The myth of Musharraf's 'economic boom' needs to die

Dictatorship is not better for Pakistan's economy. Democracy outperforms dictatorship greatly when uninterrupted.

Shahram Azhar January 16, 2014
A recent article ‘Have you forgotten all that Musharraf did for you, Pakistan?’ by Mr Rafay bin Ali regurgitates a popular myth – dictatorship is better for Pakistan’s economy. The author uses cross-regime comparisons based on the Gross Domestic Product (GDP) size to argue that Pervez Musharraf was the best thing that ever happened to Pakistan’s economy.

Like all myths, this fable is also sustained by a crafty combination of truth and fiction. But it crumbles once we separate the flimsy truth from the falsehood that it conceals. To do this, we must analyse the methodological flaws in the framework used by the author in arriving at this pro-dictatorship conclusion.

Once we account for these inaccuracies, democracy outperforms dictatorship and Musharraf’s economic policies underperform Pakistan’s overall average performance.

But before we get into the semantics of it all, let’s talk about using measures such as the GDP to derive insights about the standard of living. One of the elementary lessons taught to Economics students in any undergraduate class is that the GDP is merely a measure of the total production in an economy irrespective of what is actually being produced.

Thus, for instance, an economy that produces a lot of tanks and invests heavily in real estate for the rich may outperform an economy that is geared towards public expenditures on health and education in terms of GDP. To draw comparisons, therefore, it would be necessary to do a sector-wise analysis of the economy during democratic and dictatorial regimes.

First, any cross-time period comparison is rendered inadequate without constant holding prices or the effect of inflation. This is due to the simple reason that the real standard of living of a population depends not only on the absolute size of their incomes but also on the prices that they have to pay for the goods and services that they consume.

Second, it is almost criminal to use an ‘absolute’ measure of GDP to draw comparisons because such a measure fails to account for population growth and demographic shifts in the population.

The extent of the bias that a comparison based on absolute GDP size is enormous. For example, Norway, a country ranked fourth in the world in terms of GDP per capita falls to number 23 in terms of absolute GDP size, while India, ranked 133rd in terms of GDP per capita rises to number 10 in absolute size.

Based on this absolute GDP comparison, one would be led to the erroneous conclusion that India is a much more developed economy than Norway. Thus, for any comparisons to be made possible, it is necessary to use GDP per person or GDP per capita.

Third, statistical comparisons between two time periods must be cognisant of outlying years. Remember that the object of our analysis is to make sure that the differences between two periods capture differences in economic policy and governance rather than other contextually specific factors such as the catastrophic economic effects resulting from a major war. These are called ‘outliers’ in statistical analysis and objectivity demands that we exclude these from our analysis.

The year 1971, in the immediate aftermath of the regretful war in Bangladesh, is one such year and has therefore been excluded from my analysis.

Due to the aforementioned desiderata (necessity of using per capita measures, controlling for inflation and exclusion of outliers), I use GDP per capita at constant (2012) US dollar prices to compare the various political regimes across time using data provided by the UN. Using this data I calculate the growth-rates across different regimes.

The average growth rate of Pakistan’s GDP per capita at constant prices is 5.93% for the time period of 1970-2012, excluding the outlying year 1971.

The table below shows the regime-wise distribution of the growth in GDP per capita (constant prices) and the divergence between this number and the average for Pakistan as a whole.





The time periods 1970-1976 (excluding 1971), 1989-1999 and 2008-2012 are used to calculate the average value of the growth rate of GDP per capita (constant dollars) for democratic regimes while the years 1977-1988 and 1999-2008 are clubbed together to get an average value for military-rule.

Four critical insights can be drawn from the results.

First, democracy on the whole does 1.51 growth points better than military rule. GDP per capita at constant prices grew at an average of 6.71% during democratic regimes and 5.19% during military regimes.

Second, the growth rate during military regimes is 0.74 growth points below Pakistan’s average growth rate, implying that dictatorial Pakistan is not only worse for the economy as compared to democracy but it is also worse than Pakistan’s average potential of 5.93%.

Third, the average growth rate in GDP per capita at constant prices during Musharraf’s time is 5.04%, which is 0.89 points below the Pakistani average and 1.73 points lower than the average growth achieved during democratic governments.

Fourth, the highest average growth rate by regime-type is during Zulfiqar Ali Bhutto’s democratic regime followed by the last Pakistan People’s Party (PPP) led democratic coalition (2008-12), while the lowest average growth-rate was witnessed during the democratic regimes of the 1990’s.

This paradoxical performance of democracy must be seen in light of the fact that the success or failure of a regime is contingent upon the number of contiguous years that a government is endowed with to institute its economic policies.

