1

Persistent Inequality and the Challenges to Legitimacy and Peace Building in Pakistan Imran Ali Lahore, Pakistan Paper prepared for SACEPS World Conference on South Asia: Democracy, Sustainable Development and Peace New Delhi February 2011

2

Persistent Inequality and the Challenges to Legitimacy and Peace Building in Pakistan Emerging crises? This paper will attempt to analyze the internal and external dimensions of peace building in the complex environment, or indeed set of environments, that Pakistan faces. In assessing first the internal issues, the paper will argue that the failure to alleviate persistent and longstanding inequality is a product of the embedded resource flows, elite capture and authoritarianism that have characterized the political economy of the Pakistan area in recent history. The question will be raised whether the incapacity, or unwillingness, of the elite to have adopted in the past the kind of policy and economic measures that might have ameliorated poverty, now places it disadvantageously for fulfilling this role in the foreseeable future. The implications of this for the stabilization and recovery strategy that has been necessitated by the action of man and nature, by resilient militancy and devastating floods, need to be assessed. To address this problematic the paper will initially examine the historical origins and current dynamics of persistent inequality, hopefully to try and establish how deeply embedded this problem remains. The next part of the paper will examine the external dimension in conflict and peace building. Over the past three decades in south Asia, Pakistan has perhaps been the country most intensively involved in global geo-strategic tensions and conflict. It has truly been a frontline state, a role that this area has played for centuries, if not millennia, in the regional context. The major fault lines that have entangled Pakistan in confrontation and violent conflict need to be identified. An attempted chaos mongering narrative has emanated, and is constantly repeated, from quarters that are hostile to or suspicious of the country. A more balanced account is necessary to try and understand the issues more clearly, as well as the constraints from which peace building might suffer. Since Pakistan’s inception in 1947, the problem of inequalities in income and wealth has posed an ongoing challenge to both policy makers and constituencies. The adoption of strategies for tackling inequality has not always been a priority for the Pakistani state, to some extent because the problem appears almost intractable. It remains nevertheless a fundamental concern, both for the mass of people and for those seeking political legitimacy. The injunctions for equitable distribution of resources in Islam have special significance for Pakistan, since religion was a central factor in the creation of the country. Pakistan also remains one of the poorer countries in the world, with per capita income staying consistently below US$ 500. The Islamic world itself represents a concentrated pool of poverty and backwardness, with Muslim nations comprising a major proportion of low income countries. There has been a persistence of poverty and inequality in Pakistan; and this was further entrenched by rapid population growth in the past half century, from around 35 million in

3

1947 to a current level approaching 180 million. The population growth rate of around 3% per annum is also one of the highest in the world, although the Pakistani government in self-denial now claims a reduced rate of just below 2%. With half the population aged under 20, and as much as 80% below 30, demographic pressures clearly pose grave challenges of sustainability for economy and society in Pakistan. The extreme ‘youth bulge’ can also seriously threaten the prospects of internal security and peace building. Grievance and rising militancy could be fed by pervasive deprivation, with the evident inability of the governance and public management systems to meet the aspirational or even subsistence needs of the young. The configurations of income and wealth distribution are determined by a complex range of causative factors; and this paper will attempt to identify some of these and discuss their ramifications. In understanding these issues it is necessary to analyze historical processes as well as more contemporary structures and relationships. The relative importance of religious considerations and influences, in determining policies and outcomes, also needs to be assessed. The need for brevity will not allow a detailed examination of poverty levels and income inequalities in the different phases of Pakistan’s history. Rather, the paper will attempt to survey broader policy parameters, political developments, social implications, and economic determinants and consequences, which have impacted on income and wealth distribution in Pakistan. The paper will therefore attempt, though necessarily in very tentative fashion, to explore whether strategies have been formulated for a more socially equitable sharing of resources; and to what extent has there been a conducive environment for their implementation. The historical roots of persistent inequality The nuances of historical explanation shift the further back we go in time to analyze these themes. One springboard can be that of ‘traditional’ society, as it existed till the late Mughal empire, in many forms continued thereafter, and semblances of which are still extant. The Mughal rulers and their courts themselves consumed substantial resources, which over time became increasingly onerous, with inordinate expenditures on lavish lifestyles and unproductive physical facilities.1 At the uppermost level was the ‘ruling elite’, emanating from a hierarchical agrarian structure, and from state patronage of nepotistic courtiers and military-administrative functionaries. The larger grandees were said to enjoy sizeable real remunerations, and were beneficiaries of a highly skewed structure of wealth distribution. The richer merchants and financiers also held substantial wealth, and conducted a scale of operations only later overtaken by entrepreneurs in the European subcontinent. The next level, by definition more extensive in size, was that of the middling landholders, the middle layers of the state apparatus, and the ‘bourgeois’ segment in cities and rural townships. Their ethos in the Mughal economy can be witnessed from higher levels of urbanization, more sophisticated lifestyles and habitats, and a greater demand for more specialized primary and secondary products. These trends indicate that aggregate

4

incomes accruing to this class, along with its continued expansion, were arguably not sustainable, especially with the absence or stifled diffusion of technological innovation. Arraigned below the upper and middle layers were the ‘productive’ classes, those that actually created value through their labour inputs. Here too society remained unequal. In the urban centres, skilled craftsmen could enjoy income levels discernibly higher than those of the mass of bonded labour groups and virtually destitute workers that mostly comprised the urban majority. Rural society at its base was also strongly hierarchical. An upper peasant segment of landholding lineages, with occupancy if not proprietary claims to the land, took on the role of organizing and conducting agricultural operations. They were responsible for passing on rents and revenues to superior claimants and the state. Adequate real incomes for this class were essential for both rural peace and economic buoyancy. Networks of related landholding castes could form effective, and even powerful, interest groups, whose level of cooperation, recalcitrance or resistance could seriously impact on political stability and elite incumbency. This segment also used part of the agricultural output to remunerate the labouring and service castes that formed the nethermost levels of the rural hierarchy, and presumably remained in large part at subsistence level. The prevalence of the caste system further complicated the incidence of inequality in south Asia.2 Social differentiation emerged not only from economic distances, but also from caste hierarchy. In village society there was a clear distinction between the landholding lineages and the service or ‘menial’ castes. The hierarchical status of the latter was arranged along the ‘impurity’ of the materials that they handled in their hereditary occupations. Thus, those that dealt with carcasses and excreta were regarded as ‘untouchables’ and ‘outcastes’. Artisanal castes were also ranked relatively low. At the other, upper extreme were those that handled the purest of materials, the holy texts, and performed religious and ritual functions. Elite caste status was also accorded to the upper layers of the landholding and military-administrative segments, and to a lesser extent to upper mercantile groups. If caste remains an integral part of the south Asian social fabric, then the problematic of income and wealth distribution is impacted not only by economic parameters, but also by social divisions influenced by embedded hierarchical concepts and identities.

5

6

These concerns need also to be related to the interaction between caste and religious belief, especially in the context of the Islamic presence in south Asia. While they existed in varying forms in different regions, caste structures and hierarchies had evolved alongside, and largely in consonance with, the various belief systems subsumed under the generic term ‘Hinduism’. The introduction of Islam in south Asia might over time have diluted some of the rigidities of caste, especially in those regions where Muslims existed in sizeable numbers. However, it is unlikely that there occurred any substantive substitution of caste based identities and mentalities for any other form of social ordering, even where Muslims were in a majority, as in the areas that became Pakistan. Rather, and regardless of religious affiliations, society in these regions continued to be over-determined by caste, albeit with some filtering of its most extreme expressions. Muslims either subscribed to the same castes as non-Muslims, or evolved a distinct status nomenclature to identify their own upper castes.3 Hence in Pakistan a discussion of inequalities and redistributive mechanisms needs to incorporate social alignments not encountered among non-south Asian Muslims. The collapse of Mughal rule serves as a telling illustration of the risks to state stability posed by growing inequalities in society. The inability of the state to control its own expenditures, and the ever increasing extractive demands of an expanding cohort of unproductive upper layers and public functionaries, led in the Punjab, a part of the future Pakistan area, to growing agrarian resistance from the early eighteenth century.4 By the mid eighteenth century this area was delinked from even nominal Mughal rule, and the old elite had been almost completely effaced through sustained peasant rebellion. These campaigns had in places thrown up a new rural leadership, which was acknowledged as estate holders, and some even as princely states, by the incoming British colonial power in the nineteenth century.5 In other places, landholding peasant lineages asserted their autonomy; and contracted revenue settlements with the British independent of magnate intermediaries.6 Both the new rural elite and the upper peasantry of the Punjab assisted the British in the armed conflict of 1857-58. While this seemed treacherous from a ‘nationalist’ perspective, it was also a continuing struggle against the older north Indian landed elites that had survived the post-Mughal interregnum and were now resisting colonial rule.7 Thereafter, heavy military reliance continued on the Punjab, till this province came to supply over half the total recruits to the British Indian army. The behavioural patterns of the Punjabi peasantry continued to display a sense of initiative and dynamism only possible with the removal of old feudal constraints. Internal and overseas migration, both before and after 1947, distinguished it from the rural populace of the southern Pakistani province of Sindh, which continued to languish under incumbent landlords that had not suffered the eclipse of their Punjabi counterparts. The British too placated the Punjabi upper peasantry by settling it on by far the major share of new canal irrigated land in the emergent hydraulic society of the Indus basin.8 While a significant number of larger landholdings were also created, most of this new land was allotted in grants of up to 50 acres. Existing landholding lineages were almost exclusively granted occupancy and proprietary rights in land, with the rural underclass

