A stunted corporate sector

HISTORY is full of instances when public policy has produced unintended consequences. There are many instances of this in Pakistan’s economic history. The one that interests me today concerns the circumstances that resulted in stunting the growth of the corporate sector in Pakistan.

This happened largely because of the decision by President (later Prime Minister) Zulfikar Ali Bhutto to nationalise large industrial, financial and commercial firms over a two-year period, from 1972 to1974.

That action was taken more than three decades ago but its consequences reverberate to this day. Had Bhutto not moved against the private sector it is not hard to imagine that Pakistan today would have some world-class and world-size corporations playing in the global economic field. To see where Pakistan could have been we need only to look across the border and see where India is going today.

On January 31, 2006, India’s Tata Steel outbid CSN, its Brazilian rival, by five pennies to acquire Corus, a British-Dutch steel company several times its size. With this acquisition, Tata will become the world’s sixth largest steel manufacturer with the capacity to produce 22 million tons of steel.

The world’s largest steel producer is Arcelor-Mittal, headed by Lakhshmi Mittal. Mittal is of Indian origin. He resides in Britain and heads a company headquartered in Luxembourg. He and his company are the true by-products of globalisation. His company produces almost 112 million tons of steel, more than three times the second largest enterprise, the Japanese Nippon Steel. But Arcelor-Mittal has a British-Indian as one of its owners; it is not an Indian company. But Tata is thoroughly Indian.

What is significant about the move by Tata is that it represents outward reach by an Indian company – not just any outward reach, but to Britain, the country that once ruled South Asia. For Tata, the acquisition of Corus has a special meaning.Legend has it that when Jamsetji Tata, founder of the Tata Group, first proposed making steel girders for the British-run Indian railways in 1907, Sir Frederick Upcott, who ran the system, scoffed at the very thought. “Do you mean to say that Tata proposes to make steel rails to British specifications?” he asked. “Why I will undertake to eat every pound of steel rail they succeed in making.” With the Tata’s $13.2 billion acquisition completed on January 31, Sir Frederick would have a lot of steel to eat.

The acquisition of Corus by Tata was viewed by most Indians as vindicating India’s economic model. It has nurtured the growth of world class companies. It also produced a lot of national pride. “I look forward to the day when ICICI Bank takes over Citibank; when Infosys acquires IBM; when Reliance takes over Exxon; and Tata takes over General Motors,” wrote Swaminathan Aiyar, a leading Indian commentator, in a newspaper column a few days before the Tata deal was consummated.

Tata is now a truly global company. The group has operations in 54 countries and its companies export products and services to 120 nations. It produces a diverse set of products. These businesses account for about 60 per cent of the group’s nearly $22 billion of sales and 83 per cent of its profits: Tata Steel, Tata Consultancy Services, the listed information technology outsourcing unit, and Tata Motors, which makes trucks and cars.

The next phase of the group’s expansion is likely to be in automobiles, a product line in which developing countries are becoming increasingly competitive with the established industries in the rich world. Hyundai, Kia, and Daewoo – all Korean companies – are taking market shares away from both Japanese and American manufacturers. It is painful to recall that in the mid-sixties Pakistan had an industrial sector more advanced than that of Korea’s at that time.

Had Zulfikar Ali Bhutto not put a dagger so deep into the heart of corporate Pakistan in the 1970s, it is conceivable that a few Pakistani companies would have acquired the maturity that has become the pride of India. Commercial banking is one sector that might have gone global had the banks not been nationalised in 1974. Let me briefly recall the history of the remarkable development in commercial banking sector in the country from the early 1940s to the early 1970s.

Two Pakistani leaders – Muhammad Ali Jinnah, the country’s founding father, and Muhammad Ayub Khan, the country’s first military president – showed remarkable foresight in recognising the importance of banking for economic development. Jinnah had concluded that the absence of formal banking in their community was one reason for the economic backwardness of the Muslims of British India. He persuaded the Habibs, a well-established Muslim business family, to invest in a start-up commercial bank. This was done in 1941 and the Habib Bank was born.

