Preparing for the future
OF the many themes that underpin the articles I have contributed to this space for the last several years, I would like to emphasise the following two. One, the world economy has changed quite dramatically over the last quarter century as a result of the processes that go under the name of “globalisation”. Two, that Pakistan, as a result mostly of failure of public policy, has not taken advantage of the opportunities brought to its shores by globalisation.
Now, the World Bank believes in its most recent Global Economic Prospects Report, the world economy is about to embark on what it calls the “next wave of globalization.” This leads me to ask the following question: will public policy fail once again?
What will the world look like in 2030? The World Bank has developed a base case scenario to answer that question. It assumes that the world will continue to move on more or less the same trajectory it has followed over the last quarter century. That trajectory resulted in the doubling of global incomes from 1980 to 2005. Since 1990 the rate of increase in income per head in developing countries increased from only 0.6 per cent to 3.5 per cent in 2005. This lifted 450 million people out of extreme poverty, and life expectancy in developing countries increased to 65 years. However, much of these improvements were concentrated in Asia. Africa did not see much change.
Progress in the developing world happened largely on account of globalisation which proceeded apace: between 1970 and 2004 exports as a percentage of world output doubled to more than 25 per cent; new technologies were diffused rapidly across the globe; and total private financing of developing countries reached nearly a trillion dollars in 2004.Under the World Bank’s base case scenario, the size of the global economy would double, in real terms, while the developing countries’ aggregate output would triple. The share of these countries in global output will increase from 23 per cent in 2005 to 33 per cent in 2020. In terms of purchasing power parity (PPP) rates, average incomes per head of the population in East Asia, some parts of South Asia, and Central and Eastern Europe will converge on those in high income countries. For example, China’s income per head would increase from 19 to 42 per cent of the average level in high income countries.
Globalisation will remain the driving force behind this change. Exports as a percentage of output would increase further and rise to 34 per cent. New technologies – in particular the penetration of computers and mobile phones – will become important for both production and consumption in the developing world. Financial integration would continue but developing countries would still remain overwhelmingly dependent on their own savings.
There will be significant improvements in the quality of life in the developing world, particularly in the countries outside Africa. The number of people living below a income of one dollar a day in PPP terms would decline from 2.1 billion at the beginning of the 2000s to 550 million in 2030 while the number of those living below two dollars a day will decline from 2.7 billion to 1.9 billion. Poverty will become more of an African than an Asian problem.
Will Pakistan benefit from these positive developments? Will public policy take advantage of the coming changes? At least four things must happen before Pakistan can draw full benefits from the anticipated changes in the structure of the global economy.First, it must restructure its economy to produce goods and services in demand in the global economy. Two, it must present a safe environment for foreign investors and companies to work in. Three, it must refocus its foreign policy to conform to the country’s economic objectives. And four, it must develop a corporate sector that can operate in the global economy. In the article today, I will focus on the fourth issue having already started on this subject last week.
Like so many other economic races, Pakistan is also losing the one in the corporate world. It is being left behind by other developing countries in the race to develop private and public sector corporations that have the size, sophistication, access to knowledge and managerial expertise to operate in the global scene. That scene is changing rapidly as corporations around the globe restructure themselves to take advantage of developments in information and communication technology that make it possible for them to distribute various production processes around the globe.
As discussed in this space last week, the Indian corporate sector has launched many moves to become a partner of companies in developed countries in sectors that are vital for both the global economy and the economy of India. Western corporations are searching for talent, resources and markets they can exploit to make profit, and both China and India are now equipped to meet these demands.
In fact, in a recent book, Antoine van Agtmael, formerly of the World Bank and now a manager of a hedge fund, argues that the future belongs to corporations from the developing world. “Just as conventional wisdom wrongly depreciated emerging markets 25 years ago as ‘Third World’, today’s all too common error is to underrate the leading companies from these markets,” he writes.
An increasing number of takeovers of companies in developed countries by the 25 strong companies from emerging markets identified by Agtmael have begun to change the global corporate scene. Developing country corporations are the new potential winners. Agtmael’s Darwinist approach to viewing the development and growth of global companies may have considerable analytical gravitas. His list of companies includes Samsung Electronics of Korea, Aracruz and Embracer of Brazil and Yae Yuen of Taiwan.
