Primacy of economic self-reliance

PRIME Minister Shaukat Aziz in his first address to the nation announced an economic road map “to lift Pakistan to new heights and rid it of dependence on international financial institutions”.

Continuing, he said, “we have refused the last two tranches of $250 million each from the IMF with thanks. We have broken the begging bowl forever. Self-respect and freedom have no price”. So far so good.

A few days later the US Congress approved $600 million in military and economic aid to Pakistan. This announcement was greeted by the government with pride and cited as the proof of a successful foreign and economic policy. The $600 million was part of a five-year three billion dollar package divided equally between economic and military aid.

One agrees with the PM that the way to restore national dignity and sovereignty is through economic independence and that self-respect and freedom have no price. However, the acceptance of US aid by the Pakistani nation of 150 million suggests that self-respect and freedom do indeed have a price — in this case a mere four dollar per Pakistani per year. My question to the PM is simple. Has the begging bowl been truly broken? If yes, why does this government accept aid? If no, why is he making statements that undermine his credibility? Based on the facts, the life of the begging bowl has been extended by at least five years.

The fact that editors, columnists, politicians, the intelligentsia and citizenry have not probed this dichotomy on the state of the begging bowl is not surprising. It merely confirms the schizophrenic state of the Pakistani mind. On the one hand, there is an illusory belief that Pakistan is a self-reliant, respected, powerful, mover and shaker on the world scene.

On the other hand, there is the tendency to conveniently forget the shameful reality of its decades-old addiction to the begging bowl. Pakistan has “graced” the recipients’ queue for global aid, grants, soft loans, debt rescheduling and loan writer-offs since its birth.

Pakistan does not lack the resources to be self-reliant and sovereign. The problem is the elitist nature of Pakistan’s leadership, which has imposed a dysfunctional democracy on its body politic giving rise to governments lacking full-fledged legitimacy. This deficit of legitimacy has prevented successive governments from challenging vested interests and designing policies that serve common interests. If the prime minister has the courage, here are a few suggestions that can be pursued to generate over four times the resources provided by US aid, create a more equitable tax base and implement a more ambitious socio-economic programme.

First, taxing the agricultural income. The GDP of Pakistan is projected at Rs6,500 billion in 2004-05 with agriculture contributing 23 per cent or Rs1,495 billion. The top four per cent of landowners own approximately 36 per cent of the land. Assuming uniform distribution of production, the landed feudals generate Rs546 billion in output. Given better access to credit, knowledge and transportation one would expect the feudals to generate higher than average output.

The $600 million US aid is equivalent to Rs36 billion at Rs60 per dollar. A 10 per cent tax on this segment will generate Rs55 billion or 153 per cent of the annual US aid. Moreover, this amount will be homegrown, lifelong and growing compared to the US aid, which is foreign, limited in time and carrying conditionalities. A lower tax of five per cent on the output on the top 12 per cent of the landowners, who own 54 per cent of the land will generate Rs44 billion which is 122 per cent of the annual US aid. The question is: does this government have the intent and courage to make the tax base more equitable by demanding that the landed elite pay their fair share of tax liability?

Secondly, The government has been providing a subsidy averaging over Rs50 billion annually to meet the cash losses of Wapda and the KESC. The losses are caused primarily in the distribution sector from illegal connections, tampering with meters on legal connections and outright non-payment of dues by the public and private sector customers. The magnitude of these corrupt practices and their institutionalization into the normative culture of Wapda and the KESC cannot happen without collusion between the customer and the supplier.

It is commonly accepted that the supplier’s representative, the utility lineman is supported and shielded by his supervisors, who are also party to the corruption. Various attempts to reform the system, without changing ownership, have not and will not work since the system is firmly entrenched; the reward for continuing the status quo is high and the penalty for challenging it is severe. Remember that a former reform-minded MD of the KESC was shot dead some year ago. The PM needs to find a highly efficient and honest person to oversee the privatization of Wapda distribution companies promptly.

Using the Rs54.6 billion subsidy requested by Wapda/KESC for 2005-06 as a benchmark, this step would save Pakistan 152 per cent of the annual US aid amount. Moreover, this saving will also be homegrown and lifelong. As a bonus it will improve the reliability, efficiency and ultimately the affordability of electric power generation in Pakistan.

