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| January 7, 2006 | Saturday | Zilhaj 6, 1426 |
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Growing opium menace
A matter of civic responsibility
Elitist orientation of the economy
SEVERAL observers have asked me to update the latest assessment of my thesis propounded in the book Pakistan: the economy of an elitist state. They are interested in exploring the question whether or not the policies and programmes pursued during the last six years have made any dent in the elitist model of the economy that I had put forward in February 1999.
IT BODES well for peace in South Asia that there has been some agreement between two sides on the triangular dialogue on Kashmir. The All Parties Hurriyat Conference delegation visiting Pakistan — for the second time in six months — has endorsed President Pervez Musharraf’s proposal for demilitarization and self-governance in Kashmir. A response from India, the third party to the dispute, is now awaited. The formula for a settlement of the Kashmir dispute — both sides should withdraw from the disputed state which should be granted a measure of autonomy to allow the Kashmiris to govern themselves as they desire — has been on the cards for the last two or three months.
It is now a known fact that the different parties have been debating this option since it was mooted by President Musharraf, initially in October 2004 and more recently in October last year in a BBC interview. The president briefed the Kashmiri leaders when he met them at the OIC summit in Jeddah recently. Prime Minister Shaukat Aziz spoke about it to Indian Prime Minister Manmohan Singh at Dhaka where they met during the Saarc summit. Of course, discussing an option does not mean that it is about to be accepted by all sides. In fact, reservations have been expressed not only by India but also by a section of the Kashmiri leadership. While India has admitted that the proposal is being discussed in the back-channel negotiations being held by the two sides, it has also emphasized that a solution will have to be found within the framework of the Indian constitution. That might amount to returning to square one. Shabbir Shah, a Kashmiri leader from the valley, has accepted the idea of demilitarization but termed the concept of self-governance as being vague. But the encouraging thing is that the proposal has so far not been rejected out of hand by any of the parties involved.
There are positive elements in the ideas being broached on Kashmir and on what approach could be adopted to resolve the dispute. The most significant point is that the three sides are no longer sticking to their traditional stance and are prepared to explore new options. Pakistan has stopped insisting on the UN resolutions and the need for holding a plebiscite to determine the will of the people of Kashmir. President Musharraf is now inclined to support the lead given by the Kashmiris. India has moved away from its erstwhile position of Kashmir being its integral part and not open to negotiations. Thus, a dialogue has become possible and is being held since January 2004. The Kashmiris are talking among themselves and India and Pakistan are talking to them. With the situation this favourable, a dialogue now seems quite feasible.
Even if the two sides as well as the Kashmiris agree in principle to the self-governance formula, there will still be a lot of negotiations needed to agree on the specifics of a solution. Will there be a united states of Kashmir as suggested recently by the APHC leaders or will the state be divided into seven regions as hinted at by President Musharraf in 2004? What will be the fate of the LoC? How will self-governance be implemented? The answer to these questions requires much spadework. Given political will and commitment, the parties concerned should manage to work out some understanding.
THE recent seizure by security forces of 17 kg of heroin in Karachi once again highlights two areas of growing concern regarding the wide prevalence of narcotics. First, the number of drug addicts in the country is on the increase, as indicated by figures for similar consignments intercepted by the Anti-Narcotics Force during 2005 and the resurgence of poppy cultivation in some parts of the country. Second, the fact that many consignments are intended for foreign destinations underscores the extent to which Pakistan is used as a transit point for drugs being smuggled from Afghanistan to western markets. In both cases, it is necessary to curb opium production at source. Any number of rehabilitation centres within the country will not bring down the incidence of drug abuse unless opium production and supply are curtailed. Similarly, western countries will find it difficult to counter the effects of trafficking unless the government in Kabul takes strong measures to put an end to opium production that is rampant in nearly all provinces of Afghanistan. True, statistics show that last year, opium production in Afghanistan had dropped — although by a negligible amount — over the previous year’s figures. But there are valid fears that this gain will not be sustained, despite the adopted of a new anti-narcotics law.
For there to be any substantial improvement in the situation, the Afghan government will have to ensure that its writ is recognized well beyond the limits of Kabul and the adjoining areas. With many warlords sitting in Afghanistan’s first parliament in 30 years, this should not be an unachievable task, especially if the lawmakers are held accountable for any breach of legislation in their own constituencies. But in addition to overseeing the dismantling of private militias and conducting joint operations with foreign forces to ensure that poppy cultivation is halted, the government also has to speed up development in the war-ravaged country. Afghan farmers cultivate the poppy crop out of economic necessity. Unless alternative means of livelihood are provided and further employment opportunities are created, they will find it very hard to give up an occupation that feeds their families.
