The state in Pakistan

Strengthened private enterprise and a reduced presence of the state will exacerbate income inequality


Shahid Javed Burki June 08, 2014
The writer is a former caretaker finance minister and served as vice-president at the World Bank

On June 3, Finance Minister Ishaq Dar presented the second budget of the administration headed by Prime Minister Nawaz Sharif. The first was released to the National Assembly and the public a few days after the new government took office. The one for the financial year 2014-15 is based on how the year-old administration perceives its performance during the time it has been in charge in Islamabad. The budget’s presentation followed the release of Pakistan Economic Survey, 2013-14. It had a number of indicators that suggested that the policies adopted by the government had resulted in the economy turning the corner. This reversal in the trend was the consequence of the good performance by the large-scale manufacturing sector which had done poorly in the preceding years. Both the survey and the minister said that they expected this important part of the economy to continue to do well in the coming years.

I was looking for but didn’t find in these two statements the Nawaz government’s vision of the state it wished to construct to move the economy forward in a way that would satisfy the aspirations of the people. The broader meaning of ‘state’ applies to the way the government is organised, the laws and the sets of rules it follows, and the relations it has with the citizens and private enterprises. Looked at from this perspective, the state can be very broad as it is in most countries of Western Europe or it could be very narrow as the neo-conservatives would like to see it emerge in their own country. To frame this issue, I will first refer to the debate that is raging in the Western world on this subject and then relate it to the situation in Pakistan.

Two recent books, one by a French economist and the other by two senior editors of the magazine The Economist are enormously pertinent for today’s Pakistan. In Capital in the Twenty-First Century, Thomas Piketty has constructed time series on wealth accumulation for hundreds of years for a dozen or so Western economies. He has found that whereas the historical return on capital was six per cent a year,that on the application of labour was only 1.5 per cent. Capital is owned by the rich; labour mostly by the poor. The difference between the two rates of return explains the rapid growth in inequality in Western nations. His recipe from stopping — possibly reversing — this trend is to create an activist state that will tax the wealthy in order to raise the resources to help the poor and the not-so-well-to-do.

The Economist’s authors reach the opposite conclusion. In The Fourth Revolution: The Global Race to Reinvent the State, John Micklethwait and Adrian Woolbridge argue that the bloated Western states must slim down. Implicit in this approach is the belief that private enterprise that is able to function without the state weighing it down is the main source of innovation. This is not what the liberal economists would argue. For them, the state has an important role to play. The government, by providing physical infrastructure and developing for human resource, helps private enterprise to innovate.

Both books have raised issues that are relevant for the changes the Pakistani electorate wants. It spoke with remarkable clarity about what it expects from the policymakers it was putting in place in the May 2013 elections. The electorate gave a clear message. It wants good governance by which was meant several things but two were of particular importance.

Implicit in the government’s approach to economic policymaking is the strong belief that the people’s aspirations would be satisfied by strengthening private enterprise. Would such an approach satisfy people’s aspirations? This is where the work of Thomas Piketty enters the picture. Strengthened private enterprise and a reduced presence of the state will exacerbate income inequality. This people don’t want. It is an issue citizens want to be addressed. This is what the elections of May 2013 were all about.

Published in The Express Tribune, June 9th, 2014.

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COMMENTS (3)

umar farooq | 9 years ago | Reply

Government is doing good than previous govt. But not as good as was expected. Govt. has done a lot for indutries but did nothing for agriculture. Also govt. main is on building fly overs etc. Their main priority should be health, education and peace in country.

Ayesha | 9 years ago | Reply

Sir, your concluding line "This is what the elections of May 2013 were all about" is perhaps relevant to a small minority of people who will even bother to read the two excellent books you have recommended. The fact is, this government cannot even begin to think in these terms. I would be interested in knowing which was the last book that our Prime Minister, Finance Minister, and Minister for Planning & Development read. A good start would be strengthening the state-owned enterprises, but the results of the government's "efforts" are before us: NOTHING! Perhaps we should place this particular item in the five-year plan because at this rate, it does seem it will take that long to appoint competent heads. Another good start would be strengthening the regulatory bodies but most of them are headed by acting chairmen (and opportunists) who are actually destroying the fabric of these institutions while pocketing their pay and perks, and indulging in cronyism. And finally, can we really expect good governance from a Prime Minister who had attended sessions of the National Assembly how many times since taking oath?

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