Indian Elections - A Game for the Rich

 

A Level Economics: What is a Failed State?

Nadeem Paracha in The Dawn

On YouTube, there are numerous videos on ‘failed states’. Those posted by certain American news outlets almost always describe Russia as a failed or failing state. Similarly, videos produced by Indian media outlets often refer to Pakistan as a failed/failing state. Then there are also some videos produced in China which ‘predict’ the collapse of the American state structure, and many American videos that speak of ‘China’s coming collapse’.

So what is a failed state?

There are various theories about what constitutes state failure, but most political scientists and economists agree on two major symptoms of this failure. The first is when the state loses its ability to establish authority over its territory and citizens, and is unable to protect the country’s sovereignty. Secondly, state failure also constitutes the state’s inability to provide basic necessities to its citizens and when a country’s governing institutions become ineffective.

However, according to foreign policy experts such as the Norwegian Morten Bøås, the application of the term ‘failed state’ is largely political in nature. A country threatened by another country whose state is facing a crisis, often labels it as a failed or failing state. This is why to the US, at the moment, Russia is a ‘failing state’ and to India, so is Pakistan.

Recently, Chinese propaganda has claimed that the US is on the brink of state failure, especially after the ‘backsliding’ that American democracy witnessed during the Trump presidency. It’s politics.

The definition of what constitutes a ‘failed’ or ‘failing’ state may be determined by geopolitical interests, but the internal role of extractive and exclusivist institutions cannot be ignored

But does this mean that there are no failed states at all? There are. Most political scientists agree that Afghanistan, Yemen, Somalia, Syria, DR Congo and Sudan are failed states because state authority in these countries has almost completely collapsed. Outside the confines of areas in which the state does have some authority left, ‘non-state actors’ hold sway. Poverty, political chaos and violence are rampant. There is no presence of a cohesive state here.

Even though one may agree with men such as Bøås that ‘failed state’ is a political term applied for propaganda purposes to justify external armed intervention or to impose economic sanctions, this does not mean that, apart from the more blatant examples of failed states, other countries are entirely safe from becoming another Afghanistan or Somalia.

Most states, even in developed countries, often exhibit some symptoms of state failure. But the symptoms are particularly intense in developing countries, where there is a greater chance of the state failing.

In Pakistan, when Islamist militants had occupied vast swaths of land in the early 2010s, and the state seemed ill-equipped or even reluctant to reestablish its writ in these regions, many voices inside and outside the country warned that Pakistan was heading towards state failure.

The warning was not exaggerated. However, the state too was conscious of this. It finally responded by conducting an unprecedented military operation. Between 2014 and 2017, it was able to oust the militants from areas where they had established parallel governing systems, mostly based on outright terror.

But military action alone against forces challenging the writ of the state is not enough. In the book Why Nations Fail, the economists James A. Robinson and Daron Acemoglu write that nations fail not because they lack abundant natural resources or are located in volatile regions. One of the most prominent reasons that states fail is because of ‘extractive’ political and economic institutions.

Nation states with inclusive institutions prosper because these institutions do not restrict the economic and political participation of all citizens. It does not matter what race or religion a citizen belongs to, they are encouraged to bolster the country’s, and their own, economic ambitions.

Extractive institutions go the other way. Economic and political elites accumulate power and wealth for themselves from those who can’t find a voice or place in the extractive institutions. Pakistan is a parliamentary democracy. But this democracy is largely extractive and exclusivist. Its exclusivist nature is deeper than just ‘elite capture’. This is so because the non-Sunni and non-Muslim communities too are kept at an arm’s length, because they do not adhere to the definition of Islam defined by the Constitution. Some are even outrightly repressed.

A powerful state institution in Pakistan, the military, sees itself above this nature of exclusivity. Yet, from the 1980s onwards, it was the military that further strengthened extractive and exclusivist policies and even used exclusivist forces to meet its own political ambitions. The parliament and a politicised military have both contributed in severely limiting the participation of the diverse talent required to construct robust economic and political institutions.

The continuing extractive policies have now instigated a clash within the extractive elites, both civilian and military. The extractive elites benefitted the most through exclusivist policies. On the other hand, those who are kept out because of their faith, sect, ethnicity or class have been severely marginalised and are just mere spectators of an ongoing tussle for power between the two factions of the extractive forces.

The ‘anti-military’ riots on May 9 and 10 were an example of one extractive group trying to push back the other. So, the crisis of the state that Pakistan is facing today is also about a crisis within elite groups. A new election alone won’t resolve the crisis. Pakistan’s democracy is still navigated by an exclusivist constitution, which can actually deepen the crisis.

I believe, alarmed by such a possibility, the military is contemplating a Hobbesian route. In his highly influential book The Leviathan, the 17th century British philosopher Thomas Hobbes posited that, in exchange for getting protection from violence, war, chaos, poverty and crime, the citizens are required to delegate a large degree of power to a sovereign state.

The exchange may also require the citizens to relinquish certain rights, so that the sovereign can work freely to guarantee the economic and political security of the citizens without any hindrance.

Indeed, this is clearly an authoritarian view, but Hobbes does warn the sovereign that the failure to do so is likely to cause state failure. On May 9 and 10, the extractive faction that the military was once the architect of, tried to usurp power by rationalising its actions as ‘pro-democracy’ and supported by ‘civil society’.

