Economic cost of turmoil

POLITICAL turbulence affects economic performance. Economic players don’t like uncertainty; it makes it difficult for them to reach informed judgments about the future. They are likely to wait out the turbulence. Would this happen this time around? The answer to this question depends on how we view the performance of the economy over the last eight years.

The debate about the more important determinants of Pakistan’s economic expansion over the last five years continues without the protagonists coming to some kind of agreement. The government believes that the seven per cent rate of growth per annum since 2002 is the result of the way it managed the economy. Islamabad suggests that its policies have brought about a profound structural change in the economy which will take it towards a high growth trajectory similar to the one being followed by other Asian countries.

Several non-official economists, including myself, believe that the economy’s impressive performance was a consequence of both public policy as well as changes in the economic environment to which the government made very little contribution. One part of this positive change in environment is the enormous liquidity in the financial markets in the countries of the Middle East. These have provided a significant flow of capital to Pakistan.

One determinant of growth that has received little attention in this debate is the promise of political stability. As was the case in the 1960s, Pakistan has experienced considerable political certainty over the last few years. This contributed to the expectation that there would not be any major change in the nature of public policies affecting the economy. As 2006 gave way to 2007, there was a widespread belief in the country that the political system presided over by President Pervez Musharraf would continue.

The continuation in the system would ensure no surprises for the various players performing on the economic stage. That of course did not happen. The sudden rise of political Islam, the gathering storms in the tribal areas, and the executive’s confrontation with the judiciary have resulted in creating an enormous amount of political uncertainty.

For the last several months the front pages of the newspapers have been taken up by developments that could not have been predicted at the beginning of 2007. The important question, therefore, is whether there will be an economic cost associated with the turmoil that currently characterises the political environment?The official view is that the economy has arrived at a stage where it is not likely to be buffeted by politics. Some senior managers have been quoted as providing detailed data about a number of economic developments that suggest improvement rather than deterioration in July of this year. Inflation is said to have declined to a 6.4 per cent annual rate in July compared to the target of 6.5 per cent. Even more important, the growth in trade deficit appears to have been contained.

This has reduced the deficit in the current account to $892m in July of 2007 compared to more than a billion dollars in July of last year. Private capital continues to flow in from the outside. Remittances increased by an impressive 31 per cent in July 2007 compared to the same month in 2006, reaching $496m. The government expects that for the financial year 2007-2008 the total amount of remittances will cross six billion dollars, equal to more than four per cent of GDP.

In spite of the slowdown in the process of privatisation, foreign direct investment continues to increase. In July the government estimates that the country received $188m as direct foreign investment. The government believes that foreign investors are coming to the country not because of the assets being put on the market by the public sector. They are attracted by what they see as the inherent strength of the economy.

From all this the managers of the economy have drawn the conclusion that foreign investors and those people of Pakistani origin who send remittances to the homeland have not been disheartened by political turbulence.

It is important to remember that the data cited by the officials reflect the past; they don’t indicate what lies in the future. In mature economies the best indicator of future development is the performance of the capital markets. Share prices reflect sentiment not so much about the present but about the future. Investors buy and sell shares based on how they expect the various companies to perform over the next year or so and not necessarily how they are currently performing.

If this is also true for Pakistan, then there is ample cause to worry about the future. The KSE-100 Index has declined from above 17,000 at the end of June to below 15,000 at the beginning of September. This is equivalent to a fall of 12 per cent which seems to indicate considerable nervousness among the investors operating in the markets.

If political stability was one of the determinants of good economic performance in the past, then the reverse effect must also be true. The turbulence that has hit the political field in the last few months will have a significant consequence for the health of the economy. This is where we should turn to history in order to derive a lesson for the future.

Notwithstanding the claims of the government about having produced a significant structural change in the economy, the fact remains that the country continues to depend on foreign capital flows for a significant proportion of total domestic investment. The change that has occurred is to make the economy less dependent on official capital but increasingly more reliant on private flows.

We know from the past that official capital flows could increase or decrease depending on how Pakistan was perceived in the world’s major capitals. Washington’s attitude was of considerable importance in this respect. The roller coaster ride that the economy followed over the last six decades was the result of the changes in the way the Americans looked at Pakistan.

The economy did very well when Pakistan was in America’s favour; it did poorly when the US turned its attention away from Islamabad. At this time, however, it is unlikely that a significant change will occur in the flow of official funds from the United States to Pakistan.

No matter who occupies the White House over the next several years and no matter who controls the US Congress, Pakistan will continue to receive significant amounts of official money to keep it in the frontline of the war against terrorism.

Is there something that can be done by the various leaders who are currently involved in a game of political chess? If all of them are interested in improving Pakistan’s economy and maintaining the current rate of growth, they should explicitly state that whether they are in power or are active in opposition they will not advocate any policy that would result in a sharp change in the course on which the economy was proceeding before the season of political turbulence arrived.