7

universally excluded from this resource. The hierarchically ‘inferior’ service and labouring castes were expected to benefit from this new agrarian frontier merely through increased employment opportunities. Thus, British agricultural colonization policy at one level appeared to rest resources with a considerably wider social base than the rural elite. However, for reasons of political and strategic convenience, resource transfers were not allowed to go beyond the level of the upper, landholding peasantry.9 Enfranchisement for electoral purposes was also extended only to this landholding segment. Thus the rural, and for that matter urban, masses were excluded both economically and politically. Even in the decades following independence, they could hardly look towards state institutions to adopt policies sympathetic to their needs. Colonial political economy exercised a major influence beyond 1947, with strong continuities into power relations in Pakistan during the latter half of the twentieth century.10 British social and economic policies were determined by the need to seek political stability, the key to which lay in placating influential social segments. The rural elite was considered an essential intermediary; and its position was duly consolidated through canal land grants and demi-official perquisites. Since landlords were more entrenched in Sindh, they also obtained greater access to irrigation resources. A wider and more deep-seated goal was to maintain the sustainability and buoyancy of the upper peasant landholding castes, and especially in the Punjab because of their military importance. Perhaps more so than any other part of British India, the means for this were available in the future Pakistan area with the canal irrigation network, which in time became the largest contiguous irrigation system in the world. Agrarian incumbents, apart from obtaining extensive allotments of canal lands, were also shored up through protective state policies, such as the remarkable Punjab Alienation of Lands Act of 1901. This paternalistic measure prohibited ‘non-agriculturists’ from purchasing land from the ‘agricultural castes’.11 Legal restrictions on mortgage foreclosures and other measures, such as a Court of Wards safety net for large estates under economic stress, further helped to soften the adverse impacts of market forces on politically important groups. In the process agricultural capitalism, which in the longer term could have developed more sustained income and wealth creating dynamics, was clearly retarded. By contrast, the lower castes, in both the rural and urban sectors, were not beneficiaries of any identifiable colonial strategies for income or wealth distribution. In the new agrarian frontier, their mobility remained strictly horizontal. They were denied any occupancy rights in land, and were expected to remain within their traditional ‘menial’ roles as providers of labour services. The relatively undeveloped state of the physical and social infrastructure, as in telecommunications, health and education, reflected also the continuities in traditional society and the lack of social change. Disempowerment, with the absence of universal franchise under the British, continued in Pakistan through prolonged relapses in democracy and electoral activity. The colonial state was careful not to be seen to interact directly with the lower orders, for fear of alienating intermediaries.12 Therefore, even initiatives like agricultural cooperatives essentially serviced upper village

8

segments. The saving feature for the poor remained relatively low population densities, and the bargaining power of labour in the expanding agricultural zone of the Indus basin. By 1947 there were clear lines of authority and resource absorption between the strong and the weak in the Pakistan area. The imperialist state itself benefited, by gaining the allegiance of beneficiary stakeholders; and this was not without consequences for post-colonial alignments. The military gained significant stature, through liberal recruitment, and the expansion of the military logistics economy in this strategic region. It was further strengthened through heavy involvement in the canal colonies, with extensive soldier settlement and land allocations for breeding military animals. Military imperatives began to override civilian needs in the utilization of resources, in this emerging ‘garrison economy’.13 The civil bureaucracy also acquired, through public management of grantee selection, land transfers and irrigation networks, a kind of authority in this hydraulic society not enjoyed by its counterpart in the future Indian area. The entrenched position of the bureaucracy, emanating from agricultural colonization, considerably influenced the nature of decision making after independence. Colonial attitudes towards commercial groups also remained ambiguous. Despite expanding agricultural trade and market towns, this region remained almost entirely non-industrial, except for minor smaller-scale manufacturing. This absence of industrial capitalism, and its ancillary spin-off in human skills and social transitions, negated the prospects of enhanced aggregate incomes and a dilution in traditional modes. Indeed, with its predominantly non-Muslim composition, the business sector received a further severe setback through out-migration to India at Partition. With the agrarian economy under increasing strain in the Depression years, and a virtual public campaign against the ‘Hindu moneylender’, economic nationalism clearly provided a major stimulus for a communal bifurcation of the British raj. In their focus on individuals and micro-politics, social scientists have failed to grasp the impact and implications of this roll back of market forces in the creation of Pakistan. The successful articulation of a hydraulic society also resulted in the retardation of the nationalist movement, and its presumed benefits.14 These weaknesses were to have longer term repercussions on the kinds of economic and social policies followed in Pakistan. The main Muslim nationalist organization, the Muslim League, was in Sindh represented by large landlords not particularly averse to colonial rule.15 In the Punjab, the League represented a threat to the inter-communal alliance of Hindu, Muslim and Sikh landlords, brought together in the Unionist Party and favoured by the British. Significantly, and merely a decade before Partition, the League had only one member in the Punjab legislature, at a time when the Indian National Congress had defeated British nominees and seized electoral control of all the Hindu majority provinces. The League’s fortunes in the Punjab only improved when a dissident faction of the Unionists, and then the rural elite generally, aligned with the League in the tide of populism and violence leading to Partition.16 Only in the Frontier province did the Khudai Khidmatgars, mobilizing smaller landholders and in alliance with the Congress, make electoral inroads against the larger landlords.17 Not surprisingly, its leadership after independence remained marginalized by Pakistan’s ruling elite.

9

The Muslim League itself fell into disarray soon after independence, a reflection of its organizational underdevelopment and the consequences of opportunistic landlord capture. Moreover, the lack of a sustained nationalist movement, and of a well established nationalist political organization, left little insurance against authoritarian rule. Alliances fomented during nationalism to help adopt income and wealth redistribution strategies were, thus, singularly lacking in the Pakistan area. By contrast, the Indian National Congress was able to leverage its all-India organizational presence to stabilize Indian politics, and ward off any authoritarian threats, for the next half century.18 The strategic alliances it had developed also guided its policies when in power. The middle class and intelligentsia had rallied to the nationalist call, and could identify with nation building. Big business had contributed funds, and obtained a protected tariff and import substitution environment. Urban workers retained the right to unionization, by no means a universal privilege in developing countries. The middle and upper peasantry, the bedrock of local support, had been placated through land reforms, at the cost of larger owners more aligned with colonial rule. While some degree of redistribution and a welfare orientation did exist, India nevertheless failed strikingly in its efforts at poverty alleviation. However circumscribed their rights, the citizens of Pakistan, in virtually every category of occupation, continued to be visibly better off than their Indian counterparts. In terms of purchasing power parity Pakistan by the 1990s, though still substantially poorer than several other developing countries, stood above US$ 2,000; while India remained below US$ 1,500.19 The Pakistani decades: Inequality reinforced The evolution of Pakistan’s economic and social policies can be related quite closely to the distinct phases of its political history. Without entering into a detailed analysis of events and strategies in these phases, a sequential assessment of the major policy parameters adopted over time will help to highlight the inter-relatedness of inequality, legitimacy and peace building. With the rising discourse on the role of religion in the public space, the influence of Islamic modes and values on state policy can also be assessed. While growth rates in Pakistan were above average for developing countries, expenditures on the social sector and human development remained highly inadequate, remaining under 5% of state budgetary allocations.20 By contrast, after 60 years the military and debt servicing take up over 80% of total government expenditure. This extreme imbalance has effectively crowded out the supportive and nurturing role of the state, with social, educational and community services accounting for minimal relative expenditures. Understanding how these anomalies emerged, and remained embedded, requires an analysis of the different phases of governance in Pakistan. These periods were: - 1947-1958, with a series of short-lived civilian governments;

