Political parties and economic development

Upcoming electoral competition between PPP, two Muslim Leagues, PTI will have significant economic consequences.

The growing literature on how politics interacts with economics places particular emphasis on the development of political parties within political systems. The parties serve several economic functions. They bring together those in society who share ideologies, values and views about the direction that should be taken by the state that governs the society. Well-organised parties can influence the making of public policy. A good example of this in the context of Pakistan is the rise of the All-India Muslim League (AIML), founded in 1906 in Dhaka. There was some anxiety on the part of the Muslims in British India that a Hindu-dominated independent country that would be the consequence of the British departure would be less than fair to them. The AIML, therefore, was motivated by economic interests of the community it represented. Over time, it focused on only one demand: the creation of an independent state for the Muslims of British India. Once that demand was met, the rechristened AIML as the Pakistan Muslim League (PML) lost its raison d’être and morphed into a number of different organisations.

Pakistan’s political landscape was transformed in 1968 when Zulfikar Ali Bhutto founded the Pakistan Peoples’ Party (PPP) as a national organisation with a socialist agenda. It won the most seats in the National Assembly allocated to West Pakistan in the elections held in December 1970. A year later, it formed the first PPP-dominated government in the part of the country that was left after the separation of East Pakistan. But the success of the separatist movement in what was once Pakistan’s eastern wing encouraged the establishment of political organisations promoting narrow regional interests. For a number of years, Pakistan’s political landscape was dominated by national parties — the PML, the PPP and the Jamaat-e-Islami. However, the rise of regional parties complicated the making of economic policies especially when regional interests could not be reconciled with national priorities.

The PML’s political monopoly was broken when in the election of 1954 in East Bengal, the Muslim League was trounced by a coalition of parties that had assembled under the banner of the United Front. The name given to the coalition was suggestive of its Marxist orientation and combined religion with a socialist orientation. The group included Fazlul Haq who had joined hands with Mohammad Ali Jinnah and campaigned for the establishment of Pakistan. The success of regionalism as reflected in the lopsided victory of the United Front when it won 300 seats versus the 10 secured by the PML became the inspiration for the development of a number of narrowly focused regional parties. The most successful of these efforts was the Muttahida Qaumi Movement (MQM) as well as the Awami National Party (ANP). The names of these parties signified national aspirations rather than purely regional interests and were to have profound impact on the formulation of national economic strategies.

One example of this was the position taken by the MQM with reference to the design of fiscal policy. The MQM represented the Sindh urban middle class, which was reluctant to see its tax burden increase while the landed community was mostly spared. In 1973, when Bhutto was engaged in drafting the Constitution, he won support of the powerful landed interests by excluding agricultural incomes from the tax base. This provision had serious economic consequences. For most of the time, value added in agriculture increased impressively but this growth could not be captured in tax revenues. The attempt by the IMF to increase the tax-to-GDP ratio as a part of the programme it negotiated with Islamabad in 2008 did not succeed. The Fund’s proposal to levy a tax on consumption was resisted by the MQM. Its opposition resulted in the collapse of the IMF programme in 2011.

We may be witnessing another shake-up in the institutional structure of politics in Pakistan. The rise of Imran Khan’s Pakistan Tehreek-e-Insaf (PTI) may bring another national force in play that will focus on the country rather than on narrow regional interests. The coming electoral competition between three or four national groupings — the PPP, the two Muslim Leagues and the PTI — will have significant economic consequences. If they score big victories in both the central and provincial elections, they may be able to swamp the regional parties. That will make the formulation of economic strategies that keep national interests in their sight become somewhat easier and practical.

Published in The Express Tribune, August 20^th, 2012.