They don’t have to endorse everything that Islamabad has done and is doing. I certainly would not do that. There are several changes in policies that need to be made but these will constitute changes in the margin rather than a significant alteration in the course that has been followed.

Perhaps this is a good time for all actors in the unfolding drama to pause and make this kind of announcement. This will save political turbulence from producing disturbance in the economy.

From slavery to sweat shops

THE year 2007 being the bicentenary of the 1807 Act of Parliament which, at least formally, abolished slavery in the UK, there have been public celebrations including one in August when Ken Livingstone, the mayor of London, publicly wept when apologising for the barbaric cruelty of this trade and the huge profits derived from it which continue till today.

The city and port of Liverpool was its epicentre which controlled 80 per cent of the British slave trade dispatching thousands of ships across the Atlantic and murdering tens of thousands of Africans in the process.

The city has now opened an impressive International Slavery Museum which I visited and which is a fitting tribute to the belated abolition. Unfortunately, its focus is mainly the Atlantic slave trade to America and too little on the British side of things.

However, in the Muslim, world the celebrations to ban that trade have been so muted as to be virtually non-existent despite the fact that during the currency of legal slavery the citizens of some Muslim countries, like Zanzibar (now part of Tanzania) and Oman, were among the most active, ruthless and brutal of the slavers.

As Daniel Mannix has noted in his classic book Black Cargoes “…by 1840 (long after the 1807 Act) Zanzibar had become the world’s greatest slaving emporium. In its slave market there were fresh caught Africans from the Congo, fierce Somali from the deserts, and even white slaves (especially captured women and children) were offered for sale.”

The Portuguese began to occupy these profitable territories but were later expelled by the Omanis. The Pulitzer prize winning author Davis Brion Davis has suggested in his monumental In Human Bondage that “…by 740 C.E. the spectacular Muslim conquests had created a vast world extending from modern Pakistan westward across the Middle East to Spain and France… an immense flow of slaves for employment as servants, soldiers etc.”

There is compelling evidence that slavery was only legally abolished in parts of the Arabian Gulf as recently as 1966. Indeed, there are some remnants of slavery practices still in existence in 2007 as for instance the requirement for a written “release” from an existing employer before a worker can transfer to a better paying one.

The International Labour Organisation has frequently complained about this practice and small improvements have been made but it largely remains in place. This is directly reminiscent of the institution of “manumission” (literally “release of hand”) from earlier slavery strictures in antiquity including under Roman law.

In this bicentenary of abolition we do need to be easy on the euphoria. The social historian Tristram Hunt has correctly observed that in Europe “too many institutions were tainted with its blood (from the Church of England to the royal family), slavery continued in British colonies until the mid-1830s and racist ideologies only intensified during the 19th century.”

In the subcontinent, since Independence from the British empire, modern versions of virtual slavery and serfdom exist in the form of bonded labour in the countryside and subhuman conditions of work and pay in certain industries that have been exposed from time to time but nevertheless continue almost with impunity in both Pakistan and India.

Detailed reports by Anti-Slavery International, Labour behind the Label, and other similar respected institutions have exposed employment of child labour and young women in grisly conditions in carpet-weaving (Karachi, Faisalabad, Kashmir, etc.), sports goods (Sialkot) and garment-making industries (almost everywhere) which lead to temporary stoppages but revert to form when the spotlight is removed.

It was reported again in the UK as recently as August that workers in India who produce garments for famous High Street retailers in Britain like Gap, Matalan, Primark, etc. are being paid less than £1.13 (Indian Rs90) for a strenuous nine-hour day and that security guards patrol toilets to force female staff back to work.

The culprit factories like the massive Gokaldas Export, Texport Overseas etc. were named and shamed. Similar stories in Pakistan are commonplace but despite exposés e.g. in the surgical instrument factories, by NGOs and bodies like the Human Rights Commission little can be done on a permanent basis. Martin Hearson of Labour behind the Label says the Pakistan government needs to do much more to permanently stop these horrific exploitative practices which target the poorest and most vulnerable members of the population.

Terrible conditions exist today in certain garment factories in Pakistan and the Gulf where one can see hundreds of male and female workers huddled over sewing machines for hours. For sheer history-book and mind-boggling quality such long factory lines present a photo opportunity to equal the long rows of manacled slaves packed tightly like volumes on a bookshelf in the lower holds of ships which once transported them in the Atlantic slave trade towards America.

In the context of this miserable historical trail from slavery to present-day sweat-shops, it is truly distressing to see our current martial and civilian leaders jostling for power and personal profit with hardly a thought for the vast majority who live in conditions of penury comparable to the forced servitude of yesteryear.

