After withdrawal, what?

A PULL-OUT by the US-led forces from Iraq without a sound post-withdrawal formula is a recipe for disaster that could lead to the country’s break-up. On Thursday, the Islamic Foreign Ministers’ Conference in Islamabad called for a withdrawal of foreign troops from Iraq at the “earliest possible” date and stressed the need for restoring peace in the country. However, the declaration issued at the end of what is an annual feature failed to come up with a formula for filling the void that will be created when the occupation forces pull out. Foreign troops have been fighting the resistance forces now for four years, but they have achieved no success to speak of. The militants are as strong as ever. The US troops now number nearly 150,000, and it goes without saying that they are among the best-equipped forces in the world. But in spite of that they have not succeeded in breaking the back of the resistance. The situation in Baghdad has slightly improved following the ‘surge’, but the militants have moved to the neighbouring cities and violence continues at a level higher than ever before.

The OIC foreign ministers are not the only ones to demand a withdrawal of the US-led troops; the Democrats’ victory in the mid-term elections last November shows that a majority of the American people too want to see their troops back home. However, even the Democrat-dominated Congress has not come out with a feasible formula for ensuring peace in Iraq and its territorial integrity after the foreign troops withdraw. Already Iraq is teetering on the brink of collapse, with Kurdistan enjoying virtual independence. In the rest of the country anarchy prevails. As a British think-tank said the other day, Iraq is on the verge of becoming a failed state, leading to a process of fragmentation. In a report entitled ‘Accepting Realities in Iraq’, Chatham House said that Iraq is torn not by one civil war but by “several insurgencies” involving different religious, ethnic and political groups. Despite the surge, it said, American troops will not be able to create conditions that can resolve differences among the warring groups.

Iraq has already rejected the concept of a Muslim force, saying that the country does not want any more foreign troops on its soil. This leaves all sides with only one option — a UN peacekeeping force. Given that the US-led troops have created an utter mess in the country, their sudden withdrawal without an alternative peacekeeping mechanism is not a feasible option at all. A pull-out without some other force to fill the vacuum will only lead to administrative chaos and bloodshed on an unprecedented scale, with all militant groups and factions free to operate without any let or hindrance. Unfortunately, the Bush administration has bypassed the UN in its Iraq policy at every stage. It attacked Iraq without a second Security Council resolution, and since the fall of the Baathist regime it has made no attempt to involve the UN meaningfully in the electoral process and governance. The only way the foreign forces can leave Iraq without inviting total anarchy there is to synchronise their withdrawal with a gradual induction of UN peacekeepers from countries acceptable to Iraq. It is only when the UN is in full command in Iraq that fair and transparent elections can be held and power transferred to the representatives of the Iraqi people.

Pains of rising inflation

GIVEN that the government’s annual forecasts are based more on guesswork than sustained research, it is not surprising that the inflation target for the current year does not reflect the situation on the ground. It is believed that inflation in 2006-07 could be as high as 7.5 per cent, well in excess of the 6.5 per cent target. What is particularly worrying is the massive growth in food inflation. While everyone in the commercial food chain — growers, livestock owners, wholesaler and retailers — can adjust to inflationary pressures by raising prices, no such option or mechanism is available to the poor and those in fixed-income groups. With the benefits of economic growth failing to trickle down to the most needy, the situation is becoming bleaker by the day. In the first ten months of 2006-07, the prices of perishable food items shot up by 17.6 per cent as opposed to 5.1 per cent in the corresponding period the previous year. Non-perishable food items also became nine per cent more costly. On the other hand, non-food inflation in the last ten months was significantly lower than what it was during the same period in 2005-06, falling from 8.8 per cent to 6.2 per cent. This decline is attributed to a tighter monetary policy which has managed to put the brakes on credit growth.

Food production is subject to the vagaries of nature but this unpredictability only reinforces the need for proper planning. Instead of building strategic reserves of items such as rice, wheat and sugar, the current ad-hoc approach is to export at a time of surplus and import during shortages. The lack of proper storage facilities and other logistical problems cannot be an excuse. At the same time, there are few checks on hoarders and cartels that corner markets, create artificial shortages and manipulate prices in the name of free enterprise. The Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance 1970 is an anachronism in an unregulated economy and must be brought up to date. A more sophisticated and effective monitoring mechanism is needed to check unfair trade practices, particularly those that hit the poor the hardest.

