Redefining the South Asian state
In the past, weak revolutions were led by the Left; this time, leadership was provided by the Right.
The writer is a former caretaker finance minister and served as vice-president at the World Bank
There is a clear need for a careful assessment of the reasons why the South Asian mainland has lagged so far behind other regions in terms of human development. The region is yet to effectively use its large human resource as a potentially productive contributor to economic growth. The question is, why hasn’t this happened? One way to answer this is to focus on the political economy of promoting human development in South Asia.
The Indian election has vividly pointed to what I would call the great ‘South Asian paradox’. But India was not alone in this respect. In fact, what it has shown was demonstrated with equal clarity by the May 11, 2013 elections in Pakistan. Then in Pakistan and now in India, three features in the South Asian politico-economic landscape became highly visible. First was the rise of the large middle class, which has happened as a consequence of the combination of a number of circumstances. Demography was one of the several reasons for the increase in the number of people who can be classified as belonging to this large segment of the population. The region, with a median age of 26 years, has more young people than any other place in the world. Of the current population of 1.5 billion in mainland South Asia, 750 million are below the age of 26. It is also the most rapidly urbanising area in the world. In a decade or so, 50 per cent of the region’s population — some 900 million people — will be living in towns and cities. Also contributing is the massive inflow of finance into poor households from the South Asian workers in the Middle East. Remittances resulted in the migration of hundreds of millions people from poverty to lower middle class status.
Second was the perception on the part of the lower middle class that the state was not working for their betterment. The Indian ‘distributive state’, coupled with bureaucratic red tape and pervasive corruption, created a big gap between aspirations and their realisation. This was also true for Pakistan, although Islamabad did not commit as large a proportion of national income or public expenditure to subsidies meant for the poor and the lower middle class as India did. In India, direct distribution of food to the poor and the promise of state-paid jobs to them were the preferred options. The programmes became notorious for corruption. An estimated 80 per cent of the amount spent by the state was siphoned off by the intermediaries. Only 20 per cent reached the targeted population. Pakistan’s Benazir Income Support Fund provided cash transfers to the intended beneficiaries — mostly women — and did better. The leakage was estimated at 20 per cent. However, what the poor did not gain in economic terms — a significant share in national income — they were able to acquire in the political arena. But it was only during the elections that the disgruntled could get their voice heard.
Third, technology and its spread have given tools to this class that were not available to them before and in other places. The members of this class were able to share their growing frustration regarding the state with their cohorts. Individual experiences transformed into collective and shared beliefs.
These are some of the factors that are behind the political revolution in two of the four South Asia states — India and Pakistan. In the past, developments such as these produced revolutions led by the Left; this time, leadership was provided by the Right. In the Nehru-Gandhi India and Zulfikar Ali Bhutto’s Pakistan, the power of the state was used in an attempt to satisfy the aspirations of those who were left behind. These attempts clearly failed. This is the main reason for the collapse of the Left-leaning parties in Pakistan as well as in India. In Pakistan, the Pakistan Peoples Party was reduced to a political rump. The same has happened to the Congress party in India.
Nehru drew his inspiration from the Soviet Union and used Lenin’s phrase — “Putting the state on the commanding heights of the economy” — to design an approach to economic development that produced what the Indian economists themselves called the ‘Hindu rate of growth’. For more than four decades after independence, the Indian gross domestic product increased at an average annual rate of 3.5 per cent. Bhutto turned to China for his model of economic development and drew the same conclusion as did Nehru but used a very different strategy. Nehru mobilised domestic savings and turned them over to government institutions for increasing the presence of the state in the economy. He also used the government’s power to control the workings of the private sector. The latter led to the creation of the ‘licence raj’. Bhutto followed the Maoist approach to use expropriation to expand the state’s role. Both believed that an economically powerful state was needed to deliver to the poor and under-privileged their unmet basic needs. The sharp increase in the share of the state in the national economy in Pakistan produced the same result as in India. The rate of GDP increase declined by about a half compared to that achieved during the 11 years of Field Marshal Ayub Khan. With the recent elections in Pakistan and India, the role of the state is likely to be redefined. How that is likely to happen is the subject for next week.