When Jinnah appealed to the members of the Indian Muslim community to contribute to the fund he set up to aid the victims of the 1946 Bihar communal riots it was Habib Bank that managed the donations and their distribution. Habib was the first significant venture to be started in British India by a Muslim in the sector of finance. “In undivided India, banking had been a closed field reserved for non-Muslims, and only a few Muslims were trained in this profession,” wrote Chaudhri Muhammad Ali in The Emergence of Pakistan, his account of the founding of the Muslim state and its early days. Jinnah understood that he had to fill that institutional gap.

Banking was especially poorly developed among the Muslim communities that were to become parts of Pakistan in 1947. When the Habibs established the Habib Bank, they incorporated it not in Lahore and Karachi but in Bombay, a city that was not included in the geography of Pakistan planned by the country’s founding fathers. Banking was sparsely present in the areas that became Pakistan, the few banks that operated there were owned by non-Muslims and all of them closed their offices and left for India after partition. Once again, to quote from Chaudhri Muhammad Ali, “of 487 offices of scheduled banks in West Pakistan, only 69 were left after partition.

Only one bank – the Muslim owned Habib Bank – moved its headquarters from India to Pakistan. Credit facilities were thus greatly curtailed and a special effort was needed in this field.” Starting with two branches in the areas that were now Pakistan, Habib Bank expanded rapidly. By 1955, it had opened 67 offices in the new country and also undertook a programme of expanding overseas. Through a subsidiary, it established branches at Colombo, Mombasa and Rangoon.

While the Habib Bank was privately owned, the Indian decision to launch a trade war against Pakistan in 1949 forced the Pakistani government to move into commercial banking. The National Bank of Pakistan was established as a public-cum-private institution under an ordinance in November 1949 to meet the emergency needs created by the trade deadlock with India. Initially, its operations were confined to the financing of trade in jute, cotton and other agricultural commodities. These were the main Pakistani exports to India in 1949 and the trade then was almost entirely financed by Indian banks.

That financing stopped after the Indian decision to sever trade with Pakistan. The Pakistani authorities had to fill the gap created by the Indian move and they decided to establish an entirely new institution, owned in part by the state but with significant private capital invested in it.

The National Bank also took over the government’s treasury function from the Imperial Bank of India that had served that purpose before partition. It expanded rapidly after being established with its headquarters in Karachi. It was permitted in March 1950 to take up normal commercial banking functions. By 1956, it had opened 73 branches in Pakistan and, like the Habib Bank, had also established itself outside the country.

Commercial banking thus arrived in Pakistan as the result of the foresight shown by Jinnah. It came also as an unintended consequence of the Indian efforts to economically cripple Pakistan before it had found the legs to stand upon. It was with the arrival of Ayub Khan at the helm of Pakistani affairs that banking became one of the growth sectors of the economy.The military government encouraged private entrepreneurship and also welcomed a close link between finance and industrial development. This model had been successfully followed by Germany and Japan where privately owned banks had entered into a close relationship with industrial houses. Once this pattern got working in Pakistan, private banking grew rapidly.

According to one account of developments in the early Ayub period: “Since 1962 there has been a remarkable growth in banking. Conditions have become highly competitive with the establishment of three new banks, viz United Bank Ltd, Standard Bank Ltd, and Commerce Bank Ltd. At the end of 1964, these banks had 214, 40 and 30 branches respectively.” Of these three, United Bank developed more rapidly. In the second half of the 1960s, Habib, National and United Banks were in a race to establish new branches all over the country. They were thus able to bring commercial banking to even the most remote areas of the country and, in the process, to mobilise domestic resources for development.

It was the United Bank Ltd. that carried the farthest the close association between industry and finance. Established by the Saigol family of industrialists and run by Agha Hasan Abdi, the bank was behind a number of ambitious industrial projects that were taking the country into the second phase of industrialisation during the closing years of the Ayub period. In the late 1960s, the Ayub Khan government had started to encourage private entrepreneurs to establish heavy metal-working and chemical industries and the Saigol family was at the forefront of that effort.

There is little doubt that had Bhutto not intervened with his nationalisation programme Pakistan’s banking sector would have grown in size and taken a position in the Middle East that was to launch a programme of economic development just at that time. After nationalisation, a number of Pakistan’s bankers, most notably Abdi, migrated to the Middle East and launched new banking enterprises based in that part of the world.

