Notes in Circulation # 7: Comment on the proposal for an economic security council

The Sustainable Development Policy Institute (SDPI), an Islamabad based think-tank, has “suggested forming an economic council under NSC comprising the government, leaders of the opposition in the Parliament (National Assembly and Senate), all four chief ministers and the representatives from top military brass.” This may sound like a harmless proposal. After all, what Pakistani could fail to appreciate the need for a platform for coordination and cooperation among the political class of the country to secure the nation’s economic prospects? Should we all not embrace this proposal? We should think twice before supporting any such proposal, which is not as benign as it seems. Inclusion of representatives from the top military leadership should ring alarm bells. I argue that in making this recommendation, the SDPI is in fact giving technocratic cover to the military as it subsumes economic policy and management in Pakistan within its ambit. If the proposal is institutionalized, it will not only damage Pakistani democracy but also indirectly damage the economics profession in Pakistan.

Readers might recall that at the start of this calendar year, a national security policy document was published through the national security division of the Prime Minister’s Office. The national security advisor at the time, Mr. Mooed Yusuf, gave interviews explaining, defending and advocating for the document. While pretending to give precedence and pride of place to economic security, growth and distribution, that document was really about the military exercising control over the economic policies of Pakistan. While the document itself was vague enough to not arouse such suspicions, in an interview with Al-Jazeera English Mr. Yusuf pretended to be politically neutral despite being an official in the Prime Minister’s office. That distancing from the PTI, combined with his insistent and confident claim that it “is a document that no Pakistani government, I can guarantee you, will go back on”, gave the game away: future governments will have to abide by this vision because it comes straight from the military. The news that “Chief of the Army Staff General Qamar Javed Bajwa recently approached the US administration with the explicit permission of Prime Minister Shehbaz Sharif for an early disbursement of funds from the International Monetary Fund (IMF)” seems to confirm that the present coalition government signed onto the vision of the national security policy before forming a government.

But let us give the proposal the benefit of doubt. Could this proposed council make a new contribution to the existing institutional framework for economic policy and management of the country? Article 156 of the Constitution already defines the role and composition of the National Economic Council (NEC), which gives enough flexibility for opposition leaders to be appointed to the NEC. The NEC can also coordinate with the Council of Common Interests (Article 153), whose composition has an overlap with the NEC anyway. In fact, the NEC was reconstituted by the President in early June. The key difference in the economic security council being proposed by the SDPI is the inclusion of “representatives from top military brass”. This proposal comes at an interesting time, as experts and non-experts alike discuss civil-military relations. The news of this proposal came days after Mr. Uzair Younus (director of the Pakistan Initiative at the Atlantic Council’s South Asia Center) wrote an article for Nikkei Asia. In this article, Mr. Younus notes that the military “operates a multibillion-dollar corporate empire across various sectors” and argues for a doubling down on the military’s role in the Pakistani economy: “It is time to accept that rather than trying to cut this empire down to size, it may be more fruitful to develop Military Inc. 2.0: a corporate empire that is globally competitive.” The SDPI’s proposal and Mr. Younus’s article are part of the continuing mainstreaming and legitimization of contracting democratic space in Pakistan in relation to the expanding role and influence of the military.

The SDPI’s proposed economic council, if it goes through as suggested, would be part of the formalization and actualization of the vision of the National Security Policy document, and in doing so would help the military further entrench its power. This would in turn tip the balance of power further away from democratic forces in the country. (Dawn’s editorial was an important criticism, and certainly not the only one, of the army chief’s intervention.) Furthermore, since the SDPI is a think tank, the fact that the proposal is originating there is extremely worrying. Democracy is not just about elections. Independent organizations and platforms which help bring forward and sift through ideas and proposals are important. The integrity and independence of scientific disciplines, including the integrity of economics as a social science and a source of policy ideas, is also crucial for a democratic society. As such, the formation of this council should be opposed, especially by economists who claim to espouse democratic values. This is important, both for the sake of Pakistan’s democracy but also for the sake of the economics profession in Pakistan, which may be at risk of becoming an instrument in service of the anti-democratic ambitions.

