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Who Makes Pakistan's Economic Policies?

Author(s): Babar Ali


Reviewed work(s):
Source: Economic and Political Weekly, Vol. 22, No. 31 (Aug. 1, 1987), pp. 1280-1281
Published by: Economic and Political Weekly
Stable URL: http://www.jstor.org/stable/4377309 .
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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
unlikelythat the observedrise in industrial
wages is attributable to any healthy
growth in labour demand pressing on
wages. Rather, at least two tentative explanations 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,
workerswithin 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
strategyon inequalityand povertyrevolved
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 indeed elsewhere, and that nationalisation
has served only to transfer income and
power from one elite to another.

been protectea against foreign competition for thirty years will produce a
political backlash if undertaken too rapidly. 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 addition, it was urged that at the least, selective relaxation of domestic regulations be
made in areas where the expansion of industries 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
perceivedas no more than 'fiddling at the
edges' versus one of major reform. Certainly 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 participantsfelt that this

piecemeal nature ultimately reflects the


potential only for marginalchanges, given
the strength of existing vested interests.
Others emphasised, rather, the need to
proceed slowly towardsubstantial reform,
but that the government does not perceive
the appropriate role of the state as
ultimately being one of minimal intervention. 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 reversalsin the
event of temporary adversity, then industry must be told this, for nothing is
more damaging to industrial performance
than an environmentof stop-go. In a sense
the distinction between these perceptions
is one of degree of reform, yet this distinction is, in the end, pivotal.

Who Makes Pakistan's


Economic Policies?
Babar Ali

OF CHANGE
ECONOMIY
(6) POIATICAL

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
emergedof sufficient strengthto 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 withiniany
pluralistic society, tor liberalisation must
of necessity hurt some while helping
others. To open up markets which have
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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 imperialismplays in Pakistan and
I have emphasised the political role played
mainly by the United States in this context. 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 dictators such as Field Marshal Ayub Khan
in the 1960s and General Zia since
1977-more so since the Afghan revolution. It involves subvertingthe democratic
process and aligning itself with the most
reactionary elements in the country,
whether they are the feudals, military and
civil bureaucracyor the religious fanatics.
All these factors imply that it is indeed the
political interest of the US which is paramount in maintaining its dominance over
Pakistan. However, there is also an
economic dominance which exists alongside of this political dominance.
The first point to clarify is that the extraction and remittanceof surplus created
in Pakistan to the west by the multinational corporations (MNCs) is of a very

insignificant proportion compared to


most underdevelopedcountries. Thereare
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 concerning foreign bank operations in Pakistan
was quite strict in the early days after
Pakistan'sindependencewhen these banks
were not permitted to open branches all
over the country. Furthermore, the total
number of foreign banks was also regulated 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 advances. The presidentsof 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 significant, one cannot totally belittle the role

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 investment. In 1980, according to UN
figures, there were only two hundred affiliates 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 investment this figure is today probably three
times the 1980 one. The most noticeable
treindoverall 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 companies.

The two sectors that are most dominated by MNCs in Pakistan are pharmlaceutical and tobacco. In the pharmaceutical sector, a handful of foreign
companies control more than 70 per cent
of the market.Advancedtechnology,better
selling techniques and more money to
throw around are amongst the factors that
havegiven 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)guaranteeexorbitantprofits. 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-aksonTobacco 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 couintry. Apart from the pharmaceutical and
tobacco sectors, numerous other companies which dominate certain sectors also
exist, Lever Brothers, a subsidiary of
Unilever,Siemens, General Tyreand a few
other internationally known companies
play an important role in their own sectors. 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 control Pakistan'seconomy are the two interEconomic and Political Weekly

national organisations, the World Bank


and the IMF. Nearly all loans made to
Pakistanby the two organisationsare conditional, but the conditions imposed are
quite severe on the consumers. For instance, the World Bank refused to release
payment of $ 175 million last year for
projects in the energy sector unless the
government of Pakistan increased electricity prices. The result was that within
two weeks electricity charges increasedby
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 required 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
revealingnature of Pakistan'ssubservience
to the World Bank, IMF, US AID and
such organisations was revealed in a confidential reportof the WorldBank 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'seconomic policies. The
WorldBank, Aid to PakistanConsortium,
Ford Foundation and the Harward Advisory Group virtually framed the
economic policy and institutional structures during the 1950s and 1960s and ran
the economic and financial affairs of
Pakistan. The World Bank's top most officials are said to have had a very close
and 'effective' relationship with senior
Pakistani bureaucrats.Under Bhutto, the
Bank decided to withdrawmost 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 rationalisation 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
rangingfromto veryclose, cordial
Pakiistanl,

August 1, 1987

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 ratherthe
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 FiveYearPlan for Pakistanin 1983was actually
framed and written up by a team from the
World Bank.
Another factor which has caught
Pakistanin a neverending trap is the loans
owed by the country to numerous counAt present
tries and institutions.
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 largeproportion 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 seweragefacilities
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 resourceswhich is the
fundamental question, but the distribution of resourcesand the mismanagement
of the economy which keeps driving the
economic ministry to Washington. Furthermore, with corruption rampant, a
great deal of the aid money is filtered into the pockets ot niumerousofficials.
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 eagerlycontinues selling
of part of its land to them in exchangefor
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 offer them refuge and they will have no
place left to flee to.
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