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Title: The Political Economy of Pakistan

Submitted By: Ali Gohar Jamali

Reg no: 0917104

Class: BS (SS)-7

Submitted to: Mr. Akbar Saeed Awan

Subject: South Asian Studies Dated: 8th October, 2012

Introduction Economic and social outcomes in Pakistan have been a mixture of paradoxes since the country came into being. Pakistan, once a regional economic power in 1960s could not realize its potential and fell behind its East Asian fellow countries. Politically, religious fundamentalism, sectarian violence, ethnic differences, terrorism and regional economic disparities have made country unstable which contributed toward the unsatisfactory economic condition. It is usually believed that economy grows in presence of political solidity but in the case of Pakistan it rejects the conventional wisdom. Much of countries economic growth has been witnessed in the military regimes which ruled country for nearly three decades. The reasons for this will also be discussed later. Pakistan has been ruled for 29 years by four Military Governments .Army has a significant role in Pakistans politics, foreign affairs and supporting individuals. Moreover, the growing economic and corporate interests of the Pakistan army, makes it an important stake holder in decisions regarding trade, investment and issues of property rights .No doubt, Pakistans military is the most power institute of the country. The fact that military dominates Pakistans political, domestic, regional and global scene, is reflection of power of military but it also show the failure of civil society and political institutions. In order to examine the nature of Pakistans economic and political past, a history can be divided into seven different periods which are chronologically discussed below. Civilian Bureaucracy and Industrialization: 1947-58 Pakistan came in to being as a devastated country after partition of united India. The geographic location of East Pakistan with India separating West Pakistan put the country at a serious disadvantage. The country started with meager resources. The old remnants of British regime were the bureaucracy which became powerful and started running the state and they were responsible to ensure the survival of the country in hard time

with their policies. The political entities included landowners, feudal and a number of tribal leaders. Since there was no industry, there was no industry related individual class and this led to the domination of bureaucracy in politics. The political equation consisted of bureaucracy, land owning politicians and tribal leaders. After making unexampled gains from Korean War bonanza, the mercantile capitalists emerged and strengthened their economic position in the society. Many traders who earned money and made profits in 1950 started investing in industry and later emerged as industrialists in 1960.The industrial process which took place in mid and late 1950s was encouraged by the bureaucracy which played an important role in establishing industrial units in the country. State owned institutions like PICIC and PIDC encouraged the development and growth of industry. The import substitution industrialization policy was adopted by the government institutions and bureaucracy and it acted as an impetus to the nature and direction of industry. The first decade seem to bureaucracy led and assisted industrialization. The bureaucracy led the political settlement and determined the outcomes of policy and purpose. Industry became the subordinate partner in that process. Other political groups had very little to offer at that time because of being nascent. The landlords and tribal leaders have little to say in politics and the economic policy was not directed toward well being of them. The growth rates in agriculture were poor and industry was prioritized over agriculture which was the livelihood of 80% of countrys population which dwelled in rural areas. Since much of bureaucracy was composed of urban migrants from India, they had little interest in agriculture. Industrialist gained high profits in early year but they never become a political force and were reliant on bureaucracy. Political wrangling between landowning class politicians did not allow them to become a force. With porous ranks among political groups, the military stepped in to reinstate law and order and continue to run bureaucratic capitalism. Civil and Military Bureaucratic Capitalism: 1958-71 The military emerged as a stabilizing actor under whose authority and rule, industrialization with the help of bureaucracy and emerging industrialists could grow more. The very high growth rates in the economy and large scale manufacturing (LSM) would not have been possible without a central command and military was the only institution able of reliable at that time.

Ayub Khan took full control of state in October 1958 and this was the golden era of Pakistans history. GDP growth rate rose to 6% from 3% in the 1950s.The manufacturing sector grew by 9% annually and agriculture at a respectable 4%. The agriculture sector was revolutionized by increase in production and land reforms. This resulted in the rise of capitalist agriculture development. This produced a consumer class for industrial products without which industrial revolution could not have taken place. Shahid Javed Burki argues that, toward the late 1950s, landlords were again emerging on the political horizon, and Ayub Khans shifting of power from Karachi to Lahore and Rawalpindi resulted in more representation from indigenous and rural Pakistan, which is on reason why agriculture gained prominence throughout the decade.1 The 1960s was a decade of emergence of new political groups and economic classes. In agriculture the control of large landowners was not completely broken but it was certainly loosen due to the emergence of middle class farmers resulting from the green revolution. In rural areas small manufacturing units and skilled and technical workers emerged to provide services to new economy. The Basic democracies system accommodated the new agriculture capitalists and the rural politicians were now the part of the alliance of military and bureaucracy. Elsewhere, the income inequalities between East and West Pakistan increased and resentment grew in Bengalis against the West Pakistan which resulted in widespread movement, which ultimately led to separation of Bengal in 1971. The Socialist Seventies of Bhutto: 1971-77 Zulfiqar Ali Bhutto emerged as a popular political leader after the glorious decade of development and growth. Groups, other than industrialists, bureaucracy and military, rallied behind Bhutto and became source of his power. Bhutto was a staunch supporter of socialism and this is reflected in his government policies. In the early years of his regime, labor, peasants, farmers and rural and urban educated class hailed his socialist policies. Bureaucracy and industrialists became target of his socialist policies along with large landowning class and were discredited. However, bureaucracy, military and landowning class again emerged after few years. Bureaucracy became more powerful in the awake of nationalization and strengthened its hold over means of productions. The military became favored due to an armed rebellion in Baluchistan. The 1972 land reforms did not proved to be a success and land owners again gained

