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.