I believe that, even if and when electoral democracy returns, the Hobbesian route will continue to be taken, because the military is now convinced that anything else is bound to put the state on the brink of failure.

Half Marks for Indian Education

 From The Economist

When Narendra modi, India’s prime minister, visited the White House last week, he did so as the leader of one of the world’s fastest-growing big economies. India is expanding at an annual rate of 6% and its gdp ranks fifth in the global pecking order. Its tech industry is flourishing and green firms are laying solar panels like carpets. Many multinationals are drawn there: this week Goldman Sachs held a board meeting in India. 

As the rich world and China grow older, India’s huge youth bulge—some 500m of its people are under 20—should be an additional propellant. Yet as we report, although India’s brainy elite hoovers up qualifications, education for most Indians is still a bust. Unskilled, jobless youngsters risk bringing India’s economic development to a premature stop.

India has made some strides in improving the provision of services to poor people. Government digital schemes have simplified access to banking and the distribution of welfare payments. Regarding education, there has been a splurge on infrastructure. A decade ago only a third of government schools had handwashing facilities and only about half had electricity; now around 90% have both. Since 2014 India has opened nearly 400 universities. Enrolment in higher education has risen by a fifth.

Yet improving school buildings and expanding places only gets you so far. India is still doing a terrible job of making sure that the youngsters who throng its classrooms pick up essential skills. Before the pandemic less than half of India’s ten-year-olds could read a simple story, even though most of them had spent years sitting obediently behind school desks (the share in America was 96%). School closures that lasted more than two years have since made this worse.

There are lots of explanations. Jam-packed curriculums afford too little time for basic lessons in maths and literacy. Children who fail to grasp these never learn much else. Teachers are poorly trained and badly supervised: one big survey of rural schools found a quarter of staff were absent. Officials sometimes hand teachers unrelated duties, from administering elections to policing social-distancing rules during the pandemic.

Such problems have led many families to send their children to private schools instead. These educate about 50% of all India’s children. They are impressively frugal, but do not often produce better results. Recently, there have been hopes that the country’s technology industry might revolutionise education. Yet relying on it alone is risky. In recent weeks India’s biggest ed-tech firm, Byju’s, which says it educates over 150m people worldwide and was once worth $22bn, has seen its valuation slashed because of financial troubles.

All this makes fixing government schools even more urgent. India should spend more on education. Last year the outlays were just 2.9% of gdp, low by international standards. But it also needs to reform how the system works by taking inspiration from models elsewhere in developing Asia.

As we report, in international tests pupils in Vietnam have been trouncing youngsters from much richer countries for a decade. Vietnam’s children spend less time in lessons than Indian ones, even when you count homework and other cramming. They also put up with larger classes. The difference is that Vietnam’s teachers are better prepared, more experienced and more likely to be held accountable if their pupils flunk.

With the right leadership, India could follow. It should start by collecting better information about how much pupils are actually learning. That would require politicians to stop disputing data that do not show their policies in a good light. And the ruling Bharatiya Janata Party should also stop trying to strip textbooks of ideas such as evolution, or of history that irks Hindu nativists. That is a poisonous distraction from the real problems. India is busy constructing roads, tech campuses, airports and factories. It needs to build up its human capital, too.

Pakistan's Unending Debt Enslavement

Dr. Ikramul Haq in The Friday Times

Nearing 76 years of independence, our leaders in power want to celebrate liberation from colonial rule after pushing the country into a deep debt trap. This paradox depicts what Zulfikar Ali Bhutto highlighted in his masterpiece, Myth of Independence. What makes the situation more painful is the fact that every time a new loan is obtained, those in power express jubilation as if an extraordinary goal has been achieved.

The signing of a nine month US$ 3 billion standby arrangement (SBA) with International Monetary Fund (IMF) on June 29, 2023, was commemorated like August 14, 1947 by Premier Shehbaz Sharif and Finance Minister Muhammad Ishaq Dar et al. The same was the practice in all earlier governments and mindset of previous rulers. This indeed is the worst possible manifestation of our subjugated ruling elites—tragically all governments, civil and military alike, have forced the nation to remain incarcerated in the debt prison.

In 2016, I brought up the burning issue of debt enslavement of Pakistan and the callous attitude of our ruling elites. In 2023, the situation is no different, rather worse. All the six budgets presented by the PML- N government from 2013-2018, four by the Pakistan Tehreek-i-Insaf (PTI) from 2018 to 2022 and two by Pakistan Democratic Movement (PDM) from 2022 to 2023 have common characteristics, with the main emphasis on ensuring economic enslavement through burgeoning debts. The PDM with their fourth-time Finance Minister Ishaq Dar heading the economy has finally obeyed all of IMF’s commands in a revised budget 2023-24, as he did when PML-N obtained a US$ 6.6 billion bailout package in 2013.

