Poverty Alleviation and Poverty of Aid

Pakistan

Fayyaz Baqir

• Verlag: Taylor & Francis
• Jahr: 2018
• ISBN:
  9780429871535
• Auflage: 1
• Thema: Scienze fisiche
• Thema: Geografia

Aid effectiveness has emerged as an intensely debated issue amongst policy makers, donors, development practitioners, civil society and academics during the past decade. This debate revolves around one important question: does official development assistance complement, duplicate or disregard the local resource endowment in offering support to recipient economies?

This book draws on Pakistan's experience in responding to this question with a diverse range of examples. It focuses on a central idea: no aid effectiveness without an effective receiving mechanism. Pakistan is among the top aid recipient countries in the developing economies. It was a shining model in the sixties andit ranks among the highly underperforming countries after the new millennium. This book offers an insight into the dynamics of success and failure of Pakistan in availing foreign financial and technical assistance for human development and poverty alleviation. It draws on field experiences to present case studies on water, shelter, health, education, and health and safety at work to identify the causes and consequences of aid in relation to social reality. Findings relate to developing economies and would be of interest to a wide range of individuals within the development sector.

1 NGO’s ladder to development – knowledge and the path of solicitation

How could the rich world possibly take responsibility for billions of people outside their borders … Happily, they have reasonable answers … they can be achieved within the limits that the world has already committed: 0.7 percent of the gross national product of the high-income world.

—Jeffrey Sachs (2005: 288)

If the United States were to hike its foreign aid budget to the level recommended by the United Nations – 0.7 percent of national income – it would take the richest country on the earth more than 150 years to transfer to the world’s poor resources equal to those they already possess.

—Hernando De Soto (2000: 5)

Pakistan received $58 billion in foreign aid from 1950–99; however, it systematically under-performed on most of the social and political indicators. Pakistan was the third largest recipient of ODA after India and Egypt during 1960–98. If it had invested all the ODA during this period at a real rate of 6 percent it would have a stock of assets equal to $239 billion in 1998, many times the current external debt.

—Williams Easterly (2001)

If you are not confused, you are not in UNDP.

—UN Resident Representative Pakistan

Want to help someone? Shut up and listen.

—Ernesto Sirolli (2012: 1)

Development ideology

The role of external economic assistance seems to be very confusing in view of the conflicting views on virtues and vices of foreign aid cited in the chapter epigraph. Effectiveness of external assistance can be well understood if we take into consideration the complete context of aid for developing economies after the Second World War. The end of the war triggered the search for identity in the former colonies. Colonies needed to discover the connection between their newly acquired freedom and development of their economies. They needed to define their development goals and select the best available means to achieve them. One of the key questions at hand was to determine what choices were to be made during the course of accepting and eliminating the difference in following the path of advanced Western economies (Rapley: 2007). In South Asia, the Americans filled the void created by the departure of British colonial rulers. Americans, like their predecessors, thought developing native societies entailed reproducing them in their own image. To American advisors, assisting the developing world meant helping them in copying the American style of life, promoting consumerism and industrialization, proposing policies based on free market solutions, making generous investments through private sector and moulding political, academic and social institutions in the American way. This ideology of development copying did not have much success in the case of Pakistan. It led to mass upheavals and explosive conflicts at the end of first decade of American-assisted development.

The extremely limited capacity of Pakistan’s political class in conducting politics in conformity with the democratic norms led it to strengthen the civil and military bureaucracies in defining and implementing the development agenda. Contrary to Hamza Alavi’s observation that Pakistan inherited an “overdeveloped state” (Alavi: 1972), Pakistan’s ruling class consisting mainly of the landed elite ‘overdeveloped’ the state itself to compensate for its own deficiencies in following the democratic discourse (Khan: 1967). The state institutions inherited and developed by Pakistan consisted of a strong law and order arm and lacked a development administration. According to American advisors, all these problems could be fixed by pumping in development aid. The problem was that Pakistan did not have a “receiving mechanism” in place to convert American dollars to the American way of life in Pakistan (Khan: 1980). A national security state that emerged after freedom could not follow the norms of a modern nation state or a welfare state. Strengthening defence capability and creation of inequalities for capital formation were two key ingredients of Pakistan’s “development agenda” from day one (Haq: 1966).

Since no capitalist class existed in Pakistan to implement a capitalist development agenda, American economic assistance was channelled through the state to create a capitalist class. The state-led capitalism found favour with Pakistan’s American advisors because in the early post–Second World War period ‘statism’ under the influence of Keynesian thought emerged as a leading ideological tendency in development policy and practices (Rapley: 2007: 28). Due to limited success of this tendency, two decades later structural adjustments were tried as a panacea to the ills caused by slow growth and increasing inequalities in the post-colonial economies. Both approaches had extremely limited impact due to the mismatch between the American and Pakistani institutional landscapes. There have been two responses to these failures. The first, according to the conventional American wisdom, is to ask Pakistan to “do more” of the same. The second response, deliberated upon and tested by development practitioners, has been to see where the copying approach goes wrong. It is important to note here that the similarities between American and Pakistani state, society and social institutions are very superficial. A review of dissimilarities provides better insight in dealing with the problem of development and poverty alleviation than the similarities. This critical dimension has been neglected by external advisors and has had an adverse impact on the efforts made to address these issues.