But the Bhutto administration was not totally destructive in its approach to the corporate sector. Having moved against the private sector, it invested heavily in the development of public sector corporations. Public sector entities were established in a number of sectors while some of the older enterprises were provided with generous government support. Especially favoured were the corporations in the sector of energy. Thus the Oil and Gas Development Corporation and Sui Northern and Southern Gas Companies expanded their operations. These too could have developed into world class entities had the government that succeeded Bhutto given them the same level of support.

Unfortunately the administrations that succeeded the Bhutto government failed to further develop the state-owned enterprises. India, on the other hand, having heavily invested in creating a public sector continued to nurture the corporations in that area of the economy. One of them, the Oil and Natural Gas Corporation is now a major player on the international energy scene.

Beginning of a new trend

THE last fortnight has seen about half a dozen bombings leading to violent deaths in the country. The pattern followed is that of suicide attacks which were common in Palestine/Israel and then in Iraq.

Pakistan has seen a lot of sectarian violence in the last 20 years, attacks on the military leadership during the last five years and some suicide attacks. However, with so many incidents coming in a row, one fears that this may be the beginning of a new trend, a grisly beginning to an ending nobody knows.

While the sectarian nature of some attacks may be conceded, most are attacks on the symbols of the state or its ruling elite. Indeed, with the women students of Islamabad’s religious seminaries up in arms and the Jamaat-i-Islami condemning Musharraf’s Kashmir policy openly, the ongoing confrontation between parts of the state and the radical Islamists seems to have entered a new phase.

Whether we will be unsafe when we leave our homes, whether our children will be threatened with death in their schools or whether the state will descend into anarchy – these questions remain unanswered. But what has created such conditions can be given some partial answers. This is attempted below.

One answer is that the ruling elite of Pakistan itself dug the hole in which it finds itself. First, it passed the Objectives Resolution which did away with the theoretical basis of democracy (rule by the people – ‘demos’) by declaring that sovereignty lies with God. This looks fine on paper but, if you think about it, God’s will or intention or the meaning of His sacred texts will be interpreted by human beings. And, of course, these interpreters are the ulema – that, at least, is the claim of the religious forces in the country.

In short, without saying so, our founding fathers laid down the basis for a Sunni version of the Velayat-i-Faqih. However, being hypocritical, the ruling elite always denied real power to the ulema in the apparatus of the state.

The power rested with the bureaucracy and the military – later the military dominated other elitist groups – and they co-opted the ulema as well as the feudal landowners.

In order to curb ethnicity and to keep ruling East Bengal, Balochistan, Sindh and the NWFP, the military elite, which was predominantly Punjabi, kept using the symbols of Islam and Urdu.

However, when symbols are used by the education system, the TV, the radio and the press, they tend to become homogenised and widespread. Thus, the ordinary Pakistani became pro-war, anti-India, anti-Israel and anti-West.

All these positions were couched in the idiom of religion. Hence, purely secular, nationalistic endeavours – like ruling East Bengal and winning the whole Kashmir state for Pakistan – were made to appear as Islamic endeavours. That is why the resistance to General Musharraf’s deviation from some previous policies seems to be against Islam itself to some of his opponents. This is one of the many holes the ruling elite dug for itself.

During 1971 Yahya Khan’s government used the idiom of religion to suppress Bengalis. The militant organisations Al-Shams and Al-Badar were created and supported by the military. Then, during the Afghan war the American proxy war against the Soviet army was also called a jihad. Pakistan participated enthusiastically in it and militants fighting in the name of Islam came to Pakistan and some settled down here.

The effects of the Mujahideen victory in Afghanistan and the earlier Iranian revolution soon became visible in Pakistan where Islam was of the Barelvi type. It was mixed up with the veneration of the saints and was not of the hard, puritanical type. However, American and Saudi money increased the Deobandi and Ahl-i-Hadith presence so much that a harder, more radical and inflexible interpretation of Islam gained prominence at least in the NWFP and Balochistan. The Iranian revolution raised political consciousness and also gave Islamists the idea that they too could gain power in the modern world.

Then, most significantly, the Pakistani state (through the army and the intelligence agencies) began to use Islamic militants to fight a proxy war with India in Kashmir. Many of these militant groups were also anti-Shia. Thus, one fallout of the proxy war in Kashmir was the violence against the Shias which started during Ziaul Haq’s time and has not come to an end till now.