The list is light on India since the work on the book was done before some of the Indian companies dominated the news headlines. The list is developed on the basis of a criterion according to which the companies must be among the top three in market shares in their businesses and all must be competitive in quality, technology and design and must have moved beyond using cheap labour to compete only in price.
The Darwinian process works since the companies that have succeeded have done so in periods of real crises. Companies that had benefited from monopolies, closed economies, government favours and poor corporate governance did not survive. That left the really more entrepreneurial companies not only to stay in business but to flourish, emerging much stronger from the experience. “The Asian financial crisis acted like a tsunami in swallowing up many uncompetitive companies but left standing those that had already begun to change,” writes Agtamael.
Some other observers of the economic scene in emerging markets are persuaded that foreign capital will begin to flow not only to the large companies that have gained the stature of companies in the industrial world but also to smaller entities. According to John Authers of the Financial Times, “an approach that no longer emphasises countries but looks on the one hand to the smaller players who will profit from the power of emerging consumers…looks a good one for the long term.” If this assessment is correct Pakistani companies can become attractive for foreign capital provided they are prepared to improve their performance.
Pakistan’s corporate sector remains underdeveloped and under-equipped to enter the global picture. Last week I discussed how Zulfikar Ali Bhutto’s ill advised move to expand the public sector by nationalising large enterprises damaged the growth of the private sector corporations in the country. This week my focus is on two other factors that have contributed to the weakness of the corporate sector. The first is the lack of foreign interest in entering the field in Pakistan. The second is the continuation of government support that prevents the Darwinian destruction to take the necessary toll, letting only the fittest survive and prosper.
Some reshaping of Pakistan’s corporate structure has taken place because of the privatisation of publicly held economic assets. This has brought in capital mostly from the Middle East into banking and telecommunications. It is interesting that foreign investment in the country has been in the assets owned by the government. There is no sign of any sizeable acquisition of a domestically owned private company in sectors other than finance. This is for two reasons. Potential buyers don’t regard Pakistani companies strong with a high growth potential. They are mostly regarded as weak entities.
Also, there is profit to be made by turning around large public companies in sectors such as telecommunications that have considerable capacity to expand in the domestic market. None of the foreign investments that have been made in the country have gone into companies that export their products and services. This means that the country is acquiring significant foreign exchange liabilities through its privatisation programme since profits made by foreign companies will need to be repatriated in foreign currency.
The economy remains closed to western capital largely because of the lack of confidence in Pakistani companies and also because of the fear of terrorism in the country. That is unfortunate since there are large and growing savings available to the western world’s corporations that have begun to move to the developing world.
According to Raghuram Ranjan of Chicago University, “nominal corporate investment in hard assets (in developed countries) – such as inventory, property and equipment – has been restrained, especially relative to the quantities that might be warranted by the tremendous productivity growth of the past few years. Instead more corporate savings have been invested in financial assets.” Or they have invested in developing countries. A recent example of the latter case is the acquisition of India’s Essar-Hutchinson mobile phone enterprise by Vodaphone, the largest global company in this business. The British company paid $11.1 billion in cash and acquired two billion dollars in debt to make this acquisition.
For as long as Islamabad continues to give protection – and that may come in both implicit and explicit forms – to poorly managed companies, the corporate world will not be able to compete on the global scene. Even a slight hint of increased global competition or the possibility that some of the incentives the government has provided companies may be taken away has the company heads rushing to Islamabad for help. The direction public policy should take is clear from the experience in the developing world where the corporate sector has developed and become integrated with the global economy.
The state must not protect companies from domestic and international competition. It must not allow companies to form cartels or other forms of organisations aimed at influencing the prices of their products. Government’s regulations must focus on governance issues. There should not be government or any other constraints on entry to new entrepreneurs. And foreign capital should be allowed into all sectors of the economy without constraints. Islamabad has been active in only some of these areas of policymaking. In some others, its approach has been at best half-hearted and sometimes ill informed.
