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DAWN - the Internet Edition


August 12, 2007 Sunday Rajab 27, 1428



Features


Corporate Pakistan detests democracy no more
The ancient mariner



Corporate Pakistan detests democracy no more


By Pervez Tahir

COMMENT


LAHORE: Dawn Business (Aug 5, 2007) has raised the issue — on which side of the political divide is the corporate Pakistan — and concluded that their preference is for a military-authoritarian state.

The editors do caution about the informal coverage of the survey undertaken and the broad nature of their interpretations.

However, results of the analysis are not counter-intuitive and, therefore, worrisome at a time of yet another democratic ferment in the country.

The debate missed an important international dimension of the issue. Why is it that the democratic and corporate leader of the world, the United States, ends up supporting the military-authoritarian governments in Pakistan and the democratic governments are handed down an economy in a mess and a US legislation to isolate them from the world?

When the high-growing, aid-propelled dictatorial 60s passed on, the legacy of a demoralised nation, a shrunk and stationary economy, most of it in the hands of 22 families according to the then chief economist, Mahbubul Haq, to an elected government, the US concern was to make an example of its leader for dreaming to safeguard what remained of the country by charting an independent course.

Again in the 80s, growth was high as was the US support. Under the Presselers Amendment, the Republican Regan kept on certifying that the country did not possess nuclear weapons.

Come democratic governments in the 90s, saddled with high debt burden and fiscal deficits not of their making, and the certification was refused. And when Nawaz Sharif said `No’ to the type of inducements accepted later in the wake of 9/11 by a dithering military dictator, the country was repaying debts but not receiving any inflows.

Growth has been good in recent years as well, thanks to the US assistance to the military-authoritarian setup. Once again as the country is nervously expectant about a democratic transition, the sword of Damocles in the form of certification under the Homeland Security legislation hangs over the head, in addition to the legacy of the largest external imbalance known to our economic history.

Corporate Pakistan takes its cue from the vibes coming from the global corporate leader. If it happens to be a nod to military-authoritarian governance, so be it. That is good for their profits and the safety of their investments, which is their main concern and not growth of the economy, which is incidental to it.

They are not alone in thinking things this way. The good governance crowd of professionals, linked presently or formerly with the multilateral institutions, which stands no chance of being elected and gaining positions of power and influence under a democratic setup, constructs theories as if bad governance is political governance by another name.

Profit, security and stability motivate corporate Pakistan, and not the aggregate growth of the economy. Salman Shah’s contention that corporate Pakistan supports authoritarian governance because the latter are associated with high GDP growth is hard to sustain. That is what comes out starkly from the distinction that the office-bearer of the All-Pakistan Hosiery Manufacturers Association made while talking to the Dawn between the period of General Musharraf as chief executive and the quasi-political governance after.

The GDP growth in the former period was pathetic but the office-bearer found the absolute rule very business-friendly. If any other setup caters for this motivation, the support will be there.

The question of winners and losers is also relevant, leading to a variation of the theme. For instance, financial sector has been the fastest growing since 2000. It need not come as a surprise that businesspersons from Karachi, the financial capital of the country, are broadly supportive and, at a minimum, pragmatic.

In contrast is Faisalabad, the textile capital, which has been losing out to competition and is unhappy about the official attitude towards it. It does not support the military governance.

Quetta and Peshawar do not have much industry. Hence the mixed signals coming from there.

Trust deficit is not specific to the democratic regimes. Nationalisation in the 70s and the freezing of foreign currency accounts in the 90s acted as dampeners on the corporate spirit, but so did the maltreatment of businesspersons in the early years of Ayub Khan, as well as the present regime.

A theme that is worth exploring is that the spectacular rise of milbus has positioned the military as an important part of the corporate class. The forward, backward and lateral linkages, together with sub-contracting arrangements, must create some fellow-travelling sentiment. As opposed to this, politicians continue to be perceived by businesspersons as largely feudal, anti-market and incapable of being decent legislators.

Growth and military governance are correlated in Pakistan’s experience but correlation is not necessarily causation. The causation begins with the generous economic and military assistance available to military-authoritarian state and the lack of it in the democratic periods. History repeated itself in this decade as well: growth returned only after 9/11 when the aid tap was turned on.

With elections looming, is our version of the political business cycle “democracy-low growth, military authoritarianism-high growth” to continue? The former does not last for the lack of external economic support and the later nears its end for lack of domestic political support. Is the addiction to external assistance untreatable? In both cases, the outcome is an unstable one, although the usually longer duration of the military authoritarian regimes makes corporate Pakistan to interpret their occurrence as growth-friendly and pro-stability, therefore, in its interest.

But businesspersons the world over are never judged by what they say, but by what they do. And the best reflection of what they do is not growth, but investment. Consumption, capacity utilisation and fixed investment all determine growth. Consumption to jump-start growth is the doing of policies. If there exists spare capacity, its utilisation does not require the corporate sector to commit itself to a regime strongly.

Capacity is already installed and its utilisation only involves marginal cost. It is only when the corporate sector decides to make new fixed investment that we see its strongest commitment to a regime. This costs real money and there is no compulsion to incur it. It cannot be anything but a consciously evaluated decision.