It must be borne in mind that an economic policy, unlike a quick-relief painkiller, does not show results instantaneously. Economists are taught about the necessity of bearing time lags in mind when designing policies. This simply means that there is a lag between the institutionalisation of a policy and its results. If a policy is rudely interrupted in the middle, its results may never bear fruit.

Since different political regimes have been endowed with different contiguous-time units, it is unreasonable, or rather impossible, to make rationally sound comparisons between two regimes without taking this fact into consideration.

Remember that what we are trying to capture here is the economic performance by regime-type, which is critically shaped by the continuity of the regime. Thus, continued democracy does a lot better than the Pakistani average, while interrupted democracy does worse. This can be seen from the chart below.





Thus, it is simply not true that dictatorship is better for Pakistan’s economy.

It is equally untrue that Musharraf’s economic policies outperform democratic outcomes. Finally, as is shown through the example of the only two democratic regimes that had some semblance of continuity, democracy outperforms dictatorship greatly but only when it is uninterrupted.
WRITTEN BY:
Shahram Azhar
The views expressed by the writer and the reader comments do not necassarily reflect the views and policies of the Express Tribune.

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COMMENTS (150)

pervaiz | 5 years ago | Reply | Recommend This is the real statistics. and here is hes full statistics take time to read them. Economic Growth I salvaged a near bankcrupt economy and transformed it to emerge as one of the four fastest growing economy in the Asian region along with China, India and Vietnam Pakistan’s economy grew at an average rate of 7.0 percent per annum The performance of large-scale manufacturing has been unparalled in the country’s history. It grew at an average rate of 11 percent per annum Services sector grew at an average rate of 6.0 percent per annum Because of our strong economic policies, Goldman Sachs a global investment bank, included Pakistan in the category of new emerging market (Next – 11) destined to play a major role in the world economic setting. Goldman Sachs extended their coverage from BRICs (Brazil, Russia, India and China) to eleven more emerging economic power including Pakistan, Korea, Mexico, Vietnam, Turkey etc. Pakistan’s per capita income doubled (from $ 526 in 1999-2000 to $1085 in 2007-08). In other words, the average income of Pakistani people more than doubled during my regime. The size of the economy more than doubled (from $74 billion in 1999-2000 to $170 billion in 2007-08) as well. Investment I succeeded in turning around the economy with the help of Pakistan’s private sector. My government always interacted/communicated with private sector because we believed that they were the engine of growth. Constant engagement helped restore the confidence of the private sector on economic management. Investment as a result rose from 17.4 percent to 22.9 percent of GDP – an increase of 5.5percent of GDP in seven/eight years is unparallel in recent times in Pakistan. Foreign Investment surged from $0.5 billion to $8.5 billion during my government – a 17 fold increase in 8 years which reflected the growing confidence of foreign investors on Pakistan. Unemployment & Poverty The government succeeded in creating 13.5 million new jobs and accordingly reduced the unemployment rate from 8.3 percent to 5.2 percent Strong economic growth succeeded not only in creating new jobs but reducing poverty by one – half. That is, poverty reduced to one-half during my government. The number of people living below the poverty declined from 34.5 percent in 2000-01 to 17.2 percent in 2007/08. Income inequality also started narrowing after 2005-06. Inflation Low inflation has been the hallmark of my government. Inflation averaged 5.5 percent during 2000-2007 Deficit and Debt Tax collection by the Federal Board of Revenue (FBR) tripled during my regime – increasing from Rs 308 billion to Rs.1025 billion Overall budget deficit as percentage of GDP reduced to almost one half. Budget deficit averaged over 7.0 percent of GDP during the 1980s and 1990s but was reduced to an average of 4.0 percent of GDP, thus reflecting the financial discipline of my government. The country’s debt burden reduced to one – half. National (Public) debt was over 100 percent of GDP by end of the 1990s but reduced to 55 percent by the end of my government In the words of the IMF “The large and sustained decline in the external debt to –GDP –ratio was one of Pakistan’s most remarkable macroeconomic achievements of recent years”. Debt servicing used to consume 64 percent total revenue in 1998-99. By maintaining financial discipline and reducing budget deficit, we succeeded in bringing it down to 25 percent only. In other words, the resources saved from debt servicing were diverted towards development program. External Sector Both exports and imports grew at higher double –digit-levels Foreign exchange reserves increased from $500 million to over $16 billion – a sixteen fold increase in reserves during my government. Exchange rate remained stable as a result of the build up in foreign exchange reserves Remittances continued to grow from less than $1.0 billion to over $16.0 billion Pakistan’s international credit rating continued to improve from selective default to B+ I had the honour of taking Pakistan out of the IMF program in December 2004. We re-entered the international bond and equity markets by floating Eurobonds and Global Depository Receipts (GDR). We also succeeded in floating a 