Why India & Pakistan are still Grappling with Poverty

7/28/2019 Why India & Pakistan are still Grappling with Poverty

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Why India & Pakistan are still grappling with Poverty?

Why India and Pakistan? I am from Pakistan, but India and Pakistan were once one

country and share a huge history, which is still having effects on the economy of both the

countries. According to World Bank's website, GDP per capita of India in 2011 was 1,509 US

Dollars, and during the same period GDP per capita of Pakistan was 1,189 US Dollars. Keeping

in view the current security situation of Pakistan, and the ballads of India as the poster child

of high growth, the difference in GDP is not a lot. Another argument is that India is massive

as compared to Pakistan, so if India has managed this GDP per capita on a much wider scale,

and that's a success in itself, but china has managed a GDP per Capita of 5,445 US Dollars

over a huge area and population.Why these differences? I will focus on India and Pakistan

here because they of their shared history and same independent dates and resources, though

India got the Lion share of resources when it was partitioned.

As was required in the Assignment, I will focus on two important historical events onboth the countries. Now lets consider the British Raj Era 18581947, and how decisions taken

in that era are still the reasons of Poverty of Indian Subcontinent. (In Acemoglu, Johnson,

and Robinson, henceforth AJR, (2001), they advanced the hypothesis that the mortality rates

faced by Europeans in different parts of the world after 1500 affected their willingness to

establish settlements and choice of colonization strategy. Places that were relatively healthy

(for Europeans) werewhen they fell under European controlmore likely to receive better

economic and political institutions. In contrast, places where European settlers were less

likely to go were more likely to have extractive institutions imposed. They also posited that

this early pattern of institutions has persisted over time and influences the extent and nature

of institutions in the modern world. On this basis, they proposed using estimates of potentialEuropean settler mortality as an instrument for institutional variation in former European

colonies today.

In places like South Africa and America, British fared much better and had low

mortality rates, so these places received better economic and political institutions, and we can

see the results of the British policies, a Superpower America and a developed Nation in Africa.

In the case of Indian Subcontinent, the British mortality rates were high, so they set up

extractive institutions here, and to a certain extent, both India and Pakistan are still controlled

by the same bureaucratic structure and Zameendari system. Zameendars were given controls

over huge Agriculture land, and in return they had to pay the British huge amounts of

money. Zameendars were just the middleman, they used to extract everything from the poor

farmers, even to the extent that farmers didnt even get enough to eat and this system was the

cause of many Famine. The famous Famine of Bengal of 1940s still haunts people, and

Amartya Sen (The only Nobel Prize winning Economist from Indian Subcontinent) often

talks about the horrors of famine as he is from Bengal.


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After the independence from British, the first Prime Minister of India suspended the

Zameendari system, which resulted in early economic success of India as the resources of the

country were better allocated to the masses. On the other hand, Muslim League the main

Muslim party which fought for the partition and which is the founding party of Pakistan was

composed of a huge number of wealthy Muslim nawabs and Zameendars. Land reform was

not in their interest, so to date the economic, social and political arena is dominated by the

extremely wealthy landlord with huge ramifications for the economic progress of the country.

Apart from this institution debacle which Britain created, there are other actions which

Britain took during that period, and which still have a huge impact on the economies of both

the countries. The biggest problem is that Britain partitioned the country on religious bases,

which destabilized the whole region for good. Pakistan and India fought two full fledge wars

in 1965 and 1971: This resulted in an Arms race between both the countries, and that took its

toll on almost all other sectors. India and Pakistan still have huge military budgets, which are

a big drag on the economic growth of both the countries.

Because of this animosity between the two countries, the trade between the two

countries is minute, and this has huge ramifications. Indian products come to Pakistan via

the Gulf after paying huge transportation costs and the taxes as well. Recently, some progress

has been made on the trade as India and Pakistan formally started talks about opening trade

between the two countries, but that is just a stunt to appease the public. The politicians in

pakistan are mostly Industrialist and are running huge empires, most of which have almost a

monopoly status or oligopoly status at worst. If they flood the market with better Indian

products which cost less as well, they will go bankrupt so this is not going to happen in near

future. The only car brands available in pakistan are Toyota and Honda, and Government hasliterally shut the entry of any other carmaker by imposing a tax of 400 percent on any car

which you import. This is how things work in Pakistan.

I have covered all the requirements of the assignment in the above paragraphs, and

now I would like to end this article with some concluding remarks. India and Pakistan have

huge potential, both the countries are resource rich, have young populations, and are

equipped with almost every required ingredient to become Developed Nations. So why arent

they delivering as per their potential. Economic history has taught us how nations grew i.e the

example of Industrial Revolution, the Marshal plan which helped Europe to rebuilt after

world war two, and the recent example of Chinas rise.

Apart from that The great depression of the thirties, and the German hyperinflation

also taught us a lesson or two. Inspite of all the evidence of history we have failed time and

again in averting depressions, and also in bringing out a huge part of the world out of Poverty.

So history cannot teach us everything, and perhaps normative economics is much harder

than positive economics. This is what the some great Development Economists have to say


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about this issue.

Romer: subcontract a part of your country to people who know how to do it.

Collier: Invade when needed.

Easterly. Freedom: Leave countries and people alone. Let them nd their own way.

Acemoglu and Robinson: need an accident, a revolution (french revolution, British glorious

revolution are favorite examples): may be middle east is escaping now? May be not?

Here again the only thing on which all of them have consensus is only the dispute.

But the future is hopeful inspite of all this, never in the history of the world we were so well

connected with each other, never in the history of the world we had so much information

about everything which can use for our purposes, never in the history of the world it was soeasy to take such an amazing course online and thats for free too.

This is empowering masses, and only the empowered masses can take their rights

from the privileged few. This started in Middle East and has spread all the way to Brazil, its

not the matter of how, its only a matter of when this will take over the whole world.

References:

Robinson, James A, Daron Acemoglu, and Simon Johnson. 2001. The Colonial Origins ofComparative Development: An Empirical Investigation. American Economic Review 91:

1369-1401

World bank Open data Services

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Why India & Pakistan are still Grappling with Poverty