10

- 1958-1971, with the military regime of General Ayub Khan till 1969, and then a shorter interregnum under General Yahya Khan, leading to the break-up of the country and the formation of Bangladesh; - 1972-1977, with the government of the Pakistan Peoples Party under Zulfiqar Ali Bhutto; - 1977-1988, with the military regime of General Zia-ul-Haq; - 1989-1999, with civilian governments, of two tenures each, of the Peoples Party under Benazir Bhutto, and a Muslim League coalition under Nawaz Sharif; - 1999- 2008, with the military regime of General Pervez Musharraf; - 2008 - , with the civilian government led by the Pakistan Peoples Party, with Benazir’s widower Asif Ali Zardari as President. Pakistan’s inception was accompanied by the turmoil of genocidal killings and mass population transfers, of Muslims to Pakistan and Hindus and Sikhs to India. Immediate and pressing concerns dominated early policy, such as the resettlement of refugees, securing Pakistan’s share of assets from India, and restoring public administration and financial management. The commercial vacuum was filled by émigrés from western India, who concentrated in the port city of Karachi, and by upcountry Punjabi entrepreneurs. It was not till primary accumulation through trade surpluses, generated by the Korean war boom, that capital became available for investment in industry. Several measures were adopted to facilitate industrialization, but at least in the shorter term they appeared inimical to strategies for reducing wealth inequalities. For instance, the decision to maintain an overvalued currency helped importers of capital goods, but hurt agricultural exports. Protective tariffs helped the fledgling industrialists to sell goods in the domestic market at inflated prices. Ceilings on raw materials, most importantly raw cotton, ensured favourable terms of trade for industry. They constituted a significant resource transfer from the rural sector, which contained at least 80% of the population. Consequently, agricultural growth rates in the 1950s remained low. Real wages also stagnated; and the weakness of market demand was reflected in an underconsumption crisis as early as 1956-57.21 Uncertainty also beset political affairs, with seemingly ineradicable factional struggles, and the inability, or unwillingness, to hold elections. The initiative soon passed to the military and bureaucracy, in orchestrating a frequent turnover of factions in government.22 In this scenario, without any strong political organizations to provide a strategic direction, a sustained or even identifiable focus towards income and wealth redistribution failed to emerge. While they did begin to refer to Islam as the basis for Pakistan’s existence, partly as a substitute for the deprivation of democratic rights, the traditional elite that dominated politics, as well as the military-bureaucratic establishment, retained a strictly secular stance towards economic and social policies. The beginning of longer-term management was initiated with the First Five Year Plan, to cover the period 1955-1960. The Plan objectives could not be implemented because of frequent changes of government. Future Five Year Plans were also to suffer from the recurring inability to meet targets. Finally, Ayub Khan’s military coup in 1958 brought this period of personalized and deinstitutionalized politics to a close.

11

There have been conflicting interpretations about the military dictatorship that Pakistan experienced in its second decade. In many ways, the 1960s were a ‘golden era’ for Pakistan’s economic development.23 More rapid industrialization and an upswing in the growth rate, as well as population levels that were not yet unmanageable, promised to ameliorate the economic condition of the common people. The emergence of big business groups, and the beginnings of diversification out of cotton textiles, the staple industry, made Pakistan appear as a model of development at this time. The deepening of the irrigation infrastructure, with large storage and hydro-electric dams, canal extensions, and groundwater extraction through tubewells, helped to strengthen Pakistani agriculture. The green revolution also started reversing the neglect of the 1950s, with new high yielding crop varieties and chemical and mechanical inputs spurring agricultural growth. The increased employment opportunities, in both agriculture and industry, did open up employment opportunities for the poor. Pakistan also received substantial western economic and military assistance, as it moved into regional military alliances sponsored by the United States.24 The growth oriented policies followed in the 1960s were secular in approach, with only nominal acknowledgement of religious factors by Ayub, mostly in the form of occasional references to ‘Islamic modernism’.25 Alternatively, the Ayub Khan years have been viewed in a much more derogatory light, for the maladjustments that they created, and even for the catastrophe of the division of the country. The strategy of rapid industrial growth was accompanied by growing industrial and wealth concentration, in favour of an emerging group of big business houses. Concessions to the so-called ‘twenty-two families’ became a politically charged rallying cry, against the strategy of ‘functional inequality’ prevailing in the 1960s. The market-based economic philosophy, propounded through the influential Harvard Advisory Group, envisaged eventual trickle down benefits to the poor through employment expansion and higher wages. In reality, real incomes of rural and urban workers again stagnated during this period, and the persistence of virtually subsistence wages affected the really poor.26 Labour unions, along with wider political rights, were also suppressed by an authoritarian regime. Smaller entrepreneurs, and the informal sector where most labour was absorbed, were alienated by discriminatory policies favouring large-scale business. Entry of the latter into political decision-making also alarmed the rural elite, ever wary of competing stakeholders.27 In external affairs, strains appeared in the alliance with the west. Warm relations with China and the 1965 war with India soured ties with the United States. Foreign assistance dwindled from the mid-1960s, coinciding with a decline in the economic growth rate.28 The benefits of the green revolution, though impressive, were also unevenly distributed. Medium and large farmers were more favourably positioned for affording and benefiting from the higher cost inputs and more capitalistic agriculture entailed in the cultivation of the new hybrid crops. Labour displacement through farm mechanization, and the ejection of tenants under authoritarian fiat, also alienated the smaller agrarian producers. The terms of trade remained weighted against agricultural products, and in favour of industrial goods that were increasingly identified with rent capitalism.29 Land reform edicts were adopted by the Ayub regime, but they placed high ceilings on individual ownership, and contained enough loopholes to abort any effective redistribution of

12

agricultural land. Regional inequalities were another source of growing disaffection, especially the case made by East Pakistan that export earnings from jute were being diverted for industrial investment in West Pakistan. Even in the latter there was growing hostility to strategies that encouraged growth, but failed to address the wider social need for redistributive measures. Moreover, high military expenditures redirected resources away from socio-economic equity. Events revealed that apprehensions about the Ayub regime’s policies were not misplaced. Ayub Khan resigned after a popular agitation in 1969. He was replaced by General Yahya Khan, under whom Pakistan’s first proper general elections were held, with far reaching consequences. Not only did a genocidal conflict ensue in East Pakistan, leading to the creation of Bangladesh, but in the remaining Pakistan there was a dramatic reversal of strategies under the Peoples Party government of Zulfiqar Ali Bhutto. These policies resulted from a strategic alliance built by Bhutto, and aimed essentially against the emergent industrial elite. For this he mobilized the progressive intelligentsia, urban workers, small enterprise and the informal sector, the upper peasantry and smaller farmers from Punjab and Frontier, and from Sindh the class to which he himself belonged, the large landlords riling against nouveau riche émigrés. Big business now fell victim to its strategic myopia in allying with military rule, and not stabilizing its position through political accommodations with a wide social base, as had been achieved by its counterpart in India. Again, the lack of a political organization to arbitrate such alliances, along the lines of the Congress in India, had a destabilizing impact on Pakistan’s political economy. As opposed to Ayub’s call for ‘Islamic modernism’, Bhutto’s rallying cry was of ‘Islamic socialism’, though both followed a secular agenda. The new government nationalized substantial portions of large-scale industry, especially sectors into which big business had diversified from cotton textiles. The highly concentrated banking and life insurance businesses were also nationalized. Consequently, private sector investment rates declined in the 1970s, with the public sector becoming the major source of investment. Twelve industry-based corporations were established to manage the state owned enterprises, while reform of the public service was directed at breaking the colonial bureaucratic legacy. A new labour policy, nationalization of private sector education, and an experiment with generic medicines, characterized the switch towards a more welfare oriented approach. However, in an effort to placate the agrarian hierarchy, Bhutto began to exclude his socialist colleagues, and took the strategy to roll back capitalism still further. Wheat procurement and distribution, as well as the cotton and rice export trades, were brought under the public sector. Even intermediate agro-processing plants, in flour, edible oils and cotton, were nationalized, in an effort to exclude private enterprise from forward linkages in the agricultural value chain.30 Unfortunately for Bhutto, the adverse economic environment of the 1970s neutralized the prospects of his policies helping to reduce inequalities. Internationally, the oil shock and high inflation, and within the country serious floods and a sharp reduction in foreign assistance, kept real growth rates below those of the 1960s. Despite more favourable policies, it is unlikely that there was a reduction in poverty, though a slight decline in