Looking at the dissimilarities, we note that Pakistan at the eve of independence did not have a business class and Pakistan’s industrial base consisted of one small factory. Political leadership had extremely limited experience of public service except for a small group around Pakistan’s founding father, Mohammad Ali Jinnah. Civil and military institutions had to be built almost from scratch. The middle class, mostly consisting of Hindus and Sikhs, had migrated to India. Pluralism, secular outlook and openness of early years did not last long. Pakistan’s first national anthem, written on the desire of Jinnah by Jaggan Nath Azad, a Hindu of the Saraiky ethnic group, was replaced by a new anthem soon after his death. The tradition of multi-faith leadership also did not last long. It is important to note here that while the founder of the All India Muslim League was Ismaili Imam Sir Sultan Mohammad Shah Aga Khan, the creator of the idea of Pakistan, Mohammad Iqbal, was a Sunni; the first governor general was a Twelver Shia, Mohammad Ali Jinnah; and the first foreign minister was an Ahmadi, Sir Zafarullah Khan. This pluralism did not last long, and minorities gradually lost the protection, respect and tolerance that they received at the eve of independence. It depicted a serious leadership challenge in the course of Pakistan’s journey to development and prosperity.

Historical context of development challenges

Pakistan was haunted by the existential dilemma of being or not being at peace with its neighbour at the eve of independence. The people of Pakistan were condemned to reap the harvest of fear in the season of hope. The leaders of the Muslim League, the Indian National Congress and the British rulers had all agreed to partition India in a cordial and peaceful manner supposed to guarantee good neighbour relations between the two independent secular states succeeding British India. However, the partition was carried out in a hurry, one year earlier than planned. Boundaries were not marked as agreed in principle, proper security arrangements were not made for mass movement of population across the new international borders, and the masses were not prepared to fulfil their responsibilities as citizens of newly independent states (Ali: 1967). It led to unprecedented bloodshed, mass killings, rape, looting and plunder. Communal frenzy reached such a level that Mahatma Gandhi, who had declared to fast to death to prevent clashes between Hindus and Muslims, was killed at the hands of a Hindu fundamentalist. Soon after the partition, India blocked water flow from every canal in India flowing to Pakistani Punjab to strike terror in the hearts of millions of Pakistani farmers depending on agriculture for their survival (Jamal: 2017). These circumstances, combined with the death of Pakistan’s founding father, Mohammad Ali Jinnah, soon after independence and political inexperience of his successors, led to generate a development vision inspired by the idea of national security.

The key challenge faced by Pakistan was to find ways to respond to opportunities for catering to unmet development needs. The reality was that there was no ‘receiving mechanism’ in place to receive and use development funds. As aptly pointed out by Pakistani development practitioner Dr. Akhter Hameed Khan (1914–1999), three key infrastructures – administrative, social and political – were required to create a receiving mechanism for developing the economy to alleviate poverty, generate income opportunities and promote growth. Pakistan had a cash-starved economy due to the existence of a wide barter economy in the agriculture sector; consequently, it had a narrow tax base and very limited fiscal space for carrying out the ‘development project’. The entrepreneurial class was also non-existent. A large number of merchants who migrated from India had no experience of running industrial enterprises. Big landowners thrived due to ownership of vast tracts of land despite low farm productivity and absentee farm management. That is why it suited Pakistan to follow the path of state-led capitalism. The architect of Pakistan’s economic planning, Dr. Mahbubul Haq (1934–1998), pointed out that Pakistan had to fill two gaps to take off as a modern industrial economy: a saving gap and a foreign exchange gap. Saving needed to finance investments was to be generated by creating income inequalities through a fiscal regime based on subsidies, price and foreign exchange control and import restrictions. These inequalities sounded unfair, but in the long run they would alleviate poverty by generating greater employment opportunities and increasing wages due to high demand for labour. Foreign exchange needed for purchase of capital equipment and industrial inputs was to be acquired through external economic assistance, control of the exchange rate and borrowing. In view of this policy perspective, the public sector and Planning Commission played a very important role in promoting the private sector and “free market economy” through strict market control in Pakistan (Baqir: 1984).

