IJAZ Nabi’s insightful article (Dawn, July 8) has opened a timely discussion on the direction of economic policy and the options that must be imagined. Pakistan’s political business cycle has come round again — and as ever the bill for the generals’ and bankers’ party is post-dated.

The public outcry against dearness, however, must not be used as an alibi for another ineffective and devastating round of IMF-sponsored ‘stabilisation’.

Pakistan’s overall economic performance has less to do with domestic management than it does with the foreign policy environment. But showing that we have our priorities right will encourage the right sort of help.

The current chaotic state of global finance has invalidated the existing orthodoxy in macroeconomic management. If the IMF formula of stabilising economies by forcing them to adhere to deficit-GDP ratio targets was arbitrary before, it is completely unjustifiable now. The crisis triggered by subprime lending in the US was caused by cheap cash. The solution found by ‘prudent’ and ‘responsible’ monetary authorities in rich countries was to loosen monetary policy further. This means more cheap cash for investment banks to fuel speculative bubbles in international commodities markets. The G-8 summit acknowledged speculation as a key source of commodity price spirals, but did little else.

Asian economies in the meanwhile are being counselled to engineer domestic recessions through tighter monetary policies — all this in the vain hope that it will contain inflation which is actually being driven by cheap cash and loose financial regulation in Wall Street. This would be an unjust way of achieving stability in commodity markets.

Force impoverished Asian economies to slow down their growth and hence their demand for commodities while letting the real culprits, the speculators and their regulators, off the hook. A similarly unjust approach was found three decades ago when the IMF encouraged oil-importing developing countries to sustain their economies through the 1970s oil price shock by borrowing Eurodollars held by the oil exporters. This helped the rich countries out of a recession, enriched the banks and the elites in Africa and South America, but at the severe cost of working people and political stability in those countries.

The current IMF recipe — let’s not call it prescription — is not only unjust. It is also ineffective. It is about fighting inflation as the mother of all evils at the expense of everything else. The working person’s pain at rising prices might leave some in government feeling that the IMF brew is just the joshanda that is needed. Let us be very clear: it is not.

Domestic stabilisation cannot significantly reduce inflation at this stage. In fact, secondary wage and price inflation are necessary if the burden of exogenous price shocks is to be shared more equally than it has been. In an economy where 62 per cent of the workforce consists of ‘own-account’ workers, wage and price inflation are closely correlated. Yes, the government and the central bank must be more vigilant against speculators in particular sectors, reduce some market frictions and increase others. All of that will take some managing. But it will only help to control temporary shortages and domestic price spirals. National governments cannot control speculative bubbles in global markets.

What can and must be done, however, is to protect people from the effects of inflation. This means things like workfare, income support and even quantitative rations. The chaos in the world economy, led as it is by the financial markets, is likely to force Asian economies to demonetise more aspects of their social provision. Quantitative rations would be one way, others would be school meals and basic commodity coupons.

Slashing untargeted subsidies on energy and food is correct, but it becomes defensible if comparable budgetary allocations are set aside for social protection. Budget deficits and monetary sources of domestic inflation will have to be tolerated, at least for a while. And as Ijaz Nabi points out, our “friends” abroad have to help — particularly those that have done quite nicely out of the oil windfall, and have probably contributed to the windfall by themselves investing in oil futures. It is also as good a time as any to ask about the famous democracy dividend.

But it is not just about money. The challenge ahead is to put in place credible social protection measures that will allow working people to see off the hangover of the generals’ and bankers’ party. Credibility is the key. For most interventions this means good targeting. Workfare or an employment guarantee programme, which incidentally was part of the PPP election manifesto, has the virtue of being self-targeting. Anyone prepared to work at a basic wage is guaranteed a job at that wage.

Cash grants require careful administrative targeting of beneficiaries and the key to success is that the selection criteria must be simple and intuitive. Quantitative rations are not targeted — they cover everyone but only a small part of their consumption needs — and the machinery has to ensure that everyone gets one ration and no one gets two. The most effective, perhaps, is feeding children through schools. It is self-targeted because only children get it, it directly protects nutritional entitlements, and it is inarguable that all children ought to be well fed.

None of the above sounds like easy work but then no one said life was going to be easy. Arguing that the government cannot and should not try to fight inflation has a sting in the tail, which is that government can and must work harder to fight the effects of inflation. If Pakistanis see and experience social protection that is effective and transparent, they will forgive the government inflation.

BY all accounts, the new coalition government’s budget marked a milestone in the country’s fiscal history. The defence budget went from being a single line to two pages. But is that enough?