13

inequality did occur. A further land reform measure was enacted, but again the lack of proper implementation prevented any structural transitions in landholding. Skilled labour and management began migrating to Arab economies, depleting local resources, but at least opening the prospects of remittance inflows. Bhutto himself proved an autocratic politician, intolerant of opposition; and he eventually fell to charges of electoral manipulation. His greatest misjudgment, however, lay in positioning himself as a neutralist third world statesman, hardly in consonance with Pakistan’s dependent post-colonial realities. The next phase of Pakistan’s history, 1977-1988, witnessed a return to military dictatorship, under General Zia-ul-Haq. Economic conditions remained more stable than in the volatile 1970s. Pakistan’s growth rate in the 1980s stood around 6%, the highest in the south Asian region, though underwritten by the resumption of substantial foreign assistance. Overseas remittances from expatriate labour marked the first major inflow of resources to lower income segments, and resulted from the productive effort of workers rather than state social and economic policies. The private sector remained investment shy, despite concessions for legalization of black money. After 1985 some investment did resume, but remained concentrated in agro-processing, especially cotton and sugar. The Pakistani economy lost opportunities for growth, diversification and export expansion in such emerging, and increasingly income generating, industries as consumer electronics, computer hardware and software development, engineering goods, and value added textiles. Indeed, the sources of seeming buoyancy of the economy hardly positioned the country for sustainable growth, but rather reflected a deeper malaise. The extensive foreign assistance was not utilized for infrastructural strengthening, with little development in telecommunications, energy or water storage capacity. The enlarged remittances went into private consumption, though for once among a wider base; but they failed to be directed towards income generating investments. Much of the new industrial investment proved to be a highly articulated form of rent capitalism, with patronage based entry and manipulation of public sector financial institutions.31 Foreign direct investment remained negligible, compared to the capital flows routed towards south-east Asia. Pakistan did become the focus not of economic globalization, but of its strategic and geo-political counterpart. The war in Afghanistan, and the downfall of the Soviet Union, led to a bloodless independence for Soviet satellites, but left a million dead in Afghanistan, and serious economic and social maladjustments in Pakistan. Adding to the political aggravation of a harsh military dictatorship, projecting a coercive form of Islamization, was the economic burden of over three million refugees, and a society awash with drugs, arms and militant extremists. Disempowerment of the people reduced the prospects of adopting redistributive policies. Politicians incorporated by the regime followed individualized and rent-seeking agendas, and parties that might have adopted social welfare goals were constrained.32 Much of the commitment to Islamization remained rhetorical. Islamic banking hardly went beyond a substitution of terminologies. One Islamic measure adopted was zakat,

14

requiring an annual 2.5% deduction of capital for welfare of the poor. Shias successfully opted out of this measure, while numerous Sunnis nominally adopted Shia status to avoid deductions. Rhetoric did succeed in constraining the family planning programme, taking the population growth rate to perhaps the highest in the world. Investment and tourism suffered as Pakistan began to be perceived as an intolerant society. Religious parties did enjoy prominence, whereas their performance in elections had always remained negligible. In perpetual opposition, they had adopted a reactive and particularistic vision of an ideological state, neither shared by the people nor emerging from any experience in governance. The major religious organization, the Jamaat-i-Islami, had earlier enjoyed some electoral success among the muhajir or migrant community cncentrted in urban Sindh. However, by the 1990s even this support base was undermined by the ethnic politics of the Muhajir (later Mutahidda) Qaumi Movement. The Jamaat’s founder, Maulana Abul Ala Maududi, had actually been opposed to the creation of Pakistan, but after migrating there began to campaign for a theocratic state. With electoral politics continuing to be dominated by traditional elites or secular progressives, the religious parties remained marginalized. Their strident demands for an Islamic system, however, remained a potential source of destabilization. Zia’s military regime, directed by western sponsorship of jihadi terrorism, provided them a renewed platform for intervention in public affairs, as well as an entry into the domain of violent extremism.33 The post-Zia era of a return to civilian governments lasted from 1989 to 1999. This period suffered both from the negative impact of developments in the previous decade, as well as from further political instability and adverse economic positioning. There were two tenures each of the Muslim League under Nawaz Sharif and the Peoples Party under Benazir Bhutto. The former was very much a military nominee; and the army continued to dominate the country’s power structure throughout this decade. All four governments were dismissed before they could complete their terms, the last in 1999 by yet another military coup, by General Pervez Musharraf. Corruption and mismanagement were the reasons advanced for these dismissals, and though they were elected governments these accusations appeared justified. This opportunity could have been utilized to rebuild political institutions, and institutionalize welfare and redistributive mechanisms. Instead, civilian politics continued to be constrained by internecine struggles, short-term goals, and pervasive rent seeking behaviour.34 The ambiguous relationship between religious politics and the power structure continued in this decade. Significantly, in the four elections held in this period, the religious parties made as little headway as in previous attempts; and this at a time when Hindu nationalists in India were actually the senior partners in government. The Muslim League did take some religious parties into a coalition, known as the Islamic Democratic Alliance; but as minor entities they were not able to influence social and economic policy, nor shift it from its clear market based orientation. The Islamic measures that were introduced from the 1980s continued to be in the coercive rather than welfare mode. The Hudood (immorality) and Blasphemy laws again projected a particularistic notion of Islam, further highlighted by the excesses of the Taliban in Afghanistan. The passing of the

15

Shariah Bill in 1990, under pressure from religious parties, was in fact criticized by them for not being comprehensive enough. The Shariah Court was established, with powers of sanction, to determine whether any laws were antithetical to Islam. The ongoing prohibition against alcohol led to government revenue losses, foregone tourism opportunities, and contraband marketing. In the wider context, the decision-making and investment environment continued to be adversely affected by the rise of militant and terrorist groups, a spin-off from madrassahs, the Kashmir conflict, population growth and persisting poverty. Economic performance also suffered in this decade.35 Pakistan’s growth rate declined to around 5%, and for once dipped below that of India. The percentage of people below the poverty line increased, from under 20% to around 35%. A number of factors contributed to the downturn. With the Afghan war over, foreign assistance not only declined dramatically, but Pakistan suffered discriminatory treatment. It was the only country on which the United States Congress imposed the Pressler Amendment, cutting off military aid; and from 1998 it came under sanctions for conducting nuclear tests. High levels of foreign debt, reaching levels of $40 billion by 2000, led to incapacity to maintain repayment schedules, and diverted away funds from welfare and development expenditure. Multilateral agencies, like the World Bank and the International Monetary Fund, imposed stricter conditionalities, demanding greater financial discipline, and a reduction in the fiscal deficit from over 6% to 4%. There was continued inability to expand the revenue base, because of widespread tax evasion by the local business sector, and the failure to tax agricultural incomes. The resulting resource gap left little for spending on education, health and infrastructure, whereas around 40% of the total budget was still being defrayed for military expenditure. With revenue shortfalls, from very low tax to GDP ratios remaining under 10%, significant segments were able to evade tax through official collusion or ineptitude. The consequent introduction of indirect taxation, through a general sales tax, represented a transfer of the fiscal burden from the better-off to the general population.36 Adverse economic conditions left little room for public policy to shift to welfare priorities. With the resurgent market-based approach, land reforms were rejected as a means of alleviating rural inequalities. Both Bhutto and Sharif had to comply with a structural adjustment process, demanded by multilateral agencies for servicing the high debt levels. Liberalization and deregulation measures, and the move to user charges in utilities, further eroded the safety nets and subsidies that had postponed extreme poverty. Foreign portfolio investment was visible in the early 1990s, but failed to survive a speculative rise and then severe downturn in the stock market. Pakistan, though, largely escaped the 1997 Asian economic downturn, since perceptions of high country risk had discouraged significant capital entry. Privatization did make some headway, particularly with industrial units and the smaller banks, but these receipts went towards meeting recurring expenditure and debt repayment. Efforts stalled to privatize the telecommunications parastatal, owing to weak market response, and the unwillingness of any reputable international company to take over management and sizeable equity.37 A private power generation strategy was adopted

