Notes in Circulation # 5

Conflicting claims: the relationship between political instability and the economy

Many people are worried about how political instability is creating an inconducive environment for the Pakistani economy. Khaleeq Kiani writes in Dawn that “The prime minister has not been able to hold a meeting of the federal cabinet for almost a month against the normal weekly schedule. Among the lost list of items on the agenda of the scheduled but cancelled cabinet meeting on March 1 included a mid-year review of the federal budget 2021-22 and key economic indicators.” What’s missing here is the part of the story in which the political instability is actually endogenous to the economy. That is, it is a consequence of the interaction of economic actors (which are also power centers) which are making competing and conflicting claims on economic resources.

To understand this better, consider the idea that people and groups across the economy are trying to persuade others of something or the other: “Pay me more”, “give us better terms for this loan”, “increase the budget for this particular project”, etc. In doing so, people are essentially making conflicting claims on finite (but not necessarily scarce) economic resources. For example, disagreement about minimum wage is essentially capital and labor making conflicting claims on resources. But there are a variety of power centers in the economy making such claims: industrialists, landed elite, finance and banking sector players, small traders, workers, etc. Champions of different causes like education and health or different regions might try to promote policies which benefit their respective causes. In the Pakistani case, the military is another important power center which makes claims on economic resources.

The state of tension and relations among these various power centers constitutes the structure of the economy. Political instability arises out of the this structure. That is, it is a structural problem. Economic cycles also arise out of the structure of the economy. When Parkin and Bokhari write in the Financial Times that the Prime Minister was “trapped by the same economic cycles he had vowed to end”, what they are describing is the Prime Minister being trapped within the structure of the economy. It is important to understand why this is the case. Imran Khan’s election to the Prime Minister’s office did not fundamentally challenge let alone change the structure of the economy. It was in fact a consequence of the existing structure of the economy. This might seem like an odd idea, but there is little question about the way multiple power centers aligned themselves to bring Imran Khan into power. These power relations are the structure of the Pakistani economy. And so it should not surprise us if economic and political crises come hand in hand, because they have the same source and are grounded in the same dynamics.

The question then is how we want these relations to be managed and these tensions resolved. This can be done in a variety of ways. One of them is to not do anything about them, and leave them unmanaged. That can lead to a breakdown in relations and the tensions resolving themselves through social upheaval, large scale crises and socio-economic trauma. These are then usually followed by emergency measures. But it is also possible to deliberately manage and transform the structure. Various power centers can negotiate and agree to settlements which ease these tensions. The postwar welfare state in Europe was such a negotiation and settlement.

The implications for Pakistan are that we cannot and should not be surprised when economic and political cycles keep on repeating themselves. Of course they repeat themselves! Because the underlying relations and tensions between power centers (especially the government and the military) remain unsettled and unresolved. The underlying structural problems and puzzles are the same as before. It is only their manifestation which might be somewhat different than before, but the underlying dynamics are consistent. Thus what is needed is a new social contract. That is, an agreement among the power centers about how we wish to organize and govern our society — how we wish to govern ourselves. This is a tall order. But the reward is proportionate: a modicum of the economic and political stability which we long for.