Threats to music shops

WITH so much political unrest in the country, it may seem trivial to ask the government to take note of the threats video and music shop owners are facing in Nowshera. However, failure to take action against those who are threatening the shopkeepers with dire consequences unless they shut down their businesses in ten days has serious implications. Nowshera is not in the backwaters like Fata where one could shrug off such threats as part of some remote tribal phenomenon. While it is equally important to take note of any threat to people’s lives and livelihoods, the government must realise the urgency in Nowshera as it is a settled area where acts of violence can snowball into something much bigger. If it ignores the threats and lets shops be destroyed, as has happened in some tribal areas, it will only strengthen the militants’ resolve to spread their reign of terror. What we have seen in the case of the female students of the Hafsa madressah in Islamabad is testimony to what can happen when the government is reluctant to act in the face of defiance. Men who threaten to blow up music shops belong to the same group that has so far passed edicts in tribal areas condemning girls’ education, does not allow music in public spaces and even prohibits men from shaving. These threats must be contained before they spread far and wide.

The police have stepped up security in the area where shopkeepers have received threatening pamphlets. However, more should be done to make the presence of the law-enforcement agencies felt in Nowshera and the adjoining areas. As there is a ten-day deadline, the police should be extra vigilant and alert to deal with any eventuality. It can also ask the local community to help them identify anyone who could be linked to the obscurantist threats.

Why corporate sector lags behind

THIS article furthers the debate initiated by Mr J.M. Shaikh and printed on May 12 on the reasons behind the corporate sector’s stunted growth. Any study of a society is incomplete without considering the processes of wealth creation its people adopt. Processes of economic undertakings become identities of nations, societies, people and even individuals.

America is the “consumption powerhouse” of the world, China the “manufacturing hub”, India the “global IT and outsourcing giant”, Nigeria the “the nation of scams and scandals”, Dubai the “trading centre point”, Hong Kong and Singapore the “financial services hubs”. Then there are epithets like “the Asian Tigers” and “emerging economies” that paint the character of the economic evolution of these societies.

Dr Ishrat Husain, ex-governor, State Bank of Pakistan, is one of the finest economic brains in the country. In a masterly exposé, ‘Pakistan: economy of an elitist state’, Dr Ishrat has revealed the true character of wealth creation processes in our country.

Active ingredients of the grow-rich formula in Pakistan are tax evasion, labour exploitation, opportunism, scams, shortsightedness and silo mentality, speculation, and special favours. Sadly missing in action are fundamentals such as vision, caring and sharing, customer service, consumer care, ethics, equity and a sense of societal contribution.

One category of elites is business tycoons that grow into politics. They are of the Nawaz Sharif ilk. Originally industrialists, they were nurtured by army dictators. They reached their ultimate goals when they gained political power and became prime ministers, federal ministers and ministers of state. The second type of elite consists of politicians who become business barons such as Chaudhry Shujaat and Asif Zardari.

Essentially feudalist in character, they built their business empires on power graft, craft and cronyism. As political robber barons, they gradually achieved forward integration of landholdings with agro-based industries, thanks to easy bank loans and concessions. Their means of earning maximum profits come from hoarding, import permits, price manipulation and government tenders.

Both these corporate types inherently lack the ingredients to become global economic forces. Political corporate outfits lack the strength of business fundamentals, and hence, by definition, are like seasonal lilies, flourishing when founders are in power, floundering when they are not. Because of higher uncertainty, both corporate types have a greater business continuity risk, which makes them unattractive for collaboration in the eyes of true foreign investors and businessmen.

True business families stayed clear of politics and focused on what they do best: creating value. The Habibs, the Shirazi Group, the Adamjees, the Rafis and the Mians remained committed to the cause of business and wealth creation by risk-taking and enterprise much like their Indian counterparts such as the Tatas and Birlas. However, the economic space available to true business leaders in our country has shrunk over the years.

This is not to say that the two politico-business types don’t exist in India. Our neighbour has its own fair share of examples of the scandalous nexus between politics and business. However, there is one critical difference: India’s enviable continuity of democratic governments never let the Indian army become an unwieldy, fearsome business empire as in Pakistan. Democracy and constitutionalism effectively checked the army’s drift into the business of business.

The huge economic space was thus filled by the expanding private sector, which learned to manage big operations needed to cater to huge internal markets. The Indian corporate sector grew organically in terms of its capacity to manage the economies of scale, which is a pre-requisite of global expansion. As against this, the army’s camel entered the businessmen’s tent in Pakistan. This third category is thus the elitist of all elites in Pakistan’s economy.

The army business empire is immune to the vicissitudes of business cycles: when faced with recession, it can always fall back on the public exchequer to support itself. This assertion is evidenced by the fact that all businesses of the military have steadily grown, even when other actors suffered during economic recessions in the last two decades.

It can be argued that there are some industries such as defence production in which the army’s involvement is justified. Yet, the military industrial complex spans retailing, real estate, banking, insurance, airline, livestock, commercial agriculture farming, information technology, infrastructure construction, lower and higher education, bottling water, leisure and recreation, fertiliser and chemicals, power generation, trading, pharmaceutical production, healthcare and many other areas of economic activity.