Our history of IMF programs is old and seemingly never ending. On December 19, 2019, as per a statement issued by IMF, its Executive Board completed the first review of Pakistan’s economic performance under the Extended Fund Facility (EFF). Completion of the review allowed Pakistan to draw Special Drawing Rights (SDR) 328 million (about US$ 452.4 million), bringing total disbursements to SDR 1,044 million (about US$ 1,440 million). It may be remembered that IMF Executive Board approved the 39-month, SDR 4,268 million (about $6 billion at the time of approval of the arrangement, or 210 percent of quota) Extended Fund Facility (EFF) for Pakistan on July 3, 2019. It was later extended to June 30, 2023, but as in the past ended unsuccessfully with new short term 8-month US$ 3 billion SBA for which complete credit is given by Ishaq Dar to Premier Shehbaz Sharif. 

For the coalition government of PTI claiming prior to elections that “we will never beg” obtaining IMF’s US$6 billion bailout was a great “achievement,” though the conditions imposed by the lender of the last resort were the most stringent in our history of getting such packages since 1958.

It is a matter of record that the PTI coalition government secured over US$13 billion in foreign loans in the fiscal year 2019-20 alone! It was the second highest amount in history. Making things more painful was the reality that we started borrowing just “to repay maturing external debt and cushion the shrinking foreign exchange reserves.” During the fiscal year 2017-18, we received gross loans of $13.2 billion from bilateral and multilateral lenders including, IMF and commercial creditors, according to a report, quoting data compiled by the Ministry of Economic Affairs.

Pakistan received $29.2 billion in foreign loans from 2017-2019 that included US$26.2 billion by the PTI government since August 2018. Out of this, US$19.2 billion was used just to repay maturing external debt and the remaining was added to “external public and publicly guaranteed debt.” The resultant increase in debt-servicing as repayments contracted as new foreign loans, increased substantially. For the fiscal year 2020-21, the cost of external debt servicing was estimated at Rs. 315 billion though we had secured over US$300 million or about Rs. 50 billion temporary relief from the G20 group’s moratorium on debt servicing.

In fiscal year 2018-19, Pakistan borrowed US$16 billion, including balance of payments support from Gulf countries, and returned US$9.1 billion worth of loans. In fiscal year 2019-20, gross foreign loans stood at US$13.2 billion and repayments amounted to slightly above US$10 billion. The Ministry of Finance said we did not have any option but “to borrow to repay maturing loans and stabilize foreign currency reserves that dipped below $10 billion in May 2020 after the outflow of hot foreign money of over $3 billion”.

According to a press report, “the withdrawal of hot foreign money, on the one hand, exposed the State Bank of Pakistan’s (SBP) ill planning and on the other highlighted the fragility of foreign exchange reserves that were built on the back of foreign borrowing. The dip in foreign exchange reserves triggered panic borrowing by the economic managers of the PTI government.” Resultantly, the government “started borrowing from the commercial, bilateral and multilateral creditors exceeded the budgetary target due to the dip in SBP’s foreign currency reserves, low inflows under the Saudi oil facility and the decision not to float Eurobonds valuing at $3 billion. The PTI government, like its predecessor, has also been unable to fully capitalize on non-debt creating inflows like exports, remittances and foreign direct investment”, the report added. 

Like the previous PML-N government, the PTI also relied on short-term foreign commercial loans. Against the budgetary estimate of $2 billion, it took $3.4 billion in foreign commercial loans. Commercial loans are always considered expensive due to their short maturity period and relatively higher interest rates compared with the official bilateral and multilateral credit. Two Chinese financial institutions, China Development Bank ($1.7 billion) and Bank of China ($500 million), provided about two-thirds or $2.2 billion of total foreign commercial loans. Dubai Bank extended $564 million, Ajman Bank $300 million, Citibank $148 million, Standard Chartered $27 million and Suisse Bank AG $205 million.

The PTI government also sought US$15 billion in gross foreign loans in 2020-21 for debt servicing and building foreign currency reserves in the absence of non-debt creating inflows. Out of the estimated external borrowing of US$15 billion, nearly US$10 billion, or two-thirds, were used to return the maturing loans, excluding interest payments. The pattern under the PDM has not changed, rather assumed further accentuation.

Decades of dependence of local and foreign debts has made Pakistan a weak and vulnerable state—though every government keeps on harping the mantra of having nukes and an unparallel ‘strategic location.’ Now Ishaq Dar after inking fresh SBA with IMF, while terming it a “great success” proudly claimed: “… the government convinced the IMF that it would be very unfair if $ 2.5 billion balance amount of the concluding program was not given to Pakistan… only potential of the mines sector of the country is six thousand billion dollars. Pakistan possesses substantial assets amounting to $3000 billion… We need to make efforts to free our economy from foreign aid.”

It may be remembered that on concluding talks with IMF in 2018, the PML-N government proudly announced: “this is the first time we have successfully completed the program in 15 years and the sixth in its 58-year relationship with IMF.” The detail story of that sordid subjugation and what happened thereafter was highlighted here in 2019 and more recently on this paper’s pages.