Third, it is important to accelerate Recovery from Loan Defaulters. As reported in Dawn (Sep13, 2004), the non-performing loans of the commercial banks and DFIs with accrued mark-up as of June 30, 2004 were Rs245 billion. A minority of defaulters are responsible for an overwhelming majority of the non-performing loans. The names, residences and assets of the borrowers are well known and they move throughout the country and the world with ease. To date, the governments’ policy on this segment has been light-handed.

The prime minister, the SBP governor and the NAB should revisit this subject and develop new draconian strategies, applied without fear or favour to all defaulters to accelerate recovery in, say, five years. Assuming a 50 per cent recovery rate, this will yield roughly Rs.25 billion per year, equivalent to 69 per cent of the annual US aid.

The above three strategies will generate 374 per cent of the amount received in US aid. These revenues can be enhanced by pursuing additional options like a meaningful capital value tax on share transactions and tax on real estate transactions, generating revenues topping four times the level of US aid. Granted that the above calculations are first level approximations, open to review and refinement. But even if they collectively generate only half the stated amount, it will still be twice the amount of US aid.

A number of Pakistanis visiting the US lament the lack of respect accorded to Pakistan and its citizens. As a person of Pakistani heritage I understand their anguish but I also point out to them that individuals and countries cannot buy respect; they have to earn it. We do not think much of a relative who comes for a handout periodically, especially when he is able-bodied, but does not work and lives beyond his means through loans, handouts and his wife’s earnings.

Similarly, why should the world respect a country that prefers the begging bowl to self-reliance and discriminates against its weakest and poorest segments while favouring the privileged? For example, the manufacturing sector generates 18 per cent of the GDP and is taxed heavily whereas the agricultural sector, which generates 23 per cent, is largely exempt.

Granted that most of the farmers live at the subsistence level, but what about the top four per cent that owns 36 per cent of the land? Why are they exempt? What the world sees is that given a choice between taxing a few hundred feudals or humiliating 150 million Pakistanis by passing the begging bowl, the government chose the latter. Likewise, given a choice between taking drastic measures to recover loans from perhaps the top 1,000 defaulters or passing the begging bowl, the government chose the latter. Again, given a choice between confronting the Wapda and the KESC linemen and their supervisors or passing the begging bowl, the government chose the latter.

Why should the rest of the world respect a country whose citizens have allowed their freedom, honour and dignity to be hijacked by 10 political dynasties, perhaps 100 generals, bureaucrats and theocrats, 1,000 loan defaulters and at most 10,000 landed aristocrats? What are the other 150 million people doing? Frankly, it is high time the people of Pakistan took their country back from an elite that sold them for four dollars per year.

Pakistanis like to compare themselves with India. Fine. For the record, however, India has informed its donor countries that it will not accept any new foreign aid. Recently, it also decided not to accept any Tsunami-related aid. Such acts of self-confidence and self-reliance enhance respect. Take Malaysia, for example. Subsequent to the Asian financial crisis in 1997, the IMF rushed in to help Thailand, Indonesia, Malaysia and other countries. Malaysia said ‘no, thank you’ and developed its own policies, which included self-sacrifice like reduction in salaries of senior bureaucrats to surmount the crisis. No wonder, the West, which has had some differences with Malaysia politically; still looks at it with respect and admiration.

If Pakistan wants to restore its respect and economic sovereignty, it will have to reconsider its internal resource generation policies. The principles of impartiality and social equity demand that the untaxed, lightly taxed and non-complying segments of society pay their fair share for defence, debt service and development. In this connection, the recent budget was a disappointment since it continued the traditional practice of protecting the privileges of the few against the interests, needs and dignity of the overwhelming majority.

Justice in Islam

SOME of the major problems besetting human society these days are terrorism, disrespect for the basic human rights and disregard for fair and impartial justice. Islam is the outstanding religion which provides the most appropriate and effective guidance for overcoming all the these problems.

In whatever way the term “terrorism” is defined and whatever its cause and motive may be, it does involve commission of excesses or crossing of limits, in one way or the other, as its main constituent element. The Holy Quran enjoins us to avoid the commission of excesses in several ways. One is when it expressly enjoins us not to commit excesses (5:87). The other is when it enjoins us not to disturb the balance (55:8). The balance is invariably disturbed through the commission of excesses. Therefore what the Quran emphasises by enjoining us not to disturb the balance is to avoid the commission of all kinds of excesses including the acts of terrorism.

