of economic efficiency have created more problems than solutions in Pakistan.
With Senate elections only three months away, and general elections soon to follow, derailing the democratic process would be gratuitous and self-defeating at this point. Whatever might be gained by installing this mythical government of selfless technocrats would be more then undone by the demonstration of impatience and unwillingness to abide by the rule of law.
If the people want to change who’s in office, let them choose so with their ballot. Economies don’t turn around overnight. If we want the economy to improve, we should elect those who we believe have the best policies to improve it and give them a chance to do so without terming them a failure before they can even start.