These outfits are so sacred that they can’t be “privatised”, that is, sold to more efficient private sectors in Pakistan or abroad. They crowd out the private sector when it comes to getting public procurement. As a result, private enterprises do not learn to manage the economies of scale.

Military businesses enjoy special concessions in terms of taxes and duties that helps them outdo the others. They collude among themselves to keep rivals out. In this scenario, private corporations in Pakistan are unlikely to grow big enough to become global outfits.

Will we, instead, see internationalisation of our army’s businesses to compete with the Indian global giants? Unlikely. The only legitimate area of international cooperation, and thus globalisation, is where the army’s core capability lies: defence production. We may see a global corporation emerge.

Two assumptions underlie the desire: the looming diplomatic sanctions over the A.Q. Khan fiasco don’t come into force and competitors like Sweden, France, the US, Russia, China and Ukraine let us play fairly in the global market!

The government-business relationship shaped two different types of economic behaviour in India and Pakistan. In India, the corrupting nexus did not come about as in Pakistan. The government was either not supportive of businesses or was indifferent. It did not resort to selective use of public policy. Public resources were not directed towards private gains. Tax evasion, debt write-offs, special concessions to political cronies did not become widespread in India. There were well-laid-out rules, howsoever restrictive and cumbersome, by which the businesses learned to play.

The swadeshi (self-sufficiency) movement was integral to India’s independence struggle. It protected indigenous industries, helped them grow organically and created pride in the “made in India” label. Successive governments and political leaders lived and breathed the swadeshi movement, demonstrating their commitment to the principle by using Indian products and produce. The political leadership shaped the consumption and production behaviour of its people.

We were about 40 years late in realising the vibrancy of indigenous business. When the ‘be Pakistani, buy Pakistani’ slogan was raised in the late 1980s, two things happened. First, the slogan did not sink in well with the masses because the leader who raised it did not live it.

Second, the nation’s negative attitude towards Pakistani goods had already been shaped. Preferences for foreign labels meant that local goods would not generate enough demand to justify investment in plant expansion. Manufacturers became traders. Phony foreign goods flooded the markets. Bara markets sprang up. Economic incentives for investment dwindled. All this meant that even genuine local manufacturers could not grow large enough to prepare for global expansion.

Government-business ties in Pakistan have always been politically motivated. Politicians used power to further their own business interests. Power in the hands of politicians meant punishment for business competitors. The world’s second largest ship-breaking industry was ruined so that Ittefaq Foundries could prosper. Ships carrying scrap for Ittefaq were not allowed to unload their cargo at the port.

Not to be left behind, army rulers have used fiscal policy and public infrastructure expenditure to build and strengthen their own business constituencies. The Frontier Works Organisation is awarded contracts to build virtually all mega projects announced by Gen Musharraf. Knowing fully well that it cannot execute them all, it has sub-contracted them to private construction companies!

Patterns and types of labour exported from the two countries also explain why Indian companies are now global while ours remain stunted. Apart from the numbers going abroad for jobs and other reasons, the qualitative difference stems from the nature of skills that went abroad and became part of the expatriate communities of the two countries.

For historical and demographic reasons, more Indians now live abroad than Pakistanis. However, a critical difference lies in the composition of the two expatriate communities and the economic roles played by them. India exported brains; Pakistan sent out brawn.

Educated well, Indians sought white-collar jobs in the fiercely competitive corporate world of Europe and the US. Their skills and competence carried a much higher price tag compared to those of Pakistani labourers. Indians progressed more rapidly up the socio-economic ladder as compared to the blue-collar Pakistani workers.

With the advent of knowledge economy, the mind, as the source of value generation, commanded premium. The Indians benefited. Emphasis on good education paid off. Many rose to become CEOs of Fortune 500 companies. The linkages they developed, the competence they nurtured, the respect they commanded and the wealth they accumulated spilled over back home and came in handy in the globalisation of Indian corporations.

Remittances by the Indian labour class were used more judiciously than those by Pakistanis. By nature, Indians are more mature in money matters than Pakistanis who are given to conspicuous consumption. A higher portion of remittances went into building up the national savings rate and thus ploughed into the productive investment in India. The Indian government also strictly discouraged the import of consumer durables, garments and electronics.

Pakistan suffered on both counts. Being a new nation, Pakistan lagged behind in producing enough professionals. Nevertheless, the way we squandered billions of dollars sent home in the last four decades by toiling Pakistani expatriates is criminal. Assuming a plausible average of one billion dollars a year, we may well have received over 30 billion dollars since 1975, when work-force exports really picked up thanks to Zulfikar Ali Bhutto’s vision and diplomacy.

Overseas Pakistanis don’t have shareholding in local businesses; they do not have businesses of their own either. The industrial landscape of Pakistan lacks meaningful participation by overseas Pakistanis. No wonder our businesses remain stunted and don’t have a global face to show.

The writer is a management consultant and researcher.
sfuddin@gmail.com