February 1999 News


How the Rich Captured Pakistan

15th February 1999
The Asian Age (with Dawn)
By: Dr. Ishrat Husain (Director ar the World Bank. The views expressed in this article are of those of the author and do not represent the views of the World Bank, its management and the executive directors.)

ISLAMABAD: One of the most interesting questions that has been posed in regard to the thesis of elite capture of economic and political power in Pakistan is: how was was this elite class formed and how were they able to capture economic power? There are at least six distinct episodes which have contributed to the formation of various elements of the elite class in Pakistan and it is the interaction and the cumulative force of these different elements that has strengthened their hold on the economic and political power in the country.

First, the inherited colonial legacy of a strong paternalistic mai-bap kind of relationship between the British rulers and the population at large was transmitted intact to their successor - the Pakistani civil servants. Unlike their counterparts in India whose unbridled powers were diluted and reined in by the political ascendancy of strong middle class and elected leadership, the vacuum created by weak and unstable political leadership provided an excellent breeding ground for the emergence of a powerful and self-serving class of civil servants in Pakistan.

Second, at the time of independence, Pakistan had a land tenure system in Punjab and Sindh dominated by zamindars and jagirdars possessed large tracts of land and practised an exploitative system in which peasants were without legal protection and the forum of settlement of disputes was heavily based in favour of the zamindars. Landownership was highly concentrated and the Gini coefficient was as high as 0.64 in 1950.

Unlike East punjab, no serious attempts were made to limit land holdings. Instead, exemption from income tax, favorable output pieces and input subsidies, concessional credit from public institutions, diversion of scare irrigation water from the share of small farmers, generated large economic rents for the landlord class. The feudal relationship and economic power was soon translated in domination of political scene and the shifting loyalties of the landlords class sowed the seeds of political instability in the country.

Third, the settlement of immovable urban and agricultural property evacuated by the Hindus in favour of the Muslim migrants from India presented an excellent opportunity for the use of discretionary and arbitrary powers of the executive branch to benefit a small segment of the migrant population. This hands-in-glove approach made a few thousand officials involved in the settlement operations and a few thousand "awardees" of evacuee property rich overnight but at the same time laid the first building block of a corrupt landscape for the country as a whole.

Fourth, the boom after the Korean War in the Fifties resulting in a dramatic increase in the prices of jute and raw cotton created a commodity boom whereby many traders rushed into the import export business to make quick profits. The combination of overvalued exchange rate, a high tariff structure, a gap caused by the trade disruption with Indian and the fertile commodity market created a class of industrialists and big businesses. This merchant capitalist class bought raw materials from the agricultural sector at cheap prices and sold them in the foreign markets at a very high mark-up. As import controls were introduced in the aftermath of the Korea boom the domestic prices of consumer goods produced by the same class rose so high that the industrialists were able to recover their initial investments in one or two years.

Fifth, the martial law regime of Ay Khan during the decade 1958-68 gave rise to a new sub-class of elites - the military officials. The economic benefits conferred to this class took many forms but four modes were predominant. Agriculture land grants in the new areas irrigated by the Gudu and Kotri Barrages in Sindh, award of urban plots of land developed as part of Defence Housing Societies in the prime locations of major cities, employment of serving and retired military officials in key public corporations and enterprises and the setting up of large-scale industrial and commercial firms under the auspices of Fauji Foundation and the like transferred enormous economic benefits to this new class.

This was followed by leakage from large-scale defence purchases, contracts and transfers of arms and ammunition as a result of Russian invasion of Afghanistan in th 1980s when Pakistan was once again headed by a military general. There are many reports that a number of senior military officials and their families amassed fabulous wealth from these deals.

Sixth, the embarking of development funds from the budget to the politicians under the Basic Democracies of Ayub Khan, the People's Works Programmes of Bhutto, and followed by similar schemes designed by Mohammad Khan Junejo, Benazir Bhutto and Nawaz Sharif governments payed the way for the enrichment of the elected officials. This was reinforced by the allotment of urban land plots by KDA, CDA and LDA at highly subsidised rates, sanction of loans by nationalised banks and development financial institutions at the instance of the government, grant of licences for setting up sugar mills and other industrial ventures, favoured allocation of scarce commodities out of import/export quotas or domestic production such as steel products.

The growing tendency to sue discretionary powers in relaxation of rules and policies in force to benefit or win over the politicians also helped enrich senior managers of the banks and the DFIs, senior executives of the state trading and export corporations, public manufacturing enterprises and the civil servants in positions of authority or responsible for the implementation of these, orders.

While these six distinct episodes can be traced to various points of time, the cumulative result of the capture of economic and political power by the elites has been slow and gradual decay of the institutions and a breakdown of the governance structure. Tax officials at all levels collude with unscrupulous taxpayers to deprive th state of its dues and acquire wealth for themselves and the tax evaders. Police officials have become a source of fear and terror rather than that of protection of the common citizen.

Judicial process is so slow, cumbersome and loaded that it is unable to provide relief or redress to those who are wronged. Educational institutions have been taken over by hooligans, bullies and dishonest teachers and heads. Statutory Regulatory Orders are used frequently to confer large windfall gains on the privileged by restricting imports of essential commodities of a limited period and allowing the domestic prices to skyrocket. There are innumerable examples from all spheres of economic life.

In case of Pakistan and other elitist states, the dichotomous relationship between market failures and government failures mutually reinforcing each other which has created winners among the elite classes while the rest of society is the loser and has to pay for those gains.

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