Efficiency and market regulation

THE new ‘Industrial Vision’ calls for raising the institutional capacity of the State Bank of Pakistan (SBP) and the Securities Exchange Commission of Pakistan (SECP) so that these organisations can become more effective regulators and supervisors of the financial system. Its recommendations are both timely and appropriate. But capacity-building is not enough and to be effective, the regulators also need to be adequately empowered and allowed to operate independently without governmental interference in favour of vested interests. In spite of the substantial autonomy given to the State Bank, it has not fully succeeded in keeping government borrowings from the central bank within prudent limits to curb inflation.

The ongoing financial and economic reforms place new responsibilities on regulators. These they can carry out only when given sufficient authority. Recently, State Bank Governor Dr Shamshad Akhtar said that the central bank would soon start preparation for inflation targeting and would need “legal support for operational independence”. The recent amendment in the Securities and Exchange Commission Act 1997 — making the finance minister or, in his absence, the prime minister’s advisor on finance the SECP’s policy board chairman — has created an impression that whatever independence the market regulator enjoys may be further compromised. Coming in the wake of the SECP’s failure to take any action against influential players responsible for the stock market crash in 2005, the amendment is not seen as a healthy move. The launching of private pension funds involving long-term investments by the middle-income group requires that the SECP should not only have the professional expertise but also be free from undesirable influences. It is not only through good systems, as has been proved in the one year that the UIN (Unique Identification Number) system has been operational, that investors can be protected. Strong regulators are needed to enforce rules and regulations. For this, it is also necessary that top positions in the regulatory bodies should be held by independent-minded professionals with integrity and whose appointments should be subject to approval by relevant parliamentary committees. Policies formulated by sovereign bodies can best be implemented by autonomous institutions and by constant upgrading of their institutional capacity to suit the fast-changing competitive business environment. Pursuing its policy of privatisation, deregulation and liberalisation, the government has been conscious of the need for market regulation, so often frustrated by a mode of governance rooted in a unitary system and elitist politics.

The State Bank now enjoys more autonomy to manage its monetary policy as part of the financial-sector reforms supported by international financial institutions. But on the whole, the regulators have not been effective, either because the relevant laws have not been upgraded, as in the case of the Monopoly Control Authority (MCA), or the rules cannot be enforced, as in the case of the SECP. The competition law has been approved by the cabinet but is yet to be enforced. The situation has given rise to cartels and oligopolies, hoarding and manipulation of prices. The market is in the grip of a speculative fever. Mergers and acquisitions, encouraged by the government, are turning into a source of concern for the MCA which can do nothing about it. Monopolies and cartels deny other economic actors a level playing field and create inefficiencies in the economy. It must be recognised that market functions much better when disciplined by regulators.

The threat of extremism

HE may be stating the obvious but the president is right in his assessment that extremism is the biggest threat facing the country. Addressing the corps commanders’ meeting on Friday, he also reportedly said that the army, police and other security agencies are doing “a great job” chasing and tracking down militants in the NWFP and the tribal belt. This second assertion has to be taken with a pinch of salt, however. While the security apparatus is clearly more engaged in the fight against extremism following the Lal Masjid showdown and the fresh wave of violence it unleashed, it cannot be overlooked that the government did itself no favours over the last year or so. The September 2006 Waziristan ‘deal’, for instance, ceded a virtual state within a state where militants could enforce their writ and replenish their ranks without let or hindrance. The six-month delay in cracking down on the Lal Masjid brigade also emboldened obscurantists throughout the country. That said, it is vital at this juncture to look beyond the mistakes of the past and rally behind any and all efforts to eradicate the menace of militancy.

Those who kill innocent citizens and threaten the stability of the country must be pursued relentlessly by the security forces and ultimately neutralised. The battle, however, has to be fought on several fronts. Unfortunately, the country’s intelligentsia has never assumed its historic responsibility of going to the people and spreading enlightened thought. Now the chasm between the haves and the have-nots has widened to such an extent that lectures by the privileged will serve little purpose. Indeed, the intelligentsia is seen by those drawn to extremism as being part of a system that has failed to deliver and in which they have no stake. They may, however, be more accommodating of moderate religious personalities and it is incumbent on the latter to help build bridges. Liberal political parties that enjoy popular support also have a vital role to play. At the same time, the socio-economic roots of public discontent must be tackled forthwith. Without progress on this front, militancy will continue to find willing recruits.