Notes in Circulation # 6

The exile of political economy from Pakistan

Politics in Pakistan has achieved something truly special. While economics and its practitioners have been taking a continuous beating the world over since the the Great Financial Crisis of 2007-08, Pakistani politics and its most prominent public faces have dragged themselves through so much mud that nobody wants anything to do with them. Politics is toxic, they say. So toxic, that while economists remain firmly within the crosshairs of anyone investigating social disorder, crisis and breakdown in many other countries of the world, people want more economics and less of politics in Pakistan. We’ll just have pure economics, thank you very much. No politics for us, please, and no political economy either.

Consider a few instances. Reza Baqir, former governor of the State Bank of Pakistan, argues in an op-ed in Dawn for a “non-partisan plan” to be prepared by a group of non-partisan (read apolitical) economists working out of a university providing a “neutral, non-partisan space”, while they are “chaperoned by a credible non-partisan leader to bring them all together.” Ariba Shahid, business journalist at Profit, tweeted her approval of this article: “The real enemy are the politicians, partisans- people that can’t think beyond political binaries.” Nadeem ul Haque, vice chancellor at the Pakistan Institute of Development Economics, tweeted that “Student unions are for student events. Universities are places of learning not political vendetta clubs or for religious zealots. Let us keep politics and religion out of universities and focus on learning, Creating a work force for the future.” This rejection of politics at universities is not an equal or equitable proposition. It tips the scales of power further in the favor of people who will come to universities from social backgrounds where they don’t rely on student unions for their political capital, and whose networking will deepen their political agency regardless of student unions.

This is a specific manifestation of a more general problem: rejection of politics in any sphere of social life is in effect the rejection of the politics of the weak. It keeps the politics of the powerful hidden from view. Make no mistake: the politics of the powerful continues to exist and function, no matter how loud the anti-politics voices get. A rejection of politics by economists, vice chancellors, or by anyone else merely helps throw a veil over political processes. In doing so, it worsens the very problems which people are sick of, e.g. politicians using public office to line their own pockets.

The rejection of politics also comes from the commonly repeated view that political instability is bad for the economy. While not incorrect, this view ignores the flipside of the coin: that competing and conflicting claims on economic resources between different power centers need management and resolution. The easiest way of doing this is to acknowledge and abide by the constitution as the national-level rule-book for our political economy. Our inability to take this route directly leads to political instability. There are various complex connections and feedback loops going back and forth between the economy and polity. Economic crisis and impoverishment may be a consequence of political instability, but that instability is also shaped by powerful economic actors competing over resources.

It is important to keep in mind that the rejection of political economy and the yearning for a pure, technical economics which will lead us to prosperity is not neither new nor specific to Pakistan. The transformation of political economy to economics has a long history. Adam Smith was the first great exponent of the political economy of the “classical economists” in the late 18th century. Important contributions by Ricardo and Malthus followed, and 19th century political economy reached its zenith with Marx. The transformation towards a less political economics began in the late 19th century but was resisted by the work of economists like Veblen and Keynes. Veblen was one of the figureheads of institutional economics while Keynes is arguably the single most important economist of the 20th century and one of the founders of macroeconomics. The apolitical economics stream carried on moving in parallel with the evolution of Keynesianism with economists like Milton Friedman, whose 1953 essay on the methodology of positive economics was important in setting the tone for what would become the neo-classical economics of the second half of the 20th century: an economics more “pure” and “scientific” but far removed from old school political economy. Many of those ideas of a pure, apolitical economics continue today, and the idea that economies and economists left alone by politics and politicians can help secure growth and prosperity is commonplace. (Many of the great economists of the past would today not be considered legitimate economists if they were alive today.)

But many economists recognize that even an area of economic policy as seemingly apolitical as central banking is not really so. Just last week, Clara Mattei and Aditya Singh have written about the current politics of central banking and how the US Federal Reserve is practically undertaking class-biased monetary policy. Compare and contrast this with Reza Baqir’s op-ed. The rejection of politics and political economy is of course not unanimous in Pakistan either. There remain, thankfully, numerous voices which are attentive to politics, political culture, political process and the effects thereof. The people who turned up to vote in the by-elections in Punjab on Sunday to lend the PTI their support certainly care about politics — as they should. The small community of heterodox economists might also have something to say about the matter, and there are also progressive-left forces in the country which are attuned to the need for attention to politics and hence to political economy. But they have issues of their own which need attention.