prominence and a number of large landowners became members of Pakistan Peoples Party. Educated left leaning middle class was against this but persisted with his social reform agenda. The nationalization of banks was carried out and it broke the link between industrialists and finance sector and industrialists fled the capital away. Small scale industry and informal sector became backbone of country. The journey to modernization and economic growth ended and along with natural disasters and oil price shock of 1970 became the reason of removal of Bhutto. The urban middle class, military and bureaucracy were instrumental in removing Bhutto. Hence, between 1947 and 1977 large scale development took place and an urban middle class emerged which was economically sound and young but was non-existent in politics. Industrialists who earned good profits and put country on growth track became ghosts in 1970 and feudal gained a good hand in politics in Sind, Punjab and parts of Baluchistan. However, bureaucracy was the only class which does not lost its importance and continues to influence on the political structure of the country. A Military State and the Middle Classes: 1977-88 The overthrow of Bhutto government by a military coup in 1977 brought General Zia ul Haq to power. It strengthened the supremacy of the civil and military bureaucracy not just on political map of Pakistan but also on allocation and production of economic resources. With the political and governmental roles and authority in hand, the civil and military bureaucracy emerged as an important and well-established unit in economy. Although, Zia was a staunch supporter of private sector in economy but the nationalized industries were not denationalized because it allowed the bureaucracy to play an important role in the economy. Many retired and serving military personals were posted on lucrative positions in the public sector. The private sector looked up to the military and they established close ties with the military in order to foster. Also one important factor was the large amount of military and economic aid by USA due to Soviet-Afghan war. Corruption, smuggling, drug mafia, sectarian violence and AK-47 culture were introduced which proved to be a disaster for country in future. The Gulf remittances were

also an important factor in lifting up the economy. Almost 20 billion dollars were remitted to Pakistan from 1977 to 1987. Economic conditions improved as GDP grew at 6.6% annually with agriculture at 4% and large scale manufacturing at 9% but fiscal deficit widened to 8%. Domestic borrowings in long run affected economy and Pakistan approached IMF in 1988. Zia regime as a whole produced military industrialists and businessmen with armed forces personal making fortunes from Soviet-Afghan war invested in business and became bosses in the private sector. Since, political activity was banned until 1985. Due to restrictions, those with means, especially the rising middle class, were to contest the elections for first time in local bodies elections. They were able to enter politics because of the absence of rich, significant and established political actors. However, the military had full control of political scenario in the country. The Unstable Democratic Interregnum: 1988-99 After the death of General Zia ul Haq in a plane bomb blast in 1988, Pakistan began its journey of democracy again. In this democratic period four elections were held of which most were rigged and manipulated. Nine different governments (four elected, four interim and one military after October 1999 coup) ruled country in this time period. Mian Nawaz Sharif contested from platform of IJI in 1991, most of his compatriots in IJI were those who benefited from the Zia regime, who were industrialists and joined class of politics. The 1990s was the time when the economic interests of middle and influential Pakistan became expressed into politics and into a desire to use politics for economic gain and political control. The 1990s witnessed high instability in Pakistan. The bureaucratic and other hierarchical nondemocratic institutions and organizations interfered in the democratic transfer of power. The rise of middle class continued but it was not powerful enough to be a political force and relied on military in this regard. The economic situation on the other hand deteriorated. The GDP rate lowered to 4% and foreign investment ratio fell to 13.9%. The fiscal deficit remained above 7% and external deficits 4-5% led to amassing of large domestic and foreign debts. Social sector expenditures were cut down to