The good old days of the Cold War
IT was funny, in a grim sort of way. Last week, Secretary of Defence Robert M. Gates responded to Russian President Vladimir V. Putin's polemical attack on the United States by remembering the 50-year Cold War as a "less complex time" and saying he was "almost nostalgic" for its return.
Gates should know. He himself is the quintessential Cold Warrior, having served nearly 27 years in the Central Intelligence Agency (facing off against the likes of Putin, who was for 17 years an agent in the foreign intelligence branch of the Soviet KGB). So we should take him seriously when he suggests that the problems of 20 or 30 years ago were in some ways more manageable than our current global predicament.
Nor is he alone. There is a palpable sense of nostalgia these days for the familiar contours of that bygone conflict, which has been replaced by a much more murky, elusive and confusing age.
The argument goes as follows: The Cold War, although unpleasant, was inherently stable. It was a bipolar world — centred on Washington and Moscow — and, as UC Berkeley political scientist Kenneth Waltz argued, it was much more predictable than, say, the shifting, multipolar world of the 1910s or 1930s, decades that were followed by calamitous wars. Yes, it's true that the two sides possessed masses of nuclear weapons aimed at each other's biggest cities, but the reality is that they were constrained by a mutual balance of terror.
They had divided Europe and divided Asia, and no one, except in the Korean War, crossed those lines. Even that conflict confirmed the essential stasis. Of course, they carried out surrogate wars — in Asia, Africa and Central America, in Vietnam and Afghanistan — but they never came into direct conflict. Hot lines, summit conferences and SALT treaties kept things under control. Polish and Czech dissidents might get tossed into prison but, hey, that was not a cause for an international crisis. Those were indeed the good old days. East was East and West was West.
Today's world is far less stable and indeed much less favourable to the comfortable western democracies. It is not just that we face an almost-impossible-to-manage "war on terrorism," with all of its capacities for asymmetrical damage to ourselves, our allies and everyone else, even as we swat the occasional terrorist group. It is not just that we are deeply mired in Iraq and Afghanistan and that the whole Middle East may totter because of the failure (one hopes not, but let's not blink) to win on the ground. It is not just that we haven't a clue how to deal with the present, disturbing Iranian regime. It is not just that we haven't the energy to block Venezuelan President Hugo Chavez from his arrogant anti-American policies across Latin America.
It is not just that Putin is advertising his anger against the United States in speeches and continuing his manipulation of global oil and gas prices, his support of Iran, his intrusions into the Middle East. It is not just that the Chinese leadership is openly staking a new place in the world order, in its Africa diplomacy, its missile tests and its move into hitherto western-dominated international institutions. And it is not just that a dozen or more fragile states, chiefly in Africa, are collapsing into chaos, while various other societies, chiefly in South America, are unravelling. It is the unnerving fact that all of this is happening at the same time, though at different speeds and different levels of intensity.
So is it true? Was the Cold War era, on the whole, a safer era? Ponder the following counterarguments:
First, however tricky America’s relationships with Putin's Russia and President Hu Jintao's China are nowadays, the prospect of our entering a massive and mutually cataclysmic conflict with either nation are vastly reduced.
We seem to have forgotten that our right-wing hawks argued passionately for "nuking" communist China during the Korean War and again during the Taiwan Straits crisis of 1954. We also have apparently forgotten — although newly released archival evidence overwhelmingly confirms this — how close we came to a nuclear Armageddon during the Cuban Missile Crisis.
Likewise, we've forgotten the shock of the Soviet invasion of Afghanistan in 1979, which prompted then-German Chancellor Helmut Schmidt to ask, "Is this the new Sarajevo?" a reference to the outbreak of World War I. And who still remembers 1984-85, when we were riveted by Jonathan Schell's argument in the New Yorker that even a few nuclear explosions would trigger such dust storms as to produce a "nuclear winter"?
Those were really scary times, and much more dangerous than our present circumstance because the potential damage that could be inflicted during an East-West conflagration was far, far greater than anything that Al Qaeda can do to us now. No one has the exact totals, but we probably had 20,000 missiles pointed at each other, often on high alert. And the threat of an accidental discharge was high. None of today's college-age students were born in 1945, 1979 or maybe even 1984. None lived with those triangular signs proclaiming their schools to be nuclear bomb shelters. To recapture those frightening atmospherics these days, university professors must resort to showing Cold War movies: "The Manchurian Candidate," "Fail Safe," "Dr. Strangelove," "The Hunt for Red October," "Five Days in May," "The Spy Who Came in from the Cold." Students look rather dumbfounded when told that we came close, on several occasions, to World War III.
