| August 27, 2005 | Saturday | Rajab 21, 1426 |
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Deficit of social capital
An ecological disaster
Medium-term prospects for the economy
Who will say ‘no more’?
THE fiscal year just ended was a very good year for the economy from both macro (except for the spectre of inflation and the worrying size of the deficit on external trade) and micro perspectives, as some sectors and sub-sectors registered more than a fair rate of growth.
“WAIST deep in the Big Muddy and the big fool said to push on,” warned an anti-Vietnam war song those many years ago. The McGovern presidential campaign, in those days, which I know something about, is widely viewed as a cause for the decline of the Democratic Party, a gateway through which a new conservative era entered.
RIGGING and violence seem to have become an intrinsic part of elections in Pakistan. The second round of the local body elections on Thursday was no less violent than the first one held on the 18 and, according to reports, equally manipulated. While Interior Minister Aftab Sherpao has acknowledged 19 deaths, unofficial sources have put the toll at 29. This is higher than the 11 killed in the first round of elections in 3,032 union councils in 53 districts. The army joined the police in maintaining peace in districts which had been declared “sensitive”, but candidates and their supporters still displayed firearms and even used them. Favouritism and bureaucratic incompetence were also in evidence. Candidates belonging to the ruling party entered polling booths in violation of the rules and allegedly managed to have voting stopped, if this suited their purpose. Many opposition candidates say their election symbols were not printed on the ballot paper, while polling at many places began late because the Election Commission staff had not turned up on time. At places, bizarre, though very South Asian, voters were asked to “come later”.
Mr Abdul Hameed Dogar, the acting Chief Election Commissioner, spoke of a 60 per cent turnout, though it is not clear what mechanism he employed to arrive at this figure so early. If voting and counting were computerized, it would be a different matter altogether. In the absence of such a system, a definite figure about the turnout seems inexplicable. This and the widespread use of manipulative tactics by PML candidates make one wonder whether the government really gave these elections the importance which it purports to attach to them. In countries where democracy is well entrenched, the working of local government institutions affects the people’s lives at the lower level. For that reason local council elections are treated with the utmost seriousness. Unfortunately, this does not seem to be the case here. This is ironic, because the military-led government chose to hold LB polls before a general election was anywhere on the cards. This was done as part of the military-led government’s attempt to make the people believe that democracy really meant devolution at the grassroots level. Similarly, one continues to be mystified by the logic of the non-party basis of the elections. All voters knew which party backed whom, and it goes without saying that people invariably voted for the party. What could be the motive behind making the LB elections non-party? The only conclusion one comes to is that the rulers did not wish to give the political parties an opportunity to take their message to the people and mobilize them.
With the promised general election one and a half years away, the people will be justified in asking whether they will see a re-run of the just concluded LB polls. Among the LFO’s useful clauses is the position it gave to the election commission by turning it into an independent body. But this body has not come up to the people’s expectations. Prior to the election, it issued a commendable code of conduct, but regrettably it was flouted with impunity. Thus, going by all that has happened, it appears as if the EC, far from being an independent organization, has become an arm of the executive. It is time both the government and the EC reviewed their performance before and on the polling day so as to prepare themselves for a truly honest and transparent general election in 2007.
A SOCIAL scientist has suggested in a talk at the HRCP’s Centre for Democratic Development in Islamabad that Pakistan should develop its social capital to eradicate poverty. This is a new concept in Pakistan. We already know that socio-economic progress is possible only if the country has sufficient financial capital to invest and its labour is trained, skilled, educated and healthy to constitute a strong pool of human capital. But there is something more that the country needs if it is to advance, namely, the capacity of its citizens to live and work together as a cohesive body. Thus connections between individuals, their social networks and their capacity to cooperate with and work reciprocally with the community - the basic ingredients of social capital - determine the level of a state’s development. As sociologists have pointed out, a community of highly qualified and educated individuals who are isolated and lack a capacity to work as a team cannot help their country develop significantly.
Needless to say, there is an acute deficit of social capital in Pakistan. Although in pre-1947 years, our people had evolved historically as a community with strong civic values, sadly the norms have changed over the years. The poor state of our politics, economic underdevelopment, corruption and crime have made the people selfish and apathetic to the larger interests of the community. Failure to instill love and concern for the community has also encouraged an individualistic mindset that we see in the people of Pakistan today. The government’s failure to protect their basic human rights has forced them to adopt a strategy of ‘each fending for himself’. The inequitable distribution of wealth has also reinforced this psyche. It is time this trend was reversed. The concept of social capital can be given a fillip by introducing participatory processes in development projects, educational institutions and health facilities. By involving people in decision-making at the grassroots level in the schools where their children study, in the health centre in their locality and in any other work that is undertaken in their neighbourhood, the citizens can be made to see the advantage of a collective approach.
