“THE genius of capitalism, where it works, is that it has managed to continuously re-invent its institutional underpinnings with innovations that include central bank, stabilising fiscal policy, anti-trust (law), regulation, social insurance and political democracy” — Dani Rodrik, Professor of International Economics at John F Kennedy School of Government, Harvard University.

Innovative re-invention of institutional underpinnings has been a major issue in Pakistan’s transition from “mixed economy” to an emerging market particularly over the past two decades. As there is always a resistance to change from the forces of status quo, reforms have come about not so much by choice as out of compulsion and inducements. Often changes have been triggered by crises.

Can the present judicial crisis serve as a catalyst for converting the judiciary from what it is perceived by many to be- an arm of the government- into an arm of the state as mandated by the Constitution? The situation appears to be ripe for a change, though the Musharraf government is now showing signs of” reforms exhaustion” to improve governance. It has been dragging its feet on setting up of a Competition Commission to curb unfair trade practices and turning CBR into an autonomous institution to enforce an equity-based taxation system. Or is it because of the resistance from within?

With the economy significantly unshackled from bureaucratic controls over the years, the demand for institutional autonomy has surged in response to military-led “unity in command “ dispensation. The government has responded with half-backed measures.

In the absence of representative democracy that imparts legitimacy to a country’s rulers, the authority deficit is mounting, paving the way for constitutional rule and independence of judiciary. The changing instance of the government on the issue of Presidential reference against the chief justice indicates how the authorities are susceptible to mounting pressures from the lawyers community and the media. But rising authority deficit is a global phenomenon to which the present regime is no exception.

The very step taken by authoritarianism, when weakened, to consolidate itself serves to destabilise it. The judicial crisis is one example.

“Pakistan is neither a dictatorship nor a democracy”, says a foreign political observer. His remarks may or may not aptly capture the present political situation but they do indicate the decline of authoritarianism on which political stability has been anchored so far.

Though sharply divided because of ideological and personal reasons, political parties, groups and individuals in the opposition are united on the issue of an independent judiciary.

It is common cause that unites them. It is issues rather than political parties and personalities that are beginning to dominate the political culture. And in an election year, public sentiments will carry much more weight than otherwise. An independent judiciary is important for making the executive accountable for its actions.

De-regulation, privatisation and liberalisation have weakened bureaucratic control over economy and reduced the leverage that the executive has traditionally enjoyed in politics. The reference against the chief justice saw ministers distance themselves from the executive’s decision taken without consulting them.

The privatised banking system and its regulator enjoy a greater degree of autonomy than ever before though not to the satisfaction of everyone. The State Bank formulates its monetary policy to combat core inflation. Its periodical reports are transparent and its independent assessment on the state of the economy help the market take informed decision. Conceptually and legally, the regulatory authorities are autonomous, though not strong enough because of ground realities which are also changing over time.

By choice or compulsion, the foundations of a modern state are being gradually laid on autonomous institutions to ensure good governance. District governments headed by elected representative have loosened bureaucratic stranglehold over local self-government. And the districts and the provinces have secured much more fiscal autonomy than they enjoyed in the previous years.

Whether it is politics or economy, authority and responsibility are more widely shared. The trend would be further strengthened as the momentum for demand for autonomy picks up over the years and the country is put on the constitutional path.

For the markets to grow and prosper, it is time to fully enforce the writ of the Constitution , rule of law and observe the sanctity of commercial contracts. Without independence of judiciary, this is not possible.

“It is not the sanctity of commercial contracts but personal contacts that count.” This is how a former head of a multinational recently summed up his experience in doing business in emerging markets like Pakistan.

As Dani says” the market needs a legal regime that enforces property rights and contracts — the dependency of the market on public institutions runs much deeper. — Markets are not self-regulating, self-stabilising or self-legitimising. — Without wide ranging regulations, the markets can hardly do anything correctly. — And without safety nets and social insurance to temper risks and irregularities, the markets cannot retain their legitimacy for long.”

The phase in which the market relied on the extra-constitutional forces to grow and prosper is coming to its natural and logical conclusion. The market must now learn to work within a constitutional framework.

Nothing is more global than ideas that are shaping the world. Despite the contrariness of specifics, the world moves in a rhythm in the application of universal principles, theories and practices.