Secondly, the Quran expects the community of true believers i.e. those who follow its teachings in letter and in spirit, to be the people who are justly balanced (2:143). The people being justly balanced mean the people who follow the principle of golden mean, the people who are given to do justice to every one, in every matter everywhere. Such people have been further categorised as the people who enjoin what is right and forbid what is wrong (9:71). Since the commission of excesses could be a wrong act by itself it cannot be said to have the sanction of the Quran whatever may be the motive behind it.

The Quran enjoins the prohibition of that which is wrong but it does not allow the removal of a wrong with another wrong. It specifically enjoins repulsion of evil with goodness (41:34), moderation as a way of life (31:19), doing of justice even to enemies (5:8) and kindness even to non-believers (60:8).

As regards the respect for the basic human rights, the most important of these is the right to equal treatment in certain matters and aspects of life. For example, our Constitution provides that all citizens shall be treated equally before the law and that there should be no discrimination on the basis of sex. But the Quran deals this issue in a more natural, realistic and broader sense when it says that all human beings are equal because they are born of the same male and female couple (49:13).

Elaborating this verse, the Holy Prophet (Peace be upon him) further said that “In the light of this verse no Arab has any superiority over a non-Arab nor any non-Arab has any superiority over an Arab. Neither black is superior to white nor white is superior to black. Of course, if there is any criterion of superiority and respectability it is Taqwa (righteousness)”.

This verse and tradition not only emphasise the equality of human beings which implies equal treatment in all matters where necessary and practicable, but also observance of the principle of equal opportunities where possible. Righteousness is the kind of standard that every one can have an equal opportunity to attain if he so wishes. There can be no better and more appropriate example of equal opportunities than this.

Thus, the first thing that the Quran expects us to do is to recognise that all human beings are basically equal and on that account entitled to all such rights that could be basic to the human dignity. The practical example of equality was manifest in the directive of Hazrat Umar to the governor of kufa which specifically emphasised that he should treat the people equally in his presence, in his company and in his decisions, so that the weak is not deprived of justice and the strong had no hope of any favour.

Some other acts and behaviours, having close bearing on almost all the basic human rights, as specifically enjoined by the Quran, are: not to usurp what belongs to others (2:188) (4:32), not to violate trusts (8:27), to keep up pledges (17:34), to render financial help to the needy (2:219), not to withhold from others things that are due to them (11:85 not to commit excesses (5:87), treating parents with respect (17:23) and treating others the way one would like himself to be treated (2:267) (4:86). Compliance of these directives will, among other things, facilitate the exercise of almost all basic human rights to a great extent.

So far as justice is concerned, no religion provides as comprehensive and effective guidance in that regard as Islam. In the first instance the Quran commands us to do justice because it is akin to piety (5:8). It further says “O believers, be you the standard bearers of justice and witnesses for the sake of Allah, even though your justice and evidence might be harmful to yourself, or to your parents or to your relatives. It does not matter whether the party concerned is rich or poor; Allah is their greater Well-Wisher than you. So follow not passion lest you lapse or fall away (from truth) and if you lapse or fall away, then Lo! Allah is ever informed of what you do” (4:135).

The above verse exhorts the believers to be fair, firm and uncompromising in the administration of justice. They must do justice in all circumstances even if the outcome is harmful to their own persons or interests or to their parents or relatives. It further says that justice should be done no matter who is affected and to what extent. It should be done to the rich and the poor without discrimination.

The most important message in this verse is that while administering or doing justice one should not be influenced by any extraneous or even humanitarian considerations. He should uphold the balance and do full justice bearing in mind that he is doing it for the sake of Allah. The inclination towards giving right decision is strengthened by the remembrance and fear of Allah (8:29).

The Quran further says “O believers, be steadfast in giving evidence for the sake of Allah in equity and let not enmity of any people provoke you so as to turn away from justice. Do justice for it is akin to piety. Fear Allah: Indeed He is aware of what you do” (5:8). The verse, among other things, tells us that justice shall be done alike to the friends and foes. The mere fact that one of the parties happens to be one’s friend or enemy should not impel him to deviate from the path of justice.

