Pakistan’s rent-seeking missiles - Mosharraf Zaidi.- Wednesday, March 02, 2011

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How can Pakistan become a consistently growing economy? At the white-hot core of the answer to that question burns the midnight oil of the entrepreneur. In a culture that has often celebrated the most dubious of distinctions, it is consistently amazing that Pakistan has little or no time to celebrate and recognise the people who contribute to every aspect of national life – from the taxes that keep the state machinery running, to the philanthropy that keeps religious charities alive, to the grants and off-shoot ventures that help finance art and culture.

Of course, the political discourse has little space or time for the entrepreneur. The feudal culture of Pakistani politics, where even urban middle class parties like the MQM eventually behave like feudal overlords is one possible reason for why there is such little discussion about how to promote and enable dhanda. There is, of course, a much more insidious reason why this could be true.

It could be that the emergence of an entrepreneurial class in Pakistan would serve to erode, perhaps even marginalise the feudal, ethnic, linguistic and religious basis for the politics of a large percentage of the country’s politicians. Still, it’s not entirely clear that entrepreneurs are not easily co-opted by the elite. The critical mass required for an entrepreneurial class to develop a political voice is not imminent. (Attributing to Nawaz Sharif, the voice of this entrepreneurial class is probably more than a rounding error).

There is hope however. The Pakistan Business Council (PBC) a high-power alliance of big Pakistani businesses, has been on an all-out policy offensive, chiming into the national discontent, and importantly, owning this growing sense of discontent, by announcing an agenda for economic reform. The agenda itself is not extraordinary, except for the fact that it represents the priorities of Pakistan’s most successful entrepreneurs.

The PBC wants four things. An immediate redressal of the energy crisis, a solution to the government’s constant fiscal crisis, an increased set of investments in social protection and social services – such as education and health, and improved trade within the South Asia region.

One thing that comes across clearly is that big business in Pakistan is surprisingly well-aligned with the rest of the country. It hardly matters whether you are rich or poor, jiyala or jamaati, liberal or conservative, the energy crisis matters to all. The fiscal crisis and government’s constant printing of money, and the resulting inflation matter to all. Having a society in which there is inequality of access to social services, matters to all. And, the ability to have free and open trade with India, as a matter of the impact on the economy, matters to all.

The PBCs demands represent a reasonably robust statement of intent, above and beyond the slim population of successful entrepreneurs. A much more worrisome truth is buried beneath the substance of the PBC’s demands. Can you see the common thread in what the PBC is asking for? Now, the captains of Pakistan’s industry will not come out and say it openly (perhaps quite rightly), but every single one of its demands is linked directly to government.

Government is an obstacle and an impediment to the solution of each one of the crises that the PBC identifies – the energy crisis, the fiscal crisis, the social service delivery crisis and the trade crisis. All four of these crises are rooted in the action and/or inaction of government. Much of the status quo is not simply a product of stasis. It is a product of the deliberate and concerted gains available to individual and group actors within the state infrastructure. In plain English, things are the way they are, because there are people who profit from things being this way.

Corruption, impossibly difficult to prove at the micro-level of the individual is widely known to exist in the exchange, reward and allocation of rights to explore for, produce and distribute energy. Corruption is petty and hard to identify at the individual project level, but we know it exists at the overarching public sector development level, at the overarching military procurement level, and at the level of government employees not showing up to work. This has the dual impact of constantly rising fiscal needs, and a constantly declining set of social services that the state offers to its citizens.

This is why every day, more and more people opt for privately bottled water, privately delivered education, privately packaged healthcare, and as and when possible, private residential enclaves, private electric generators and private security guards. Corruption is what allows some companies some kinds of special privileges, and other companies, none at all. It is what produces deeply skewed trade patterns and manufacturing profiles. Again, we don’t know for sure, who is doing it, and where, and how. But we know it is out there.

The reason that government exists at every level, in every way, every single step of the way is to create channels to allow for rents to be earned. The corruption is there because government is there. And government is there, structured in a manner, to enable that corruption. This is harsh, and will be seen as a betrayal of my record of supporting state effectiveness. But to have an honest discussion about making the state more effective, we have to have an honest discussion about the state. The state is structurally geared to extract non-productive rents, in a manner that minimises accountability.

This is not political science, or sociology. It is the economy, stupid.

The failure of Pakistan’s economy to grow consistently and sustainably is deeply enmeshed in the architecture of the Pakistani state and the nature and depth of its involvement in day to day economic and social affairs. The fact that the current structures don’t work is a problem of analysis. The current structures work very well, for the purpose they serve – the individual and group enrichment of those who play the system game. These are Pakistan’s rent-seeking missiles. The petty corrupt, commissions, hissas, cuts, fees, bhattas, shares. This is what the system is designed to produce. This design was not commissioned by some dark, hidden conspiracy. The design is what occurs when things take shape while no one is watching.

Do you want to know why no one is watching the system of governance take shape? Because everyone is busy watching the non-stop Raymond Davis circus. This system is what is causing the problem of loadshedding, not solving it. It is what is causing the problem of inflation, not solving it. It is what is causing the problem of absentee teachers, not solving it. The economy is being strangulated by this system. This is not of the people, by the people, or for the people. It is the opposite.

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