From politics to economics: Earlier the better

From politics to economics
By Shahid Javed Burki, Dawn, March 18, 2008

IF we look carefully at the manifestos of the main political parties — an exercise that was done by the Lahore-based Institute of Public Policy and released a few days before the elections of Feb 18 — most of the attention of the leaders was on political development.

The parties taking part in the polls pledged to bring democracy to the country. This was to be done by giving executive authority to the prime minister and making him and his cabinet answerable to the legislature.

There was also the promise to make the judiciary autonomous, not subject to the whims and wishes of those who wielded political power. The focus, in other words, was on politics. There was an assumption that a sequential approach could be followed; the first order of business was to provide the country with a durable political system. Once that was done, policymakers could turn their attention to economic development.

There were two reasons why the sequential approach was adopted. The first was that even the parties opposed to President Pervez Musharraf had bought the argument the previous administration had made about the country’s economic progress. According to this Pakistan had been placed on a trajectory of growth that would see the economy expand year after year at a rate of 7-8 per cent. The only quarrel with the government’s claim was that the growth it had produced in the economy had done little to help the poor or to improve income and regional wealth distributions.

Some of us had argued that even the claim of having achieved a sustainable rate of growth was not correct and that the structural rate of GDP increase was considerably less than 7-8 per cent, perhaps about 4-5 per cent.

I had suggested in this space on a number of occasions that the high rates of growth were largely the result of a combination of a number of happy circumstances. The government needed to do much more before it could claim that the economy had climbed on to a higher plateau. This debate should have been reflected in the party manifestos. It wasn’t. The political parties did not address the issues of the sustainability of growth and the structural changes that were needed to bring it about.

The other reason was that the country’s economic problems were not considered to be as urgent as those it faced in the political field. The fact that the president had concentrated so much power in his hands that the checks and balances built into the system were almost totally lost concerned the opposition much more than economic issues.

This assumption was also not correct. As political scientists and economists who study the developing world have come to appreciate, politics cannot be separated from economics. What happens in economics has profound implications for politics; what occurs in politics affects economics. Societies must progress in both areas at the same time.

It appears that Pakistan may be getting ready to turn the corner in so far as political development is concerned. The two parties that obtained the most seats in the National Assembly have agreed to form a coalition. They have also indicated that the judges who lost their positions because of the constitutional amendments made by President Musharraf on and after Nov 3, 2007 would be brought back into the system. They are still debating as to how that can be done. These are important decisions and if fully implemented they may help to erect a democratic structure in the country. However, will these changes in the way Pakistan has been managed help the country’s economic development?

Development economists have reached a degree of consensus on what is the broad strategy that needs to be followed to bring economies out of backwardness and set them on trajectories of growth that would, over time, bring the incidence of poverty to reasonable levels. They also believe that there is a great deal developing countries can learn from one another.

In this context it is legitimate to ask as to what extent Pakistan can learn from India, especially when new administrations are getting ready to assume power in Islamabad and the four provincial capitals.

There are three areas in which policymakers in Pakistan can derive some useful lessons from the Indian experience. In two of them, India is a couple of steps ahead of Pakistan and in the third it is a step or two behind. The first area where India has done better than its neighbour is to marshal domestic resources for investment, to reduce the reliance on external capital flows to produce high levels of GDP growth. The Indian savings rate is higher than that of Pakistan as is the tax-to-GDP ratio.

The Indians have fared better as their political structure has allowed them to tax the rich a bit more than has been possible in Pakistan. They were also able to introduce land reforms soon after they achieved independence. Pakistan, having struggled with this issue in the sixties and seventies, has all but abandoned reflecting on it. In its case, the domination of the propertied class in the political field has meant that distributional and fiscal policies could not be used either to raise domestic resources for development or to redistribute income and wealth from the very rich to the very poor.

The second area where India has made much greater progress than Pakistan is in devolving greater development authority to its states. This is a surprising development since the Indians originally conceived their political system to be unitary rather than federal. In Pakistan, the 1973 Constitution went for a federal structure with a number of powers placed in the provincial domain.

That did not happen largely because those who governed form the centre chose to centralise power rather than distribute it among the provinces. This was done not only by the military rulers who, because of their tradition and training, believed in a centralised command structure. Even the civilian rulers found it difficult to let go of power and share it with the chief executives of the provinces.

The only area where Pakistan has done better than India is in reducing the power of the bureaucracy. Like India, Pakistan inherited a system of bureaucratic management that gave enormous amount of executive authority to a small number of civil servants who represented the state at the local level — in the districts and divisions into which the country was divided.

In India these functionaries of the state belonged to the Indian Administrative Service, the successor to the powerful Indian Civil Service that was once described as the “steel frame” which supported the British in the subcontinent. In Pakistan the Civil Service of Pakistan was the successor service.

However, in 1974 Prime Minister Zulfikar Ali Bhutto disbanded the CSP and made the civil servants responsive to their political bosses. The government of President Pervez Musharraf went a step further and made the civil servant working in the districts responsive, at least in theory, to elected representatives of the people.

Given the economic challenges the new government will face and given some of the lessons Pakistan can learn from other developing countries, what are the few things that need to be done in the first hundred days after the assumption of power by the new administrations in Islamabad and the provincial capitals? I will begin to answer this question with the article next week.