Pakistan: An Elitist Economy

Pakistan: An Elitist Economy
June 3, 2015

The talk by Dr. Ishrat Husain titled Pakistan: An Elitist Economy focused on economic management in Pakistan and the partition between the state and the market. Dr. Husain is the Dean and Director of the Institute of Business Administration, Karachi. He had a distinguished career at the World Bank for over two decades and he was formerly the Governor of Pakistan’s Central Bank. He has been the recipient of numerous awards including the prestigious Hilal-e-Imtiaz award by the President of Pakistan.

Dr. Husain explained that the state and the market are necessary components to the running of the economy. He said that the state and the market lead to social change; the market is important in allocating resources while the state has to ensure that markets work without imperfections and that distribution is equitable.

Dr. Husain emphasized upon the need to have factors of production at the economy’s disposal to initiate growth. He argued that since elites have captured the market and the state in Pakistan, it has resulted in the “creation of a vicious cycle of inefficiency and inequitable distribution of wealth.” Explaining the difference in motivations of bureaucrats and private owners towards their work, Dr. Husain said that the incentive structure for private citizens and public citizens are completely different. Bureaucrats should not be given the power to run a business as they don’t know how to run a business.

He maintained that the state has to create a level playing field for the private sector. There has to be healthy competition between companies and you cannot benefit one particular company over all others. It is the job of the state to ensure that everyone follows the same rules and regulations should be in place so ordinary consumers are protected. Furthermore, education, healthcare, social services, drinking water supply, and sanitation should all be the exclusive domain of the state. This does not mean that you should not have private providers; private providers should be present as long as they meet the criteria of excellence.

Dr. Husain asked, “Why shouldn’t a constable’s son be able to attend the best schools? It should be the prerogative of the state to ensure that students are not deprived of a quality education because of their poverty.” He observed that we should only subsidize the healthcare of the poor class who do not have a good income but we subsidize across the board which is the wrong policy to follow. He said that another way of removing the partition between the state and the market is that by taxing every individual and company, above a certain threshold value, regardless of what the company does. Dr. Husain stated that these are the ways through which the elitist model in Pakistan can be broken down.

Dr. Husain also emphasized on institutional restraint. He said that in the Constitution of Pakistan, there are many institutions that are sacrosanct – the Supreme Court of Pakistan, the Audit General, the Election Commission, the National Accountability Bureau and the State Bank of Pakistan among others. These institutions should have people of the highest integrity and competence working in them. He said, “If you have a powerful National Accountability Bureau, you can take care of the people who corrupt and contesting elections and then you will be able to see the results in the country.”

He continued, “If you have a state bank of Pakistan, which ensures that you are not giving loans only to the big guys in the big companies, but they are also giving loans to the small and medium enterprises and the small farmers, then this elitist economy can be completely dismantled.”

Dr. Husain said that as the urban middle class increases, we will have more urban constituencies and people will not vote on the basis of kingship or feudal lords anymore. Moreover, politicians will become aware that if they indulge in this patronage politics, then people will not vote them in power. Citing the example of the elections of 2013, he said that so many governments were overthrown as they were not performing.

Dr. Ishrat Husain said that if you have an educated middle class that is increasing in size, then the quality of our government will improve and an elitist economy can be torn down. He commented that if you are looking for a “messiah”, then that will not happen. This is a slow, gradual and very painful process but it does deliver and can help bring Pakistan out of the red.