Yet what if, for example, Josef Stalin had prevented American and British supply aircraft from flying into Berlin in 1948-49? The years 1945 to, say, 1990 were horrible on other accounts. The Indo-Pakistan wars, and the repeated conflicts between Israel and its neighbours, produced enormous casualties, but nothing like the numbers that were being slaughtered in Angola, Nigeria, the Congo, Vietnam and Cambodia. Most of the nations of the world were "un-free."
Let us not, then, wax too nostalgic about the good old days of the Cold War. Today's global challenges, from Iraq to Darfur to climate change, are indeed grave and cry out for solutions.—Dawn/Los Angeles Times Service
The writer is a professor of history and the director of international security studies at Yale University.
Israel and virtual reality
VIRTUAL reality is all Israel has for Pakistanis. For, where our government is hostile it seals off popular contact, as it did with India, or has never had any as in the case of Israel. But that does not stop us from having strong feelings against Israel.
These devolve on the initial injustice perpetrated on the Palestinians in the course of Israel’s establishment as a state and outrage at the ever-increasing barbarity with which Israel safeguards its controversial nativity. Sabra, Shatila, Qana, Jenin, Gaza are emblems. Yet, it is important to struggle for objectivity, step back in time and admit that, execrable though Israel’s conduct is, the cause of Israeli statehood in itself is not necessarily unjust.
Implicit in the concept of justice are innocence and guilt as well as equity. Guilt was the foremost motivator in the establishment of contemporary Israel. The overwhelming instance being the stain branded into world conscience by the implementation of a policy of racial extermination premised on Aryan racial superiority. The dehumanisation that produced and witnessed the Holocaust is pinned onto the Swastika and the Nazi ethos that Hitler tapped. It is convenient for Israel’s western underwriters to let the magnitude of that evil eclipse other much less heinous but historically incremental anti-Semitic attitudes. Arguably, these affected the nature of the compensation eventually made to the Jews.
It was compensation justly owed but unjustly made. For the Palestinians – in no way connected with the crime of the Holocaust – were made to pay and meet the costs of surrendering lebensraum for the Jews. The civilised West sublimated guilt at the same time as geographically distancing itself from the Jewish people in validating the creation of the state of Israel in Palestinian space. Thereafter, debate as to what is legitimately owed by an offending world to its Jews was transferred and confined within the moralities of the conflict between the Jews and the Palestinians.
This obscures the recollection that in an overlap of the theological and secular the clash between Jews and the Christian world was more profound. The crucifixion of Christ epitomised the theological divergence. Eretz Israel even then was a long-lost reality fossilised in aeons of time; but right up to the Holocaust, persecution, exile, expulsion, pogroms, the ghetto mindset were never dormant long enough to fossilise.
The stereotype of the Jew was as outcaste and victim. Underpinning his sustained persecution was his undeniable ability to excel and not just intellectually so. Financially, far from being disempowered, the Jew could aid with conditionalities.
Interaction between the Jews and Muslims did not originate in trauma. Material interests conflicted but interaction showed a pattern of negotiation and treaty as well as war. Why then, when Jews and Muslims have been able to accommodate each other, is the Palestinian-Israel problem today framed in terms of expulsion or surrender? One explanation is the insertion of a political equation posed in terms of dispossession and expropriation by other elements.
The two World Wars that defined the last century were watersheds.
The victors in the First World War apportioned territorial spoils from the Ottoman Empire to themselves. Protectorates or mandates from the League of Nations were the mechanism for consolidating western supremacy and developmental control of the coveted oil resources of the Middle East. This virtually self-conferred European mandate to govern helped emplace complaisant rulers in client states while quelling democratic development which is, after all, a process of mass political enfranchisement. The British held the Palestine mandate, and the British national home policy had endorsed Zionist immigration to Palestine.
