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

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.

Notes in Circulation # 3

Inflation data as rhetoric

In his February 28, 2022 speech, Prime Minister Imran Khan presented a curious table with inflation data which got me thinking. While the table looked crude and poorly put together, there might in fact have been some method to the seemingly haphazard way the information was presented. The key, I think, is to remember that the Prime Minister was giving a rhetoric-laden speech and not presenting a scientific argument. Just as the GDP can be used as “numerical rhetoric”, so could inflation. And this could potentially give some insight into why the information was presented the way it was.

First, I wanted to see if the data from the table corresponded, even if loosely, to an easily accessible and graphable source of inflation data. For that, I downloaded inflation (CPI) data from the World Bank website and plotted the speech data and the World Bank data together. In the figure below, the data from the speech is the darker dotted grey and the World Bank time series is the solid line in the lighter grey. I kept the red, yellow and green highlighting of the data from the Prime Minister’s presentation — since the colors themselves have important normative connotations, and it would be surprising if this choice of colors was not intentional.

As is evident, the speech data does largely correspond to the World Bank data. But the immediately obvious historical gaps in the Prime Minister’s presentation of the data become even more pronounced when the data is plotted. Looking at the graph, one can see why the prime minister might not want to show inflation visualized in this way. Rather than diverting attention to and comparing averages for the time-in-government of the PPP and the PML-N, what the Prime Minister would have ended up showing is the the falling trend over the two previous governments (not to mention the falling trend over the second PML-N term in the late 1990s), and then a rising trend under the PTI.

The exclusion of the Zia and Musharraf eras from the Prime Minister’s presentation is also important. It was a way of evading comment on the military. It framed the political battle in a way which identified other parties as the opponent rather than the military. It also achieved another purpose. By showing a selected succession of short runs, the Prime Minister conveniently avoided the difficulty of having to present a serious long run analysis of the historical trend of inflation, which is not an easy thing to do anyway, but is especially difficult in a rhetorical speech which had to cover a multitude of issues. (For example, it would have required that he consider the possibility of relating the early 1970s inflation spike to the global oil crisis. But external circumstances are a crutch which the Prime Minister of course wishes to reserve for himself but not for his opponents.) And again, it’s possible it was meant to cover a multitude of issues for a purpose. A relatively brief discussion as part of a long speech could work as an intentional tactic to overwhelm the listener with selectively presented information, arguments and emotions. In fact, having listened to a number of the Prime Minister’s speeches, it seems to me that this is a fairly consistent communications tactic.

The speech also got me thinking about the word commonly used to refer to inflation in Urdu (mehengai) and if there is a better term for it. To my ears, mehengai, in both its Urdu form and also if it was to be literally translated back into English (meaning something akin to ‘expensiveness’) suggests something negative. And it carries that negative connotation in public discourse. But inflation is not an unqualified negative phenomenon, after all. An economy needs steadily upward moving prices to encourage economic activity. And deflation, of course, can lead to a wage-price deflationary spiral: falling prices lead to falling revenues and profits, which in turn lead to a reduction in employment and wages. In turn, effective demand falls and pulls prices down further. But of course no one wants to tell the public that a bit of inflation can be a good thing when people are struggling to make ends meet. Nor should they because it’s not relevant to the day to day struggle of providing the means of sustenance for oneself. It would rub salt into the public’s wounds.

What all of this reinforces for me is that the attempt to do economics as an apolitical, technical, positive scientific exercise is very different from the complete enmeshing of economics into the political and lingual fabric of society. Economics should be, if it isn’t already, a shared and public practice rather than an exclusive and private one. If we make economics (and hence policy) exclusive, we take away from citizens the ability and freedom to break down economic arguments and to really see the political foundations and intended consequences and beneficiaries of policies. This ability and freedom is central to democracy and citizenship. It is good that the Prime Minister encourages the public to verify his claims. But it helps to remember that economics is about more than just facts. It is also an exercise in rhetoric and a means of persuasion.

Notes in Circulation # 2

Between a capitalist rock and a democratic hard place

Capitalism and democracy, for all their beauty, are also brutal systems, subject to the volatility and absurdities of human decision making. Guided by the profit motive and the exclusionary power of capital, capitalism is a powerful but difficult beast to tame and put to work for the well-being of the general populace. It is a web which hangs together as a complex whole, where a disturbance to one part will send the whole thing moving, sometimes gently and sometimes violently. Democracy, for all its promises of inclusion and collective decision making, is tough work. Democracy done poorly ends with Trump and Johnson at the helm of affairs. But it is important work, for democracy not done at all ends with military dictators and Putin.

And right now, the PTI and the Prime Minister are stuck between a capitalist rock and a democratic hard place. They are feeling the heavy burdens of democratic governance and managing a capitalist economy. They are learning that democracy and capitalism are both works in progress, and both require that people be persuaded, because we cannot force people — whether to invest or to agree with our point view. People forget that the big shift in Keynesian thinking about the economy is not just about the role of government, but thinking about decision making under conditions of uncertainty rather than scarcity. (For example, inflation is not just a problem because of how it eats into buying power, but also because it triggers uncertainty about the future. It puts people in a position where they don’t know what to do, because they don’t know what the future will bring, and how they will cope with it.) None of what the government is doing is going to help settle fears about tomorrow. Both in its words and actions, it is not being very persuasive.