The relationship between the political sphere and the functioning of the economy is deep and well established. Economic policy is shaped by political culture as well as state-society relations (See Peter Evans’ Embedded Autonomy (1995) and Frank Dobbin’s Forging Industrial Policy (1994)). The economy has a political basis. Private property, so central to a capitalist economy, is protected by a legal and judicial system (not to mention the threat of violence by the state) which in Pakistan’s case is guided by the constitution of Pakistan which is also a political document. Contracts which help quell uncertainty in the economy rely on the same legal, judicial and political factors. Furthermore, the twin problems of production and distribution don’t just constitute the economic problem when taken together; they are also issues of power. The central relationship in capitalism — the employment relation between the worker and capitalist — is a relationship of power in which the capitalist holds power over the worker by virtue of their ownership of private property; property which the worker does not own, hence the need to go seek employment with someone who does.

Political economy, like the constitution and like former prime ministers, has been sent packing. It is in exile from its proper place in the practice of citizenship in Pakistan and this is a problem. It’s time to bring it back. Without giving politics and its implications for the economy their proper due regard and consideration, we will continue to try to convince ourselves of the efficacy of dead end solutions. The idea that we will solve our problems by side-stepping politics and throwing our weight behind a pure apolitical economics is wrong. Societies and economies are messy. So are economics and economic policy. We may not like the muddied politicians, but we will have to muddle through anyway if we want to move forward.

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.

Notes in Circulation # 4

Mearsheimer and the character of Pakistan’s political economy

Political scientist John Mearsheimer has been getting a lot of attention following the Russian invasion of Ukraine. While his realist view (in the social scientific sense rather than the literal sense) has been picked apart by Smolenski and Dutkiewicz, it is understandable why it might be popular right now with any one who has a bone to pick with the US and NATO. Blaming the US and NATO for the Russian invasion of Ukraine, as Mearsheimer does in a recent interview, sits well with the Government of Pakistan’s story that it has adopted an “independent” foreign policy, refused to bow to the US or broadly speaking Western pressure, and is hence maintaining a neutral stance over on the matter of the Russian invasion of Ukraine.

But there is another idea in the Mearsheimer interview which stood out to me as relevant to developments in Pakistan: “Military might is built on economic might. You need an economic foundation to build a really powerful military.” This idea, on the face of it, does not seem very problematic or controversial. But it is not self-evident, and it should be questioned and cannot be taken for granted. Its opposite — that there are economic gains to be found in the capture and control of external markets using military might — is not just a well known theory (see Rosa Luxemberg on “Militarism as a Province of Accumulation”) but arguably an important historical fact (hint: colonialism). Military might may very well be built on, among other things, economic might (although it remains a problem for champions of Pakistan’s nuclear capabilities to explain how this particular case of military might is possible even though the country is economically impoverished). But that is almost besides the point. The issue is that it is a tempting jump from “military might is built on economic might” to “therefore a military should concern itself with the economic management of a country”. This leap is even more problematic than the proposition that economic might is the sole foundation stone of military might. This is the leap or jump which the traditional security apparatus in Pakistan has made in the NSP document. It appears to be at the foundation of the subsuming of Pakistan’s economic management by the traditional security apparatus.

But this leap is in fact counter-productive for the evolution of the economy. An economy needs breathing room and room to expand. Control (military or otherwise, but especially by militaries) can lead to anxiety and can quickly turn into a chokehold on the free spirit of enterprise as society becomes less free and open. This is a problem because open societies are better for innovation and business. The entrepreneurial spirit – which is central to the flourishing of economies and to which so many pay lip service today – is incredibly averse to being controlled. Economist Joseph Schumpeter, who gave us a very good description of the character of the entrepreneur in his Theory of Economic Development ([1934] 1983), helps us understand why. It is because the entrepreneur has “the dream and the will to found a private kingdom, usually, though not necessarily, also a dynasty.” Second, they have “the will to conquer: the impulse to fight, to prove oneself superior to others, to succeed for the sake, not of the fruits of success, but of success itself.” Third, they are motivated by “the joy of creating, of getting things done, or simply of exercising ones energy and ingenuity.”