Published in The Express Tribune, May 25th, 2014.
The Indian election has vividly pointed to what I would call the great ‘South Asian paradox’. But India was not alone in this respect. In fact, what it has shown was demonstrated with equal clarity by the May 11, 2013 elections in Pakistan. Then in Pakistan and now in India, three features in the South Asian politico-economic landscape became highly visible. First was the rise of the large middle class, which has happened as a consequence of the combination of a number of circumstances. Demography was one of the several reasons for the increase in the number of people who can be classified as belonging to this large segment of the population. The region, with a median age of 26 years, has more young people than any other place in the world. Of the current population of 1.5 billion in mainland South Asia, 750 million are below the age of 26. It is also the most rapidly urbanising area in the world. In a decade or so, 50 per cent of the region’s population — some 900 million people — will be living in towns and cities. Also contributing is the massive inflow of finance into poor households from the South Asian workers in the Middle East. Remittances resulted in the migration of hundreds of millions people from poverty to lower middle class status.
Second was the perception on the part of the lower middle class that the state was not working for their betterment. The Indian ‘distributive state’, coupled with bureaucratic red tape and pervasive corruption, created a big gap between aspirations and their realisation. This was also true for Pakistan, although Islamabad did not commit as large a proportion of national income or public expenditure to subsidies meant for the poor and the lower middle class as India did. In India, direct distribution of food to the poor and the promise of state-paid jobs to them were the preferred options. The programmes became notorious for corruption. An estimated 80 per cent of the amount spent by the state was siphoned off by the intermediaries. Only 20 per cent reached the targeted population. Pakistan’s Benazir Income Support Fund provided cash transfers to the intended beneficiaries — mostly women — and did better. The leakage was estimated at 20 per cent. However, what the poor did not gain in economic terms — a significant share in national income — they were able to acquire in the political arena. But it was only during the elections that the disgruntled could get their voice heard.
Third, technology and its spread have given tools to this class that were not available to them before and in other places. The members of this class were able to share their growing frustration regarding the state with their cohorts. Individual experiences transformed into collective and shared beliefs.
These are some of the factors that are behind the political revolution in two of the four South Asia states — India and Pakistan. In the past, developments such as these produced revolutions led by the Left; this time, leadership was provided by the Right. In the Nehru-Gandhi India and Zulfikar Ali Bhutto’s Pakistan, the power of the state was used in an attempt to satisfy the aspirations of those who were left behind. These attempts clearly failed. This is the main reason for the collapse of the Left-leaning parties in Pakistan as well as in India. In Pakistan, the Pakistan Peoples Party was reduced to a political rump. The same has happened to the Congress party in India.
Nehru drew his inspiration from the Soviet Union and used Lenin’s phrase — “Putting the state on the commanding heights of the economy” — to design an approach to economic development that produced what the Indian economists themselves called the ‘Hindu rate of growth’. For more than four decades after independence, the Indian gross domestic product increased at an average annual rate of 3.5 per cent. Bhutto turned to China for his model of economic development and drew the same conclusion as did Nehru but used a very different strategy. Nehru mobilised domestic savings and turned them over to government institutions for increasing the presence of the state in the economy. He also used the government’s power to control the workings of the private sector. The latter led to the creation of the ‘licence raj’. Bhutto followed the Maoist approach to use expropriation to expand the state’s role. Both believed that an economically powerful state was needed to deliver to the poor and under-privileged their unmet basic needs. The sharp increase in the share of the state in the national economy in Pakistan produced the same result as in India. The rate of GDP increase declined by about a half compared to that achieved during the 11 years of Field Marshal Ayub Khan. With the recent elections in Pakistan and India, the role of the state is likely to be redefined. How that is likely to happen is the subject for next week.
Published in The Express Tribune, May 25th, 2014.