ELECTIONS are an important means to achieve the end which is democracy. The people of Pakistan have always passed this test — that of casting votes for the right kind of political leadership — with commendable success.

In the 1970s elections they voted against Ayub Khan’s long years of dictatorship which had been unfair to the former East Pakistan and had increased the gap between the rich and the poor in the western wing. In 2008, as we have observed, the people have rejected General Musharraf’s policies and those figures of the PML-Q who were his most vociferous apologists.

One thing is common in both elections: the army and its intelligence agencies are said to have distanced themselves from the electoral process or, at least, have not indulged in anti-opposition rigging. This does not mean that there was no rigging — videos of such incidents are shown on TV — but it was not systematic and widespread as it used to be in the 1990s and so we have credible results.

The problem in 1971 was whether the establishment would accept the results of the poll? As it happened, it did not. All the major political parties of West Pakistan, and especially the Yahya Khan military government, did not want to accept the Six Points of Sheikh Mujeeb as that would have ended West Pakistan’s economic and political domination over the eastern wing of the country.

As the government was that of Yahya Khan it is he and his coterie of military officers who bear the major responsibility for alienating the East Pakistanis for ever and not the political parties.

The problem now is whether General Pervez Musharraf and his coterie of civilian hangers-on will really accept the message the election results have given. And this message is that General Musharraf’s policies should discontinue and that he should not hold any political office at present. There are indications that this has not sunk down into the collective mind of General Musharraf and his coterie. First, there are no signs of General Musharraf wanting to bow out while he may. Second, the restrictions on the deposed judges, and especially Aitzaz Ahsan, have not been eased. Third, there are covert threats to Asif Zardari and the Sharif brothers that various court cases may be taken up against them again. Fourth, the United States is still issuing statements in favour of the status quo.

Now if insanity prevails and the results of this election are not accepted in their true spirit, there will be another disastrous year like 2007 was. But 2007 was also a year which gave us the hope that the judges, the lawyers, the media and the students can defy martial rule in this country. Who knows what 2008 will be if the peoples’ voice is muffled again? If, however, they are accepted then we may see light at the end of the tunnel.

Some people, curiously enough, do not have faith in democracy even now. They predict that the PPP and the PML-N will split because they disagree on principles. Therefore, they imply, the present political set-up should continue in some form. However, the fear that a coalition will fall apart should never be sufficient reason to maintain a non-democratic setup in place. Coalitions are part of democratic governance and even if they do fall apart, the process continues. It is the process which is valuable not the continuity of one coalition or political party or the other.

Stability is necessary for economic progress but it should be stability which comes out of political maturity and the continuous change of faces which repeated elections ensure. It should never be the kind of apparent stability which Stalin or the Shah of Iran or Saddam Hussain provided. That is the stability and the peace of the graveyard in which free speech, free thought, original research, journalistic courage — everything withers away. We do not want that. Hence, all arguments to continue with the set-up which the people have rejected in the name of stability and continuity are wrong and must be opposed.

The problem is that the United States is giving arguments of this kind. Exactly what is at stake here? Obviously, the ‘war on terror’. General Musharraf’s mistake was to have made this war appear as a proxy war of the US and not something Pakistan had to do in its own self-interest. Firstly, the decision-makers never said that their past policies of supporting the Taliban in order to gain ‘strategic depth’ in Afghanistan were wrong. They never also acknowledged that the whole policy of using fighters in Kashmir, and even Afghanistan earlier, to fight in the name of Islam was deeply flawed.

Further, it was reported widely that some decision-makers at some level of the state machinery kept patronising the Pakistani religious militants somehow. Also, the action against the rebellion of the Lal Masjid and Swat was taken late and, when it was, it was unnecessarily brutal — at least in the Lal Masjid case.

All these disasters were never acknowledged, never accounted for and never rectified. That is why the ‘war on terror’ was associated with the US and with General Musharraf himself in the public mind. If it had been fought candidly, consistently and lawfully — that is without abducting people unlawfully at the behest of foreign powers or intelligence agencies — the people of Pakistan would have supported it in the interest of the country.

Even now, if the civilian government which is formed cares for the long-term interests of our own people, it will continue to fight those who challenge the writ of the state through violent means. But this should not be done to please Americans; it should be done to save our society from Talibanisation. Our people have never voted for the religious parties and may not do so unless non-democratic rulers force them to turn away from democracy.

In short, in the long-term interests of peace, tolerance and democracy it is necessary for the establishment to listen to the people for once. They want the judges to be restored; the president to resign; and the media to be free and if this is not done they will lose faith in the vote itself.

It is also necessary for foreign powers to do the same because, if they do so, a future government of Pakistan will be able to resist Islamic militancy otherwise the people will not let it do so. And, of course, it is necessary for the political parties to listen to the people even if their leaders have to suffer as individuals in the process and even if cooperation means strengthening traditional rivals.

THE phrase ‘institution building’ has begun to enter economic discourse in Pakistan. Its entry into the debate is timely since Pakistan over the last several decades has destroyed much of the rich institutional base the country inherited at the time of independence.