Anti-polio drive in the NWFP

ONE hopes that the NWFP health department will leave no stone unturned in its efforts to inoculate all children under the age of five when it starts its polio vaccination drive in the province and Fata on Aug 7. Any slackness will have disastrous consequences as we have witnessed in the past. The health authorities should now be familiar with all the obstacles they face and must be armed with the information needed to overcome them. Conservative attitudes are big hindrances but they have not been effectively tackled. The controversial cleric in Swat, Maulana Fazalullah, was allowed to spew venom against the polio vaccine on his illegally set up radio station, which resulted in thousands of parents refusing to inoculate their children. In March, 3,778 refusals were recorded by the World Health Organization. In April, over 25,000 children were not vaccinated during a three-day campaign. The government signed an accord with the cleric in May under which he agreed not to speak against the polio vaccination campaign but a lot of damage had been done by then. The authorities need to exhibit a steely will in handling these challenges.

The drive also requires dedicated staff — who need to be provided security as a doctor was killed in Bajaur in February when he went to raise awareness of polio — and properly stored vaccines. In June it was discovered that two children diagnosed with polio had earlier received the vaccine, possibly meaning that the vaccine had not been properly stored, thereby losing its effectiveness. The health authorities say that 11 cases of polio have been reported in the country this year, of which five were from the NWFP and Fata. Concerted efforts are urgently needed to eradicate the disease completely.

The unfinished business of independence

THE state is a powerful instrument for carrying forward the political objectives of society. While a colonial state imposes its own agenda upon the society its controls, national independence is meant to reverse this relationship between state and society.

However, 60 years after the state became independent, society in Pakistan is still not empowered to determine the content and direction of state policy and action.

Refusal of the state to submit to the will of society under various pretexts lies at the root of the prevailing social and economic tensions in the country. A clear example of this persistent refusal is that it took 25 years after independence for the country’s first popularly elected parliament and government to take charge of the affairs of state and to determine the content and direction of state policies.

Non-democratic traditions of governance set in the first quarter century of independence continued afterwards too as the state apparatus became creative and capable of coming up with one excuse or the other not to submit to the will of society.

The persistent refusal of state to be guided by the wishes, hopes, aspirations, fears and concerns of society has been adding to the unfinished business of national independence as problems of poverty, illiteracy, backwardness, income and regional disparities, the federal-provincial equation, civil-military relations and other matters go unattended.

The divide between state and society over the decades lies at the root of several tensions and troubles bedevilling the country including rising militancy that is leading to both national and international concern. Our chances of success at solving these problems also depend upon our ability to distinguish the symptoms from the causes.

If we do not sincerely address the root cause of severe imbalances in the relationship between state and society, our tinkering with the symptoms may cause bigger problems ahead.

The rise of non-state actors is often the product of this disconnect between state and society when some disgruntled elements take up roles and responsibilities that normally would belong to the state. The problem lies with non-state actors who do not believe in peaceful and legal means for advancing their cause. But if we pause to think here, we will find that where national independence has not succeeded in changing the colonial character of relationship between state and society, the state increasingly relies upon its coercive apparatus to impose its will upon members of the now supposedly independent nation.

The disempowerment of society — except for a minuscule segment — even after the state acquires sovereign independence creates a divergence of interests between holders of state power and members of society, and fuels anger and frustration in the social, economic and political arenas.

The history of Latin America is full of examples to indicate that the longer the unaccountable state tries to control society through force, the greater the boost to non-state actors that also resort to the use of similar tactics. Here also lies another lesson in good governance: a law-abiding state sets a good model for a law-abiding society to grow and take strength.That brings us to the critical issue of legitimacy in governance. Everyone wants a stable, peaceful and prosperous society and it is the duty of the state to work towards delivering it. But stability in state-society relations is not possible in our contemporary world without respecting the principles of legitimacy in governance.

It was alright in mediaeval times when no one — other than the ruler — had the ‘right’ to anything, including his or her life, much less the right to choose and change governance. But in a world that has been shaped by the application of the universally respected principle of governance by consent of the governed, the state apparatus in Pakistan cannot be an exception to this universally accepted basis of legitimacy of governance and still expect stable relations between state and society.