service the debt. Pakistan lost its share in world trade and the economic progress become stagnant. Overall, if the political governments have been able to complete their tenure, it would have been much better in economic terms as policies implemented would have brought fruits in long term. The Return of Military to the Power: 1999-2007 General Pervez Musharraf led the military coup in 1999 to seize the power and removed the Prime Minister, Mian Nawaz Sharif from the office to save the country from corruption and put economy on the course of growth. The Musharraf regime was similar to other military regimes with regard to Local Government Election and devolution of power. Like the regime of General Zia ul Haq, Musharraf also became part of the Afghan war after 9/11 attacks and it brought Pakistan good fortunes in term of military and economic aid which for a time period strengthened the economy but it was temporary. General Musharraf instilled military personals into different public institutes military actively took control of every public sector department and strengthened the control over economy. Unlike previous military governments, Musharraf faced a more powerful, free and vibrant media in the country which in the end much contributed to his demise and downfall. In addition to that, the external influences like the Super power, USA much determined Pakistans domestic and foreign policies in the awake of Afghan invasion. Pakistans religious parties for first time formed an alliance and took a number of seats in parliament and dominated it and provided a shield to the regime. General Musharraf also won the support of urban middle class and elites who supported him as an enlightened military ruler and who benefited from his economic policies. The economic situation of the country became better and growth rates averaged at 7%, poverty and unemployment fell by 5-10% and 6.5% from 8.4% respectively. The investment rate grew to 23% of GDP and foreign reserves also showed a significant improvement. The global financial crisis and recession in 2007 hampered Pakistans economic progress and growth halted as the demand for Pakistani products in OECD markets fell.

The judicial crisis and the return of important political leaders from abroad along with governance problems and military operation in Baluchistan added to unpopularity of the military government and it finally ended after 2008 elections. The Post Musharraf Era: 2008-Present After the 2008 elections, Pakistan Peoples Party came into Power and the democratic vehicle started to move forward but it has not been as effective it should be in order to improve the political and economic situation. With a slender majority in parliament, the government is reliant on its allies and it is not able to refuse their illegitimate demands and to keep everyone happy, the government is over spending and domestic and foreign borrowings have put the economy in a situation of jeopardy. Inflation has jumped up to double figures and the lower and middle class have severely been hit by it. Rise of oil prices, energy crisis, and violence in Karachi, KPK and Baluchistan has lowered the economic growth rates and hampered the progress. Industrialist class has been severely hit by energy crisis and textile products export has fell down. The unemployment rates are high and according to a UN report the 50% of total population is estimated to be living in poverty. GDP growth rate is around 3% and fiscal deficit is above 6% and currency is at all time low against dollar. Natural disasters like floods have also lowered the agriculture productivity which is major pillar of economy. Overall services sector has grown and government has actively created new jobs on political basis to accommodate its supporters and allies. There is unrest among the population and this situation has given a chance to parties like PTI, which is a youth party to become popular and it can bring a change in the politics of Pakistan in future. External Influences External influences have also been an important factor in shaping Pakistans political and economic structure. From early days, Pakistan allied with USA against communism and this contributed much to an elite capitalist state in which large landowners and industrialists dominated the political and economic scenario along with military and bureaucracy.

The IMF and World Bank led Structural Adjustment Programs put Pakistan on the path of liberalization and privatization which has resulted in a more powerful economic elite industrialists and politicians. The result of such capitalist programs is that income inequality has grown over the period of time and there is a wide gap between the income levels across country. The poor and lower middle class has almost no say in politics as they are not much educated and aware of their civil and political rights and cannot think further than earning for livelihood. The long enmity with India has also a major impact on the countrys economy. Much of resources and funds have been directed toward defense to secure the country against any military threat from India. It is also a cause of not having trade relations with India, which could have proved to beneficial for Pakistan in terms of economy. Recently, both countries have opened negotiations on trade and commerce. India emerged as powerful and dynamic economy in last decade and it has been largely due to a stable political environment unlike Pakistan where military has ruled mostly. Conclusion In a nutshell, Pakistan has not developed politically and economically in 64 years because of historical bureaucratic structure, an elite landowning politician class and most importantly a political military institution. The middle class has been a junior partner with military and bureaucracy for its own vested economic interests and due to this there has been no significant positive change in the political and economic structure. The external western influences have also played a part to strengthen the military and bureaucratic class and politician because of their particular interests and their funds and aid have been much used for political purpose rather for economic growth. The widespread violence in the aftermath of Soviet- Afghan war and US led invasion still haunts the country and most severely poor masses have been affected from this situation. A friendly neighbor in form of India could have been a blessing but on both sides of border it never happened to be a good fortune. Much of resources have been diverted for arms and ammunition rather than for education and economy. This all has contributed to a porous social, political and economic structure and a bleak future for democracy in the country.

References: Burki, Shahid Javed, Pakistan: A Nation in the Making, Westview Press, Boulder, 1986, p. 112. Bibliography: S. Akbar Zaidi, Issues in Pakistans Economy, Second Edition Dr Isharat Hussain, Pakistan and Afghanistan: Domestic Pressure and Regional Threats, The Role of Politics in Pakistans Economy.