Who Makes Pakistan's Economic Policies?Author(s): Babar AliReviewed work(s):Source: Economic and Political Weekly, Vol. 22, No. 31 (Aug. 1, 1987), pp. 1280-1281Published by: Economic and Political WeeklyStable URL: http://www.jstor.org/stable/4377309 .Accessed: 05/03/2012 23:37

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .http://www.jstor.org/page/info/about/policies/terms.jsp

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact support@jstor.org.

Economic and Political Weekly is collaborating with JSTOR to digitize, preserve and extend access toEconomic and Political Weekly.

http://www.jstor.org

there is a fascination with adopting the latest, often more capital intensive, technologies whenever possible.

Since there was, as noted previously, some agreement that real agricultural wages have not risen on average, it seems unlikely that the observed rise in industrial wages is attributable to any healthy growth in labour demand pressing on wages. Rather, at least two tentative ex- planations were proffered: that rising strength and militancy of the unions has succeeded in raising members' wages; and that at least some of the wage escalation may be explained by a changing mix of firm sizes within the organised sector, with larger firms paying inherently higher wages. But either way, although India's industrial wages remain extremely low, workers within this sector may nonetheless be characterised as a labour aristocracy relative to agricultural labour.

Thus, a large part of the discussion regarding the effects of development strategy on inequality and poverty revolved around the issue of job creation. Less was said about incomes from capital, though it was maintained that land reform and public ownership have not been effective in redistributing income in India, or in- deed elsewhere, and that nationalisation has served only to transfer income and power from one elite to another.

(6) POIATICAL ECONOMIY OF CHANGE A good deal of the conference was

spent discussing the nature and speed of liberalisation, a discussion which went beyond mere economics to touch on at least some important elements of the politics of change. This discussion might be divided into two major themes, one locusing on vested interests, the other being the ultimate role of the state.

Perhaps because the conference was largely comprised of economists, any discussion of vested interests was hardly sophisticated, but some of the points which emerged are nonetheless worth outlining. It was argued that the slow growth syndrome of the past has benefited powerful interests in small-scale industry, the large farmers and a trade union elite, and that, so far, no political force has emerged of sufficient strength to challenge this 'iron triangle'. For example, it was maintained that the public sector can never display increased profitability until the government is able to face the militant trade unions which have "created high wage islands and a work ethic antithetical to productivity".

More generally, it was argued that rapid reform is inherently difficult withini any pluralistic society, tor liberalisation must of necessity hurt some while helping others. To open up markets which have

been protectea against foreign competi- tion for thirty years will produce a political backlash if undertaken too ra- pidly. On these grounds, if no other, it was urged that reform be focused on domestic deregulation first. "To lose jobs to domestic competition is painful, to lose jobs to foreign competition unacceptable", seemed to be the message here. But, in ad- dition, it was urged that at the least, selec- tive relaxation of domestic regulations be made in areas where the expansion of in- dustries was likely to prove profitable in a less controlled environment. This seems crucial, if only to permit the emergence of a constituency with a vested interest in sustaining the liberalisation process.

As to the ultimate role of the state, an interesting dichotomy emerged as to whether the current policy should be perceived as no more than 'fiddling at the edges' versus one of major reform. Cer- tainly because the current policies have not been presented as a single, coherent, co-ordinated package, a number of critics perceive the process of reform as being piecemeal. Some participants felt that this

piecemeal nature ultimately reflects the potential only for marginal changes, given the strength of existing vested interests. Others emphasised, rather, the need to proceed slowly toward substantial reform, but that the government does not perceive the appropriate role of the state as ultimately being one of minimal inter- vention. It was clearly stated that this is not the ideological basis from which India is starting. To this extent, it was argued that the intent of India's 'liberalisation' has been misunderstood in the west. It seems that no change is intended in the concept of the state as the appropriate, directing body, to bring about 'social change in a purposive manner'. In response, a plea was sounded that if indeed the intent is truly no more than one of tidying up, with possible reversals in the event of temporary adversity, then in- dustry must be told this, for nothing is more damaging to industrial performance than an environment of stop-go. In a sense the distinction between these perceptions is one of degree of reform, yet this distinc- tion is, in the end, pivotal.

Who Makes Pakistan's Economic Policies? Babar Ali

The extent and nature of Pakistan's subservience to the World Bank, IMF, US AID and such other western organisations have been revealed in a World Bank report.

IN these columns, I have been writing on the role imperialism plays in Pakistan and I have emphasised the political role played mainly by the United States in this con- text. The US's role has varied, ranging from flying U-2 spy planes over the Soviet Union from Peshawar in the early 1960s to building bases and air-strips on the Makran coast in 1987. It involves openly offering political support to military dic- tators such as Field Marshal Ayub Khan in the 1960s and General Zia since 1977-more so since the Afghan revolu- tion. It involves subverting the democratic process and aligning itself with the most reactionary elements in the country, whether they are the feudals, military and civil bureaucracy or the religious fanatics. All these factors imply that it is indeed the political interest of the US which is para- mount in maintaining its dominance over Pakistan. However, there is also an economic dominance which exists along- side of this political dominance.