16

to meet the country’s energy shortfalls; but was beset with controversial rate setting for some overseas investors.38 Ethnic tensions in the largest city, Karachi, continuing religious militancy, and the rise of sectarian Shia-Sunni violence, heightened perceptions of instability. When combined with weak public management and continued elite privilege and resource absorption, the retention of redistributive goals appeared even more problematical. In the impending ‘crisis of governance’ economic policy came to be dominated by attempts to address fiscal imbalances, through macroeconomic management, structural adjustment, stabilization and economic reform. Strategies for inclusive growth could hardly find space under such policy constraints. Both foreign and domestic investment was further discouraged by ongoing nuclear rivalry with India, the insurgency in Kashmir that almost led to full-scale war, and continuing conflict in Afghanistan and the sponsorship of the Taliban. The dividends that the country might have expected from the Afghan war had not materialized; and Indian hostility was already projecting ‘rogue state’ and ‘failed state’ notions of its rival.39 These adversities were further compounded by Musharraf’s military coup in October 1999. Like Zia, the military seized power a couple of years prior to major hostilities in Afghanistan; but that might well remain within the realm of coincidence. There was in hindsight no pressing internal need for a military takeover, and it did again disrupt a budding electoral and democratic process. Pakistan suffered further international isolation; and debt repayment capacity deteriorated almost to the point of sovereign default. The events of 9 September 2001 proved a major turnaround, with a new life cycle for conflict and insecurity, for which Pakistan’s ‘dependent mercenary’ status was well suited. Pakistan’s military cooperation was essential for launching the invasion of Afghanistan and for combating anti-American elements. It was now in the west’s interests not to see Pakistan severely discomfited. There have been political repercussions within Pakistan of the latest Afghan war. In 2003, for the first time in the country’s history, religious parties enjoyed electoral success, especially in the western provinces of Baluchistan and the Frontier, which adjoin Afghanistan. Provincial governments formed by the religious coalition, the Muttahida Mahaz-i-Amal, were now uniquely placed for introducing Islamist social and economic policies, and to test whether these can represent a realistic alternative to previous secular and elitist policy parameters. That its performance was unremarkable, and not without aspersions of corruption, was proven by the MMA’s decisive defeat in the 2008 elections, and the return to electoral marginalization of the religious right. Pakistan has also enjoyed, in some respects, an economic turnaround since 2001. The greater overseas accountability of assets, for identifying money laundering and funding routes for terrorism, began a process of major money transfers by expatriates into Pakistan. From a highly tenuous position of virtual indigence, down to US$ 200 million by early 2001, the foreign exchange reserves rose to over US$10 billion by 2005, and stood at over US$ 15 billion by 2010. The more egregious high interest debt components could also be paid off after 9/11, but external debt did climb back to US$ 50 billion

17

before Musharraf’s departure, and has risen precipitously under civilian rule to over US$ 70 billion by end 2010. The Pakistani economy failed to gain even medium term benefits from the improved fiscal space during Musharraf’s early years. The foreign money inflows went predominantly into property and stock market speculation, creating a bubble that failed to last beyond 2005. The new liquidity induced the government, with the Citibank official Shaukat Aziz as Finance Minister and then Prime Minister, to rashly reduce interest rates to historic lows. This could have overcome investment constraints, except that even industrialists preferred to use cheap credit for property and share speculation rather than technological upgradation or green-field investment. As interest rates went back up, investors lost heavily through over leveraging. With growing political and economic uncertainty from 2007, major liquidity transfers for property speculation in the United Arab Emirates then suffered vanishing values with the global recession from 2008. The Musharraf upturn thus proved to be another failed opportunity to achieve the economic sustainability that the people had so long awaited. Indeed the resilient inflationary spiral set off from the time of reduced interest rates has seriously undermined real incomes in the late 2000s. Price escalations of subsistence commodities have hit the poor, combined with rising petrol and utility prices. An energy shortage, because of a planning failure under Musharraf, has adversely affected not only large-scale manufacturing, but also the informal sector that had traditionally absorbed the shocks of elite mismanagement. The resort to an IMF bailout package from 2009 has imposed further austerity, with emasculation of the development expenditure that could have been utilized for pro-poor growth. Moreover, the sheer scale of the demographic problem defies public management capabilities, and there is little likelihood that failures in population planning policies will be reversed, in order to make even a nominal impression on income and wealth inequalities.40 The profile of the elite’s role and strategy preferences does not indicate that in actual practice anything beyond symbolic measures will be attempted. The people are very much on their own, and their supreme effort now lies in simply saving themselves from basic subsistence threats. Withering legitimacy? Over time, Pakistan’s economic performance has been characterized by the paradoxical phenomenon of quite high growth rates, accompanied by widening income inequalities. This pattern has been reinforced by capital intensive strategies for promotion of industrialization, inequalities in agrarian land and resource distribution, and rent seeking by both public functionaries and upper end private sector stakeholders. In Pakistan’s first two decades the extent of inequality probably increased. Following a Kuznetsian curve, the incidence of inequality may then have declined in the 1970s and 1980s; but it did rise again in the 1990s.41 Migration to west Asia helped reduce unemployment pressures on both the rural and urban poor, but after 1990 both labour outflows and home remittance levels did recede.

18

The 2000s witnessed a rise and then decline in growth rates, but neither period helped reduce inequalities. After 2001 the sharp rise in money inflows tended to fuel inflation and property price escalation, squeezing the middle class and failing to benefit the very poor. Again, higher growth rates might have initially helped with reducing poverty, though at the same time resulting in greater inequalities. This could reflect a repetition of Pakistan’s experience in previous periods of greater wealth concentrating in the uppermost population quintile, at the cost of the lowest quintile. In this Pakistan might be different from many other developing countries, where growth has been accompanied by more equal income distribution, as in east and south-east Asia. The economic buoyancy was, however, short-lived, and was followed by a recessionary period with first rising interest rates and money outflows induced by Emirates property speculation, and then from 2007 growing political uncertainty. Lower growth rates have led to greater numbers below the poverty line: estimates put this at over 40% of the population. There are several determinants of income inequalities in Pakistan. One is geographical and regional factors, which can also have political repercussions. The incidence of poverty is greater in the rural areas, and is concentrated among landless labourers and smaller subtenants. While the largest province, the Punjab, has its share of rural poverty, its incidence in the smaller provinces can lead to charges of neglect. In urban areas poverty is concentrated among the self employed and the proletariat in the industrial and service sectors. With the rapidly rising population, and the growing numbers below the poverty level, youth are susceptible to recruitment by jihadi organizations, and there is increasing recourse to madrasahs, in the face of declining public sector education delivery. Meanwhile, the capital intensive nature of industrial investment has diverted resources away from the urban poor and towards upper industrial, mercantile and professional groups. Nor has the more labour intensive informal sector been the beneficiary of state policies conducive to small business and its dependents. The agrarian structure has reinforced inequalities, through differential access to resources, such as credit; and through the inadequacy of land reform measures. Recent initiatives in micro-finance might ease the endemic thinness of credit markets. Even in such schemes interest rates are not insubstantial, though well below the usurious rates levied on asset poor borrowers. Technological change has also contributed to inequalities, with better off farmers having differential access to the chemical, mechanical, hybrid seed and land management technologies that lead to higher productivity and profitability. The adverse terms of trade with industrial goods had traditionally led to resource transfers out of agriculture. However, sharp price rises of agricultural commodities have begun to return to the rural economy, though the beneficiaries are more the larger farmers and middlemen rather than wage earners and landless labourers. While Islamic laws have concentrated more in the areas of moral conduct, such as the Hudood and Blasphemy laws, some redistributive programmes have been initiated since the early 1980s. Zakat and ushr are charity programmes based on Islamic principles, the former assessed on capital and the latter on higher agricultural incomes. The beneficiaries are disadvantaged groups, like widows, orphans and the disabled, who then receive direct cash payments. However, these funds have remained a negligible proportion of GDP, and

