EACH day over the last week, the stock market has been scaling new heights. As I write this, we are informed that it nearly broke through the 17,000-point barrier on the Karachi Stock Exchange index.
So what’s going on? In my ignorance, I had assumed that the share index was a pretty good barometer of an economy’s performance. Here we have a country with huge law and order problems, interminable power cuts that have brought industry to its knees, and rampant corruption.
Given these negative features, why is the stock market surging so powerfully? Are we going through an artificially inflated bubble, or are there positive underlying factors at work here?
To get a sense of what’s behind this phenomenal rise in share prices, I asked Yaseen Lakhani, an ex-president of the Karachi Stock Exchange and an old friend, to fill me in. Was the boom due to short-term trading with borrowed funds, or did it represent confidence in the economy?
Yaseen explained that computerisation and other reforms of the system meant that buying on margin with money borrowed on the badla market had been minimised. Now, most trades were genuine: the rise in prices was largely due to increased earnings in several industries, as well as in the financial sector.
Others have spoken to me about the boom taking place in the rural areas caused by a significant rise in procurement prices of agricultural produce. Higher incomes for farmers have led to greatly increased demand for consumer goods. Manufacturers are thus making higher profits and paying more dividends to share holders. Banks, too, are doing well with more liquidity being generated in small market towns.
For decades, economic planners have kept wheat, cotton, sugar cane and rice prices low. While this has led to widespread poverty in the rural areas, it has kept food prices in the cities low. Textile mill magnates have also benefited from this policy.
This was done with the knowledge that high food prices in cities could lead to political unrest. Farmers, on the other hand, tend to be long-suffering.
This government has taken the welcome step of reversing this policy. The reason, however, lies not in its benevolence, but in cold political calculation. The PPP’s support base is now almost totally rural, and the party can scarcely count any urban constituency as a safe seat any more. In Lahore and Karachi, the PPP has been all but totally wiped out.
But while the party’s strategy of wooing the rural vote through higher procurement prices makes short-term sense, in the long term, the PPP is going the way of the dinosaurs. Currently, Pakistan’s urban population is 36 per cent of the total, and is expected to rise to 50 per cent in another dozen years or so.
Apart from purely demographic factors, the country’s economic progress is also bad news for the PPP. Today, around 70 million Pakistanis are estimated to be in the middle class. While this is less than half of our total population of approximately 190 million, it does represent a significant increase over the last decade.
The aspirations of the middle-class change as they have more income: roti, kapra aur makaan — bread, clothes and shelter, the PPP’s original pledge — become less important. Law and order, good governance and greater opportunities are more essential once the basics are taken care of. In these areas, the PPP promises little and delivers even less.
I caught the edge of this growing small town boom when I drove from Gilgit to Islamabad on the Karakoram Highway a couple of months ago. When I did the Mansehra-Abbottabad stretch after dark a few years ago, there were few lights on. Now, both towns were lit up with advertisements; restaurants were doing brisk business; and oddly, there were scores of CNG pumps with lights blazing.
So clearly, far more people have lots more money to spend. More CNG pumps mean more cars which, in turn, means greater sales and profits down the supply chain. Oddly, this trend defies the worldwide recession that is blighting so many lives in other parts of the world. But despite this improvement in living standards for millions of Pakistanis, serious gaps remain. My son, a Karachi-based entrepreneur, says his firm has a major problem finding qualified staff, even though they pay very well. Many others have voiced the same frustration.
Although we have witnessed a mushroom growth of private schools, colleges and universities, most impart substandard education. And children condemned to suffer at our state institutions start life at a terrible disadvantage. The third educational stream in Pakistan is the one offered by madressahs, and these produce graduates better prepared for the next world than this one.
This key sector has been utterly neglected by successive governments, including this one. But as the middle class expands, demand for better education will increase. Sadly, there seems little capacity to meet this need, given the low priority education has been accorded for decades. Indeed, our appalling literacy rate keeps Pakistan near the bottom of the education table worldwide.
Apart from education, totally inadequate power generation has hamstrung industry and agriculture, while making summers a living hell for millions. Here, this government has failed utterly. And to reward him for his failure, the minister responsible for the mess has been promoted to the prime ministerial slot. For its incompetence in the power sector alone, this government does not deserve to serve another term.
Perversely, as more and more people escape the poverty trap, the less support the PPP is likely to get, given its shrinking rural base. For the young, it is difficult to connect with the cult of the jiyala, the hardcore Bhutto supporter. There is little evidence to suggest that there is any thinking going on within the party high command to change the nature of its appeal. Indeed, the whole concept of introspection and self-analysis runs counter to the party’s ethos.
As the recent by-elections showed, the PPP’s presence in Punjab is increasingly tenuous, except in the south. In Sindh, it has been pushed to the rural north. So while the economic, demographic and electoral scenario is rapidly changing, the PPP remains rooted in the past. And political parties incapable of evolving become extinct sooner or later.
The writer is the author of Fatal Faultlines: Pakistan, Islam and the West.