The organisations, trained in the battlegrounds of Afghanistan and Kashmir and brought up on the doctrine of hatred, challenged the state several times. When General Musharraf took power even earlier than 9/11, the journal Sahifa Ahle Hadith (Karachi) condemned him as a stooge of America. This position is reminiscent of Sayyid Qutb’s (1906-66) theory of ‘jahiliyah’ – that modern culture as well as the ruling elite in Muslim countries are like the pre-Islamic Arab society (i.e. sunk in ignorance).

Before 9/11, such vitriolic condemnation was unusual in Pakistan. After that event, when General Musharraf reversed the policy of proxy war in Kashmir and banned some Islamist organisations, it gained more currency and popular legitimacy.

General Musharraf sought to co-opt the clergy and created such a political vacuum (mainly by eliminating Benazir Bhutto and Nawaz Sharif) that Islam-oriented political parties came to rule the NWFP and Balochistan.

At the same time, he fought against the Taliban presence and influence in Waziristan and militants who were after his own blood in the country. Now that the Taliban influence has increased in the Pashtun areas in both Afghanistan and Pakistan, the government finds its writ no longer running in much of the tribal areas.

Not all the policies which have backfired are those of the opportunistic Pakistani ruling elite. Some are those of foreign powers. For instance, Israel’s unjust policies towards the Palestinians and America’s support of them, America’s occupation of Iraq and threat to Iran, Britain’s enhanced vigilance of its Muslim population, Europe’s mistrust of Muslims and, of course, Muslim resistance and intransigence to western values – all of these are contributing to the hardening of attitudes.

One of the lessons of the Iraq war which the militants seem to have learned is that indiscriminate violence and that of a highly ruthless kind, pay dividends. This is what is happening in Pakistan. The militant Islamists are striking out at targets which will spread terror. Low-paid employees are dying. One hopes that they do not become so disheartened that they lose heart in defending sensitive places.

There are several other related problems which may strengthen the militants further. First, our common people have been given a diet of nationalism and jingoism in the idiom of Islam for a long time. They may reject policies to create peace with India in relation to Kashmir with such intensity as to revive the proxy war in that region. This would strengthen the militants.

Second, there may be functionaries of state who still believe in using the militants in Kashmir. They may be biding their time in the hope that their previous policies will be revived some day. They too will keep militants powerful.

Third, General Musharraf, in order to eliminate the threat of Benazir Bhutto and Nawaz Sharif, will reduce the strength of the moderates and, indirectly, strengthen the Islamic forces as a whole.

Fourth, the United States may attack Iran, or let Israel do so, which will create more Islamic militants in Pakistan and elsewhere. And, lastly, the Americans will perpetuate such horrors in Iraq that its only response will be increased Islamic militancy all over the world with spillover effects in Pakistan.

As we can see, the ruling elite of Pakistan can change some of these variables but not all. Even those it can change it may not, because changes will be against powerful sections of the elite. Moreover, changes such as reducing the contents of textbooks which are anti-India and pro-war will be seen as playing into the hands of the US and will be resisted.

However, if changes are not made -- such as encouraging the genuine participation of all political leaders and parties in the political process, giving pro-peace messages through the media and incorporating these in textbooks, abandoning all forms of militancy in Kashmir — this country will slide into mayhem and anarchy.

Our airports, railway stations, bus stops, schools and hospitals will become unsafe. We do not want that to happen. Can we stop it from happening? Perhaps not, but we can at least understand what is at stake and oppose policies which make us so unsafe.

Measuring America

IF one blinked, he might have missed it: the week or two between the 2006 midterm elections and the start of the 2008 presidential season, a brief hiatus when poll data didn't lead the national news.

But it's over now. In the weeks and months ahead, rest assured that pollsters will measure every twist and turn, whether major or minuscule, in the upcoming race. We'll be buffeted by percentages comparing Clinton to Obama, McCain to Giuliani, red states to blue states, "values" voters to the "pocketbook" variety, and so on.

And accompanying these polls, of course, will be all manner of survey results purporting to describe the citizenry to itself — from our collective "consumer confidence" to our views on the so-called war on terror, from our habits of worship to our preferred television programmes.