In the sixties, the annual average private fixed investment was 8.8 per cent of the GDP which came down to 5.6 per cent in the 70s. Clearly the investment votes of corporate Pakistan were cast in favour of military authoritarianism. By increasing average annual private fixed investment as a percentage of GDP in the 80s again to 7.8pc, the pro-military stance was reaffirmed. But the 90s witnessed a reversal of the investment voting pattern. Instead of coming down, as in the past, annual average investment was 9.1pc, the highest so far. Not only that, the private investment exceeded public investment by a significant margin. Investment votes in this decade thus loved, not detest, democracy. The explanation that comes to mind is that despite rapid political turnover, the consensus on deregulation, liberalisation and privatisation was maintained.

Within the 90s, the best years were the two full financial years of the first Nawaz Sharif government when private fixed investment/GDP ratio touched the double-digit. Those were the years when the refrain that there is money to be made in Pakistan was common. An investment spirit was abroad such that one could almost feel the “animal spirits” that Keynes, the greatest economist of the last century, talked of as the real driver of investment. This opportunity set was disturbed by the back-door manoeuvres of military, bureaucracy and the multilateral hopefuls.

The record these two years, and of the 90s in general, has not yet been broken if like is compared with like. Comparison is not possible between the investment data before and after 1999-2000, the year of rebasing national accounts. For some reason the Statistics Division has not used the new base to rework the data before 1999-2000. The data since 1999-2000 has been rebased, which to an untrained mind shows the investment performance of the military-authoritarian period in favourable light.

According to the rebased data, private fixed investment/GDP ratio for 1999-00, 2000-01, 2001-02 and 2002-03, respectively, was all in double-digit: 10.4, 10.2, 11.3 and 11.3 per cent. If one uses the old base for these years to make legitimate comparisons, the private fixed investment/GDP ratio was a flat 8.4 per cent for all of per cent for the nineties.

It will be fair to conclude that judging by its investment commitment, the corporate Pakistan does not detest democracy any more.

The writer is a former chief economist of Pakistan, is now Mahbubul Haq Professor of Economics at GC University, Lahore
perveztahir@yahoo.com


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The ancient mariner


By Hajrah Mumtaz

TIME and tide wait for no man and perhaps to underscore the point, the tides of Gulshan-i-Faisal did not have the grace to wait for the Karachi Water and Sewage Board, in its role as the executing agency, to finish constructing the area’s storm-water drains.

Which is not to say that the civic authorities weren’t given a sporting chance; the warning shots were fired last year. Officialdom paid attention but not closely enough. Projects to clean out drains were initiated indefensibly late. Contracts for stormwater drains were signed but too many are still under construction — including the Gulshan-i-Faisal drain, which is why Street No. 4 is currently an unbroken expanse of muddy brown, tinged with black, for the second year running. Residents would consider selling tickets if fellow citizens weren’t in a similar plight!

The flooding wasn’t entirely unexpected. Tension has been building up along natural and manmade borders for some time and a full-scale confrontation was inevitable. For years, nature’s needs have been relegated to last place while those unholy bedfellows, development and commercialisation, have been reaping the rewards of partisanship. Having planted representatives in the city councils, dev&com have been forcing through directives for more roads, high-rise blocks, shopping plazas, signal-free corridors, elevated expressways and bypasses – in fact, more concrete, mortar, tar and steel.

Nature, poor thing, had only enough influence to get some of the private sector on her side. While her team was constructing its arguments, the mob was busy erasing water-absorbing vegetation, natural drainage patterns, the gradient of the land and the very borders of land and sea.

As is the way of this world, part of the reward reaped by dev&com was that the last word in power-brokers, cash, which hired for them spin doctors to convert unpalatable goals such as “money, money and more money” into the more politically correct “gift to the people” and “for the greater good.”

Nature, meanwhile, had to make do with a feature article here, a conference there … no wonder, then, that she reached breaking point. Perhaps encouraged by her international cousins who ended the ambivalence about global warming once and for all by launching full-scale offensives, including smiting the UK with floods, nature Pakistan also decided to take matters into her own hands.

Her initial attempts lacked strategy. The cyclone and earlier floods hit defenceless communities who have no say in city planning and even less political significance. So Karachi came next, and as water fell from the skies, so water rose from the ground, pushing aside the manholes and gutters that had held it in check; together, they launched into a battle that reduced the city to shambles in two short days.

A hit below the belt, you may say. But then, no wonder they call her a ‘mother.’

Post script: There’s water rippling across the road, making waves on the sidewalks and happy little children are swimming in my parking lot – at least, until contamination makes them glow in the dark, bless their hearts. My books are desecrated by rivulets creeping along their spines and drips are making merry on the cushions. The bathroom drains sound as though they’ve got indigestion and the new seedlings have gone to Davy Jones’ Locker. But of course those indispensable purveyors of drinking water haven’t shown up – which is why I’m feeling a bit like the ancient mariner these days.

— hmumtaz@dawn.com

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