And the Prime Minister knows people must be persuaded. Hence the desperate speeches and subsidies (“Stung by criticism, Khan rolls out massive subsidy plan”). Hence an “industrial policy” was promised in the February 28 speech. What was on offer in the March 1 speech however was an industrial “package” which seems to be little more than an amnesty scheme for now. (Industrial “package”, as if it was a pay-as-you-go phone data bundle.) I’m no fan of the National Security Policy document, but at least a similar effort to articulate an industrial policy could have been undertaken. The government knows that for all this talk of neutrality and not taking sides in foreign policy, the public will not stand neutral come election time. They will take sides. There is no facade of neutrality at the voting booth.

Even faithful supporters must be kept on side. Following the February 28 speech, a PTI and Imran Khan supporter admitted to me his frustration that the Prime Minister’s message is not clear, that everything is jumbled up. Recall that the PTI once used to be all about young people. Then it was all about the overseas Pakistani. And now the business community. Imran Khan is pro-profit, admitting in yesterday’s speech that support for the business community should have become the focus earlier. He is also pro-capitalism. Welfare state type capitalism, but capitalism still. And you cannot tell people what to do in capitalism, as much as the Prime Minister might want to. And this is why he and his party are feeling the full force of the difficulties of democracy and capitalism, wanting to make things better but without having to deal with the inconvenience of facing political opposition and persuading the public. They are also trying to keep everyone happy without appearing to pick sides.

While I agree with many of the insights of Marxian political economy and do not deny the sharp analytical edge from which those insights are yielded, for me the more relevant writer for our time is not Marx but Keynes (the godfather of managed capitalism), who himself lived through a time of economic crisis, war and authoritarian strongmen (or “madmen in authority”, as he put it in the concluding chapter of The General Theory). One of my key take-aways from my reading of Keynes is that in modern capitalist economy and politics, one should pick a side. (See his essay Am I a Liberal?.) Amidst all the NATO whataboutery, neutral foreign policy and whether or not the Prime Minister’s visit to Russia was a success, one image was crystal clear. At the center of this image was our prime minister. One would have thought that Imran Khan — with his legendary status as leader of cornered tigers — would love, admire and champion the cause and fighting spirit of the Ukranians at this time, just as he was championing the breaking of “shackles of slavery” in Afghanistan last year. Instead he was reduced to a man beside himself with joy at having landed in Moscow to meet Putin. So much for democracy and capitalism.

Pakistan’s National Security Policy document is more about power than security

I had penned the following on Saturday, January 22, 2022. The day after, the prime minister began a surreal broadcast by complaining about not being able to speak in parliament.

The recently published National Security Policy of Pakistan (along with its summary) pretends to be technical and apolitical in claiming to put economic resources and their re-distribution at the center of its framework. The reality is that this document’s political character and not-so-trivial implications are better understood if we take into account recent remarks made in two interviews by Mr. Moeed Yusuf, currently national security adviser to Prime Minister Imran Khan.

First, consider the following from the interview with Saleem Safi on Geo News: “We cannot have national security until we have sustained economic growth in the medium and long term. To that end, there are some things… it’s not a matter of this government or that government. This is not a political document.” Consider the connection being made between security and growth. It is very admirable that the document focuses on the security of vulnerable citizens. But the fact of the matter is that insecurity – financial, physical, legal, psychological – is rife in Pakistan. There is a persistent threat of the outbreak of violence anywhere and everywhere. There is very little trustworthy protection and security against those threats, and even lesser recourse to law after the security of citizens has already been violated. The idea that security on the street and in our homes will be improved when we have growth and when we redistribute the gains from that growth is laughable. The lack of security for citizens on the street or in the home is not because we are not rich enough as a country. It is because we as a country are suffering from deep seated socio-political and institutional pathologies.

Also consider the supposedly apolitical character of the document. The fact is that all matters of the economy and policy are political, because they are concerned with the fundamental questions of production, distribution and allocation (especially allocation of human energy or human “resource” as a lot of people are fond of calling it) which are inherently issues of power and hence of politics. What is going to be made, how much and by whom, and to whom is it going to be distributed and how much – these economic questions are really about who wields how much power. And even if Pakistan were to somehow set itself upon a stable growth path, it is not clear why the beneficiaries of growth would give up their advantages in the name of some lofty national agenda unless persuaded to do so. Growth can entrench the status quo as much as it can change it.

Second, consider the following statement from the interview with Peter Dobbie of Al Jazeera English: “Politics is politics. I don’t belong to that world. The opposition will say what it says. This is a document that no Pakistani government, I can guarantee you, will go back on.” This claim was made with supreme confidence. The implication is that this is the agenda set by the country’s traditional security apparatus for anyone who might want to be in government – take it or leave it. No Pakistani government will go back on it because if they have objections, they will not be in government in the first place. If it has a change of heart afterwards, it will not be in government for very long. And the fact that this document was kept partially classified does suggest that this is more a secret agenda and less a public policy document presented by the government of the day in a democratic society.

People who profess to be apolitical or lacking an ideological orientation are either mistakenly fooling themselves or purposefully fooling others. Mr. Yusuf is smart enough to know that this is in fact a political document and that he very much belongs to the world of politics: he is closely tied to the governing party, the Pakistan Tehreek-i Insaaf (PTI), now that he is advising the current prime minister and also speaking on his behalf in public regularly. This document is not so much about a national security dialogue or focusing on the security and welfare of the citizens. It is more about the economic policy and management of the country being subsumed within the traditional security apparatus of the country. That is, it is about who holds power in Pakistan. If this document were really about the welfare and security of the most vulnerable Pakistanis, there would be no need for part of it to be classified. If the current government wishes to bolster its democratic credentials ahead of next year’s general elections, it should share the classified parts of the document with the public. Given the poor track record of this government so far, this is unlikely to happen.