How did we arrive at this strange state of affairs, in which we look first to polling data to figure out who we are and where we stand? In which a flood of quantitative reportage drowns out other kinds of information and analysis? When — and why — did we become a survey-obsessed society?

Population surveys, whether for the purpose of levying taxes or raising militaries, date back as far as William the Conqueror's Domesday Book of 1086. Modern nation-states have for centuries collected census data in order to track everything from public health to population growth to economic progress.

In the 19th century, American newspapers began running straw polls of readers during election seasons. Around the same time, early insurance and marketing agencies found profits in statistical tabulations of life spans and buying patterns. Reformers and philanthropists, motivated by the power of empirical data to clarify social problems, canvassed immigrant neighbourhoods and factory labourers.

It was not until after World War I, however, that popular polls and surveys began to infiltrate ordinary Americans' lives in earnest. By 1948, a reporter would remark: "This is the great age of confession. We are required now to tell everything…. We tell Dr. Gallup how we are going to vote…. Our psychiatrist delves into our sex dreams and Dr. Kinsey into our actual performance along those lines." Mused another a few years later, "Today, unless you can say 'According to the Poop-A-Doop survey, umpty-ump per cent of the people chew gum while they read Hot Shot News!' you fail to make an impression."

A number of developments ushered in this new era. One was the rise of the professional social sciences — sociology, economics and political science — which firmly established themselves in the first decades of the 20th century through claims to special expertise and objectivity in investigating social life. Another was the invention and refinement of new statistical techniques, including, most notably, scientific sampling, a mathematical tool that allows researchers to gauge the attitudes of the entire society by querying as few as 1,000 people.

Equally important were the actions of the surveyors themselves, those who perceived a demand, and sometimes a market, for statistics about "ourselves." Unlike their 19th century predecessors — who had focused on social problems and those they considered degenerates, delinquents and defectives — 20th century public opinion pollsters, commercial researchers and sex surveyors turned to investigating (and one might argue, creating) new social entities: "average" or "typical" American habits, attitudes and beliefs.

A torrent of social data conveyed through charts, graphs and statistics began to inundate newspaper and broadcasting networks. By 1940, for example, an estimated 8 million people were receiving tri-weekly reports of "What America Thinks," George Gallup's syndicated opinion polls.

The audience for these statistics was ready made. In an era of rapid urbanisation and industrialisation, and the seeming breakdown of older mores and communities, Americans were eager to know what bound a diverse and contentious population together. Surveyors were happy to oblige, measuring everything from what citizens bought to what they believed to what they did in the privacy of their homes.

One of the earliest surveys to gain national attention was "Middletown," Robert and Helen Merrell Lynd's 1929 investigation of an anonymous "representative community" (Muncie, Ind.). The study tabulated seemingly mundane trends, such as the movie-watching habits, house sizes and religious beliefs of "typical" citizens. The result was the first-ever sociological bestseller, surprising its publisher, booksellers and the surveyors themselves. What was it that fascinated readers in the Lynds' lengthy, empirical study? Many regarded it as a mirror of modern America, the first scientific account to reveal, in one journalist's words, "the truth about ourselves."

Others would soon join the Lynds in what amounted to an exhaustive cataloguing of American life. Among the most influential were "scientific pollers" such as Gallup and Elmo Roper. Rather than survey a single community, they questioned a small national cross-section of respondents to derive a representative sample of the population.

The pollsters had great ambitions for their new instrument. Gallup himself announced that it could "provide a continuous chart of the opinions of the man in the street." Polls on topics from war plans to working women, tax policy to term limits, swiftly became public knowledge, prompting one writer in 1941 to claim that "America has had a firsthand opportunity to become acquainted with its own mind."

It was the pollsters' efforts to locate the majority, a fixed data point amid all the chaos of viewpoints and variability in the population, that made their techniques so appealing to politicians and citizens alike. As with the Lynds' survey, opinion polls were in the business of forging, not simply investigating, "the American public."

In the case of both "Middletown" and the Gallup Poll, some citizens wondered whether such quantitative knowledge about the nation — and the way it was obtained — was beneficial. One resident of Muncie complained, for example, that decent people would not "permit this peeping into the deepest recesses of their lives."—Dawn/Los Angeles Times Service