The first point to clarify is that the ex- traction and remittance of surplus created in Pakistan to the west by the multi- national corporations (MNCs) is of a very

insignificant proportion compared to most underdeveloped countries. There are at best not more than a few hundred foreign companies operating in Pakistan, although it is important to emphasise that their number has been increasing over the last few years. The case of foreign banks is also similar-although not many in number, their share of the market is gradually increasing. Legislation concer- ning foreign bank operations in Pakistan was quite strict in the early days after Pakistan's independence when these banks were not permitted to open branches all over the country. Furthermore, the total number of foreign banks was also regu- lated and even upto 1977 there were only nine foreign banks in the country with 29 branches with only a seven per cent share in advances. Under Zia's regime their number increased to 18 in 1983 and they had 59 branches with 13 per cent of ad- vances. The presidents of all the major US banks make occasional trips to Pakistan where they are greeted and feted by General Zia himself.

Although their importance is not signi- ficant, one cannot totally belittle the role

1280 Economic and Political Weekly August 1, 1987

of multi-nationals in Pakistan, for they tend to dominate in a few sectors. Overall, in the late 1970s direct foreign investment in Pakistan was a mere 0.07 per cent of GNP and was 0.3 per cent of domestic in- vestment. In 1980, according to UN figures, there were only two hundred af- filiates of MNCs operating in Pakistan of which 77 were from Great Britain and 85 were US-based. Given the present regime's extremely positive attitude towards the United States and towards foreign invest- ment this figure is today probably three times the 1980 one. The most noticeable treind overall has been the sharp increase in joint-ownership as opposed to direct investment by foreign companies. Many prominent Pakistani industrialists have sought collaboration with Italian, West German and especially Japanese com- panies.

The two sectors that are most domina- ted by MNCs in Pakistan are phar- mlaceutical and tobacco. In the phar- maceutical sector, a handful of foreign companies control more than 70 per cent of the market. Advanced technology, better selling techniques and more money to throw around are amongst the factors that have given these MNCs the edge. Not only do they produce most of the drugs in the country, but the extremely high prices (especially compared to India and Sri Lanka) guarantee exorbitant profits. Their Lunchecked growth and the free hand given to them by the Pakistan government has destroyed any hope of an indigenous group taking the initiative in setting up units in this industry. Remittance laws in Pakistan a(re lenient compared to those of India and transfer-pricing, especially in the case of pharmaceuticals, permits the transfer of a fair amount of funds.

The South magazine ranked Pakistan Tobacco Company as Pakistan's seventh largest company based on sales. In 1984 it had a turnover of $ 240.3 million. The company is 63 per cent owned by the British-based British-American Tobacco. L-akson Tobacco was ranked 16 in the list. This company is 30 per cent owned by Rothmans of the US. Pakistan Tobacco and Lakson together control over 70 per cent of the cigarette market in the couin- try. Apart from the pharmaceutical and tobacco sectors, numerous other com- panies which dominate certain sectors also exist, Lever Brothers, a subsidiary of Unilever, Siemens, General Tyre and a few other internationally known companies play an important role in their own sec- tors. But despite all this, the control or dominance by the west through the MNCs is not very significant. For that, other avenues exist.

The most important, powerful and thu.s effective weapons to dictate to and con- trol Pakistan's economy are the two inter-

national organisations, the World Bank and the IMF. Nearly all loans made to Pakistan by the two organisations are con- ditional, but the conditions imposed are quite severe on the consumers. For in- stance, the World Bank refused to release payment of $ 175 million last year for projects in the energy sector unless the government of Pakistan increased elec- tricity prices. The result was that within two weeks electricity charges increased by 40 per cent and the loan was made available. In Lahore one proposed project dealing with improving water supply in the city hinged on the precondition of water rates being increased substantially. Another World Bank study in the same city dealing with city transportation re- quired an increase in bus fares, an event which sparked off rioting leading to the removal of the surcharge. The country's rail system is overworked and in a mess. A study by the World Bank suggested a doubling of fares before a plan to improve the system could be approved.

However, the most interesting and revealing nature of Pakistan's subservience to the World Bank, IMF, US AID and such organisations was revealed in a con- fidential report of the World Bank entitled "World Bank in Pakistan: Review of a Relationship (1960-84)". The report has been widely quoted in the Pakistan press and makes interesting reading.