No, since we are talking about spending some four to five per cent of the gross domestic product on defence, a burden that is twice as high as that of many other countries including the large neighbour to the east.

To place the budget in perspective, it is necessary to put it through three tests. First, what did we know about the economics of defence before the new budget came out? Second, what do we know now? Third, what do we still don’t know?

Previously, we did know how much the country was spending on defence (sans nuclear weapons and ballistic missiles). But we did not know whether that was the right amount.

We are no wiser now. It is possible that the last hundred million rupees that are going to be spent on defence would have been better spent on educating the millions who remain illiterate (and who fall prey to the miasma of terrorism, among other ills), or on improving the health of the millions who suffer from chronic ailments or on feeding the millions who get by on a meal a day.

From international sources, we knew that the strength of the army was much larger than the strength of the other two services combined and that the other two services were much more capital-intensive. Now we know that the army’s share of the budget exceeds that of the other two services combined and that personnel costs account for half of the army’s expenses and less so of the air force’s and navy’s expenses. No surprise there.

But the budget fails to shed any light on several more fundamental issues. For example, did the acquisition of nuclear weapons provide the nation with a dividend in the form of lower spending on conventional forces?

Given the emergence of insurgencies along the north-western frontier, should new, lightly armed counter-insurgency divisions be raised to replace at least some of the conventional infantry and armoured formations?

What existing weapon systems are irrelevant to addressing the new threat environment? Should their replacements be produced domestically or procured internationally? If the latter, from whom and how will the purchases be financed? Will these international purchases be subject to sanctions if a war breaks out with India?

The budget is silent as the sphinx on these strategic issues. This has to change. To paraphrase the French leader Clemenceau, defence is too important a business to be left to the generals.

So while the new openness about defence spending is a step in the right direction and should be hailed, it is a comment on the weak and fragile nature of the coalition government that the presentation of the defence budget was limited to two pages. Even communist China provides more detail about its military spending and often backs up the budget with a white paper.

If parliament is to discharge its fiduciary responsibilities it needs a budget, not just an accounting enumeration. A good budget should flow from a clearly articulated defence strategy, an assessment of major and minor threats, and plans for neutralising them.

It should place military expenditure in historical and regional contexts and discuss spending trends by category, such as personnel and capital equipment. Aggregate spending should be shown as a percentage of GDP and this figure should be benchmarked against neighbouring and distant countries.

There should be a discussion on what is being done to eliminate waste in military spending and to ensure that the country does not shoulder a defence burden it cannot bear. Moreover, the budget cannot be presented as a fait accompli. An open and candid debate about defence spending should take place through the length and breadth of the country.

The budget should grapple with the fundamental questions that arise in defence economics, such as those that are regularly discussed in journals such as Defence and Peace Economics.

For example, are the last hundred million rupees that are spent on defence making the same contribution to national well-being as the last hundred million rupees spent on human development? And are the last hundred million rupees that are spent on the army making the same contribution to national defence as the last hundred million rupees spent on the navy and the air force?

Until the government answers these questions, it cannot expect parliament to make well-informed policy choices. So while we should all praise the new transparency in defence spending, we should also remind ourselves of the dangers that I. H. Burney warned us about back in 1963, since they are still “clear and present”.

To quote Burney, defence is “a cow of more than the sacred variety; there is a touch of the forbidden in it. All that a layman is allowed to hear about it — apart from paying for it — is that the nation’s armed forces are in fine shape to repel aggression.”

Alas, the fine shape of the armed forces was nowhere in evidence during the war of 1965 and even less so in the war of 1971. Pakistan paid a heavy economic price for pursuing national security through defence spending.

The military in Pakistan has largely modelled itself after its British and American counterparts. But the similarity does not go beyond regimental structure, training regimens, pageantry and weaponry. It merely adumbrates budgetary practices.

It is time to complete the story and to put an end to the notion that defence is an end to itself. In a modern democracy, it is the job of the government to defend its budget before the people as represented by the legislature.

To give the process credibility, there should be civilian intellectual involvement in the process. Experts at think tanks and academics should be consulted to make sure the best decisions are made. A two-page defence of the defence budget will just not do.

The parliament is owed a well thought out defence budget that takes up 75-100 pages. Brevity is the soul of wit, Shakespeare said, but as one of Lewis Carroll’s characters may have retorted, “a two-page defence is sure to leave the parliamentarians witless.”

The writer is an associate of the Pakistan Security Research Unit at the University of Bradford.

faruqui@pacbell.net

What can labour do for itself? The answer is not difficult. Labour can organise, it can unify; it can consolidate its forces. This done it can demand and command.