IMF Agreements (1958-2023)

Since 1958, Pakistan has entered into 23 programs with the IMF. On December 8, 1958 the military government signed a one-year Standby Arrangement (SBA), which it terminated prematurely in nine months. The second SBA was signed on March 16, 1965 and concluded on March 15, 1966. Yet another one-year SBA completed on May 17, 1973. The fourth SBA, signed on August 11, 1973, ended on August 10, 1974. The fifth one was on November 11, 1974 and concluded on November 10, 1975. The sixth was signed on March 9, 1977—it was terminated exactly after one year. On November 24, 1980, an Extended Fund Facility (EFF) was concluded which lasted for three years—ended on November 23, 1983. After a gap of five years, two simultaneous programs, Structural Adjustment Facility (SAF) and SBA were signed on December 28, 1988. Both continued beyond the agreed timeframe and ended in 1990 and 1992, respectively.

The ninth program, again a one-year SBA, was signed on September 16, 1993 but was terminated prematurely on February 22, 1994. The 10th program comprised two separate facilities—SAF and EFF—signed on February 22, 1994 for a period of three years. However, both the facilities were terminated much before maturity—on December 13, 1995. The 11th SBA was signed on December 13, 1995. It ended on September 30, 1997. The 12th program was of two separate facilities, the Poverty Reduction Growth Facility (PRGF) and an EFF. Both were signed on October 20, 1997 and continued till October 19, 2000. Under the 13th program, another SBA was signed on November 29, 2000 and continued until September 30, 2001.

The 14th Extended Credit Facility/PRGF was signed on June 12, 2001 and terminated on May 12, 2004. A three-year SBA was signed on November 24, 2008 but was prematurely terminated on September 12, 2010 after Pakistan could not initiate tax and energy reforms. The PML-N signed an agreement in September 2013 and was successfully completed. The PTI government’s US$ 6 billion extended EEF ended unsuccessfully on June 30, 2023. Under the just concluded SBA, the IMF would give US $3 billion dollars within a period of nine months and the first tranche of the US$ 1.1 billion would be released after the IMF board meeting in mid July 2023.

Finding the right path 

Managing a high fiscal deficit coupled with massive debt burden is the toughest challenge faced by our economic managers. The obvious and undisputed solution is substantial increase in resources and drastic reduction in spending, but it is easier said than done. For the last many decades, Pakistan’s fiscal policy has remained under immense pressure owing to perpetual failure of underperformance of Federal Board of Revenue (FBR), continued security related outlays, rise in wasteful expenditure and greater than targeted subsidies, losses of State-owned Enterprises (SOEs) etc. Other alarming elements remained great fiscal deficit, sluggish exports and high imports.

The burgeoning fiscal deficit and ever-increasing debt burden are not isolated phenomena. These are related to lack of political will to undertake fundamental structural reforms, enforce fiscal discipline, crackdown on parallel economy, increase tax collection, abolish perks and benefits of the ruling elites, eliminate wasteful expenses, dismantle rent-seeking structures, ensure rule of law, and stop reckless borrowing and ruthless spending. The perpetual failure to tap the actual tax potential has forced successive governments to rely more and more on external and internal borrowings, pushing the country into a ‘debt prison.’ In the just ended fiscal year 2023, the FBR failed to meet even the original target of Rs. 7470 billion, what to speak of the revised figure of Rs. 7640 billion even after mini budget, levying additional oppressive taxes of more than Rs. 270 billion through the Finance (Supplementary) Act of 2023 and Tax Laws (Amendment) Act, 2023. 

Collection of below potential revenue of Rs. 7.15 trillion (provisional) by FBR has raised serious questions about the State’s ability to meet its needs, in fact to ensure its economic viability, Collection of Rs. 16 trillion at federal level alone is not possible without restructuring the entire tax system for enhancing revenues to decrease/eliminate the burgeoning fiscal deficit, which is estimated at Rs. 7.5 trillion in the federal budget of 2023-24 . Even in the revised budget of 2023-24 and Finance Act 2023 approved on June 21, 2023, there is nothing to tax the high net-worth rich and mighty sections of society through progressive direct taxation.

Taxes are byproduct of economic growth and the new federal and provincial governments after general elections 2023 should not impose further oppressive taxes even if suggested by IMF. New vistas of non-tax revenues should be explored by making locked assets productive, ending circular debt and losses in SOEs, and drastic cut in wasteful non-development expenditure. Efforts should be made to achieve high economic growth of over 7 percent for a sustainable period of at least one decade.

Are we ready to put our house in order through fundamental structural reforms? Nadeem Ul Haque, Vice-Chancellor of Pakistan Institute of Development Economics (PIDE) has very rightly pointed out: “The IMF or no donor or external friend can help us with putting our house in order. We have to build a modern state and a modern society that is responsible and ready to participate in the global economy of the 21^st century. Without that we will continue to bleed and require the IMF again and again.” 

Let us take the example of Finland, a small country of 5.56 million people with GDP of nearly US$ 300 billion in 2022 (Pakistan with population of 225 million has a GDP of around US$ 350 billion, it was US$ 348.3 billion in 2021). In 2022, Finland’s tax-to-GDP ratio was 43 percent and ours only 10.1 percent.

Unfair taxation is the biggest impediment in the way of economic and industrial growth. What a tragedy that the rich and mighty get VIP facilities, plots, perks and benefits at taxpayers’ expense. They are the beneficiaries of the state’s resources—generated mainly by the poor farmers, suppressed landless tillers and toiling industrial workers. Pakistan is not a poor country—the state’s kitty is empty because of unwillingness of the rich to pay due taxes, the colossal wastage of taxpayers’ money on unproductive expenses and non-exploitation of vital natural and human resources.

