Overhaul the system

Sep 16 2014


The writer is a former governor of the State Bank of Pakistan.
The writer is a former governor of the State Bank of Pakistan.

THE politico-social and economic structures fostered by our political, agricultural, industrial and military-bureaucratic elite are incapable of conceiving and devising policies and revitalising decaying institutional structures for stimulating economic growth. This article attempts to explain this argument.

For historical reasons, the administrative structure is maintenance-oriented, as opposed to production-oriented. Although its orientation and authoritarian outlook might convey the impression that it is in command, it has given up on even going through the motions to manage an increasingly dysfunctional state structure.

It can merely try to extract whatever it can from the domestically generated surplus to meet its ‘operational’ needs. That’s why expenditure on public administration and defence has grown at a faster pace than that of value-added commodity-producing/‘real’ sectors of the economy. Whereas the contributing share of the latter in GDP fell from 41pc in 2005-06 to 40pc in 2013-14, the proportion of the national income absorbed by defence and administration increased from 5.2pc to 6.7pc over the same period.

The imperatives of a security state and dominant associated institutional structures have resulted in poor prioritisation of spending and diversion of resources from critical expenditures on social services, greater centralisation of administrative and financial powers and resource distribution, and the continuing conflict with democratic forces within the federating units.

Whereas the thin upper stratum thrives, the poor are pushed out of the ambit of development.

A selfish feudal, industrial and military-bureaucratic elite has presided over an elite formation process and an economic structure that patronises rent-seeking, is inward-looking and lacks connectedness with the rest of the world. This structure is also reluctant to create a more equitable society in which the less fortunate can be empowered through a merit-driven system to provide equality of opportunity for social and economic mobility.

The elite is unwilling, even in its own enlightened self-interest, to contribute on the basis of capacity to bear the resource burden required to build a fairer society. Instead, it has instituted a social order that imbibes the feudal value system and promotes a culture of paternalistic and personal relations (in contrast to impersonal market relationships and a culture of competitiveness in other economies), nepotism and patronage, violation of the rule of law, non-acceptance of the norms of fair play and justice, etc; wrecking institutions meant for checking such excesses. Even a slowly growing middle class from non-elite backgrounds has adapted to these value systems, creating a crisis of legitimacy for the state and its institutions.

Moreover, the commitment to the strengthening of institutions other than those protecting the self-serving interests of these bureaucracies has, at best, been muffled, affecting the quality of governance and the selection of economic and social programmes for fuelling development.

Politicians from these propertied and ‘rentier’ classes with limited vision, wisdom and intellectual competence and dubious credentials have not only supported the status quo but also exploited their position to use public resources for private gain, while institutions crumbled around them.

They are perceived to be lining their pockets, having become brokers and bounty hunters with the bureaucracy as consort, making the country a private trading post and politics a business in favours to be bought or sold. New dimensions of abuse of power and privileges have become the norm. Had the economy been growing rapidly and distribution of prosperity been more widespread, these would not be issues. But with declining growth rates, mounting corruption has invited the resentment and anger of a population struggling against the ravages of inflation and dwindling employment opportunities, while the mentioned groups, living it up, failed to lead by example.

Whereas the thin upper stratum of society thrives, the poor are pushed out of the ambit of the development process. The poor also suffer because services and other benefits are inadequate in number and of inferior quality. Nor do they reach the intended beneficiaries, either owing to corruption or diversion of funds to those better placed in terms of access or capacity to acquire related benefits. Resultantly, income and wealth differentials between the privileged and the indigent have widened, increasing polarisation in society.

So where do we go from here, since it is not clear if recent political events have induced a rethink or will it be business as usual with the storm blowing over? Owing to space limitations, only some recommendations are listed below.

— Initiate urgently needed electoral, judicial and civil service reforms — each requiring separate treatment in future articles.

— Dilute influence of Punjab by carving out additional provinces from it, thereby strengthening the participatory nature of the federation.

— Establish and nurture an effective local government system.

— Give provinces full control over their natural resources like minerals, oil and gas and coastlines.

— Ensure an equitable tax regime that taxes all incomes, irrespective of source, equally.

— Make public office less attractive so that those with suspect integrity do not aspire for such positions. Hence, in the interest of transparency, accountability and good governance, income tax and the wealth returns of all legislators and every public servant appointed as head of the armed forces, or secretary or head of a public agency, and those of their family members (including married daughters) should be public documents during the term of office and three years thereafter.

— Parliamentary ratification of all key positions like auditor general, attorney general, chief election commissioner, chairman NAB, governor State Bank, etc.

— Roll back all discretionary powers, especially to relax rules and give tax concessions, at present liberally distributed among public representatives and state functionaries.

— Enact a robust Right to Information Act that opens up government decision making to parliamentary and public scrutiny.

— The ordinary public is convinced that government officials can never be facilitators and can only harm them. Therefore, make the administrative machinery lean, starting with a substantial downsizing of the federal government, required anyway following the 18th Amendment.

— Finally, privatise all state-owned financial institutions and those holding non-monopoly positions in other sectors of the economy.

The writer is a former governor of the State Bank of Pakistan.

Published in Dawn, September 16th, 2014