At 75 Years, Pakistan is Viewed As the Sick Man of South Asia. Can it Heal Over the Next 25?

Date:

Uzair M. Younus

THE year is 2047 and Pakistan, once dubbed by this author as the sick man of South Asia in 2022, is now an upper middle-income country.

The economy has grown by an average of 7.5 per cent per year since 2025, raising GDP per capita to over $8,000. Organisations measuring human development hail the country as being inclusive, innovative, and most important of all, independent.

Its political system is stable and democratic; women lead some of its most iconic global companies; and tens of millions of people have been lifted out of poverty in the process. The two most popular candidates for becoming prime minister have cut their teeth running Pakistan’s largest cities, converting them into Asian megacities that are the envy of the world.

Back to reality

As Pakistanis celebrate the country’s 75th Independence Day anniversary, achieving such an outcome in the next 25 years may sound like the fantasies of a man hooked on the good stuff. After all, the last few decades have laid bare the multiple crises engulfing Pakistan.

But this need not be the case, for Pakistan and its citizens, the majority of whom are under the age of 25, have both the capacity and will to radically change the trajectory of their homeland by 2047.

Dr Ali Hasanain, the former Head of the Economics Department at the Lahore University of Management Sciences (LUMS), has argued in his public remarks that guaranteeing the security of citizens’ life, having in place a system that protects their property, and a justice system that upholds contracts in the state are critical ingredients for progress. Without these core ingredients, he rightfully argues, economic progress is always going to be stunted and exclusionary.

The brighter side of his argument is that the dream of an inclusive, innovative, and independent society requires reforms that deliver on the basics: guaranteeing the security of life, property, and contract.

Violent tendencies

From its very early days, Pakistan has failed to focus on these core ingredients.

Birthed in the tumult of partition, the land of the pure has been plagued with violence of all kinds since its founding.

One of the very first outbursts of violence occurred in 1950 between Hindus and Muslims in what was then East Pakistan. The three-month spree of violence killed tens of thousands and forced the migration of even larger numbers.

What happened in East Pakistan at the time soon engulfed West Pakistan, with the 1953 anti-Ahmadi riots in Lahore causing widespread killing, looting, and arson. The violence was ended with the imposition of martial law for three months in Lahore, and the ultimate dismissal of the Khwaja Nazimuddin government.

These violent events during Pakistan’s early years foreshadowed much of the tumult that was to come, including the ghastly horrors in East Pakistan in 1971, the continuous persecution of minorities — which continues to this day — and the critical role of the military in the country’s political economy.

Individuals who spoke truth to power frequently found themselves behind bars, and while most with privilege survived, countless citizens breathed their last while being held in illegal confinement. Each wave of overt military intervention worsened the security outlook for citizens, with the Musharraf regime’s policies after 9/11 unleashing the most devastating wave of violence the country had seen in decades.

The normalisation and at times celebration of violence continues to plague Pakistan and this violence at times finds patronage across civilian and non-civilian institutions as well.

An example is the Nazim Jokhio case in Sindh, where the person accused of the murder was welcomed by the leadership of the Pakistan Peoples Party ahead of the no-confidence vote in the National Assembly against Imran Khan.

Another is the ghastly lynching of Priyantha K. Diyawadana, a Sri Lankan man working at a factory in Sialkot; the brutal murder after blasphemy allegations goes to show how normalised and intertwined violence has become with everyday life in Pakistan.

Citizens on the periphery of Pakistan’s political economy have been awaiting the release of their loved ones for years. Women, who are half of the country’s population, experience unimaginable physical and emotional violence every single day: the 2017-18 Pakistan Demographic and Health Survey shows that almost 1 in 3 women have experienced physical violence since turning 15!

Lack of human security in a society forces individuals to focus on the security of themselves and their loved ones in the here and now. These basic needs related to safety, categorised as “deficiency needs” in Abraham Maslow’s hierarchy of needs, must first be met before members of society focus on other, higher-level pursuits.