Absentee landlords, a list which now include mighty generals who have been allotted State lands under award and rewards, have been resisting proper personal taxation on their enormous income and wealth. This anti-people alliance of military-judicial-civil complex, corrupt and inefficient politicians and greedy businessmen controlling and enjoying at least 90% the State resources contribute less than 2% towards national revenue collection and nobody talks about it.

We can easily generate taxes of Rs. 16 trillion through FBR alone. The dire need in today’s Pakistan is rapid industrialization, especially promoting agro-based industries to provide employment to the poor rural population and ensure fair distribution of resources to reduce inequalities. The IMF or any other donor will not tell us how to achieve these goals. We will have to promote research to find our own solutions to become a modern and dynamic nation as pleaded by Dr. Nadeem Ul Haque and many others.

Resource mobilization should be given priority to build infrastructure, facilitate growth of small and medium sized firms in the industrial sector and small farms in the agricultural sector for an employment intensive and equitable economic growth process. To end economic apartheid, large corporations, especially loss-bearing SOEs, with equity stakes for the poor can be established through public-private partnerships. This would set the stage for a structural change that could help achieve economic growth for the people and by the people, which is presently confined to the elites only.

‘Geopolitics’ and the IMF: Is Pakistan delusional or myopic?

Uzair M Younus in The Dawn


Despite the pronouncements coming out of Islamabad that the 9th review of the ongoing International Monetary Fund (IMF) programme is still a possibility, the fact of the matter is that successful completion of the review is a distant possibility.

This view is reinforced by the fact that the IMF’s own executive board calendar, which shows planned meetings through June 29, does not mention Pakistan. While these calendars can and do shift, recent developments would lead one to believe that if the Staff Level Agreement (SLA) has not happened yet, it is not happening in the next ten days or so.

The root cause of this failure, of course, is the hard-headedness of Pakistan’s finance minister who has refused to pay heed to common sense ever since returning to Pakistan and taking over the economy.

Whether it be the infamous Dar Peg – which angered the IMF and distorted the entire economy – or the strategy of negotiating through a staring contest, Dar has been lost at sea. As a result, Pakistan’s rock-bottom credibility in front of international creditors, key among them being the IMF, has further collapsed.

This view was summed up to me during the IMF’s 2023 spring meetings by a couple of bondholders who had gathered to listen to Pakistan’s central bank governor talk about the country’s economy. Following the discussion, these bondholders noted that the best way for Pakistan to gain its credibility and bring the IMF programme back on track was to do just one thing: get rid of Dar.

Alas, this has not happened and the prospects of the prime minister firing his family member are even slimmer than the resumption of the IMF programme.

As if keeping Dar in place was not enough, the government has also started to blame everyone but itself and its finance minister: Dar has been once again hinting at the fact that the programme is not moving forward due to geopolitics.

The truth of the matter is that everyone involved, including the United States and China, want Pakistan to remain economically stable.

But let’s assume that Dar is being truthful. This logic then leads one to question whether China and Saudi Arabia, two of Pakistan’s strategic partners, are in on the conspiracy.

After all, both these countries have made disbursement of their financial commitments to Pakistan contingent on successful completion of the 9th review.

So, if these countries were opposed to the geopolitics being played to punish Pakistan, as it has been alleged by the finance minister, then why is it that they have not yet released the additional funds they have promised to Islamabad?

This is why Islamabad’s apparent Plan B, to get additional deposits from friendly countries (like China and Saudi Arabia), also seems to be wishful thinking.

How and why these same countries would give additional funds to Pakistan when it fails to remain in the IMF programme is a question that Islamabad seems unwilling or unable to answer.

And while Dar and company continue to insist that all will be well, it is time for Pakistanis to recognise and accept that digging the economy out of this hole will be a Herculean task even in the best of circumstances. The challenge becomes that much more daunting if one were to look at the cast of characters across party lines that are potential contenders to be finance czars.

The recovery will first and foremost require rebuilding the country’s credibility, which can only be achieved by pushing through extremely painful short-term measures that help balance the books.

This would require major cuts to government spending, drastic measures to truly broaden the tax net – existing taxpayers are basically tapped out – and a structural reform agenda that is viewed positively by creditors. If this were to happen, then the recent budget put forth by the government would have to be tossed into the dustbin.

These would only be the easiest steps in a long journey.

According to data released by the IMF in September 2022, Pakistan has gross external financing needs in excess of $35 billion a year for the next three years. These needs would have to be fulfilled at a time when economic growth is down sharply, supply-chains have been distorted, investor confidence has been shattered, and the era where cheap capital was available in global markets has come to an end.

How ruling elites manage to meet these financing needs in the near future is a big question mark, and the next government will have its work cut out for it.

An alternative solution that is being discussed is debt restructuring. But this will be an even more painful process, especially for a sovereign that already has limited capacity to deal with the fallout of the IMF’s existing demands. In addition, external debt restructuring may also open the door for a conversation on domestic debt restructuring. This would stoke chaos in the country’s fragile banking sector which has binged on government debt over the last few years.