— Eugene Victor Debs, 19th century American union leader

THE Industrial Relations Ordinance 2002 is no more. The government appeared to be in a particular hurry as it ‘annulled’ the ordinance in a cabinet meeting held in Karachi on July 2 even though the law proposed to replace it, the Industrial Relations Act 2008, is not yet in place.

Perhaps it was important for the government to fulfil at least one of its ‘first 100 days’ promises, or perhaps it was under pressure from its constituencies. Whatever the reason for this haste in repealing the ordinance, it is important to consider the implications of its withdrawal and, taking advantage of the ensuing legal vacuum, to make recommendations for the proposed new law.

The ordinance, promulgated in the wake of the 2002 elections, was a creature of Gen Musharraf’s solitary wisdom and not a result of the deliberations of the National Assembly, let alone that of the workers whose activities it purported to regulate. The ordinance had repealed the Industrial Relations Ordinance 1969 with the avowed objective of amending, consolidating and rationalising “the law relating to formation of trade unions, regulation and improvement of relations between employers and workmen and avoidance and settlement of any differences or disputes arising between them.”

In promulgating the ordinance, Gen Musharraf had appeared to understand the internationally recognised right of labour to organise itself into trade unions. The content of the ordinance, however, belied any such understanding. Rather than enabling workers to form unions, the ordinance placed obstacles in their path. Not every one was automatically eligible to either form or join a union.

Persons employed in the police, the defence services, any installations or services connected with the armed forces, an institution for the treatment or care of the sick or destitute (excluding those run on a commercial basis), security or fire service staff of an oil refinery or gas or petroleum facilities or of a seaport or an airport were expressly excluded from the ambit of the ordinance. The government also had the power to suspend — for a maximum period of six months — the application of the ordinance to any establishment or industry. This enabled the government to control workers, often in the name of national interest, and almost always to their disadvantage.

Where workers were eligible to form or join unions they could do so only within the establishment in which they were employed. Consequently, workers employed in one establishment remained unaware of issues faced by others in the same industry but working in different establishments. Isolated from each other, the labour force became fragmented and susceptible to manipulation by their employers. In such a legal climate, it became increasingly irrelevant for workers to form or join unions and their right to do so was rendered illusory.

For the government, this approach to Pakistani labour had advantages. It allowed the government to attract foreign investment by billing Pakistan as a source of cheap, abundant and pliant labour. Foreign employers, with restrictive labour policies at home, found the permissive regime attractive and domestic employers, blithely unaware of the niceties of the rights of labour, enjoyed the benefits of the ordinance.

Employers took further advantage of loopholes in the ordinance, by employing people on contract rather than on a regular basis. While the contract employees performed the same work as regular employees, they could be hired and fired at will. They were not eligible for participation in pension or gratuity plans and did not qualify for free medical and insurance benefits. This practice added to workers’ insecurity and led to a gradual sense of disillusionment on their part.

The treatment of workers under the ordinance echoed of the historic suppression of labour in the Indian subcontinent at the hands of kings, rajahs and jagirdars. The British had sought to break the feudal mindset by enacting the Trade Union Act 1926. Under this law any person, employed in any industry, had the right to join a union. Unions could be formed industry-wide and could participate in political activities, although “irregular and illegal” strikes were restricted. Employers, in turn, were restricted from interfering with the rights of workers to form or join a union.

Pakistan inherited this law at Partition and diluted it almost immediately with the enactment in a single year of the Essential Services Maintenance Act 1952 and the Security Act 1952. As a result of these two laws, a number of industries were declared “essential services”. Unions were not allowed in such services, and holding strikes, etc were offences punishable with imprisonment. Labour relations further regressed with the promulgation by Gen Yahya of the Industrial Relations Ordinance 1969. Unlike the 2002 version, however, this ordinance allowed workers the right to consult with their employers, to organise themselves into a collective bargaining agent and to hold strikes, although the government had the right to call off strikes in the national interest.

If the Pakistan People’s Party is to break the cycle of successive laws that have weakened rather than empowered labour, then in drafting the Industrial Relations Act 2008 it must look for inspiration to the constitution and the nearly 30 International Labour Conventions to which Pakistan is a signatory. The new law should, at the very least, allow labour to exercise its fundamental right of freedom of association and to form unions not just in form but in spirit (Article 17) and plug loopholes in the law to secure just and humane conditions for work (Article 37). Most importantly, the law should enable and encourage the development of collective bargaining agents, because it is only through its collective strength that labour can agitate for its rights vis-à-vis their employers as well as the government.