19

thus do not constitute any sizeable resource transfer to the poor. The allocation per recipient is also too meagre to impact on poverty alleviation. Misuse of these funds, either for graft or patronage, is also a major concern. Another state programme is Bait-ul-Mal, directed at low income households, with a further component of food subsidies. Again, implementation issues and the limited scale of operations have negated any general impacts on poverty levels. Population growth has further diminished such impacts, and the failure of the family planning programme is itself the greater threat to the sustainability of the poor. Low literacy rates, and the continued underfunding of the education and health sectors, as well as the entrenched reality of gender inequity, have effectively retained the idiosyncratic relationship between low human development and relatively high growth rates. Major state programmes undertaken since 1990 have also had mixed results. The extensive Social Action Programme emerged from concerns over inadequate spending on social sectors. Despite major funding from the government and from multilateral and bilateral donors, this programme again failed to reach its objectives. The disappointing outputs were due to weak management and monitoring of the delivery of services, leakage and waste of funds, and design problems focusing more on inputs than on outcomes.42 A more recent state initiative, under the Musharraf regime, is the Pakistan Poverty Reduction Strategy. The prospective strategy is built around four main ‘pillars’: accelerating economic growth, improving governance and devolution, investing in human capital, and targeting the poor and vulnerable. Under the last objective various instruments are proposed to assist the poor, such as the Pakistan Poverty Alleviation Fund, Microfinance Sector Development Fund, Community Investment Fund, Risk Mitigation Fund, and Deposit Protection Fund.43 Since 2008 the Peoples Party government has initiated the Benazir Income Support Programme, entailing direct grants to deserving individuals. Clearly, while much state effort will be directed at addressing the overarching structures of poverty alleviation, achieving actual benefits and impacts remains much more problematical.44 The historical neglect of education, health and social services, and the habitual recourse to authoritarianism by both military and civilian variants, has over time seriously undermined the legitimacy of Pakistan’s ruling elites. Equally if not more damaging has been the economic aspects of elite roles, both in rent seeking and tax evasion by business, and the now endemic contagion of corruption that pervades virtually all facets of public management. With greater media freedom, and with the judiciary finally calling for accountability, the almost ceaseless uncovering of scams and major resource diversions by politicians and bureaucrats, along with their clients, has vividly exposed elite malfunctions. Moreover, upper military officials, whenever they had the opportunity, have indulged equally in resource capture and financial misdemeanour. A large proportion of funds allocated for almost every state-related activity are bifurcated through corruption, while large scale and functionary assisted revenue losses have damaged fiscal viability. Consequently, the capacity and credibility of the state to deliver recovery and rehabilitation strategies in a period of crisis are now seriously questionable.

20

Repositioning for reconstruction and peace building To regain its withering legitimacy, the state will need to reposition itself for undertaking reform. There are two immediate arenas where the state’s implementation capacities are critically required. These stem from, first, the natural disaster wrought by the devastating floods of 2010; and second, through the human agency of increased militancy, and the regionalization of the war in Afghanistan and its extension to Pakistan. Both areas require a higher degree of state effectiveness than has been apparent for some time. The state’s repositioning will indeed entail a major turnaround in its institutions, with special emphasis on a metamorphosis of the attitudinal approaches and mentalities of both politicians and governmental functionaries. The state needs to reinvent its role as both an effective leader and partner in reconstruction, peace building and development. To achieve these objectives, the state needs to address several concerns in the short term, quite apart from the formidable spectrum involved in its medium to long term turnaround agenda. These more immediate goals would include regaining and reasserting the credibility of the federal and provincial governments to be reliable and effective partners for the management of foreign assistance loans and grants, especially for reconstruction in the flood zone and in the Khyber-Pukhtunkhwa (KP) and FATA conflict zone.45 The state also needs to regain the credibility and trust of the people and civil society for possessing the capacity for strategy formulation and implementation, and for efficiently and equitably delivering a wide range of services required for reconstruction. It needs to elucidate specific actions and measures that must be undertaken to strengthen governance mechanisms and institution building capabilities, especially involving transparency and accountability. The specific points at which capacity building and institutional strengthening needs to occur expeditiously must be prioritized. It then needs to explain how it will practically improve levels of cooperation between government agencies and departments, in order to play an effective integrative role in the implementation of its programmes. In the contextual sense, the administration also needs to explicate how it intends to provide the required leadership, governance oversight, and administrative capabilities to ensure effective implementation of the reconstruction, peace building and good governance strategies recently agreed upon by the Government of Pakistan (GOP) and the donor community.46 These interventions are contained in such proposed strategies as the Damage Needs Assessment (DNA) for the flood affected areas, the Floods Impact on Millennium Development Goals Analysis (FIMA), and the Post Crisis Needs Assessment (PCNA) for KP/FATA.47 Additionally, the Eighteenth Amendment to the Constitution, passed in late 2010, will involve a prompt and effective implementation process for devolution of functions from federal to provincial governments. A ‘good governance’ strategy also remains under negotiation between government and donors, which would involve a range of institutional strengthening and reform measures. The financial, administrative and operational challenges thrown up these current crises will seriously test state capabilities. On the extensive human dislocation and physical

21

damage caused by the floods, estimates are that as many as 79 out of Pakistan’s 127 districts have been affected, two million homes damaged, and up to 20 million people rendered homeless, with the livelihoods of a further five million destroyed. The DNA documents the relief, rehabilitation and reconstruction work needed, with an estimated cost of US$ 10 billion. The GOP has since revised this figure down to around US$ 1.5 billion, since loans would be required and the foreign debt would get further bloated. With administrative resources already depleted in these areas, and the entitlements of displaced persons at risk, the threat of militant mobilization and violence would increase. State weaknesses have been enhanced because of the abolition of the local government system by the end of 2009: civilian politicians regarded this as a legacy of the Musharraf dictatorship. It is unlikely that, with its endemic culture of graft and patronage, the state will be able to respond and deliver adequately on the extensive interventions required for the wide spectrum of the flood reconstruction programme. The DNA strategy proposes governance related interventions in four major ‘pillars’. These are, first, ‘enhanced state capacities to manage reconstruction’, entailing building coordination capacities at national and sub-national levels, bringing procedural improvements and avoiding duplication, and ensuring role and mandate clarity. Second, ‘enabling environment, public safety and law enforcement’ emphasizes law enforcement and related priorities, such as human trafficking, strengthening criminal prosecution capacity, reinstituting police and judicial records, providing legal support to vulnerable groups and operationalizing alternative dispute resolution mechanisms. Third, ‘restoring and improving citizen entitlements’ focuses on speedy provision of identity cards, reconsidering land access issues, galvanizing community driven reconstruction, and other related measures to prevent displaced persons from any large scale movement into already stressed urban centres. Fourth, ‘ensuring transparency and citizen oversight’ will attempt to strengthen a wide range of public financial management procedures, such as improving audit effectiveness and access to information, ensuring effective and transparent use of public funds, strengthening budgeting and flow of funds, procurement procedures and bidding and tendering, as well as monitoring and supervision capacity. The FIMA report analyzes the impact of the floods on the Millennium Development Goals target indicators, which are supposed to be achieved by 2015. The FIMA considers damage done to eight MDGs, and the nature of interventions involved and costs of recovery. These MDGs are to eradicate extreme poverty and hunger; achieve universal primary education; achieve gender equality and women’s empowerment; reduce child mortality; improve maternal health; combat HIV/AIDS, malaria and other diseases; ensure environmental sustainability; and develop a global partnership for development. In FIMA a Human Development Recovery Framework establishes a two stage set of interventions: first a more immediate recovery from damage, and second a more extended medium to long term recovery process. For each stage around six responses are proposed, for restoring livelihoods, restoring social services in health and education, improving access to water and sanitation, and expanding fiscal space for relief and recovery. The PCNA for KP and FATA encompasses a more wide ranging set of interventions and strategies over a longer period than the DNA and FIMA.48 The objective is to rebuild