Thus, the Quran enjoins us to do justice even if the outcome may be harmful to us or to our parents or relatives and irrespective of the fact that one of the parties happens to be rich or poor or is our friend or enemy.

Since the dispensation of justice largely depends on evidence, the Quran lays special emphasis on the availability of proper and relevant evidence. It says “Never conceal evidence for he who conceals it has a sinful heart” (2:283).

It says again “Cover not truth with falsehood nor conceal truth when you know” (2:42). and further “O believers, be steadfast in giving evidence for the sake of Allah in equity and let not the enmity of any people provoke you to turn away from justice”

(5:8). Likewise, the verse (4:135) as reproduced above lays emphasis on giving true evidence even if such evidence is harmful to the person giving it or to his parents or relatives.

Thus in all cases, whether in combating terrorism, or in promoting exercise of human rights or administration of justice, the guidance provided by the Quran is unique, effective and relevant for all times to come.

The great malls of China

THE news that China is now more popular around the world than the United States, according to a Pew Research Centre survey, is just the latest Chinese challenge to the American ego.

The Chinese are also buying U.S. businesses with hallowed American brand names, such as IBM (its PC unit), and they’re bidding for Maytag and Unocal. They’re making a lot of what Americans wear, use and buy. They hold a substantial interest in the US future by financing much of the national debt.

And they’ve even surpassed us in the most characteristic icon of American life: the shopping mall.

The Mall of America in Minnesota has been the biggest in the United States for more than a decade, and the North American title goes to the mall in West Edmonton, Canada. But this year the largest mall in the world is the Golden Resources Mall in Beijing, and it will soon be eclipsed by the South China Mall. There are now four malls in China that are bigger than the Mall of America. South China Mall will be three times its size.

By the end of the decade, China is expected to have at least seven of the world’s 10 largest shopping malls; it has 400 malls now. In the United States, mall construction is steadily declining — from 35 major projects at the turn of the 21st century to just eight projected for 2004-06.

Of course, the United States has a half-century head start and China’s vastness is mostly devoid of malls. But this trend does suggest a few things. China has become one of the world’s primary producers of retail goods, based partly on its ability to undercut prices with cheaper labour. Yet there is so much money flowing into China that a consumption economy is growing fast. The customer potential in China and the Far East is one reason that the Simon Property Group, by far the largest US shopping mall developer, opened an office in Hong Kong in May.

Chinese producers are supplying cheap consumer goods sold in the United States, mostly at Wal-Mart and other low-price retailers, resulting in a huge trade imbalance. This is evident at the ports of Los Angeles and Long Beach, where nearly half of total US imports arrive. As Long Beach communications director Yvonne Smith told PBS’ “Frontline,” “China is doing the manufacturing; the US is buying it.”

Much of the $3 billion in US exports to China consists of cotton, scrap metal and waste paper used to make $36 billion worth of mostly manufactured goods (and the boxes they arrive in) coming from China — and that is just what goes through Long Beach.

Meanwhile, the middle class that once filled America’s malls is declining. The US mall industry anticipated a splintering middle class in the 1980s, responding with fashion malls for the better-off and emphasizing entertainment to attract what was left of the mass market. Then Wal-Mart came along and stole the growing low-price consumer market, becoming the world’s largest retailer as well as China’s best customer.—Dawn/Los Angeles Times Service

G8: criteria for membership

WHO should sit at the top table of world politics? The answers get ever more complicated. G7? G8? G8+5? G22? Once upon a time, back in the oil crisis of the early 1970s, the US created an informal financial summit called the Library Group.

It gathered senior financial officials from the US, Britain, France, Germany and Japan. In 1975 the French raised it to heads of government and insisted Italy be in there too. The next year the Americans countered by promoting their transatlantic ally: Canada. So then there were seven bears at the table. All of them were leading industrial democracies and political powers of “the West” in its cold war form, with far eastern Japan as an honorary member of the West.

After the end of the cold war, at Washington’s urging, they added a rather different kind of bear: Russia. That was in 1998, on the Clinton administration’s optimistic assumption that Yeltsin’s Russia was becoming a democracy and might thereby be helped to remain so. So then there were eight.

Oh yes, and the president of the European commission and the current holder of the rotating presidency of the EU were invited to participate in each annual summit. That made 8+2 regular attenders. Meanwhile, to add to the confusion, two larger groups emerged: the G20 group of finance ministers of countries both rich and poor, and the G22 group, which has powerfully represented the interests of developing countries in world trade talks since the Cancun meeting in 2003. Not to mention an older, self-styled “Third World” coalition known as the G77.