Around 1914 the vast majority of a Palestinian population of approximately 650,000 was Arab: about 10 per cent Christian Arabs, the rest Muslim. About three-quarters of the Arab population were settled cultivators. Palestinian Jews numbered about 75,000. By 1922 Jews had grown to approximately 11 per cent of the population. The Nazi horror enhanced migration and by 1946 the Jews in Palestine had risen to 30 per cent.
This settler movement as well as a more generalised resentment of the mandate catalysed Palestinian political identity. Self-serving elites lost ground to more radical nationalist leaders and 1936-39 witnessed a Palestinian uprising. But the Second World War eclipsed all.
In April 1946 the defunct League of Nations was formally disbanded making room for a successor international agency defined by the victors. In wrapping up the Palestine mandate the UN proposed two separate states. Understandably, Palestinians rejected the expropriation of their land for the provision of a state for an immigrant/settler population. The British turned their backs on a scene of chaos and violent conflict in Palestine where Zionists were gaining more and more space, and Israel proclaimed itself in May 1948.
Units from Arab armies aided Palestinians in the resultant war but the Zionists were also handsomely aided and logistically supplied by their sympathisers. The 1949 armistice left Israel controlling 30 per cent more territory than envisaged by the UN proposal. Palestine was now Israel-occupied territory or held by Egypt (the Gaza Strip) and Jordan (the West Bank). About 700,000 Palestinians who had fled their homes in the fighting were barred return by Israel. They became – and their heirs remain – refugees in surrounding Arab states.
During the Cold War they had a cynical relevance as pawns in the superpowers’ global chess game. But the nature of proxy superpower engagement in the Middle East changed as the Soviet Union declined. Concomitantly, the politics of non-alignment became unrealistic and the compromise Arafat made for the PLO may also be seen in this light. With a PLA emergent, the Palestinians theoretically had less cause for complaint.
Unfortunately, the US also had less cause to retain the character of honest broker. When Iraq invaded Kuwait the latter’s nervous neighbours were accommodative of the stationing of US troops. The First Gulf War in 1991 left America happily positioned to deploy rapidly and circumvent Arab states using oil as a tactical weapon in the Palestinian-Israel context or any other. The conjunction of Israeli-US strategic ends intensified and the climate that alienated Osama bin Laden and nurtured Al Qaeda was found.
The global war on terror declared in the aftermath of 9/11 effected a fresh set of transpositions in the Palestine-Israel context. The concept of a Muslim freedom fighter or liberation struggle is now categorically rubbished and the scope of the pre-emptive self-preserving ‘democratic’ strike against rampant or even suspected ‘fascistic’ Islamism has acquired horrendous flexibility.
It has been rendered politically correct to revile Palestinian resistance and retaliation to occupying force as if it were an Al Qaeda pursuit. Hamas enjoys a massive electoral mandate but is pushed into a corner as terrorist and diplomatically rejected. Israel’s military machine destroyed southern Lebanon but Iran and Syria are vilified for it.
The sense of common humanity that is residual in public sentiment recognises the fallacy that offers restitution to one people through wronging another. But morality is convertible currency for governments engaged in the expansion of power – until the ugliness of the pursuit becomes so blatant as to render it unacceptable to sane collective judgement anywhere. Is arrival at that point the only way to correct the injustice to Palestinians?
Even when unendorsed the phobias and compulsions of the founders of Israel can be understood. The same cannot be said of its definitions and pursuit of security today. Palestinian statehood is not a concession to be won from Israel. Objectively it is owed to Palestinians at least as much as Israeli statehood was ever owed. In either case, can Israel exclude Palestine or vice versa?
In the post 9/11 context people everywhere, especially the Muslims and Jews of the Middle East, need to beware of the fallacies and reflexes that an ubiquitous mass media is possibly quite innocently reinforcing. Islamo-terrorism is not the only threat to global security. Democratic states too go rogue. And where does national security derived from state of the art weaponry brandished in a context of mass paranoia lead?
Or can it be that the real hurdle to harmony between contending entities in what was once British-mandated Palestine is a lingering political agenda that could lose as much as the region gained if Israelis and Palestinians found enough good sense to seek justice, not in establishing each other’s guilt, but in establishing mutual political equations?