And while Maslow’s hierarchy is debated in academia, the common-sense logic of this hierarchy, where a human being’s true potential is left unfulfilled due to lack of safety and security, cannot be ignored. This creates an entire generation of citizens who are happy to not rock the boat too much, for voicing their views openly could land them in prison or worse, bring a premature end to their lives.

At scale, this insecurity stunts economic growth by increasing what financial and economic experts refer to as the risk premium demanded by investors. In a society prone to higher degrees of violence, investors will demand higher rates of return to mitigate the potential losses that could emanate from various events, including rioting and looting.

This normalisation of violence means that foreign companies and investors are likely to refrain from sending managerial talent to a country like Pakistan. Even when they do make the decision, they will have to bear extra insurance and security costs for their staff, which is just one of many ways in which the cost of doing business in a country goes up due to lack of security.

The end result is that Pakistan’s economy would struggle to bring in foreign expertise and talent critical to modernising its economy and generating sustainable growth.

The land belongs to the rich and powerful

Security of property is closely linked to security of life — a society where the owner of property remains insecure will have a tough time protecting said owner’s property. Talk to any expert worth their weight in Pakistan about problems that ail the country and lack of land reforms will make its way into the top three. While India under Nehru managed to push through land reforms at scale, Pakistan’s leaders failed.

Even Zulfikar Ali Bhutto’s efforts fell short despite his immense popularity, meaning that feudalism remains a reality across Pakistan, especially across much of Sindh and Punjab. But land reforms are meaningless without property rights — after all, well-heeled and well-armed elites will not shy away from forcibly occupying land belonging to less-privileged members of society.

The recent, most public evidence of the lack of property rights in Pakistan is the Bahria Town case in Karachi. Land that belonged to citizens for generations was forcibly taken away in collusion with the government to develop a housing society. The case ended up in front of the highest forum for justice, which basically legalised the occupation of private land by telling the occupier to pay fines.

China-cutting is a word almost every citizen of Karachi knows — it is nothing more than the use of force and elite networks to occupy property. In a society where such things become the norm, efficient allocation of capital towards productive endeavours becomes nearly impossible.

The lack of property rights enforcement is not just limited to land: the nationalisation of a whole host of industries under the Zulfikar Ali Bhutto government also violated citizens’ property rights. The negative impact of the nationalisation continues to cast a long shadow over Pakistan’s economy to this day and the country remains handicapped by loss-making state-owned enterprises that are sucking scarce resources from Pakistani taxpayers.

An economy where property is not secure struggles to attract investment in capital-intensive sectors, especially from foreign sources. When influential members of society find that they can forcibly take over property without any punishment, they are likely to leverage all their influence to double down on their actions in the future.

As a result, less privileged members of society are going to be robbed of their wealth, leading to the development of an exclusionary economic system where upward social mobility remains unattainable for broad swathes of society.

The trust factor

Compounding these challenges is the lack of trust people have in contractual obligations.

Modern industrialised societies are governed by a complex web of relationships held together by contracts. From an agreement to pay someone within 30 days of receipt of goods — a common timeline for sale and purchase of goods — to agreements governing use of intellectual property and payment of royalties, 21st century economies require an efficient and equitable system that governs and enforces contracts.

Pakistan fares poorly in this regard with individuals and businesses alike frequently violating contracts and getting away with it without punishment. It is the norm for cases to go on for decades and for those with power and privilege to run roughshod over their contractual obligations.

A familiar example of this is payment of wages on time. Many readers will either have experienced or know of people who are routinely not paid on time for their labor — this is a contractual violation and in countries with efficient judicial systems, grounds for major lawsuits.

Individuals and businesses are not the only ones who ignore their contractual obligations in Pakistan. It is common for the sovereign to not pay its liabilities on time, which is why there is the energy and commodity circular debt in the country. Those who have experience working in Pakistan or dealing with its government know about these issues. As a result, even the IMF demands Pakistan first conduct prior actions on its agreements before the money is disbursed; if the country had a track record of holding up its end of the obligation, the IMF would not force such prior actions on Pakistan.