The prolonged process of debt restructuring would essentially mean that Pakistan has declared default. As a result, import of critical inputs would stall, leading to shortages of everything from fuel to imported pulses and palm oil.

As supply-chains would get distorted, prices of essential commodities would skyrocket. The value of the rupee would also collapse, leading to further inflation. Hospitals would run out of essential medicines, farmers would run out of essential inputs for the next harvest, and the entire economy would come to a grinding halt.

In short, this process would lead to near-term economic and political fallout that may be untenable for any government, let alone a coalition of status quo parties that is already deeply unpopular.

What the ruling elites in Pakistan have continuously failed to do is take a bit of a long-term view of the situation. After all, given where the politics of Pakistan is at this point in time, members of the existing coalition are likely to come back to power after general elections. This means that they will have to ultimately take charge of the situation and take measures that they are unwilling to take today.

Perhaps their rationale is that elections will provide them with a fresh mandate, but that logic is also flawed – after all, an election that leads some or all of the government’s existing members to form government in Islamabad will be seen as a continuation of the existing setup. This means that a new government will not be able to magically gain some new political capital that it can then utilise to push through painful reforms.

It appears the PML-N’s thinking is that since it will not be the senior member of a government come October, this will be someone else’s problem. There is some merit to this logic, but perhaps Pakistan’s ruling classes ought to do some deeper thinking.

After all, a country on the verge of default, where the ruling elites have run out of ideas and capacity to rescue the situation, is a problem for everyone that is part of the status quo elites.

What elite American universities can learn from Oxbridge

Simon Kuper in The FT  

Both the US and UK preselect their adult elites early, by admitting a few 18-year-olds into brand-name universities. Everyone else in each age cohort is essentially told, “Sorry kid, probably not in this lifetime.”  

The happy few come disproportionately from rich families. Many Ivy League colleges take more students from the top 1 per cent of household incomes than the bottom 60 per cent. Both countries have long agonised about how to diversify the student intake. Lots of American liberals worry that ancestral privilege will be further cemented at some point this month, when the Supreme Court is expected to outlaw race-conscious affirmative action in university admissions. 

Whatever the court decides, US colleges have ways to make themselves more meritocratic. They could learn from Britain’s elite universities, which, in just the past few years, have become much more diverse in class and ethnicity. It’s doable, but only if you want to do it — which the US probably doesn’t. 

Pressure from the government helped embarrass Oxford and Cambridge into overhauling admissions. (And yes, we have to fixate on Oxbridge because it’s the main gateway to the adult elite.) On recent visits to both universities, I was awestruck by the range of accents, and the scale of change. Oxbridge colleges now aim for “contextual admissions”, including the use of algorithms to gauge how much disadvantage candidates have surmounted to reach their academic level. For instance: was your school private or state? What proportion of pupils got free school meals? Did your parents go to university?  

Admissions tutors compare candidates’ performance in GCSEs — British exams taken aged 16 — to that of their schoolmates. Getting seven As at a school where the average is four counts for more than getting seven at a school that averages 10. The brightest kid at an underprivileged school is probably smarter than the 50th-best Etonian. 

Oxbridge has made admissions interviews less terrifying for underprivileged students, who often suffer from imposter syndrome. If a bright working-class kid freezes at interview, one Oxford tutor told me he thinks: “I will not let you talk yourself out of a place here.” And to counter the interview coaching that private-school pupils receive, Oxford increasingly hands candidates texts they haven’t seen before. 

Oxbridge hosts endless summer schools and open days for underprivileged children. The head of one Oxford college says that it had at least one school visit every day of term. The pupils are shown around by students from similar backgrounds. The message to the kids is: “You belong here.” 

It’s working. State schools last year provided a record 72.5 per cent of Cambridge’s British undergraduate admissions. From 2018 to 2022, more than one in seven UK-domiciled Oxford undergraduates came from “socio-economically disadvantaged areas”. Twenty-eight per cent of Oxford students identified as “black and minority ethnic”; slightly more undergraduates now are women than men. Academics told me that less privileged students are more likely to experience social or mental-health problems, but usually get good degrees. These universities haven’t relaxed their standards. On the contrary, by widening the talent pool, they are finding more talent. 

Elite US colleges could do that even without affirmative action. First, they would have to abolish affirmative action for white applicants. A study led by Peter Arcidiacono of Duke University found that more than 43 per cent of white undergraduates admitted to Harvard from 2009 to 2014 were recruited athletes, children of alumni, “on the dean’s interest list” (typically relatives of donors) or “children of faculty and staff”. Three-quarters wouldn’t have got in otherwise. This form of corruption doesn’t exist in Britain. One long-time Oxford admissions tutor told me that someone in his job could go decades without even being offered a donation as bait for admitting a student. Nor do British alumni expect preferential treatment for their children. 

The solutions to many American societal problems are obvious if politically unfeasible: ban guns, negotiate drug prices with pharmaceutical companies. Similarly, elite US universities could become less oligarchical simply by agreeing to live with more modest donations — albeit still the world’s biggest. Harvard’s endowment of $50.9bn is more than six times that of the most elite British universities. 