30 year Eurobond which showed the confidence of the global investors in Pakistan. We pursued a successful privatization program for the state-owned enterprises (SOEs). Stock Market Karachi Stock Exchange emerged as one of the best stock exchange, in emerging economies. The Karachi Stock Exchange Index surged more than 11 times – rising from 1189 in October to 13998 in November 2007. This represented the growing confidence of the private sector (both domestic and foreign) on economic management. SOCIAL SECTOR Education Overall Literacy Rate increased from 45% to 55% during 2000-01 to 2006-07. Male literacy rate increased from 58% to 67%. Female literacy rate increased from 32% to 42% during my government. Gross enrolment at primary level (5.9 years) increased from 72% to 91% – an increase of 19 percentage points. Higher Education The state of higher education in Pakistan was in a pathetic condition prior to my government. We had 48 universities; the number of Ph.Ds and engineers per million population was only 112 –about one – third of the minimum standards prescribed by the UNESCO. We had the stock of only 2600 science Ph.D and the country was producing barely 50-60 per annum. My government launched a multi – pronged strategy, including the establishment of Higher Education Commission (HEC). We provided substantial resources to higher education. The development budget for higher education increased from Rs. 500 million to Rs. 14 billion in 2006-07 . Number of universities increased to 130 in 2006-07 from 48 in 1998-99. Number of students enrolled in universities increased from 276 thousands to 948 thousands – more than three fold increase in enrolment in universities. Number of Ph.Ds produced by Pakistani universities increased sharply to 624 from as low as 50 – 60. There were 3800 students sent abroad for higher education (Ph.D) in foreign universities, of which, 303 have completed their degrees. There 3508 students enrolled in Ph.D Programs in Pakistani universities, of which 336 have completed their programs. Health Various Health indicators also improved during my government. for example, children aged 12-23 months immunized increased from 53% in 2000-01to 76% in 2006-07. Life expectancy increased from 63 years in 2000 to 66.5 years by 2008 Infant mortality rate declined from 83.3 per 1000 infants in 2000 to 65 by 2008. Social Sector and Poverty – Related Expenditures Increased from Rs. 167 billion (3.8% of GDP) to Rs. 500 billion (5.7 % of GDP) Question: Not a single MW of power was added to the national grid in your time. Is this perception correct? Answer: This perception is factually incorrect. The total installed generation capacity in 2000-01 was 17,772 MW which increased to 19,566 MW by 2007-08 – an increase of 1794 MW during my tenure. These facts are well documented in Pakistan Economic Survey 2001-02 (PP. 202, Table 15.13) and Pakistan Economic Survey 2007-08 (PP.259, Table 15.16) Out of 1794 MW increase in installed generation capacity, 1770MW (99%) increase is attributed to WAPDA. The major addition came from Ghazibrotha power project. But I would like to explain a little bit more on this issue. In 2000-01, Pakistan was having a surplus of 3000 MW because of the induction of electricity through the Independent Power Producers (IPPs). According to the 1994 Power Policy, even if we did not consume electricity, the government was required to pay 60% of the capacity to respective IPPs. Thus, we were having surplus power 3000 MW with all its financial implications. We entered into negotiation with India to export electricity but it did not work out for a variety of reasons, including the military standoff in December 2001 till August – September 2002. By January 2003, we were still having surplus of 2000 MW with all its financial implications. Do you think that my government would have set up another power plant when we were already having surplus electricity. According to our estimates, the surplus power was to be a eliminated by 2007 provided our consumption of electricity would have grown at the rate of 6 percent per annum. Pakistan’s economy grew at an average rate of 7.5 percent per annum during 2003-07 and accordingly the electricity consumption grew at an average rate of 10-11 percent – much higher than our assumption of 6 percent. Consequently, the surplus power was eliminated by mid- 2004 instead of 2007. Your question would then be: what did your government do in mid – 2004? My answer is plain. We launched 50 new power projects totaling 12, 141 MW during February 2004 and until June 2007. These facts can be checked with Private Power Infrastructure Board (PPIB). These projects were to come in operation during October 2008 to December 2015. You should keep in mind that it takes minimum four years for a power plant to come under operation. Three of the said projects have come into operation and inaugurated by the current Prime Minister. Thus, the perception is absolutely wrong. It was created deliberately by the present regime to hide their inefficiencies and misguide the people of Pakistan.
Fahad Jameel Sheikh | 5 years ago | Reply | Recommend From law and order, security, economic opportunities to a common man, employment, production to anything u name my friend, Musharraf's era was the best .... who care what numbers say? as there is always more then one mathematical equation to reach to a same answer... me and millions like me only cares the fire in our bellies, the spilling blood, the strengthening mafias in the name of democracy and reconciliation, the deteriorating morals and values of the society, the injustice, the corruption and many such social and economic ills which are the gifts of democracy .... .....
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