The consistency with which contracts are dishonoured in the economy forces individuals to distrust those they do not know; for a contract, once dishonoured or disputed, can take decades to resolve.

As a result, economic actors choose the security of their clans and communities over the desire to scale, leading to inefficiencies across the economy. Compounding this issue is a sovereign that also routinely ignores its own contractual obligations, forcing domestic and foreign investors to seek higher guaranteed returns on their investments — this is why electricity tariffs, for example, are denominated in dollars and command a high, guaranteed return on equity.

It is therefore no surprise that Pakistani businesses and entrepreneurs find it astonishingly difficult to get access to growth capital. On the few occasions when this capital is allocated to small entrepreneurs, the cost of such capital is extremely high, leading to an incentive structure that only rewards investments in protected, rent-seeking sectors where outsized profits can be earned.

A way forward?

Increasing the security for life, property, and contracts in Pakistan is the only way to get rid of the various distortions we see in the country’s economy today. This insecurity is a primary cause of the current low-growth equilibrium the economy finds itself in. And solving this problem is not an economic, but a political challenge. A concerted effort to reform the political system in Pakistan, not its economy, is the critical building block for a stronger, more prosperous nation-state.

The starting point must be the continuous devolution of power, including policing and taxation authority, to the lowest level. A police force that is answerable to locally elected leaders is more likely to be responsive to local issues, key among them the security of individuals and their property.

This is especially true in urban environments, where the power of traditional power-brokers weakens over time. Without an effective police force answerable to locally-elected representatives, the basic tasks of protecting life and property will remain unfulfilled, compounding the types of problems described earlier.

Empowered local governments that raise local taxes are also more likely to be held accountable by their constituents. When resources are mobilised by local representatives, citizens can participate in the process through which their resources are deployed for the benefit of the local community.

Regular elections provide a mechanism through which these representatives can be held accountable, while also fostering a sense of community ownership across the country. As local taxes deliver local benefits, the incentive to evade taxes because the benefits are not visible locally also reduces. In addition, local representatives can aide citizens in safeguarding their property and mediate disputes, further improving the security of life, property, and contract.

While Pakistan has passed the 18th Constitutional Amendment, a major landmark in the country’s history, full devolution of power has not yet occurred. Achieving this goal should be the number one priority as Pakistan looks towards celebrating 100 years of independence.

Judicial reforms, especially at the local level, are also linked to devolution of power. A cursory study of developed economies highlights that most disputes, including economic ones, are efficiently handled by local courts.

In a country like the United States, local judges are elected, making them accountable to the people. An efficient and equitable system of justice is the lifeblood of an economy, protecting the vulnerable and forcing actors to honour their contracts. Mobilisation of local resources can and should be linked to improving the local judicial system, providing resources and training to both magistrates and investigative agencies to deliver speedy justice to all members of society.

Once the state builds its capacity to protect life and property from the bottom up, and individual economic actors begin to honour their contractual obligations, policy can focus on other issues plaguing the economy with more ease. This is because the transmission mechanism, whereby policy actions trickle down to the societal level and lead to change, will be much more efficient, as the state has the capacity, and citizens have the trust in the state, to deliver on its promises.

So long as these basic issues are dealt with by elected officials and their bureaucrats in Islamabad and provincial capitals like Lahore and Karachi, Pakistani society will continue to struggle in meeting its own true potential.

A consistent effort to make life, property, and contract more secure can unlock this latent potential. It will give local actors comfort to think long-term, reduce distortions in the economy, and allow a more efficient allocation of capital and labor. It will also build trust between economic actors and the state, reducing the risk premium domestic and foreign investors demand. Finally, this transition will fundamentally reform the current kleptocratic economy, unlocking opportunities for upward social mobility for millions of citizens.

Generating upward social mobility for ordinary citizens should be the north star for Pakistan over the next 25 years, for without enriching the many, not just the few, Pakistan can never be an inclusive, innovative, and independent country.

c. Dawn

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