At the risk of sounding somewhat presumptuous or simplistic, what we really need is our own home-grown version of Venezuela’s honest President Hugo Chavez — namely that elusive leader who has the courage to stand up to the machinations and bullying of the West and at the same time utilise the country’s substantial human and natural resources for the benefit of the vast majority of the poor and underprivileged population — similar to what the Quaid had in mind some 60 years ago.

On a more direct and practical level the government needs to have, or delegate, powers to permanently close factories which indulge in serious labour malpractices, to remunerate whistle-blowers and to report them to the very foreign bodies and traders who investigate or import from them.

This needs continuous surveillance and not merely transient PR exercises. Moreover, many politicians are large feudal landlords who require their virtual “serfs” on their lands to vote for them in elections or to risk losing their jobs and meagre dwellings. Thus, exploitative practices in vast rural communities which are sometimes worse than in urban areas will require sustained efforts to bring them to a close.

Is Pakistan a banana republic?

TO ANSWER the question if Pakistan is indeed a banana republic we need to know the basic characteristics of a banana republic. This term is used to describe a country that is governed by a wealthy elite, suffers from severe economic disparities, is marred by perennial political instability and is prone to military coups.

The small Central American nations of Honduras, Guatemala and El Salvador once embodied these characteristics and were known as banana republics. For the past several decades, Pakistan, too, has been prone to demonstrating these characteristics and seems to be on the way to qualifying as a banana republic.

As people observe the unending saga of social, political, and economic turmoil in the country, it appears that Pakistan’s political leaders, most of whom are extremely affluent, consider politics as a sport. Whereas the majority of the people of Pakistan struggle everyday to make both ends meet and have no access to quality education, decent healthcare or employment, their political leaders are the richest individuals who do not have a clue about how people earn their daily wages. Such things happen only in a banana republic.

The political leaders of Pakistan indulge in politics for personal aggrandisement and nothing else. Most of them do not have any vision for Pakistan. They appear on television discussion panels for the sole purpose of mud-slinging and double-talk. They hardly discuss the serious issues and challenges that the people of Pakistan face. They do not hesitate to use Islam for petty gains. They are extremely skilful in the art of obfuscation.

The top leaders of major political parties live abroad like royalty. Their lifestyle in London and Dubai is no less than that of any prince of an oil-rich sheikhdom. No one dare ask them how they accumulated such enormous wealth and how they could afford such large estates and a massive entourage on foreign soil where they never worked for a day.They convene party meetings in London to discuss democracy. One wonders why these meetings are not held in their own country. We do not hear of political parties of other countries, for instance Britain’s Conservative Party, holding conventions in foreign countries. Why do Pakistani political parties hold meetings in London? No one asks this question as it is presumed that because the top leader is in exile, the party must assemble there as no other leader can be trusted to lead the party. Since funds are no problem, party members must travel to London to attend those meetings. Such escapades by the elite are possible only in a banana republic.

Again, the freedom foreign powers have to dabble in the politics of a banana republic is also well known. Recently, something strange surfaced in the media. It was reported that a “great personality” of a friendly Muslim country had signed an agreement with Nawaz Sharif seven years ago to facilitate his release from prison. President Musharraf and his ministers did not want to reveal the name of that personality, though everyone knew who it was. Now we had the son of another foreign leader visit Islamabad to talk politics. This is quite acceptable — in fact expected — in a banana republic.

The governing coalition, led by the Muslim League-Q, promotes a unique concept of democracy. A military dictator is handed over a carte blanche to govern as he deems fit. They are pleased to assume the role of junior partners in government as long as they are able to exclude their opponents from power.

President Musharraf, a military dictator, is a law unto himself. He claims to have a monopoly over wisdom and expects everyone to obey his orders. He alone knows what is good for the country. Ironically, there are many in Pakistan who concur with the general. This is typical of a banana republic.

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Strengthening the courts

LIKE India, Pakistan inherited a fairly developed and strong judiciary, with the legal profession being the most respected of all vocations. As the country started to take a political nosedive through the maze of conspiratorial politics, and abetted by self-serving politicians, businessmen, generals and bureaucrats, the judiciary’s independence also began to be undermined.

Four major judgments by various Chief Justices of Pakistan in the 1960s, the 1970s, and the year 2000 had an adverse impact on the political and social life of the country. They also lowered the prestige of the judiciary in the eyes of the people.

In the Tamizuddin case, the then Chief Justice overturned the judgment of the Sindh High Court, which gave the then governor-general a long hand for political and economic manipulations. The same Chief Justice validated the martial law of General Ayub Khan by coining the phrase ‘the doctrine of necessity’. This paved the way for the army to get into the body politic of the country.

In the 1970s, another Chief Justice validated General Ziaul Haq’s martial law with powers to amend the Constitution as he deemed fit. Another Chief Justice in the year 2000 validated General Musharraf’s takeover of the country and also gave powers to him to amend the Constitution.