22

peace, governance and administrative viability, and achieve sustained economic turnaround, in a region wracked by war and rebellion. The entire programme would take a 10 year period to complete, and it is structured around four strategic objectives, each of which would include a large number of activities and projects. These objectives are to: (1) ‘Build responsiveness and effectiveness of the state to restore civilian trust’; (2) ‘Stimulate employment and livelihood opportunities’; (3) ‘Ensure the delivery of basic services’; and (4) ‘Counter radicalization and foster reconciliation’. Four drivers of crisis have been identified, namely political, economic, social, and security and geo-strategic. Along with this there are three cross-cutting issues, namely peace building and crisis sensitivity, gender, and capacity building. Furthermore, the proposed strategies have five underlying principles, namely human rights, access and equity, community participation, communication and implementation. The PCNA thus provides a multi-faceted approach to reclaiming this region from militancy through broad based interventions. These include improved provision of social services in health and education, infrastructure development in energy and transport, skill development and improved employment opportunities, as well as a major effort to revive the local economy and develop agricultural and agro-industrial capacity. The programme envisages evolving for FATA a new set of political, judicial and administrative mechanisms to replace the older colonial system, which has suffered major erosion through militancy. Just the donor component of this programme is estimated at US$ 3 billion, and with the predominant part of foreign funding comprising loans rather than grants, the debt impact would be significant. Moreover, equivalent if not greater counterpart funding would have to be provided by the GOP, quite apart from the provision of administrative effort and resources. It remains to be seen how methodically and effectively the federal government and the provincial KP and FATA authorities can manage and coordinate this programme. Agenda for deeper reform Apart from the more immediate rehabilitation and peace building strategies in which it is vital for the state to display implementation capability and proper transparency, there are a range of more fundamental reforms needed for the state to regain its legitimacy.49 These reforms need to achieve the turnaround of the Pakistani state, and include political governance, or the strengthening of representative institutions; social governance, or the strengthening of community development and service delivery systems; and economic governance, or the strengthening of fiscal discipline and economic equity, including a major drawdown of corruption. A sample of these will be discussed here, and they by no means exhaust the formidable agenda for deeper reform facing the state in Pakistan. We will keep to some political governance aspects here, as elements of economic and social governance have been earlier in this paper. One area of reform is in decentralization and the restitution of a system of local government. The Local Government Ordinance, passed during the Musharraf dictatorship, lapsed in December 2009, and with it an extensive and rather complex set of

23

decentralization mechanisms owing to their association, in the perception of civilian politicians, with authoritarian rule. Nevertheless, local governments need to be revived, since service delivery and administrative decision making needs to move closer to the people. They should spearhead not only local development but also establish databases and indicator sets to attract domestic and foreign investment, as well as donor funding. Each province will need to adopt the required legislation, and this should not be delayed unduly. Local responsiveness is important in Pakistan’s complex and rapidly evolving socio-economic environment: the flood relief action in 2010 might have been more effective with the local government network in place. Moreover, in 2010 Pakistan ratified the International Covenant on Civil and Political Rights, accepting an obligation for democratic elections at all levels. Another area of major reform is the increase in the number of provinces. Pakistan has retained the four province structure since 1947, with the northern areas added lately as Gilgit-Baltistan. By comparison, India has doubled its number of states since 1947. Since population has expanded more than five times, the four extant provinces cannot adequately fulfill administrative roles, nor do they best represent ethnic and linguistic aspirations. Just the Punjab, with around 90 million people, is larger than the largest country in Europe, united Germany. Around a dozen provinces, with lean administrations and representative systems so as not to increase aggregate expenditures, might be the optimal mix. There is little prospect that current political incumbents would accommodate these changes in the shorter term. At least a public debate on this issue should commence, highlighting advantages to the common person, and future federal-provincial fiscal relations, water allocations, size of assemblies and public service structures. The approach of parliamentarians to public life also needs radical attitudinal change. These elected representatives must realize that their role should not be to act as intermediaries in patronage systems, in diverting development funds, and in rent-seeking for business interests. Rather, they must remain focused on representing the interests of their electorates and in helping enact optimal legislative measures. The cooption of party organization and leadership to achieve these transitions would be required, while the rules of the house would need to be enforced concerning extra-parliamentary activities. Therefore consultations should be initiated, with the involvement of relevant stakeholders and appropriate learning modules. The institutionalization of political organizations is another critical reform needed in Pakistan. The lack of development of political organizations before 1947 and the mixed record of democracy has perpetuated individualization and opportunism, and failed to create a bottom up expression of interests and decision making within parties. The arbitrary selection of electoral candidates by a self-appointed leadership, rather than through internal democracy, leads to many distortions and malfunctions in public affairs. The Election Commission of Pakistan should enforce the genuine choice rather than opportunistic selection of electoral candidates, as a prerequisite for participation of political parties in elections. A regulatory mechanism for monitoring this activity could play an important nation-building role, and move the country towards truer democracy.

24

Public service reform is a vital component of institutional strengthening. While several previous attempts in the form of investigations and commissions have proposed changes, there has been little implementation. Apparent reforms in the 1970s under Bhutto, in which the old civil service was restructured, failed to achieve substantive change. Over time the public management system has become increasingly ineffective and inefficient, while levels of graft and misdemeanour have extended to almost every form of activity linked to the state. The major losses being incurred by public sector entities, and their vulnerability to patronage and graft by politicians, bureaucrats and upper military officers, now pose a significant threat to the nation’s financial viability. Public servants will need to undergo major attitudinal change, which can perhaps only succeed from induction level training, as it is unlikely that mentalities among incumbents can be transformed. Imran Ali . 1 For conditions in the Mughal empire, see Irfan Habib, The Agrarian System of Mughal India (Bombay, 1963); Tapan Raychaudhuri and Irfan Habib (eds), Cambridge Economic History of India, vol. 1 (Cambridge, 1982); John F. Richards, The Mughal Empire (Cambridge, 1993); and Muzaffar Alam and Sanjay Subrahmanyam (eds), The Mughal State, 1526-1750 (Delhi, 1998). 2 See Louis Dumont, Homo Hierarchicus (London, 1970). 3 For works on Islam and Muslims in south Asia, see Wilfrid Cantwell Smith, Modern Islam in India (Lahore, 1969); Peter Hardy, The Muslims of British India (Cambridge, 1972); Annemarie Schimmel, Islam in the Indian Subcontinent (Leiden, 1980); Francis Robinson, Islam and Muslim History in South Asia (Delhi, 2000); and Barbara Metcalf, Islamic Contestations: Essays on Muslims in India and Pakistan (Delhi, 2004). 4 See Muzaffar Alam, The Crisis of Empire in Mughal North India: Awadh and Punjab, 1707-48 (Delhi, 1986). 5 See L.H. Griffin and C.F. Massy, Chiefs and Families of Note in the Punjab (Lahore, 1940). 6 See, for one such village in the Punjab, Tom G. Kessinger, Vilyatpur, 1848-1968: Social and Economic Change in a North Indian Village (Berkeley, 1974). 7 See, for the Indian ‘mutiny’ of 1857-58, Eric Stokes, The Peasant and the Raj (London, 1978). 8 See Imran Ali: “The Punjab Canal Colonies, 1885-1940” (PhD Thesis, Australian National University, 1980); and The Punjab under Imperialism, 1885-1947 (Princeton, 1988; reprinted Delhi, 1989, and Karachi, 2003). 9 See Imran Ali, “Malign Growth: Agricultural Colonization and the Roots of Backwardness in the Punjab”, Past and Present, No. 114, February 1987. 10 See, for an analysis of such linkages, Imran Ali, “Historical Impacts on Political Economy in Pakistan”, in Asian Journal of Management Cases, Vol. 1, No. 2 (2004). 11 See N.G. Barrier, The Punjab Alienation of Land Bill of 1900 (Durham, NC, 1966); and P.H.M. van den Dungen, The Punjab Tradition (London, 1972). 12 For instance, the remarkable case of a few canal irrigated villages reserved for ‘depressed classes’, allotted to Christian missionary organizations, rather than to the lower caste Christian converts, who were seen not to be befitting the status of land grantee. See Imran Ali, The Punjab under Imperialism, ch. 2-3. 13 See T.Y. Tan, The Garrison State: The Military, Government and Society in Colonial Punjab, 1849-1947 (Delhi, 2005). 14 For a discussion of this issue, see Imran Ali, “The Punjab and the Retardation of Nationalism”, in D.A. Low (ed.), The Political Inheritance of Pakistan (London, 1991). 15 See Sarah Ansari, Sufi Saints and State Power: The Pirs of Sind, 1842-1947 (Cambridge, 1992).

