A Ques­tion of Real Growth

Since a mil­i­tary govern­ment is not bound by po­lit­i­cal ex­i­gen­cies, it can eas­ily for­mu­late and im­ple­ment poli­cies which may not seem people-friendly – at least in the short term.

Southasia - - COVER STORY - By M. Ali Ke­mal The writer is a re­search econ­o­mist at PIDE.

In to­day’s world, mil­i­tary rule is con­sid­ered the worst form of govern­ment as op­posed to demo­cratic regimes. It is, how­ever, gen­er­ally ar­gued that growth is not di­rectly linked to the regime polity. In­stead, the eco­nomic suc­cess of a coun­try lies in higher in­vest­ments and co­her­ent eco­nomic poli­cies. Nev­er­the­less, Pak­istan has wit­nessed a higher growth rate of GDP un­der mil­i­tary rule as com­pared to demo­cratic gov­ern­ments.

Since its in­cep­tion, Pak­istan has ex­pe­ri­enced sev­eral episodes of mar­tial laws as well as demo­crat­i­cally elected gov­ern­ments. The 66 years of the coun­try’s ex­is­tence can be di­vided into seven regimes; Regime 1 (1947-1958) in which the coun­try achieved 3.1 per­cent growth per year. Dur­ing these first 11 years, the sole em­pha­sis of the govern­ment was on set­ting up a base for a sus­tained growth process. The GDP growth dur­ing the sec­ond phase (1958-71), in which the coun­try was gov­erned by a mil­i­tary ruler, was 6.8 per­cent. Regime 3 (1971-1977) was the first pure demo­cratic spell and had a 3.9 per­cent growth rate.

Gen­eral Zia’s mar­tial law, or Regime 4, had a 6.6 per­cent GDP growth rate, while a slower growth of 4.5 per­cent was ob­served dur­ing the sec­ond demo­cratic regime – from 1988 to 1999. This demo­cratic era that spanned over al­most eleven years can be fur­ther di­vided into four short in­ter­mit­tent gov­ern­ments of the late Be­nazir Bhutto and Mian Nawaz Sharif, both of whom served in of­fice for two in­com­plete terms.

On aver­age, the growth rate was 5 per­cent dur­ing Regime 6 ( 19992008). It was the govern­ment of Gen­eral Pervez Mushar­raf. Al­though the demo­cratic govern­ment of the PML-Q was in power dur­ing 20022007, it is largely be­lieved that the real power was ex­er­cised by Gen­eral Mushar­raf.

Regime 7 was the demo­cratic dis­pen­sa­tion from 2008 to 2013 in

which the coun­try ex­pe­ri­enced a very low growth rate on aver­age at 2.9 per­cent per an­num.

On the sur­face, it is clear that in Pak­istan the growth rate dur­ing mil­i­tary regimes was much higher than in demo­cratic regimes. Apart from the GDP rate, sev­eral other in­di­ca­tors also im­proved dur­ing mil­i­tary rules. For ex­am­ple, the over­all pub­lic debt re­duced con­sid­er­ably while the po­si­tion of the for­eign ex­change re­serves im­proved re­mark­ably dur­ing the Mushar­raf regime. The stan­dard of liv­ing in­creased dur­ing all three mil­i­tary rules. It was also ob­served that since in­dus­trial growth was higher dur­ing these pe­ri­ods, in­come dis­par­ity widened, which is an in­te­gral part of the de­vel­op­ment process.

Var­i­ous fac­tors were re­spon­si­ble for a bet­ter GDP growth dur­ing mil­i­tary rules. The first was the over­whelm­ingly high for­eign aid. The Ayub Khan govern­ment re­ceived huge sums in for­eign aid. It also re­ceived the tech­nol­ogy that helped bring about a green revo­lu­tion in the coun­try. Gen­eral Zia’s govern­ment re­ceived for­eign aid due to the Afghan war. Dur­ing his rule in the 1970s, in­dus­trial pro­duc­tiv­ity in­creased man­i­fold due to in­vest­ments in high­tech in­dus­tries.