Those who argue that the state of Pakistan’s economy does not permit the luxury of granting the rights of labour overlook the fact that a well-organised workforce, that enjoys the benefits of employment rather than just suffering its rigours, is not only loyal but also more productive. They ignore the fact that the fear of being taken hostage by the demands of organised labour stems from the employer’s inability or unwillingness to share with his employees the fruits of their efforts. Most of all, they forget that any edifice built on unjust foundations must falter not only to the detriment of labour but also of the employer and ultimately of the country.

VETERANS of the anti-apartheid struggle said Friday night that the segregation endured by Palestinians in the Israeli-occupied territories was in some respects worse than that imposed on the black majority under white rule in South Africa.

Members of a 23-strong human-rights team of prominent South Africans cited the impact of the Israeli military’s separation barrier, checkpoints, the permit system for Palestinian travel, and the extent to which Palestinians are barred from using roads in the West Bank.

After a five-day visit to Israel and the Occupied Territories, some delegates expressed shock and dismay at conditions in the Israeli-controlled heart of Hebron. Uniquely among West Bank cities, 800 settlers now live there and segregation has seen the closure of nearly 3,000 Palestinian businesses and housing units. Palestinian cars (and in some sections pedestrians) are prohibited from using the once busy streets.

‘Even with the system of permits, even with the limits of movement to South Africa, we never had as much restriction on movement as I see for the people here,’ said ANC parliamentarian Nozizwe Madlala-Routledge. ‘There are areas in which people would live their whole lifetime without visiting because it is impossible.’

Mrs Madlala Routledge, a former deputy health minister in President Thabo Mbeki’s government added: ‘while I want to be careful not to characterise everything that I see here as apartheid, I just do find comparisons in a number of places. I also find differences.’

Comparisons with apartheid have long been anathema to majority Israeli opinion, though they have been somewhat less taboo since the Israeli Prime minister Ehud Olmert last year warned that without an early two-state agreement Israel could face a South African-style struggle for equal voting rights.

Fatima Hassan, a leading South African human rights lawyer, said: ‘the issue of separate roads, [different registration] of cars driven by different nationalities, the indignity of producing a permit any time a soldier asks for it, and of waiting in long queues in the boiling sun at checkpoints just to enter your own city, I think it is worse that what we experienced during apartheid.’ She was speaking after the tour, which included a visit to the holocaust museum at Yad Vashem and a meeting with Israelis Chief Justice Dorit Beinisch.

Members of the delegation — the first of its kind — visited Nablus as well as town and villages bordering the separation barrier, including Na-alin where a temporary curfew was imposed after joint Israeli-Palestinian demonstrations against the barrier. The visit was organised by Israeli human rights group who co-operate with Palestinians committed to non-violent campaigns against Israeli occupation.

In Hebron’s main Shuhada Street, the South African delegation was plunged into a confrontation with local settlers’ leaders after one of them disrupted the tour by unleashing a barrage of abuse through a megaphone at one of the Israeli guides. Amid angry arguments, police arrested three of the Israeli guides. Mrs Madlala Routledge exclaimed: ‘this is ridiculous. Why are they arresting our guides and leaving the man with the megaphone?’

Dennis Davis, a High Court judge and one of the South African delegation’s several Jewish members, sought to persuade the extreme right-wing Hebron settlers’ leader Baruch Marzel that the visit to the city had been sanctioned by the Israeli Ambassador to South Africa. Mr Davis told Mr Marzel: ‘these provocations didn’t come from us. I’m Jewish and I look at this and I say to myself, how can I feel fear from other Jews?’

Andrew Feinstein, a former ANC parliament member, said that the visit to Yad Vashem had been ‘extremely moving’ because his mother had been a holocaust survivor who lost many members of her family. He added: ‘As you walk into Yad Vashem you see a quote that says in effect you should know a country not only by what it does but what it tolerates. So I found it very shocking to then come and here and see footage of teenagers heaping abuse on Palestinian children as they come out of school, and throwing stones at them. And that this should be done in the name of Judaism I find totally reprehensible. What the holocaust teaches us more than anything else is that we must never turn our heads away in the face of injustice.’

The delegation’s final formal statement made no mention of comparisons with apartheid and Judge Davis said he thought the use of the term in the Middle East context was ‘totally unhelpful’. He added: ‘the level of social control I’ve seen here, separate roads, different number plates [between Palestinian and Israeli cars] may well be more cynically pernicious that what we have ever had. But this is a country that is really about how there is going to be divorce and we were always a marriage. Ms Hassan herself said she thought the apartheid comparison was a potential ‘red herring.’

— ©The Independent, London