As I have said in some of my earlier writings on Pakistan, the British left the country upon their departure with a functioning system of government that reached down to the people; a system of land records and land administration that served the twin purposes of earning revenues for the government as well as resolving disputes over the ownership of land; a system of police administration that kept peace in the land they administered; and legal and judicial systems that served the people.

This was a remarkable inheritance on which the country could have built a structure suited to its needs. Instead, the various administrations that held office sometimes tinkered absent mindedly with the structures they had received from the colonial period. Even worse, sometimes they destroyed what was inherited for personal, political or financial gain.

Why did the British invest so heavily in the building of institutions of government and economic management is a subject worthy of much more detailed analysis than possible in a short newspaper article. It is also not the subject on which I wish to write today. Today, I will focus – and that too briefly – on two issues: why institutions are necessary for promoting economic development and what Pakistan needs to do now to create them and nurture them?

The importance of building institutions for promoting economic development was first recognised formally by Douglass C. North who then went on to win a Nobel Prize for economics. Before North came in with his ideas, economists had concentrated mostly on the accumulation of capital and availability of labour as the main factors producing growth.

They paid almost no attention to the institutional underpinnings of the economies they were studying. If the institutions became the subject of attention they were viewed as facilitators for the provision of other factors of production. I will illustrate this approach to institutional development with a couple of examples from Pakistan’s history.

The first was the establishment by President Ayub Khan of the Water and Power Development Authority (Wapda) when it was realised that the department of irrigation did not have the institutional capacity to oversee the implementation of the multibillion dollar Indus waters replacement works. A new agency was needed in the public sector to handle the mega-projects that were to be built in Punjab and the Frontier Province as a part of the programme. The Wapda was given operational autonomy; it was allowed to hire and fire people without the constraints normally operating in government departments; it could invite tenders for work and award them without observing government’s normal procedures; and it was allowed to spend money by using its own audit and control requirements.

Wapda was enormously successful in achieving its objectives. When I went to Harvard University for graduate work in economics in 1967, the Wapda was being taught as a case study of institutional success. It also became a model the Ayub Khan government used for establishing other autonomous bodies. However, as I will note later, economists who have followed the Douglass C. North line of thinking have in mind a different definition of institutions. They don’t regard Wapda type of organisations as institutional development.One other type of organisational development that could be confused with what economists refer to as institutions is the National Development Finance Corporation, or the NDFC. This was established by the regime of Zulfikar Ali Bhutto after it had nationalised a number of large and commercial entities in the public sector. This act was followed by the creation of large public corporations that were made responsible for producing such vital products for the economy as fertiliser, cement, chemicals and ghee.

When the question of financing the work and development of these new entities came up, it was decided that a new financial body should be set up that evaluated requests for money on a different basis than used by normal commercial banks. In evaluating these projects, the lending agency should not only look at the bottom line but also at the social value of the project or programme to be financed. The NDFC was not a success. It soon became subject to political pressures and the incorporation of social returns in its ‘due diligence’ procedures ultimately resulted in burdening it with a number of non-performing loans.

But, as already suggested, Douglass North in his work attached a deeper meaning to the term institution. He also brought ‘time’ into his analysis thus making economic development a dynamic rather than a static subject. “Institutions form the incentive structure of a society and the political and economic institutions, in consequence, are the underpinning determinant of economic performance,” he wrote in his lecture delivered while accepting the Nobel Prize.

“Time as it relates to economic and social change is the dimension in which the learning process of the human beings shapes the way institutions evolve. That is the beliefs individual, groups, and societies hold which determine choices are a consequence of learning through times – not just the span of an individual’s life or of a society but the learning embodied in individuals, groups, and societies that is cumulative through time and passed intergenerationally by the culture of a society,” he continued.

If institutions are more than organisations – in the context of Pakistan organisations such as the State Bank of Pakistan, or the Pakistan Institute of Development Economics, or Wapda, or even the army – then what are they. According to Douglass C. North, “institutions are the humanly devised constraints that structure human interaction. They are made up of formal constraints (values, laws, constitutions), informal constraints (norms of behaviour, conventions, and self imposed codes of conduct), and their enforcement characteristics. Together they define the incentive structure of societies and specifically economies.”

This broad way of looking at institutions and what they contribute to development suggests how far behind Pakistan has fallen and how much ground it has to cover before it can gain a solid footing. By including both formal and informal rules in the meaning of institutions and by incorporating enforcement characteristics for both of them, institutional economics is pointing the way we need to go.

Formal rules can only be changed by formal institutions – the legislature, the judiciary and the executive. But a country’s basic law – its constitution – that gives the making of formal institutions must not be subject to the whims of people who govern. This unfortunately has been the case in Pakistan. If the basic law is to be changed it should represent consensus among different segments of society. Informal rules can only be altered by education and learning. We need to build all this into the structure of our thinking if we want to make progress.

A move in this direction may have begun with the elections of 2008 that saw the party in power conceding victory to those who are in opposition, by the military’s clear indication that it will not stand in the way as a new political structure is built. And by the signal given by the president that having worked in an unconstrained environment for a long time he is prepared to accept new rules of the evolving game.