AS Eid-ul-Azha approaches, it would be appropriate to remind ourselves of the deeper meaning and significance of the occasion. It is unfortunate that society has restricted itself to merely following the ritualistic aspects of the occasion and has forgotten the emphasis that religion places on cleanliness. A cursory glance at affluent urban neighbourhoods, where a bevy of animals (some imported) are tied outside people’s homes, is just one example of how the true meaning has been lost on so many. Once the sacrifices are done, a pile of mess — blood and entrails of the slaughtered animals — is left unattended to outside these posh homes and it doesn’t help matters that city governments — whose concept of sanitation leaves a lot to be desired — are slow to clean it up. One would especially appreciate if each city administration made an extra effort this time to ensure that the streets are cleaned at the earliest.
Perhaps city administrations can consider taking a cue from other Muslim nations which follow practical and hygienic methods on Eid-ul-Azha by designating areas where sacrifices can be done. This allows people to participate in the prescribed ritual without causing inconvenience — insanitation — to others and is also cost-effective for the administration as it only needs to clean up certain areas. Thankfully, social welfare organizations in Pakistan like the Edhi foundation have put in place a relatively easy process whereby people can fulfil their obligation of sacrifice at the organization’s premises. Those who prefer to do it themselves should keep the sanitation aspect of the act in mind.
As a player who was involved in the economic management of the country, it is natural that my perspective would be highly subjective. But it is equally incumbent upon policymakers to share their views with society and leave it to the latter to form its own judgment.
This discussion outlines the changes which have helped arrest or slow down the onslaught of the elitist model and the areas where the elite’s influence has remained intact. Let us begin with a survey of the changes that have helped to contain Pakistan’s elite.
First and foremost, the pursuit of the agenda of privatization, deregulation and liberalization has reduced the direct and indirect powers of patronage enjoyed by the state and state actors in a significant way. As market forces determine most key prices of inputs and outputs in the economy the distortions created by administered prices have been subdued and a healthy competitive environment has been created. A level playing field does not tilt the ground in favour of the privileged or those patronized by the government of the day.
As tariff rates have come down substantially the incentives for smuggling and illicit trade have been curtailed. As most public enterprises had become dumping grounds for excess labour and major sources of private profits, leakages and consequential fiscal indiscipline, their privatization has stopped the transfer of rents to the elite class. Deregulation of financial services, telecommunications and the aviation industry are beginning to benefit ordinary users of the services.
Second, the removal of subsides of all kinds has been criticized on the grounds of equity, but the truth is that subsidies in Pakistan have invariably been pre-empted by the powerful and influential segments of society. Any allocation of limited resources can be made either on the basis of price or quantity. Subsidies involve a rationing by quantity and only those who have access to the corridors of power can benefit from them. The poor in whose names the subsidies are purported to be disbursed have always been the losers as they hardly have access to those who are administering the subsidies. The elites who receive the subsidized goods or services resell them at the prevailing market price and pocket the difference. It is, therefore, quite sensible from an economic and social viewpoint that most subsidies have been eliminated during the last six years removing a powerful source of enrichment for the elite.
Third, the financial sector in Pakistan has been traditionally closed to the middle, lower middle and low income groups. Major beneficiaries in the past have included the government, public sector enterprises, big corporate houses, multinationals and well known individuals with powerful connections.
The reforms carried out during the last several years have opened up the doors of our financial institutions to small land holders in agriculture, small and middle enterprises, the salaried classes, and through microfinance institutions, to the poor and low income groups. Although the coverage extended to these groups is still not very large the prudential regulations have been rewritten to facilitate the flow of bank credit to them.
This relaxation of the capital constraint should put additional purchasing power into the hands of a large segment of producers and workers and improve their lot. In this way, the stranglehold of the elite classes on the economy will be eased.
Fourth, the allotment of urban land plots by KDA, CDA and LDA at highly subsidized rates to chosen members of the elite, the sanction of loans by nationalized commercial banks and development finance institutions at the instance of the government, the grant of licences for setting up sugar mills and other industrial ventures, favoured allocation of scarce commodities out of import/export quotas or domestic production and the issuing of statutory regulatory orders to specific individuals or firms have been done away with. The discontinuation of these practices has obstructed state-induced wealth accumulation by the elite.
