Sunday, June 29, 2008

How Pakistan and India lost it

How Pakistan and India lost it
By Rahul Singh, Dawn, June 30, 2008

WHICH system is better for economic progress: democracy or dictatorship? In India, except for a brief period of Indira Gandhi’s ‘Emergency’ rule, there has been democracy throughout, a flawed democracy, to be sure, but democracy nevertheless.

Many Indians feel that this democracy has often come in the way of economic growth and that if we had more of the kind of discipline — and the use of the ‘danda’ — that comes with dictatorship, we would have done better.

I don’t agree. Look at countries that, after years of dictatorship and the danda, have turned to democracy: almost all the nations of South America, along with Spain and Portugal, not to forget the Soviet Union. They have all done far better economically under democracy.

More relevant to our region, however, are the ‘Asian Tigers’ — South Korea, Taiwan, Singapore, Hong Kong, Thailand, even Malaysia. Except for brief periods of authoritarian rule, they prospered under democracy, though in Singapore’s case, one man, Lee Kuan Yew, brooked no opposition (yet his people were happy to let him run the city-state as he wanted, and he did a fantastic job, giving them a standard of living that matches the West).

But Pakistan and India interest me more. What provoked this piece is a book the Woodrow Wilson International Centre for Scholars in Washington, USA — one of the world’s premier think-tanks — has just released.

Edited by Michael Kugelman and Robert Hathaway, and rather clumsily titled Hard Sell: Attaining Pakistani Competitiveness in Global Trade, it contains illuminating papers by some of Pakistan’s leading economists and policy-makers, such as Mirza Qamar Beg, Shahid Javed Burki, Parvez Hasan, Manzoor Ahmad, Shaghil Ahmed and Shahrukh Rafi Khan, as well as senior US officials who interacted with Pakistan, like Douglas Hartwick, Esperanza Gomez Jelalian and Edward Gresser.

Since its independence, Pakistan has had both democratic and military rule, though more of the latter. Yet, both types of regimes made the same blunders, with the Pakistan economy barely moving forward, while its population exploded. Over a quarter of the population remained below the poverty line.

The Bhuttos, father and daughter, as well as Nawaz Sharif, were just as big economic disasters as were dictators like Ayub Khan and Yahya Khan. None of them had a clue on how to make their country progress faster. They were mainly busy holding on to power and fighting rivals, or confronting India; the standard of living of their people be damned.

Indira Gandhi was much the same, obsessed by power and innocent of economics. Both countries followed a policy of nationalising virtually every form of major economic activity except, mercifully, the agricultural sector, while foolishly trying to be ‘self-reliant’ by imposing heavy import duties on every consumer item to protect domestic industry, which as a result became inefficient, producing shoddy goods. The public sector, instead of looking after the public good, became inefficient and corrupt.

International trade, the main vehicle for the remarkable success of the ‘Asian Tigers’, was ignored by India and Pakistan, being considered by them for merely their balance of payments position. A regional trading association like Asean became a powerhouse while Saarc was a non-starter.

The book contains an illuminating table showing that the combined world market share of China and Hong Kong’s manufactured exports in 2005 was over 13 per cent, while that of South Korea was also an impressive 3.5 per cent. And Pakistan’s market share? Only 0.18 per cent! Even India’s was an abysmal 0.95 per cent.

Almost a third of Pakistan’s exports still go to the US and 80 per cent of these exports consist of textiles of one kind or another. Manufactured goods hardly figure at all. This is crazy, lopsided economics.

Shahid Javed Burki shows how in the late 1940s, both India and Pakistan were linked by close economic ties, with half of Pakistan’s exports being bought by India and two-thirds of Pakistan’s imports coming from India. Pakistan supplied food grains to India, since the British had made what is now Pakistan the granary of the subcontinent, by digging canals and bringing virgin lands in Punjab and Sindh under cultivation. Cotton was also successfully grown in this region, feeding the textile mills of Gujarat (India) and Bombay.

It was a symbiotic two-way trade that benefited both nations. Then, in 1949, a colossal mistake was made: trade relations between the two countries were virtually terminated. Both countries were equally to blame, and both suffered, but Pakistan more so.

The Cold War, and the politics that came with it, took over. Economics occupied the back seat. Pakistan veered towards the USA, India moved in the direction of the Soviet Union. A hostile confrontation began, culminating in two wars, 1965 and 1971. Pakistan became obsessed by Kashmir and India, later, by “cross-border terrorism”.

India woke up in 1991, when faced by a foreign exchange crisis and was forced to liberalise its economy. It was fortunate to have a technocrat like Dr Manmohan Singh (now the prime minister) at its economic helm. Since then, India’s GDP has grown by a healthy eight to nine per cent annually. Pakistan’s wake-up call came ten years later and its economy, it was claimed by the government, was growing by around seven per cent a year.

Both nations can do better, provided they give priority to economics over politics. In all fairness it must be admitted that they are finally beginning to do this. Kashmir is no longer such an obsession in Pakistan and there is a realisation in India that the terrorist challenge it faces — Pakistan faces it, too — does not entirely originate from Islamabad. The enemy is also within.

But above all, mutually beneficial trade between the two countries must be opened up and enlarged. As the ‘Asian Tigers’ showed so convincingly, that is the key to economic success.

There is a lesson that India offers. Take just one area: India’s success in information technology (IT) and outsourcing. There is no reason why Pakistan cannot replicate this, as it has, like India, the huge asset of an English-speaking core of educated youngsters.

India’s success was based on the Indian Institutes of Technology (IITs) and the Indian Institutes of Management (IIMs) that it set up all over the country. When the IT boom took place graduates from these institutes were up and ready to exploit it. India could help Pakistan set up similar institutes.

For too long have Indian and Pakistani leaders looked upon each other with suspicion and hostility, concerned only with maintaining their power. It is time they started looking at the welfare of their people.

The writer is a former editor of The Reader’s Digest and Indian Express.

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