Elite privileges

Elite political bargains are informal, relatively stable agreements among national elites about the pecking order of different ethnicities and classes (in our case state institutions too) in accessing economic privileges. This includes their relative access to economic resources and opportunities (eg government expenditures, subsidies and licences, access to state and private capital) and tax burdens.

The idea of elite bargains provides a powerful view of Pakistan's political economy. Soon after 1947, elites struck a bargain which has endured until today despite conflicts among member elite classes. Under it, the military, and not politicians, assumed coalition leadership, while it co-opted landed elites, capitalists and religious leaders in return for elite privileges. The limited state resources available due to low taxes are largely spent on oversized military budgets and generous subsidies and other support for military elites, landed elites and industrialists while social expenditures for non-elites are minimised.

Elite bargains provide a powerful view of our political economy.

A recent UNDP report quantifies these privileges and the inequality spawned by the elite bargain. It shows that inequality in Pakistan as measured by the share in income of people in different strata is high. So the richest 20 per cent have nearly five times more income than the bottom 20pc while asset inequality is even higher. The report shows that inequality was higher during the fast-growth dictatorial era from 2001-08 but reduced under democracy after 2008 despite lower growth rates.

This shows that democracy produced better results for lower-income people. Regionally within South Asia, Pakistan ranks towards the middle in terms of inequality. However, its Human Development Index score is higher than only warravaged and landlocked Afghanistan. Within Pakistan, Balochistan lags far behind other provinces. Thus, 15 out of Pakistan's least-developed districts are in Balochistan. Yet elites in other provinces fail to understand the reasons for the perpetual unrest there.

The report analyses the privileges enjoyed by landed elites, capitalists, traders and military elites compared with the severe neglect of lower classes via low social expenditures. This includes tax breaks/evasions, privilege to buy inputs at lower prices or sell their own outputs at higher prices than market prices due to state laws and preferential access to land, capital and services.

Conservative estimates show that the privileges add up annually to nearly Rs370 billion for landed elites, Rs725bn for the corporate sector, Rs600bn for traders and Rs250bn for military elites. This is a total of nearly Rs2 trillion annually for a tiny sliver of the population. In contrast, Pakistan spent only around Rs1.3tr annually in recent years on education, health and other social expenditures to cater to the needs of its masses. Even a chunk of this is siphoned off by the rich.

Being a UN report, it blandly suggests changes in tax, market and social expenditure policies to reverse this elite bias. However, it ignores contentious power dynamics due to which the chances of such policies being adopted are low as the same elite that derives these benefits holds power. This can only happen when the masses are able to organise themselves to wrest power from the elites.

Challenges from non-elites have taken the form of ethnic rebellions and more peaceful ones from civil society that have not displaced the elite coalition. Challenges have also come from within the elite coalition for its leadership. Thus, landed elites under Bhutto and industrialists under Nawaz Sharif attempted to wrest overall coalition leadership from the military, instigating coups which soon re-established military dominance. Had the attempts even succeeded, it would have just meant one elite group replacing another one at the top. But the UNDP report shows that even a change in leadership from military to civilian elite politicians incrementally benefits the masses, as shown by the reduction in inequality after 2008.

This elite bargain perpetuates a low-growth economy given the reliance of industrialists, commercial and landed elites on state handouts rather than innovation and high-end outputs. Low economic growth is punctuated by periodic economic crises caused by fiscal and external imbalances which in turn reflect lack of economic dynamism spawned by the patronage-driven economy.