Fifth, the introduction of universal self-assessment and the introduction of technology in tax assessment and tax collection are steps in the right direction whereby the collusion between large businesses evading taxes and unscrupulous tax collectors has been disrupted. The ongoing restructuring of the CBR whereby contact between the taxpayer and tax collector will be eliminated, the salaries of tax collectors enhanced, rules, procedures and dispute resolution mechanisms simplified will further discourage the elite from tactics depriving the exchequer of its legitimate dues.
Sixth, independent regulatory agencies for protecting consumer interests in public utilities are just beginning to take shape. It will take some time before the teething problems are sorted out. These type of agencies should be set up at the provincial and district levels also for regulating water, education health and food services as these affect day-to-day life. Since there is fear that these agencies could be taken over by the elite steps should be taken to ensure that this does not happen.
Despite these favourable changes, there are many areas that remain unchanged.
The poor remain at a distinct disadvantage as they have no direct access to relief and must rely on the assistance of powerful intermediaries to obtain this. For an ordinary citizen it is almost impossible to get any service rendered by the government functionaries such as filing an FIR, registering a document, obtaining a passport etc without paying a bribe or getting someone with clout to intervene.
The judicial system remains clogged with hundred of thousands of cases of frivolous litigation that crowd out legitimate cases. As a result, the existing system is being grossly misused by vested interests who indulge in protracted proceedings that unnecessarily prolong the determination of a case. The multiple appeal system and the absence of alternate dispute resolution mechanisms are further deterring the efficient functioning of the process.
The present chief justice of the Supreme Court appears to be seriously committed to bringing about fundamental reforms in our judicial system, and has taken suo motu action in several cases of public interest. If he is successful in reforming the judicial system and enforcing the rule of law, this will be the most important step in breaking the back of elitism in the country.
Unfortunately, the fragmentation of the educational system in Pakistan has made it difficult to use education as a source of inter-class mobility and improvement. Although several well-meaning individuals and organizations are providing quality education to children from the poor segments of society their numbers and reach are limited. A further expansion of these facilities will have a beneficial effect but the government cannot be absolved of its responsibility of using tax resources for providing access to quality education to the poor and disadvantaged. At present, the public school system, with a few exceptions, is an example of mediocrity and replete with inefficiencies.
The taxation and public expenditure system can be another potent instrument in transferring some part of private incomes beyond a certain acceptable threshold from the rich to the poor. But the number of actual taxpayers in relation to potential taxpayers is small restricting the ability of the state to perform this function of promoting equity. The recent gains made by the elite classes in the stock market and real estate have escaped taxation, generating a sense of lack of fairness. The sooner agricultural and service incomes and capital gains are taxed and used for spending on pro-poor service the better off the distribution of income will be in society and the elite will be prevented from deploying public finances for their own parochial benefits.
The financial sector has just begun to address the credit needs of small farmers, small businesses, salaried individuals and the poor. The coverage so far, among agricultural households is only 15 per cent. Similarly, microfinance institutions have penetrated about 10 per cent of potential beneficiaries. There is a need to monitor the activities of banks and other financial institutions and keep aligning their incentives so that they can broaden their coverage and reach at least 50 per cent of the target households and beneficiaries in the next five years.
The availability of credit to such a sizable number of households belonging to lower income groups will empower them socially and financially reducing their dependence on the elite class as intermediaries. The outreach of MFIs to the women clients in particular will have many collateral advantages in the form of education, nutrition, better health, cleanliness etc.
This assessment of the elitist hold on the Pakistani economy suggests that the results so far are mixed. Some policy reforms and structural changes introduced in the past several years are beginning to make a difference in the relaxation of the elite grip in many areas of the economy. But the agenda for further reforms, particularly in state institutions, the judiciary, the educational system, tax and public expenditure remains highly demanding and daunting.
The next five years should be devoted to bringing about these reforms in an effective way. Only then will we be able to say with some confidence that the roots of the elitist economy are beginning to decay in Pakistan. It took over five decades for the elitist model to take a firm grip of the economy. It would be highly unrealistic to expect that it can be dismantled within a short span of a decade or so.
The writer is a former governor of the State Bank of Pakistan.