FOR all its pristine mountains and forests, Pakistan has one of the lowest ratios of forest cover to total land area. And by the looks of it, this figure promises to get even smaller, thanks to the proposed New Murree project, the brain-child of the Punjab government. A chorus of disapproval by environmental experts, conservation groups, concerned citizens, local residents and even the Punjab government’s own forest department, all saying that a new tourist resort in the Murree hills would lead to an ecological catastrophe, seems to be lost on the Punjab government. In fact, Chief Minister Pervaiz Elahi seems to be one of the project’s biggest backers. There are also rumours that the project has been given the go-ahead because some very powerful people have bought land at the planned site, who will vastly profit from a sharp rise in land prices once the area is developed.
What is worrying is that those backing the project seem not the least bit fazed by the findings of a Geneva-based environmental watchdog which has said that the conversion of over 4,000 acres of forest area around Patriata — the designated site — would be disastrous because it would badly disturb Islamabad’s main water source — the Simly Dam. The consequences of cutting millions of trees on such an extensive scale would be increased soil erosion, higher sedimentation in nearby streams, reduced flow of rainwater into local streams, higher risk of landslides and Simly dam’s eventual silting. Present-day Murree is a living proof of how unplanned and unbridled ‘development’ can wreck an area’s environment and ecosystem and end up completely robbing it of its forest cover. The Punjab government, if it is so bent on developing tourist resorts in the area, could concentrate on the present Murree for development.
Parts of the manufacturing sector performed spectacularly, creating an environment for private sector investment in capacity expansion or in new areas.
However, as has been argued before, many of the key requirements to attain uniform sectoral growth and ensure sustainability of high growth rates in the medium term horizon and more widespread distribution of the benefits of growth among the different income segments of the population continue to be missing.
Therefore, can the targeted growth rate of over seven per cent for the current year, 2005/06, be achieved? To begin with, it should be noted that the high rate of growth of 7.5 per cent clocked by the agriculture sector in 2004/05 was helped from a low base owing to a modest, if not mediocre, growth of 2.2 per cent in agriculture in 2003/04.
The massively sized cotton crop of 14.5 million bales in 2004/05 was the highest achieved in living memory (14 per cent higher than the second highest production achieved in 1991/92 of 12.8 million bales), giving the same yield per acre as in 1991/92. Can such a feat be accomplished again, let alone improved upon to enhance the growth rate for 2005/06?
This is important since there is little likelihood of us posting expansion rates of 7.5 per cent every year unless the agriculture sector as a whole records an annual growth of more than five per cent and production of major crops grows at a phenomenal seven per cent per annum.
During 2004/05, the earnings of farmers growing wheat also increased because of a relatively poor crop in terms of production, which raised the sale price of wheat, thereby pushing up the demand for consumer durables like cement, steel products, agricultural machinery and motorcycles. The projections for this year’s wheat crop are already being challenged by those knowledgeable about crop statistics and production data. They are arguing that we will be forced to import wheat and the longer the government delays the process the more politically damaging will be the price and inflationary impact of the smaller sized domestic crop. Next, the rise in interest rates is expected to have a dampening effect on industrial production, both directly and indirectly, through the demand effect as the increase in the cost (interest rates) of consumer finance checks, if not chokes, the demand for credit for durables and other consumer goods. This brings us to the question of what is happening to interest rates.
Monetary policy today is anchored in the interest rate policy, whereby bank deposit and lending rates are determined by the financial institutions based on market and commercial considerations, although within the broader macro-economic goals of reasonable incentives for savers and realistic rates of interest for borrowers. Of course, what constitutes the reasonable and realistic in a deregulated environment would be a moot point and opinions would vary on that.
Until the second quarter of 2005, the interest rates on bank deposits were unusually low, well below the rate of inflation. This resulted in depositors getting negative real rates of returns on their savings encouraging disintermediation and a shift to a speculative stock market and real estate, with tax and other incentive structures reinforcing this shift of capital to such areas and markets.
