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Pakistan's Poor Export Performance
The Social Origins Of Economic Behaviour
Dr.Akmal Hussain
Newspaper: Daily Times
Dated: Thursday, January 16, 2003

Pakistan's slow export growth and the related debt problem are rooted in the tradition bound nature of the industrial elite and its failure to diversify into non-traditional high value added exports. Even after 50 years of industrial growth the percentage of total investment going into textile and related goods has not declined. (It was 41% in 1964-65 and 44% in 1990-91). The textile industry in Pakistan was able to develop in the 1960s as a result of huge subsidies provided by the Government. Research has shown that as a result of government subsidies the textile manufacturers in the 1960s were making large profit in rupee terms, yet were producing negative value added in dollar terms. This shows that Pakistan's traditional industry was not internationally competitive. By the 1990s the structure of State support to industry was substantially dismantled and industry was subjected to the rigours of the market to a much greater extent. Even then as late as 1990-91 as much as 7% of GDP was transferred by the government in the form of subsidies. Diversification into higher value added exports was constrained by government patronage on the one hand and lack of risk taking dynamism amongst most members of the industrial elite (barring a few brilliant exceptions).

It could be interesting to explore the historical origins of traditionalism on the entrepreneurial elite and the persistence of patron client relationship between government and industry.

The industrial class that emerged in Pakistan in the 1950s and 1960s, was not characterized by risk taking dynamism, the mobilisation of new knowledge to innovate and diversify into non traditional industry. In fact the behavioural culture of the industrial elite may well have remained non-market and mercantilist in character. Deeply rooted was rent seeking behaviour, reliance on anti competitive policy interventions and dependence on government patronage. In this article we will briefly indicate the historical origins of such propensities in Pakistan's ruling elite. Professor Imran Ali in his seminal historical research, has shown that unlike most other areas of central and northern India, the upper echelons of the social elite in the Punjab was extensively displaced during the transition from the Mughal to the British empire. This occurred as a result of a wide spread peasant up rising. Only a few families in the social elite of the Punjab from pre Mughal days retained their position perhaps because of their spiritual stature as peers and faqirs. The landholding segments of the peasantry were in the forefront of this armed rebellion. These peasant war bands, ultimately asserted autonomous control over land and political authority. The rebel leadership thus emerged as a new class of superior landholders.

With the onset of the Raj the British rulers sagaciously arrived at a convivial relationship with this new class of landholders by consolidating their ownership over land and in fact granting additional land to particularly loyal segments of this new elite. Of course the most far-reaching form of cooperation between the newly arisen Zamindars and the colonial State occurred through the development of canal irrigation, and the process of agricultural colonization that accompanied it in the late nineteenth century. Here the British once again chose as grantees of land, those who were from the "agricultural castes". The military and bureaucracy were the other institutions strengthened through the new canal economy. Large areas of canal land were devoted for military usage. Extensive land grants were made to army pensioners and war veterans, in a form of asset transfer that was unmatched in any other part of British India. Canal irrigation created the conditions for a patron client relationship between the State and the economic elite. This was because water, a vital yet scarce resource, was under administrative control. Not only were the Zamindars more dependent on the government than under rain-fed agriculture, but the centralized nature of gravitational flow irrigation accentuated the dependence of the cultivators on the State. The more powerful landholders were able to manipulate and bribe local officials to divert water to their land, either out of turn or in unfair proportions. The power of public office was conditioned by private vice. British government officials in the upper echelons during the Raj were typically men of honour and financial probity. However this was not true to the same extent in the case of petty officials at the local level. The potential for corruption therefore was endemic to the economic relationship between the citizen and the local tiers of the State.

The State of Pakistan as it emerged in 1947, not only inherited various institutions of the State and structures of power, but also the behavioural proclivities in the economic elite. These historical attributes had as great an impact on the pattern of investment and export growth as on the government's economic policy.

In this article we have suggested on the basis of Professor Imran Ali's research into eighteenth century India, that peasant war bands replaced the traditional Mughal elite in the agrarian structures in the areas that later became part of Pakistan. The position of these newly arisen landholders was consolidated by various revenue settlements by the British and later strengthened further through land grants in the canal colony areas. This established a tendency in the economic elite to enrich itself through the patronage of the State. Conversely those who attempted to rule, sought political and social support from this elite through the transfer of State resources. The strong patron client model of governance established in the colonial period was replicated in the new State of Pakistan.

The British had consolidated a recent elite through a sharing of military and agrarian resources with intermediaries. In Pakistan successive governments endeavoured to maintain existing stakeholders essentially through the same patron client mode of governance. The government later began to constitute a new commercial and industrial elite but again through the transfer of State resources. Thus in both the colonial and post colonial periods, rent seeking behaviour rather than income generating capabilities appears to have been the key impulse in industrial growth. The result was an inability to achieve competitive efficiency, which became an endemic constraint to export diversification, economic growth and financial stability during the five decades after independence.

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