So who are actually at the table in Gleneagles? The core group is the G8 leaders plus the president of the European commission. Since Britain happens to hold the rotating presidency of the EU, there’s no need for that to be represented by a separate leader. (Tony Blair is thus two in one, or one short of a trinity.) However, they are joined for a working session and lunch by the leaders of India, China, Mexico, Brazil and South Africa, the UN secretary-general, the heads of the World Trade Organisation and the International Energy Agency, the president of the World Bank and the managing director of the International Monetary Fund. Not quite “old uncle Tom Cobley and all”, but a far cry from the intimate gathering of the Library Group 30 years ago.

Unlike the UN security council, the G8 is an informal, self- appointed body, and can therefore expand its membership at will, requiring only the consent of existing members. To ask who should be there is not just a protocol question for the titivation of social secretaries. It is, in fact, to ask a set of vital questions about the character of world politics in the early 21st century.

Which states, by what criteria, are to be considered the leading powers of our time? Must they be rich per capita as well as big economies overall? Should they be democracies? What’s the right balance between states and international organisations? And how about some representation for the non-governmental organisations and protest movements currently making an alternative Edinburgh festival?

I don’t really have a view on the last question; or rather I don’t know how it could be done. I suppose the mix of states and international organisations is probably about right, although I don’t see any good reason why the EU should have two representatives there; while the UN secretary-general should be there as of right. But the most pressing questions are probably the first two.

The defining feature of the G8 is that it’s the club of the rich and powerful — powerful mainly because rich. There are two ways of thinking about countries being rich and/or economically powerful: total GDP and per-capita GDP. Using purchasing-power parities, rather than the often misleading market exchange rates, China is the number-two economy in the world, according to the first criterion, but way down according to the second. Luxembourg is top of the list per capita, but 93rd by total GDP.

I’ve tried to combine the two measures in a map at the back of my book Free World. This shows countries drawn as geometric blocks whose size is proportional to the nation’s total GDP. However, each block is shaded by income per capita, with the darkest-shaded having average annual income per person over $25,000. Thus the US is huge and black, Luxembourg black but tiny (in fact, too small to show), while China is big but pale grey. In other words, China is at once rich and poor; both an economic giant and a developing country.

Now with the greatest possible respect to the Grand Duchy of Luxembourg, I don’t suppose even the Grand Duke himself thinks his country — with a population of about 470,000 — has a serious claim to be a member of the G8. But what about China? What about India? Both have economies larger than that of Germany, when total GDP is measured at purchasing-power parity. And both are growing much faster than the tired old economies of the West. Each has more than a billion citizens; between them, they are home to more than a third of humankind.

Many of the issues that the G8 is now highlighting, including the alleviation of poverty and the CO2 emissions that contribute to climate change, can only be addressed with the involvement of these two giants. And they are the coming great powers of tomorrow’s world. Shouldn’t they have a permanent place at the top table?

But if India and China, why not Brazil? It ranks 10th — before Canada — on the size-of-economy table (using purchasing- power parity). What’s more, unlike China, it is a democracy. And that matters too.

On the “frequently asked questions” page of the British government’s G8 website, an imagined seeker asks: “What legitimacy does the G8 have?” Good question, Sir Nigel. And the answer? “G8 countries are represented at the summit at the level of heads of state or government: these individuals have been democratically elected to lead the governments of their countries.” Except for Vladimir Putin, of course, whose last election was definitely not free and fair. Yet, embarrassingly for all except him, it is Russia’s turn to host the G8 next year. Perhaps they can do it at Yalta.

In an ideal world, the state members of the G8 — or rather GX — would be the democracies having the world’s largest economies. That would mean kicking out Russia and including India and Brazil, making a new G9. I like this idea. Size matters, but so does freedom.

Yet, imagine the outrage in Moscow! Conceive the fury in Beijing! So the G8+ will go on muddling through: no longer just the West, not yet the rest. In time, though, as we move from the end of the American century to the beginning of the Asian century, it will seem increasingly absurd that the great powers of other continents are not permanently represented at this top table of world politics.—Dawn/ Guardian Service