Heavy hand of the state

June 23, 2017

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THE hardest thing for state machinery in almost any part of the world is to be nimble, responsive, transparent, accountable — and ‘soft’. The most odious element of the administrative state is its deep disconnect, bordering a near-complete rupture, between those who make the rules and have them implemented, and those on whom the ‘iron hand’ of the state selectively and all too frequently comes down.

Perhaps the most visible, and reviled, representation of the state’s heavy handedness is the brute force applied by a truncheon-wielding, bone-breaking, tear-gas firing (and in the case of India-held Kashmir, pellet-gun firing) police force. But millions of minions across the entire gamut of state machinery strive hard every hour of each day to make life miserable for ordinary citizens as well as businesses around the globe. (To be fair, bureaucracies in the private sector operate in the same fashion. One of the most egregious examples is the case of the 90-year-old grandmother whose house was foreclosed by her bank in the US — run by the current Treasury secretary in the Trump administration Steve Mnuchin — for accidentally missing out on a 27 cents payment on her mortgage).

Some recent examples illustrate the nature and extent of the problem. In the past one year or so, the Capital Development Authority has demolished and uprooted a number of small businesses on the pretext of some transgression or the other of obscure rules. These businesses have included flower market stalls in F-7, a fruit vendor and a row of photocopier stalls in F-11 Markaz. In the last case, no violation of the law had been committed as the court subsequently ruled, but substantial damage to the livelihoods of several families had been done along with the mental anguish wreaked and expense incurred. All this comes on top of the uprooting of stalls of scores of hawkers in regular ‘anti-encroachment’ drives, which yield nothing more than baksheesh for the marauding officials.

In a recent incident, the police chased and rounded up around a dozen street children from another market. Most of these kids earned a modest but honest living for their hard-pressed families by washing cars from nearby offices. What harm could these innocent children be guilty of? Why couldn’t officialdom just ignore them and try to catch the bigger thieves, I wondered aloud to the sub inspector who was in charge of this ‘operation’? I had spotted them as they were being bundled into a police van and transported to the nearby police station, and was clearly making an unwelcome intrusion. But the last comment dissipated the policeman’s surliness and with a wry smile he said what so many say every day across Pakistan: “sahab, aap ko bhi pata hain hum unn pay haath nahin daal saktay”. He then promised to release them (which he did after a few hours).

Is a caring, responsive state too distant a dream?

This heavy handedness is not reserved for the poor, vulnerable, disenfranchised and voiceless. Officialdom works overtime to create uncertainty, an environment of harassment, coercion and extortion, and an uneven “playing field” for businesses and investors. Take the recent case of one of the most expensive real estate developments in Islamabad, where luxurious apartments were constructed along with plans for a hotel. Buyers of the apartments dished out close to a million US dollars to book them, only to learn one fine day out of the blue that CDA had cancelled the lease because of alleged violations.

Another high-profile developer faced a similar issue at an advanced stage in Karachi. At least two independent power producers had the terms of the licence issued to them amended by the government after they had placed orders for the machinery, compelling them to reduce generation capacity and to change from imported fuel to local fuel.

Tax authorities regularly wreak havoc on an even larger scale, especially under the current government. Tax rates and applicability have been changed unilaterally, without consultation (or even approval in many cases from parliament), and have been applied retroactively in some cases. For several years, the government has given indications, and in some cases commitments, to rationalise the tax burden on businesses or to pay withheld refunds within a certain period, only to renege.

This is just a small sampling of how actions of officialdom vitiate the business environment by injecting uncertainty and unpredictability into it. It adds to the cost of doing business while discouraging further investment, and very likely even promotes capital flight. Hence, this heavy-handedness has a significant economic cost.

In a passage in The Wealth of Nations, Adam Smith defines a “stationary state”, one that has stopped growing and where one of the hallmarks is the ability of a corrupt and monopolistic elite to exploit the system to their own benefit, thus:

“In a country too where though the rich or the owners of large capitals enjoy a good deal of security, the poor or the owners of small capitals enjoy scarce any, but are liable under the pretence of justice to be pillaged and plundered at any time by the inferior mandarins, the quantity of stock employed in all the different branches of business transacted within it can never be equal to what the nature and extent of that business might admit.

“In every different branch the oppression of the poor must establish the monopoly of the rich who by engrossing the whole trade to themselves will be able to make very large profits.”

If the state cannot provide for decent income-earning opportunities, let alone shared prosperity, for all, surely the least it can do is not to snatch the precious few opportunities that come the way of ordinary citizens to provide for their families? Or is that expecting too much?

The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.

Published in Dawn, June 23rd, 2017