The report tells us that in the 1960s, the World Bank, US AID and the Harward Advisory Group interacted extensively in devising Pakistan's economic policies. The World Bank, Aid to Pakistan Consortium, Ford Foundation and the Harward Ad- visory Group virtually framed the economic policy and institutional struc- tures during the 1950s and 1960s and ran the economic and financial affairs of Pakistan. The World Bank's top most of- ficials are said to have had a very close and 'effective' relationship with senior Pakistani bureaucrats. Under Bhutto, the Bank decided to withdraw most loans and was not willing to fund his anti-poverty anld social sector programmes and the Bank was left with only a representative staft in Islamabad. Under Zia, in the early years, the Bank is said to have been pleased that Zia was not particularly concerned about the country's social sectors. The report tells us that in 1980 an IMF loan was made conditional upon a delinking of the rupee from the US dollar, foreign trade liberalisation, a reorientationf of public sector investment, a price ra- tionalisation programme, measures to revive the private sector, and reduction and elimination of subsidiaries. The report has also frankly accepted the fact that its attitude to the country .has varied from government to government in Pakiistanl, ranging from to very close, cordial

and effective 'interaction' to distancing itself as it did under Bhutto.

The main point concerning the above discussion is that it is not merely the issue of an increase in water or transport rates that is of prime importance, but rather the overall control over policy matters by the World Bank, US AID and the IMF. It is indeed quite distressing to find that after 40 years of independence, the Sixth Five- Year Plan for Pakistan in 1983 was actually framed and written up by a team from the World Bank.

Another factor which has caught Pakistan in a never ending trap is the loans owed by the country to numerous coun- tries and institutions. At present Pakistan's external debt exceeds $ 14 billion and each year as much as 38 per cent of the country's exports are paying for the interest alone. The fact that we have to pay such a large proportion means that we are unable to use that amount for our own development. The fact that we cannot develop in turn means that we have to take loans to pay for development.

The discussion so far has ignored an important aspect of the aid trap and we have treated Pakistan as a whole and have not looked at the role of different classes in the aid/loan racket. The ruling classes are the ones who benefit most from receiving aid. If the country is really in need of additional resources, these classes never have to dig into their pockets but can ask for assistance. These external resources help the elite to live their own life-styles while the World Bank or Saudi Arabia pays to improve sewerage facilities somewhere in the country. The extremely ostentatious life-style of the rich suggests that Pakistan is not really a poor country and it is not lack of resources which is the fundamental question, but the distribu- tion of resources and the mismanagement of the economy which keeps driving the economic ministry to Washington. Fur- thermore, with corruption rampant, a great deal of the aid money is filtered in- to the pockets ot niumerous officials.

Neo-imperialism cannot work without local agents. It needs a mechanism through which it can operate. In Pakistan the ruling class is largely subservient to metropolitan capital politically and economically and eagerly continues selling of part of its land to them in exchange for numerous privileges at home. Little does this local class realise that it is becoming, if it hasn't already puppets in the hands of foreign masters. If they don't realise soon enough, they too will become the targets of the growing anti-imperialist movement in the country, which today is directed mainly towards the Americans. Then not even the United States will of- fer them refuge and they will have no place left to flee to.

Economic and Political Weekly August 1, 1987 1281

Article Contentsp. 1280p. 1281

Issue Table of ContentsEconomic and Political Weekly, Vol. 22, No. 31 (Aug. 1, 1987), pp. 1259-1310Front Matter [pp. 1259-1283]Letter to EditorCivil Liberties Movement [p. 1260]

Beyond the Tamils Issue [p. 1261]No Alternative Strategy [p. 1262]Liberalisation and Small Sector [pp. 1262-1263]Low Status of Health Care [p. 1263]Correction: Agricultural Growth, Prices and Rural Poverty: On Dharm Narain's Regression Analysis [p. 1263]BusinessInnovative Marketing [pp. 1264-1265]Unethical, Shortsighted [p. 1265]

Statistics [p. 1266]CompaniesRecord Production [p. 1267]Equipment for Nuclear Power [pp. 1267-1268]Expanding Product Range [p. 1268]

In the Capital Market [p. 1268]Calcutta Diary [pp. 1269-1270]International AffairsThere Is a Border Dispute with China [pp. 1270-1271]

ReportsTea Plantation Workers: Another Farce of a Wage Rise [pp. 1272-1273]Why Ban High Dose EP Drugs? [pp. 1274-1276]Economic Successes, Current Policies and External Links [pp. 1277-1280]Who Makes Pakistan's Economic Policies? [pp. 1280-1281]

ReviewsReview: Against a Retreating Enemy [pp. 1284-1285]Review: Planning and Politics [pp. 1285-1286]

Special ArticlesTowards a Theory of Transformation of Semi-Feudal Agriculture [pp. 1287-1290]Rural Development and Human Rights in Independent India [pp. 1291-1296]Agricultural Technology and Employment in India: A Survey of Recent Research [pp. 1297-1308]

DiscussionFinancial Innovations and Credit Market Evolution [pp. 1309-1310]

Back Matter