To understand the relevance of Schumpeter’s characterization of the entrepreneur, we have to consider another important work of social science. Sociologist Peter Evans has argued in Embedded Autonomy: States and Industrial Transformation (1995) that the autonomy of a state to create and implement industrial policy is embedded in (1) state’s external relations with society, and (2) the state’s internal coherence. (For my present argument I will disregard the second). State-society relations can be characterized on a spectrum of types, with the two poles being developmental and predatory. Now, given the non-controversial claim that the citizen’s levels of confidence and trust in the Pakistani state are low, I would conjecture that — and I am yet to talk to someone who disagrees with me on this — state-society relations in Pakistan cannot be characterized as developmental. If state-society relations in Pakistan are predatory, it would help explain why the entrepreneurial spirit has not flourished a great deal. But it would also tell us why in such a context the cause of the entrepreneur ought to be championed: in the face of a state which is clearly not developmental, entrepreneurs are radicals. [“Startups are brave to operate in Pakistan — because the govt really doesn’t get them”]

But regardless of the need for room to breathe, you do need control and management in an economy as well, without which you cannot protect capitalism from its inherent, self-destructive tendencies. This is also the problem about which Keynes was writing in the early twentieth century: how do we exercise control and manage an economy on the one hand without letting it capitalism run completely free and wild, and on the other without succumbing to authoritarianism? This gets us into the specific form of control. Authoritarian control is not the only kind. There is such a thing as democratic control, and this brings us back to the character of Pakistani democracy, which is on display today for all to see with a political crisis threatening to become a constitutional one as the Prime Minister struggles to remain in office.

Encouragement of entrepreneurs and tech start-ups is necessary but insufficient. Anyone interested in anticipating Pakistan’s economic future must figure out what the character of Pakistan’s political sphere is. In particular, where do power and sovereignty lie in the national political sphere? This is the key, because political culture and the location of sovereignty are crucial in shaping the evolutionary path of the economic sphere. (See Frank Dobbin’s Forging Industrial Policy (1994).) Observers of Pakistan’s political economy should expect, I think, Pakistan’s economic evolution in the foreseeable future to be consistent with the effectiveness (or lack thereof) of ideas and vision articulated in the NSP document.

[The quotes from the Schumpeter book are from the end of Chapter II: The Fundamental Phenomenon of Economic Development.]

Imran Khan’s obsession with winning has disfigured him as a politician (2018)

I had written the following letter to the Financial Times in the summer of 2018 prior to the general elections in Pakistan. The FT didn’t publish it. I’m posting it here now. I think I got at least some things right. Some of my observations are still relevant today in light of recent developments, such as the build-up to the no-confidence motion and the motion’s aftermath which is still unfolding.

One of the many important lessons of Richard Sennett’s study of craftsmanship in The Craftsman has to do with the nature of obsession. In the practice of any craft, obsession left unmanaged and lacking self-awareness will disfigure both the person and the work. Imran Khan, a poor practitioner of the craft of politics who may be Pakistan’s next prime minister, is a case in point.

Khan’s anti-corruption stance (“Pakistan heads for dirtiest elections in years”), and hence his relentless opposition towards Nawaz Sharif, have been more than just that. The past five years have been marked by one statement after another filled with ill-feeling, ill-will and bitterness. For five years he has stayed on the offensive and there has been no sign of retreat. For many of his supporters this firm commitment to fairness in elections, to a supposedly principled politics and to bringing corrupt politicians to account is exactly what makes him worthy of support. However, Khan lacks a key skill for a politician – to be able to retreat and recover for the next political offensive. His offense has been obsessive and tiresome. It is not a surprise that he has lost part of his support base since the last elections, and it appears he has been happy to pay that price.

Far from being a political virtue, the obsessive single mindedness with which Khan is leading his party towards the hope of winning power in the upcoming elections has disfigured his own political identity. Observe the association of the party with the likes of Amir Liaquat, once unimaginable to Khan’s supporters. It has also disfigured his understanding of global politics. His recent suggestions that politics in Europe are somehow cleaner and less immune to the influence of money than in Pakistan make him look completely out of touch with significant developments such as Vote Leave’s violation of spending limits and the still-unfolding aftermath of the Brexit referendum. Whether or not Khan has won favor with the military, he certainly has blinders on, and having lost all sense of perspective he is now a poor fit for the public office which he now seeks with such open desperation. Regardless of the results of the election, it will be interesting to see what will happen to Khan and his party when the blinders finally come off.