These four episodes are the darkest spots of our judicial history. If the Chief Justices become pliable under the hand of the executive, what future would Pakistan have?

Since March 9, 2007, the present Chief Justice has stood firm on his principles, even at the risk of being insulted and roughed up. We have witnessed events and occurrences since then which are of such a revolutionary nature that one can say Pakistan was reborn on July 20, 2007.

For the first time, the nation is in a mood reflective of the hectic days of the Pakistan movement under the Quaid-i-Azam. Some critics think that the lawyers’ movement, their resolve and the people’s sentiments will peter out. They are wrong. We are now a new nation united through the lawyers’ movement to make Pakistan a truly sovereign and democratic country with a strong judiciary.

The main pillars of the state, namely the legislature, the executive and the judiciary must play their respective roles under a coordinated system of checks and balances as being practised in advanced countries. The judiciary, although the custodian of the rights of the people under the Constitution, is still, comparatively speaking, a weaker pillar of state than the other two.

To enable the judiciary to work effectively, we have to strengthen it in many ways. ‘Adal-wil-ehsan’ is the hallmark of Islamic jurisprudence. The caliph is the spiritual and temporal head of the Muslim world, and is elected by the people through the process of ‘shura’. Similarly, the chief qazi (qazi-ul-quzzat) is also an elected position.

There are many instances where the caliph went to the court of the chief qazi and not vice versa. The March 9 episode created a very bad taste in the mouth and triggered the people’s unstinted support for the cause of the Chief Justice.

In Pakistan, the position of the Chief Justice is not as exalted as it should be. It should be at least in the same article in the warrant of precedence as the chairman of the Senate or the prime minister. In historical retrospect, it may be worthwhile to mention that up to the promulgation of the 1956 constitution, the Chief Justice acted as governor-general in the latter’s absence.

The 1956 constitution also provided the same arrangement. It was for the first time that General Ayub’s constitution provided for the speaker to take over in the absence of the president. The 1973 Constitution provided that the chairman of the Senate act as president in his absence.

The judiciary cannot be efficient and effective because of inadequacy of financial and human resources. If we carry out a comparative study of the allocation of financial resources to the judiciary and other organs of the government, we come to some very disturbing conclusions.

Just consider the budget for the police and the Rangers. The budgetary allocation for the police, whose job is mainly to assist the judiciary in the dispensation of justice in criminal matters, has increased to at least 20 times more than that of the judiciary. The picture gets more complicated when the budget allocated to the judiciary is not released on time. This severely affects its performance.To make the judiciary really effective as the guardian of people’s rights, four key recommendations should be kept in mind.Firstly, a judicial-financial commission should be constituted under a Supreme Court judge, acting or retired. The commission should consist of representatives of the high courts of the four provinces and the federal finance secretary and the finance secretary of each provincial government. They may co-opt one or two additional financial experts as the commission deems fit.

The main terms of reference of the commission should be to identify and quantify financial needs in the light of the workload of the judiciary, the backlog of work and the future load of work spread over 10 years, and to determine an optimal amount of fund for each high court and the Supreme Court and its affiliates. Once the amount is determined, it should automatically become part and parcel of the federal and provincial budget.

Secondly, as regards incurring expenditures, a financial advisor should be attached to the Supreme Court and each high court to assist the Chief Justice of Pakistan and the chief justices of the high courts. The present practice of periodically getting funds released from the ministry of finance or the finance department should be discarded.

Thirdly, the judiciary is highly dependent on the existing police force in the dispensation of criminal justice and other related matters. Compared to the British days and the early post-Independence period, the police today is in a state of disarray. It is subservient to the political authority rather than to the constitutional and legal authority of the land. Service to the people is minimal.

If we analyse the usage of the police budget, we will find that its biggest chunk is spent on the provision of protocol and other duties for VIPs, government servants and their protection. The strength of the police for the assistance of the judiciary has been reduced over the years and diverted to provide protection to others.

This is most unsatisfactory. The judiciary cannot dispense criminal justice and perform its role efficiently unless it has a police force of its own under its command with a separate budget. Therefore, there should be active consideration to have a police force directly under the command of the Supreme Court as well as the high courts as it will be instrumental in guaranteeing the dispensation of justice and the protection of citizens’ rights.

Lastly, there is total consensus among political scientists that the proof of a true democracy in a country lies in the effective and exclusive working of all pillars and organs of the government towards the welfare of the people. It also lies in enabling the people to participate effectively in national activities.

Unfortunately, this has not happened in Pakistan. To be the real guardian of people’s rights, the judiciary should ensure the people’s participation in the dispensation of justice. There is a dire need to establish a strong liaison between the judicial police and the courts. Needless to say, the acceptance and the implementations of the above recommendations will not only protect the people’s rights but will substantially improve and ensure good governance in the country.

The writer is a former director-general of the Asian Development Bank.