The development strategy followed by Pakistani decision makers was to achieve economic goals through political means under the façade of the market (Baqir: 1984). Public policy was the key instrument of growth in Pakistan. The policy was top down and discriminatory and led to strengthening of a patron client culture. The lack of a receiving mechanism combined with lack of knowledge of local conditions and an uneven playing field led to policy failure in fulfilling the “American dream” in Pakistan. The free market approach was beset by two challenges: restricting internal and external competition. Competition with the outside world was eliminated to protect the nascent business class against experienced foreign businesses. It was carried out in the name of import substitution through an elaborate tariff and quota regime. Internal competition against local small producers was restricted through licencing and price control. It resulted in substitution of industrial goods for the goods produced by hundreds of thousands of local artisans and small producers and wiping out the artisan class. It led to the creation of a parasitic capitalist class, not a vibrant and competitive bourgeoisie.

Policy regime for ‘capitalist’ development

National security state, aid and income inequalities

Pakistani planners had two objectives in mind: creating a strong defence and a strong industrial base through international borrowing, and creation of domestic income inequalities. This concept of development hinged on the development of a national security state. Pakistan inherited a resource base comprising scarce capital resources and relatively abundant human resources, but the development policy did not take into consideration this resource endowment in planning for development. Pakistan’s early planners neglected human resource development and designed a development strategy based on capital accumulation through transfer of resources from agriculture, small-scale production and less developed regions to industry and urban centres. This was an exclusionist strategy. The real burden of this transfer of resources was borne by the agricultural and industrial working class. This transfer of resources led to rapid development of physical capital at the neglect of human and social capital. During the first three decades Pakistan’s agricultural and manufacturing sectors underwent a rapid transformation with creation and expansion of large-scale industry, the use of high-yielding varieties of seeds and fertilizer as well as mechanization in agriculture. This process was simultaneously a process of capital accumulation, structural transformation and growth of output. It had two fatal flaws. First, the business class leading the process of industrialization was extremely protected and added negative value in the process of production and could not help Pakistan fill its foreign exchange gap through export of consumer goods in the international market. Second, the inequalities created in the process of transfer of resources to industry created deep-seated resentment between the wage and salary earning classes, the rural population and inhabitants of less developed regions on the one hand and the emerging industrial bourgeoisie on the other (Baqir: 1984).

Protection of the ‘infant industry’ included, among other things, overvaluation of Pakistani currency, tariff and quota restrictions on import of consumer and capital goods, licencing for the import of raw materials and equipment, and provision of subsidies on export of industrial commodities with the net impact of transfer of resources from agriculture to industry, and from less developed regions to more developed regions (Islam: 1981; Lewis: 1969, 1970). Mahbub ul Haq, deputy chairman of the Planning Commission during Ayub Khan’s regime, persuasively argued the case for generating inequalities to fill the saving gap to promote growth in Pakistan and external borrowing for filling the foreign exchange gap. In his view, foreign economic assistance in the absence of sizable domestic savings provided the opportunity for ‘development without tears’; and striving for equal distribution of income amounted to aiming for ‘equal distribution of poverty’, so an increase in income at the expense of efficiency and equity was the best choice available to Pakistan. The idea of the saving capacity of the poor was not known to the mainstream economists at that time. Decades later, Hernando de Soto pointed out that “The value of savings among the world poor is, in fact, immense – forty times all the foreign aid received throughout the world since 1945” (De Soto: 2000: 5). The poor not only have enormous saving capacity; their remittances from abroad in recent years have also filled Pakistan’s foreign exchange gap, the role which was supposedly to be played by the business class called the ‘robber barons’ by Gustav Papanek (Papanek: 1967).

Ironically, Haq was the first one to point out the concentration of industrial assets in the hands of 22 families in Pakistan. Mass movement against the authoritarian and exploitative rule of General Ayub Khan was built on the slogan of ending the monopoly of the 22 families. These exclusionist policies and practices continued in the form of exchange rate control in 1960s; nationalization of small production and service providing enterprises in 1970s; expansion of the black economy due to massive arms and drugs trade during the “free world’s” war against Soviet invasion in Afghanistan in the 1980s; and “privatization” of education, health, security and other basis services due to the state’s neglect of basic needs of the poor and expansion of informal sector in the 1990s and 2000s. These inequalities did not result in self-sustained growth as envisioned. However, the American advisors and Pakistan’s policy makers were aware of the need to address the question of mass poverty linked with the pattern of development unfolding in Pakistan. They tried to overcome poverty by increasing farm productivity and provided assistance under the Village AID programme for this purpose. While the Planning Commission followed the policy of filling the financial gaps for economic development, the Village AID programme in East Pakistan conducted an experiment to fill the institutional gap to alleviate rural poverty. Interplay between these two policy regimes had a far-reaching impact on political and economic stability in Pakistan.

Institutional landscape

State as agent of modernization

Both the processes of economic development and poverty alleviation were to be led by the state. While leading American experts saw the state as the agent ...