How politics is likely to shape the economy
As economists have known for long, confidence is the first requirement of economic health.
The writer is a former caretaker finance minister and served as vice-president at the World Bank
Pakistan, in 2013, is into its sixth year of a fairly deep recession. Since 2008, the economic rate of growth has averaged at three per cent a year. This is the longest lasting slowdown in the country’s economy over the last six and a half decades. Since 1947, when the average rate of growth was 5.5 per cent a year, the slowdown represents a 2.5 percentage points a year of lost growth. This works out to a loss of about $5 billion a year or about $25 per capita. In other words the average income is lower by $150 from its potential as a result of the prolonged economic slowdown. Much of this impact has been felt by the lower income groups.
Could the economy recover as it establishes a new democratic political order? The answer is ‘yes’ if we believe — as I do — that there is a strong relationship between political and economic development. While social scientists have been debating the direction of causality now for several years, I am of the view that political development must precede sustained economic growth. If this is indeed the case, then the progress Pakistan has made in moving towards the creation of a new political order should set the stage for the revival of the Pakistani economy and ultimately sustain growth at a rate twice as high as the current depressed level. This is the reason for my optimism about Pakistan’s economic future.
Three political developments on the governance front should help the economy recover and move out of the current phase of a deep recession. The passage of the Eighteenth Amendment to the Constitution has brought about a fundamental restructuring of the political order. It has placed policymaking squarely in the hands of the national assembly and out of the presidency where it got lodged during President Asif Ali Zardari’s five-year rule. With the elected parliament given the power that should always have been with it under the 1973 Constitution, economic policymakers will be more responsive to the wishes and aspirations of the people. Policy will no longer reflect the whims and interests of one individual aided and abetted by a coterie of friends.
The second important change is also the consequence of the Eighteenth Amendment. It is the transfer of a number of economic powers from the federal government to those operating out of the provincial capitals. Over time, this should lead to the development of a federal structure of government that was the intent of the framers of the 1973 Constitution. The intent was realised. The federal underpinning of the country’s basic law was compromised even by Zulfikar Ali Bhutto, its principal architect. Subsequently, two successive military rulers, who governed for a total of almost two decades after the adoption of the Constitution, put in place a highly centralised system of management with practically no economic authority left with the provinces.
Power transfer to the provinces should bring the government closer to the people. An administration working out of Quetta, for instance, is better able to work for the betterment of the lives of the people of Balochistan than the one operating out of Islamabad. The next step, of course, is to develop a viable system of local government that brings effective governance to the people’s backyards. This move has always been resisted by the political parties since they have poorly developed grass-roots organisations. This is a chicken-egg problem. It will take a working local government system to lead to the development of local party organisations. The absence of the latter places authority in the hands of the members of the provincial and national assemblies, who don’t want to see it diluted by local leaders. This is a short-sighted view by the political establishment. The government should be viewed as a holistic system for it to succeed. A system with deep roots in the political soil will be hard to tinker with by authoritarian forces that have so often interfered in Pakistan’s political development. Also, some of the intractable problems the country currently faces, such as persistent violence in Karachi, can only be resolved if the city’s affairs are placed in the hands of the local communities.
The third aspect of political advance that needs to be noted is in the broad area of accountability. Several efforts were made in the past to establish a system which makes the holders of public office responsible for their actions. Rather than produce higher quality of governance, these institutions got corrupted themselves. A culture has emerged in the country, in which the provision of service by government employees is regarded as a favour rather than as an obligation. It is now being recognised that what is needed is not just a well-functioning bureau of accountability but a fundamental change in the culture of governance. This calls for institutional reforms all across the governance landscape. This process has begun in some areas — for instance, the higher-level judiciary now is more independent of the government’s executive branch and also, less susceptible to corruption than ever before. The same can be said about the Election Commission. However, the reforms will need to go much beyond these two, albeit important, areas.
The three political developments covered here will have enormous consequences for the economy. To begin with, they will increase people’s confidence that those responsible for economic policymaking are working for their betterment. As economists have known for long, confidence is the first requirement of economic health.
Published in The Express Tribune, September 30th, 2013.
Could the economy recover as it establishes a new democratic political order? The answer is ‘yes’ if we believe — as I do — that there is a strong relationship between political and economic development. While social scientists have been debating the direction of causality now for several years, I am of the view that political development must precede sustained economic growth. If this is indeed the case, then the progress Pakistan has made in moving towards the creation of a new political order should set the stage for the revival of the Pakistani economy and ultimately sustain growth at a rate twice as high as the current depressed level. This is the reason for my optimism about Pakistan’s economic future.
Three political developments on the governance front should help the economy recover and move out of the current phase of a deep recession. The passage of the Eighteenth Amendment to the Constitution has brought about a fundamental restructuring of the political order. It has placed policymaking squarely in the hands of the national assembly and out of the presidency where it got lodged during President Asif Ali Zardari’s five-year rule. With the elected parliament given the power that should always have been with it under the 1973 Constitution, economic policymakers will be more responsive to the wishes and aspirations of the people. Policy will no longer reflect the whims and interests of one individual aided and abetted by a coterie of friends.
The second important change is also the consequence of the Eighteenth Amendment. It is the transfer of a number of economic powers from the federal government to those operating out of the provincial capitals. Over time, this should lead to the development of a federal structure of government that was the intent of the framers of the 1973 Constitution. The intent was realised. The federal underpinning of the country’s basic law was compromised even by Zulfikar Ali Bhutto, its principal architect. Subsequently, two successive military rulers, who governed for a total of almost two decades after the adoption of the Constitution, put in place a highly centralised system of management with practically no economic authority left with the provinces.
Power transfer to the provinces should bring the government closer to the people. An administration working out of Quetta, for instance, is better able to work for the betterment of the lives of the people of Balochistan than the one operating out of Islamabad. The next step, of course, is to develop a viable system of local government that brings effective governance to the people’s backyards. This move has always been resisted by the political parties since they have poorly developed grass-roots organisations. This is a chicken-egg problem. It will take a working local government system to lead to the development of local party organisations. The absence of the latter places authority in the hands of the members of the provincial and national assemblies, who don’t want to see it diluted by local leaders. This is a short-sighted view by the political establishment. The government should be viewed as a holistic system for it to succeed. A system with deep roots in the political soil will be hard to tinker with by authoritarian forces that have so often interfered in Pakistan’s political development. Also, some of the intractable problems the country currently faces, such as persistent violence in Karachi, can only be resolved if the city’s affairs are placed in the hands of the local communities.
The third aspect of political advance that needs to be noted is in the broad area of accountability. Several efforts were made in the past to establish a system which makes the holders of public office responsible for their actions. Rather than produce higher quality of governance, these institutions got corrupted themselves. A culture has emerged in the country, in which the provision of service by government employees is regarded as a favour rather than as an obligation. It is now being recognised that what is needed is not just a well-functioning bureau of accountability but a fundamental change in the culture of governance. This calls for institutional reforms all across the governance landscape. This process has begun in some areas — for instance, the higher-level judiciary now is more independent of the government’s executive branch and also, less susceptible to corruption than ever before. The same can be said about the Election Commission. However, the reforms will need to go much beyond these two, albeit important, areas.
The three political developments covered here will have enormous consequences for the economy. To begin with, they will increase people’s confidence that those responsible for economic policymaking are working for their betterment. As economists have known for long, confidence is the first requirement of economic health.
Published in The Express Tribune, September 30th, 2013.