But US colleges probably won’t change, says Martin Carnoy of Stanford’s School of Education. Their business model depends on funding from rich people, who expect something in return. He adds: “It’s the same with the electoral system. Once you let private money into a public good, it becomes unfair.” 

Both countries have long been fake meritocracies. The US intends to remain one.

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Democracy in Pakistan: Of the elite, for the elite, by the elite

 Civilians and the military have taken turns to rule Pakistan, but the system, arguably, has remained the same, ‘unscathed’ by democracy writes Touqir Hussain in The Dawn  

One of the most perplexing debates around is on the subject of democracy, where it is easy to confuse concept with practice, form with substance and illusion with reality.

There is another problem. Countries at varying stages of democratic evolution are all called a democracy, which adds to the confusion, as we, in our mind, expect all these models to be equally responsive in meeting the needs of society. That makes us tolerate and endure a system that is not quite democratic and may never become so.

In Pakistan, democracy remains both illusive and elusive. What we have is something that looks like democracy, but does not work like one. Democracy is a dynamic, not static, process but Pakistan’s “democracy” is stuck.

If any “good” has come out of the current crisis, it is hopefully the realisation that the conventional wisdom that Pakistan’s problems are due to a lack of civilian supremacy, or because the “democratic system” has faced repeated interruptions by the military rule, or that elected governments have not been allowed to complete their full term may not be quite true.

Has the current crisis — and the way politicians’ brazen preoccupation with the struggle for power is ripping the country apart while it burns — left any doubt that the “democracy” we have has been part of the problem, not the solution? In fact, it is this very “democracy” that has provided legitimacy to bad governance, produced weak governments opposed to reforms for fear of losing elections, and has kept recycling. Above all, it has lacked substance.

Form and substance

True democracy has both form and substance. The form manifests itself in electoral democracy, sustained by a process of free and fair elections, and peaceful and orderly change of governments. But the form must embody good governance to empower people, and it can do so only by resting on free and representative institutions, constitutional liberalism or any other value-based system, strong rule of law, and a just and equitable social order. That is the substance. Without substance, democracy remains hollow. It has no soul.

The intelligentsia in Pakistan, especially the liberal/secularist segment, is most passionate about the Western liberal model focusing on freedom of choice, free speech, civil liberties, independent judiciary, and of course elections.

Much of this class lives emotionally disconnected from the rest of the population and their harsh challenges of survival and means to cope with them. It feels that all you need is elections, free media, independent judiciary, and the Constitution.

Voila! You have democracy — and it will take care of the nation’s problems, including those of the poor.

Democracy and progress

The secular/liberal class as a whole, and Western-oriented sections of it in particular, are right in seeing a causal connection between democracy and progress in advanced industrialised countries. They are, therefore, justified in emulating a similar democratic political system and having high expectations from it.

Where they are at fault is that they do not grasp the full picture. Most of them forget that democracy, which ostensibly brought progress in the West, was more than a political system. It was also a society’s organising idea, whose substance was equality of opportunity, fairness, rule of law, accountability, safeguarding of basic human rights and freedoms, gender equality and protection of minorities.

In sum, democracy’s core idea was humanism. And the whole objective of giving people the right to choose who will govern them on their behalf was to ensure the implementation of this very ideal.

Otherwise, what is the purpose of self governance? Given the chance to self govern, would people like to bring themselves to grief with their own policies? Certainly this was not the intent.

Unless a nation shows this fundamental understanding of democracy and takes steps to put itself on the road to democracy, it will never get there. It will keep moving in circles or going backwards.

The poor cannot ‘feed’ on democracy

For much of the liberal class in Pakistan, especially its more affluent stratum, the form is the substance. It looks at democracy as simply black and white — there can be no gradation. 

Pakistan’s “democracy” is advanced enough to satisfy the liberals’ love of liberty and enjoyment of certain human freedoms, but regressed enough to be exploited by the elite for their purposes at the expense of the people.

In her book, ‘Thieves of State’, Sarah Chayes focuses on corruption in Afghanistan. Sarah, who spent a decade in Kandahar, concludes that the concerns of most people did not have much to do with democracy. Pakistan is, of course, no Afghanistan but the book has a message that applies here as well.

Democracy is no doubt the best form of government but go and ask the masses in societies that are grappling with serious state and nation-building challenges what is most important in their lives. What is important for them, they will tell you, is social and economic justice, human security and dignity and the hope for a better future. And they will like any government that provides this kind of life.

A USAID official once asked me what the people of Pakistan want. Development or democracy? Prompt came my reply — if democracy brings development, they want democracy; if it does not, they want development.

Basically, you need a democracy that satisfies the human aspirations for freedom as well as improves the quality of life for citizens at large. 

Pakistan’s ‘democracy’ a political tool for power

In Pakistan’s case, “democracy” is just a political tool for the dominant social groups to maintain their wealth and status. The other instrument is military rule.

But the beneficiaries are roughly the same in both models — the whole panoply of power comprising the top tier of politicians, bureaucrats, the military and judiciary, “business folk and the landed”, who among them monopolise the country’s economic resources.

The civil and military leaderships may compete for power, but eventually cooperate to maintain the status quo. Both use each other — the military using the failure of the politicians as a pretext to come to power or to dominate it, and politicians using the alibi of military interruption or dominance for their own failure. They are allies as well as rivals.