Despite that, there was massive liquidity in the banking system, owing to the large inflow of foreign remittances. However, with the contractionary polices now being championed by the State Bank having played no mean part in fuelling inflation, both the interest rates on government and private sector borrowings are going up sharply.
The data on interest rates on bank deposits and lendings shows that despite the supposed competition in a deregulated and liberalized environment there continues to be a huge spread between these two rates that borrowers are called upon to bear — although the spread has narrowed from around nine per cent in 2001 to just four per cent in 2004, but rising again to over six per cent by the end of June 2005, partly because when the interest rate environment changes, the impact on customer advances is quicker with the increase in interest rates on deposits taking place with a lag. However, the banks are falling over each other to lend below inflation to big sized corporations.
While the weighted average of lending rates in 2004 was still below the rate of inflation, this strategy results in the banking system cross-subsidizing large companies by charging smaller borrowers a higher rate. In other words, part of the explanation of the international competitiveness of Pakistan’s industry, especially of the large corporate sector, lies in the availability of funding to it at negative real interest rates and at the cost of smaller borrowers and depositors (who are being paid an interest rate that is well below the rate of inflation), raising doubts about the sustainability of this strategy and the continued competitiveness of the manufacturing sector.
So, the future of the economy in the medium term, without some of the key components for supporting such growth, may not be as bright as is being predicted or hoped for, although some bold decisions like an opening up of trade with India could suddenly provide huge opportunities for the efficient segments of industry and provide a stimulus that could push up the economy to a higher and sustainable growth path.
Like the cat that jumped on a hot stove and thereafter wouldn’t jump on any stove, hot or cold, today’s Democratic leaders didn’t want to make that mistake again. Many supported the Iraq war resolution and — as the Big Muddy is rising yet again — now find themselves tongue-tied or trying to trump a war president by calling for deployment of more troops. Thus does good money follow bad and bad politics get even worse.
History will deal with George W. Bush and the neoconservatives who misled a mighty nation into a flawed war that is draining the finest military in the world, diverting Guard and reserve forces that should be on the front line of homeland defence, shredding international alliances that prevailed in two world wars and the Cold War, accumulating staggering deficits, misdirecting revenue from education to rebuilding Iraqi buildings we’ve blown up, and weakening America’s national security.
But what will history say about an opposition party that stands silent while all this goes on? My generation of Democrats jumped on the hot stove of Vietnam and now, with its members in positions of responsibility, it is afraid of jumping on any political stove. In their leaders, the American people look for strength, determination and self-confidence, but they also look for courage, wisdom, judgment and, in times of moral crisis, the willingness to say: “I was wrong.”
To stay silent during such a crisis, and particularly to harbour the thought that the administration’s misfortune is the Democrats’ fortune, is cowardly. In 2008 I want a leader who is willing now to say: “I made a mistake, and for my mistake I am going to Iraq and accompanying the next planeload of flag-draped coffins back to Dover Air Force Base. And I am going to ask forgiveness for my mistake from every parent who will talk to me.”
Further, this leader should say: “I am now going to give a series of speeches across the country documenting how the administration did not tell the American people the truth, why this war is making our country more vulnerable and less secure, how we can drive a wedge between Iraqi insurgents and outside jihadists and leave Iraq for the Iraqis to govern, how we can repair the damage done to our military, what we and our allies can do to dry up the jihadists’ swamp, and what dramatic steps we must take to become energy-secure and prevent Gulf Wars III, IV and so on.”
At stake is not just the leadership of the Democratic Party and the nation but our nation’s honour, our nobility and our principles.
Franklin D. Roosevelt established a national community based on social justice. Harry Truman created international networks that repaired the damage of World War II and defeated communism. John F. Kennedy recaptured the ideal of the republic and the sense of civic duty. To expect to enter this pantheon, the next Democratic leader must now undertake all three tasks.
But this cannot be done while the water is rising in the Big Muddy of the Middle East. No Democrat, especially one now silent, should expect election by default. The public trust must be earned, and speaking clearly, candidly and forcefully now about the mess in Iraq is the place to begin. The real defeatists today are not those protesting the war. The real defeatists are those in power and their silent supporters in the opposition party who are reduced to repeating “Stay the course” even when the course, whatever it now is, is light years away from the one originally undertaken. The truth is we’re way off course. We’ve stumbled into a hornet’s nest. We’ve weakened ourselves at home and in the world. We are less secure today than before this war began.
Who now has the courage to say this? —Dawn/Washington Post Service
The writer is a former Democratic senator from Colorado.