In fact, governments of countries that are not legitimate in the eyes of the contemporary world have often been made to pay a heavy price in order to purchase some figment of legitimacy for themselves, and at terrible cost to their societies.

Several observers feel that it was the lack of legitimacy of General Zia that drove him into turning the country into a frontline state to fight proxy wars in Afghanistan. It would be uncommon to have a government open its country’s doors to gun-running, drug trafficking, money laundering and the training of private armies from some 40 countries unless it also saw in the scheme a window of opportunity for itself to secure international legitimacy by providing extraordinarily unusual services.

Militancy can best be controlled through the moral authority of a legitimate democratic government guided by the rule of law. Governing from the foundations of universally recognised principles deprives militants of moral and legal arguments and completely isolates them from the rest of society and also helps bridge the divide between state and society.

Dividing people between the extremists and moderates or violent and peaceful Pakistanis is fictitious and dangerous. First of all, there are not too many misguided militants prone to violence and they are largely localised. A vast majority of Pakistanis, including religious elements, are peaceful and law-abiding citizens.

A strategy of direct confrontation may well cause the fires to spread — especially if the Jamia Hafsa operation was any indication of the quality of intelligence and conflict resolution techniques at the disposal of the government.

Besides, it would divert attention from addressing the root cause of tensions in society: the absence of moral authority of legitimate and democratic governance guided by the rule of law that includes a social and economic reform agenda for inclusive governance and bridges the divide between state and society.

The fact that the absence of the rule of law and genuine democratic governance is the real issue facing Pakistan was proved by over four months of a peaceful movement led by the lawyers all over the country; a movement which united people across religious, sectarian, ethnic, provincial and other divides and was ample proof of what people consider as the real threat facing Pakistan.

That is why the lawyers’ movement immediately occupied the moral high ground because it was seen to be a second attempt at achieving the long forgotten aims of struggle for national independence and was addressing the core issues of establishing the rule of law and democratic governance in the country and holding the state accountable to society.

This movement also showed that our society is not prone to committing acts of violence since the only real trouble that occurred during the entire movement was on May 12 in Karachi and after the Lal Masjid operation in Islamabad. Several observers have already explained the origins of these events.

The best way now for moving forward to fulfil the unfinished business of national independence is for the democratic forces of change and the lawyers’ movement that share the same objectives to work out a common framework for taking forward the struggle for the rule of law and democratic governance in Pakistan.

Just as democracy needs the rule of law to guide its working and prevent its deterioration into elected authoritarianism, the rule of law and judicial independence need a culture change in society so that the laws and the Constitution are backed and sustained by the will of the people.

If these are existential times as some seem to think, they call upon both state and society to overcome small irritants and frictions. Both have a common understanding of the root causes which have been straining the federation.

Sixty years ago, the state became sovereign and independent. This must be the year when the society — despite being subjected to many machinations and betrayals — is finally recognised as the sovereign master to whom the state is accountable.

The writer is former head of Board of Investment and federal secretary.
smshah@alum.mit.edu

Gordon’s big conversation

A MONTH ago, almost as the first act of his premiership, Gordon Brown launched a remarkable policy paper on constitutional reform. It was both big –– sweeping across government –– and small, in that its specific proposals were narrow in scope and larger issues were only sketched out for discussion.

Again and again, Mr Brown emphasised that he saw the document as a starting point, "the first step in a national conversation" that should involve "not just all political parties but the people of this country". If he expected to be met with the excited chatter of a nation redefining itself, he will have been disappointed. A conversation that began as a murmur has already tailed off into a whisper.

Unexpected and livelier issues –– bombs, floods and speculation about election dates –– have taken over the news. Nor do people know whether to take Mr Brown at his word: when push comes to shove, will he give parliament more power, do more than fudge House of Lords reform or liberate local government from Treasury control?

Some smaller reforms –– perhaps over patronage powers, a civil service bill, the flying of the union flag –– will take place no matter what. But unless ministers are pressed to travel faster and further, that might be the end of it. Already Jack Straw has announced that further reform of the House of Lords will not take place until after the next election, with hardly a voice raised in complaint.

––The Guardian, London