In Why Nations Fail, Daron Acemoglu and James Robinson trace the evolution of political and economic institutions around the globe and argue that nations are not destined to succeed or fail due to geography or culture, but because of the emergence of extractive or inclusive institutions within them.

They write:

“Extractive political institutions concentrate power in the hands of a narrow elite and place few constraints on the exercise of this power. Economic institutions are then often structured by this elite to extract resources from the rest of the society. Extractive economic institutions thus naturally accompany extractive political institutions. In fact, they must inherently depend on extractive political institutions for their survival … political institutions enable elites controlling political power to choose economic institutions with few constraints of opposing forces. They also enable the elites to structure future political institutions and their evolution.”

In light of their thesis, we can see how powerful groups or institutions have long dominated Pakistan’s body politic by taking advantage of its security issues, place of religion in its national makeup and its feudal social structure. The political system that emerges from this body politic is designed to empower only the powerful and privileged and does little to foster the rule of law.

Musical chairs

Civilians and the military have taken turns to rule Pakistan, but the system, arguably, has remained the same, ‘unscathed’ by democracy. There was no fear of accountability, and no obstacle to electability. They did not need the people, so they did very little for them. And neither of them faced the full wrath of the public as each deflected the blame on to the other.

When the cost of maintaining a “democracy” led by civilians would become unbearable, we would tolerate the army’s intervention to help us get rid of them. But instead of returning to the barracks, the military would stay on. Then we’d long for democracy, which would let us down yet again. The fact is that no institution is solely responsible for democracy’s misfortunes in Pakistan. They all provided opportunity to each other to come to power and supported the system.

In the civilian edition that now comprises the ruling coalition, politicians may be divided into political parties but are united by the elites. Henceforth, whichever party comes to power when the ongoing bloody struggle for power is over, it will likely be no different from others in being invested in the system. It may disrupt the system, but will not threaten it.

Liberty and order

Even if Pakistan had a fully functional Western liberal democracy, it was not going to solve the country’s fundamental challenges. The fact is the Western liberal democratic model has become too competitive. In their book, ‘Intelligent Governance for the 21st Century’, Nicolas Berggruen and Nathan Gardels challenge the view that the liberal democratic model is intrinsic to good governance. Examining this in relation to widely varying political and cultural contexts, especially the Chinese system, the authors advocate a mix of order and liberty.

When asked once on the Charlie Rose Show what he thought of Western democracy, Lee Kuan Yew — the inaugural prime minister of Singapore — replied that the system had become so competitive and combative that in order to come to power, the opposition spent all its time planning to undermine the incumbent government by misrepresenting or distorting issues and thus misleading the public. “It would be a sad day when this kind of democracy comes to Singapore,” he said.

In his classic, The Future of Freedom, Fareed Zakaria states that Singapore follows its own brand of liberal constitutionalism, where there are limits on political freedoms — and it happens to be one of the most self-content countries in the world.

It boggles one’s mind that we in Pakistan tolerate the civil-military led political and governance structure, which is rigged in favour of the elite, while using the full freedom of a democratic system to play the game of politics at people’s expense. We put up with it as if this behaviour is an acceptable price to be a “democracy”, which incidentally does not quite happen to be a democracy. Indeed, there are institutions that one finds in a democratic system, but they lack autonomy and integrity. They have failed in the moral strength to serve the people, but not in the capacity to sustain the system.

You can see how millions of good Pakistanis are glued to TV or their phones every day following the comings and goings of politicians as if they were going to solve the country’s problems. We forget that their fights are about themselves, among themselves.

Democratisation is a revolutionary struggle

You cannot change what you do not know. The creation of a true democracy is a revolutionary struggle. And it must begin with the realisation that the “democracy” we have will not solve our problems regardless of who is in power. We cannot also bank on this “democracy” to become democracy by itself.

Countries change not because they have become democratic. They become democratic because they have changed. In many ways, democratisation is a painstaking struggle, indistinguishable from state and nation-building. Progressive movements and the civil rights campaign in America, political and social movements in Europe and the Meiji Restoration in Japan are a few such instances.

How will this change occur in Pakistan?

That is the subject of a much wider and complex debate. Briefly, one can say the following: Pakistan has enormous strengths — remarkable resilience, faith-based optimism, a sense of exceptionalism, a vibrant media and a promising civil society.

There is enormous talent available within the country — academics, journalists, authors (many of them internationally acclaimed), political activists, retired public servants — both civil and military — who all have shown extraordinary knowledge and commitment to Pakistan. They can inspire and mobilise the young generation yearning for true change that could provide stimulus and critical mass for social movements.

That will be the purpose of social movements — to remove the obstacles to a genuine democracy in Pakistan. These include a misplaced focus on faith that has fostered extremism and hindered openness and tolerance, and a feudal dominance that has inhibited education, gender equality, openness to modern ideas and a credible political process.

Not to mention the military’s pre-eminence that has led to the dominance of security over development. The latter has skewed national priorities and resource allocation. All this is hardly a life-supporting environment for democracy.

Can Pakistan truly become democratic? Yes, it can. Whether it will; remains to be seen.