Sim­i­larly, the govern­ment un­der Gen­eral Mushar­raf re­ceived aid due to the coun­try’s par­tic­i­pa­tion in the war against ter­ror. Known as the Coali­tion Sup­port Fund (CSF), this aid was given with­out any con­di­tions at­tached.

Con­trary to this, demo­cratic regimes faced sev­eral dif­fi­cul­ties: sanc­tions, re­pay­ment of debt and debt­ser­vic­ing of loans taken out dur­ing mil­i­tary regimes. The need to bor­row short-term loans from the IMF - on strict con­di­tions – also arose dur­ing the rules of demo­crat­i­cally elected gov­ern­ments, which neg­a­tively af­fected the over­all econ­omy.

The na­ture of for­eign aid re­ceived by mil­i­tary rulers is dif­fer­ent from the aid re­ceived un­der IMF pro­grams. For in­stance, project-spe­cific aid has a mul­ti­plier ef­fect on the over­all econ­omy. If in­vested in a project, such aid gen­er­ates em­ploy­ment op­por­tu­ni­ties. More­over, due to the aid-ex­ter­nal­ity ef­fect, pub­lic, pri­vate and multi­na­tional in­vestors are en­cour­aged to in­vest in the coun­try.

Sus­tained eco­nomic growth is pos­si­ble if poli­cies are con­sis­tent, in­vestors have con­fi­dence in the govern­ment and the rule of law is es­tab­lished for long in­ter­vals. This is pos­si­ble if ei­ther the same govern­ment continues in power for a long pe­riod or a change in govern­ment does not re­sult in a change of poli­cies of the pre­vi­ous govern­ment.

It is also ob­served that eco­nomic man­agers of mil­i­tary gov­ern­ments give spe­cial in­cen­tives to in­vestors. Al­though this in­creases the rentseek­ing be­hav­ior, yet it leads to higher growth since the in­vestors make long-term in­vest­ments. In­done­sia, Malaysia, Tai­wan, Sin­ga­pore and South Korea are some other coun­tries that pros­pered un­der mil­i­tary rule.

Un­like a demo­cratic govern­ment which func­tions amid the con­stant fear of a mil­i­tary takeover and faces crit­i­cism of the op­po­si­tion as well as the pub­lic, mil­i­tary gov­ern­ments are hardly an­swer­able to any author­ity and mainly work with­out con­sen­sus. In short, such gov­ern­ments do not have to face the po­lit­i­cal and le­gal hur­dles which a demo­cratic govern­ment can face in the im­ple­men­ta­tion of its poli­cies.

Since a mil­i­tary govern­ment is not bound by po­lit­i­cal ex­i­gen­cies and can af­ford to look be­yond self­serv­ing goals such as get­ting elected in the next elec­tions, it can eas­ily for­mu­late and im­ple­ment poli­cies which may not be people-friendly in the short run.

An­other ad­van­tage en­joyed by mil­i­tary gov­ern­ments is that they are less prone to po­lit­i­cal in­sta­bil­ity as com­pared to demo­cratic regimes. Dr Eatzaz, Act­ing Vice Chan­cel­lor of the Quaid-e-Azam Univer­sity, terms the 1990s as an era “marked by mu­si­cal chairs of demo­cratic gov­ern­ments” of Be­nazir Bhutto and Nawaz Sharif. The col­lapse of one elected regime af­ter an­other re­sulted in sig­nif­i­cantly low eco­nomic growth. Iron­i­cally, there was po­lit­i­cal sta­bil­ity dur­ing all three mil­i­tary rules and hence the coun­try reg­is­tered higher growth.

It can be said that growth is not linked to the sys­tem of gov­er­nance but in­stead to the poli­cies adopted by a govern­ment. In mil­i­tary regimes there is less con­fronta­tion and more free­dom to opt for dif­fer­ent poli­cies and im­ple­ment them. This gives pos­i­tive sig­nals to in­vestors as they hope that their ob­jec­tives will be achieved with­out much dif­fi­culty. It is thus eas­ier for them to take cru­cial in­vest­ment-re­lated de­ci­sions. How­ever, the role of for­eign aid can­not be ig­nored as it has vi­tal im­por­tance, es­pe­cially in the con­text of eco­nomic growth of Pak­istan.

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