25

16 See Imran Ali: Punjab Politics in the Decade before Partition (Lahore, 1975); and “Relations between the Muslim League and the Panjab National Unionist Party, 1935-47”, in South Asia, No. 6 (1976). 17 See S.A. Rittenberg Ethnicity, Nationalism and Pakhtuns: The Independence Movement in India’s North-West Frontier Province, 1901-1947 (Durham, 1988); and Syed W.A. Shah, Ethnicity, Islam and Nationalism: Muslim Politics in the North-West Frontier Province, 1937-1947 (Karachi, 1999). 18 For nationalist politics in the Indian area, see D.A. Low (ed.), The Congress and the Raj (New York, 1977). 19 Parvez Hasan, Pakistan’s Economy at the Crossroads (Karachi, 1998), p.25. 20 Annual average economic growth rates were as follows: GDP AGRICULTURE MANUFACTURING 1950s 3.1 1.6 7.7 1960s 6.8 5.1 9.9 1970s 4.8 2.4 5.5 1980s 6.5 5.4 8.2 1990s 5.0 4.4 5.5 Source: S.R. Khan (ed.), Fifty Years of Pakistan’s Economy (Karachi, 1999), p.4. 21 For an assessment of economic change in this earlier period, see Mahbub ul Haq, The Strategy of Economic Planning: A Case Study of Pakistan (Karachi, 1963); J.R. Andrus and A.F. Muhammad, Trade, Finance and Development in Pakistan (Stanford, 1966); Gustav F. Papanek, Pakistan’s Development: Social Goals and Private Incentives (Cambridge, Ma, 1967); and Stephen R. Lewis jr,: Economic Policy and Industrial Growth in Pakistan (Cambridge, Ma, 1969), and Pakistan: Industrialization and Trade Policies (London, 1970). 22 For political developments in this period, see M. Rafique Afzal, Pakistan: History and Politics 1947-1971 (Karachi, 2001); K.K. Aziz, Party Politics in Pakistan, 1947-58 (Islamabad, 1976); Keith B. Callard, Pakistan: A Political Study (London, 1957), and Political Forces in Pakistan, 1947-1959 (New York, 1959); and Allen McGrath, The Destruction of Pakistan’s Democracy (Karachi, 1996). 23 Economic aspects in these earlier decades are surveyed in V. Ahmed and R. Amjad, The Management of Pakistan’s Economy 1947-82 (Karachi, 1984). 24 See Irving Brecher and S.A. Abbas, Foreign Aid and Industrial Development in Pakistan (Cambridge, 1972) 25 For assessments of economic change into the 1960s, see the works of G.F. Papanek and S.R. Lewis jr; and also Walter P. Falcon and G.F. Papanek (eds), Development Policy II – The Pakistan Experience (Cambridge, MA, 1971); Lawrence J. White, Industrial Concentration and Economic Change in Pakistan (Princeton, NJ, 1974); and Rashid Amjad, Private Industrial Investment in Pakistan 1960-1970 (Cambridge, 1982). 26 See Keith Griffin and AR. Khan (eds), Growth and Inequality in Pakistan (London, 1972). 27 See Stanley A. Kochanek, Interest Groups and Development: Business and Politics in Pakistan (Delhi, 1983). 28 For assessments of political developments in the decade, see Khalid B. Sayeed, The Political System of Pakistan (Boston, 1967); Richard S. Wheeler, The Politics of Pakistan (Ithaca and London, 1970); Lawrence Ziring, The Ayub Khan Era: Politics of Pakistan, 1958-1969 (Syracuse, 1971 ); and Herbert Feldman, From Crisis to Crisis; Pakistan, 1962-69 (London, 1972). 29 See L. White, Industrial Concentration and Economic Change in Pakistan, especially chs 4 and 7-8, for the success of large industrialists to resist anti-cartel and corporate governance initiatives, and to maintain protective measures and financial subsidies for their highly profitable ventures. 30 See Shahid J. Burki, Pakistan Under Bhutto, 1971-1977 (London, 1980); Anwar H. Syed, The Discourse and Politics of Zulfikar Ali Bhutto (New York, 1992); Stanley Wolpert, Zulfi Bhutto of Pakistan: His Life and Times (New York, 1993); and Rafi Raza, Zulfikar Ali Bhutto and Pakistan, 1967-1977 (Karachi, 1997). 31 See Imran Ali, “Business and Power in Pakistan”, in Anita M. Weiss and S. Zulfikar Gilani (eds), Power and Civil Society in Pakistan (Karachi, 2001); and Imran Ali, “Business, Stakeholders and Strategic Responses in Pakistan”, University of New England Asia Centre: Asia Papers, No 8 (Armidale, 2005). 32 For the Zia period, see Craig Baxter (ed.), Zia’s Pakistan: Politics and Stability in a Frontline State (Boulder, 1985); Lt. General Faiz A. Chishti, Betrayals of Another Kind: Islam, Democracy and the Army

26

in Pakistan (Cincinnati, 1990); and General Khalid M. Arif, Working with Zia: Pakistan’s Power Politics, 1977-88 (Karachi, 1995). 33 See Imran Ali, “Islam, Power and Political Legitimacy in Pakistan”, Paper in ‘Conference on Political Legitimacy in Islamic Asia’, National University of Singapore, April 2005. 34 See Iqbal Akhund, Trial and Error: The Advent and Eclipse of Benazir Bhutto (Karachi, 2000); Craig Baxter and Charles Kennedy (eds), Pakistan 2000 (Karachi); and Hafeez Malik (ed.), Pakistan: Founders Aspirations and Today’s Realities (Karachi, 2001). 35 See Parvez Hasan, Pakistan’s Economy at the Crossroads; Ishrat Hussain, Pakistan: The Economy of an Elitest State (Karachi, 1999); and Ghulam Kibria, Shattered Dream: Understanding Pakistan’s Development (Karachi, 1999). 36 For an assessment of the reasons for poverty persistence, see Imran Ali, “Historical Lineages of Poverty and Exclusion in Pakistan”, South Asia, XXV(2), August 2002. See also Imran Ali, “Historical Impacts on Political Economy in Pakistan”, Asian Journal of Management Cases, Vol. 1, No. 2 (2004). 37 See Imran Ali, “Telecommunications Development in Pakistan”, in E.M. Noam (ed.), Telecommunications in West Asia and the Middle East (New York, 1997). 38 With implications of major corruption, Benazir Bhutto’s government was mostly blamed for allowing some foreign companies to generate and sell power at unusually high, government guaranteed and US dollar denominated rates. 39 For an analysis of the multidimensional influences impacting on state and society in Pakistan, see Imran Ali: “Understanding Pakistan – The Impact of Global, Regional, National and Local Interactions” and “Past and Present: the Making of the State in Pakistan”, in Imran Ali, S. Mumtaz and J-L. Racine (eds), Pakistan: The Contours of State and Society (Karachi, 2002). 40 See for an assessment of the seemingly endemic problems of continued low levels of human development and sustainability issues: Akmal Hussain, Imran Ali et al, National Human Development Report (UNDP Pakistan, Islamabad 2003). 41 For a cogent discussion of the relationship between economic growth and income inequalities, see Gary S. Fields, Distribution and Development. A New Look at the Developing World (Cambridge Ma, 2001). 42 See I. Hussain, Economic Management in Pakistan 1999-2002 (Karachi, 2004). 43 See Ministry of Finance, Government of Pakistan, Accelerating Economic Growth and Reducing Poverty: the Road Ahead. Poverty Reduction Strategy Paper (Islamabad, 2003). 44 For an analysis of recent developments, see Imran Ali: “Reimagining Punjab: Shackled Potential”, Seminar (New Delhi, November 2006); “Pakistan”, in Regionalism and Trade: South Asian Perspectives (Singapore, Institute of South Asian Studies, National University of Singapore, 2007); and “Pakistan: Political Economy and Post-2000 Developments”, in Rajshree Jetly (ed), Pakistan in Regional and Global Politics (London and Delhi, Routledge, 2009). 45 FATA stands for Federally Administered Tribal Areas, while KP is the new name for the North-West Frontier Province. 46 The major multilateral donors in Pakistan presently are the World Bank, Asian Development Bank, the United Nations and the European Union. The chief bilateral donors are USAID, the Japanese JICA, British DFID, Canadian CIDA and German GTZ. Then there are several international NGOs, like CARE, OXFAM and ActionAid. 47 The DNA, FIMA and PCNA proposals are currently in the form of unpublished Government of Pakistan project reports. 48 The PCNA strategy was evolved in project proposals prepared collectively by four major donors: European Union, United Nations, USAID and World Bank, along with the accreditation of the GOP in the final project report. 49 This section is based on proposals contained in Imran Ali, “Governance and Institution Building in Pakistan”, Strategy Paper submitted to ‘Good Governance Working Group, Islamabad’ (2010).