Friday, August 5, 2011

Comparing Oligarchies of India and Pakistan

India is the world's third biggest and the fastest rising oligarchy with 17.2% of its GDP amassed by its 55 billionaires. India's system of governance has some of the worst of features of democracy and oligarchy in which the democratically elected politicians are bought off by the richest Indians, and both groups further enrich themselves at the expense of the vast majority of ordinary Indians. The biggest Indian oligarchs today are mainly industrialists like Ambanis, Adanis, Birlas, Mittals, Premjis and Tatas.

Like India, Pakistan is an oligarchy as well. But it is dominated by the feudal rather than the industrial elite. These oligarchs dominate Pakistan's legislature. Vast majority of them come from rural landowning and tribal backgrounds. Well-known names include the Bhuttos and Khuhros of Larkana, the Chaudhrys of Gujarat, Tiwanas of Sargodha, Daulatanas of Vehari, the Jatois and Qazi Fazlullah family of Sindh, the Gilanis, Qureshis and Gardezis of Multan, the Nawabs of Qasur, the Mamdots of Ferozpur/Lahore, Ghaffar Khan-Wali Khan family of Charsadda and various Baloch tribal chieftains like Bugtis, Jamalis, Legharis, and Mengals. The power of these political families is based on their heredity, ownership of vast tracts of land and a monopoly over violence – the ability to control, resist and inflict violence.

Pakistan, too, has an industrial elite. Its biggest names include Manshas (Nishat Group), Syed Maratib Ali and Babar Ali (Packages) Saigols, Hashwanis, Adamjees, Dawoods, Dadabhoys, Habibs, Monnoos, Lakhanis and others. But their collective power pales in comparison with the power of the big feudal families. The only possible exception to this rule are the Sharif brothers who own the Ittefaq Group of Industries and also lead Pakistan Muslim League (Nawaz Group), one of the two largest political parties. But the Sharifs too rely on political support from several feudal families who are quick to change loyalties.

The origins of the differences between Indian and Pakistan oligarchies can be found in some of the earliest decisions by the founding fathers of the two nations. India's first prime minster dismantled the feudal system almost immediately after independence. But Nehru not only left the industrialists like Birla and Tata alone, his policies protected them from foreign competition by imposing heavy tariff barriers on imports. In Pakistan, there was no serious land reform, nor was any real protection given to domestic industries from foreign competition.

Oligarchy is the antithesis of democracy. However, it's important to understand the differences between feudal and industrial oligarchies, and their effects on nations as observed in South Asia.

Industrial oligarchs of India have accelerated economic growth, created a large number of middle class jobs, increased India's exports significantly and paid higher taxes to the tune of 17% of GDP. This has created a trickle-down effect in terms of increased public spending on education, health care and various social programs to fight poverty. Unfortunately, the tax collection in Pakistan's feudal oligarchy remains dismally low at less than 10% of GDP, and the lack of revenue makes its extremely difficult for Pakistani state to spend more on basic human development and poverty reduction programs.

As to the future, the hope for Pakistan is that the feudal hold on power will eventually weaken as the nation sustains its rapid pace of urbanization. Pakistan has and continues to urbanize at a faster pace than India. From 1975-1995, Pakistan grew 10% from 25% to 35% urbanized, while India grew 6% from 20% to 26%. From 1995-2025, the UN forecast says Pakistan urbanizing from 35% to 60%, while India's forecast is 26% to 45%. For this year, a little over 40% of Pakistan's population lives in the cities. The political power shift from rural to urban areas may eventually produce a more industry-friendly government in the future. Such a government can be expected to help increase the tax base significantly, permitting greater spending on education and health care, and reduced dependence on foreign aid.

Related Links:

Haq's Musings

India: World's Largest Oligarchy

Who Owns Pakistan?

Tax Evasion Fosters Aid Dependence

Urbanization in Pakistan Highest in South Asia

India's 2G Scandal

Bloody Revolution in India?

Is There a Threat of Oligarchy in India?

Political Patronage in Pakistan

The Richest Pakistanis

India at Davos 2011: Story of Corruption and Governance Deficit

Challenges to Indian Democracy

India After 63 Years of Independence


Anonymous said...

Another interesting side effect of an industrial oligarchy is that the amount of funds they give the political classes is many orders of magnitude more than any 'marketing expenses' type payment of MNC corporations can make.

Therefore Indian political class as corrupt as it is will always take 'patriotic' protect thy industry type of decisions even though they don't have even 1% of the integrity of our founding fathers.

Anonymous said...

When 14 /15 August is near then India Pakistan Comparisions become a very common thing on the Internet

SO let us start

The Pakistani Industrialists only produce TEXTILES and Cement

So Pakistan's exports are basically textiles and rice

India's exports are 29 Billion dollars Per Month and the total exports this year will easily cross 300 Billion dollars

76 Billion dollars in ENGINEERING Goods 50 Billion dollars of Software exports

When Pakistan cannot produce basic things like Diesel Railway Locomotives after 64 years then there is something terribly wrong with Pakistan

India's GDP growth is 8 percent
This growth is basically Industry driven

Pakistan's Industrialists are investing in Bangladesh ie A flight of Capital is happening

Pakistan GDP growth is 2.5 %

Rashid said...

Riaz - This topic is worth a book at least.
Please continue expounding on this. Perhaps others may have written on this topic- but your style and inexorable process of presentation appeals to me.

Mayraj said...

India also has large landlords (only certain type were removed by Nehru). The difference with Pakistan is that it doesn't have the industrial oligrahs. Hey, it might have had them if Bhutto hadn't nationalized companies!
"Our key findings are as follows. Overall, land-reform legislation seems to have had a
negative and significant effect on agricultural productivity in India. However, this hides
considerable variation across types of land reform, as well as variation across states.
Decomposing by type of land reform, the main driver for this negative effect seems to
be land-ceiling legislation. In contrast, the effect of tenancy reform, averaged across all
states, turns out to be insignificant. However, in West Bengal, one of the few states where
tenancy laws were implemented rigorously, the negative relationship between land reform
and productivity is absent. More generally, there seems to be a wide range of state-specific
effects, which suggests that focusing on average treatment effects can conceal a considerable
amount of heterogeneity. Finally, tenancy reform seems to have increased the inequality of
operational holdings in India if we exclude West Bengal, which suggests that in anticipation
of the new tenancy legislation, landlords could be engaging in eviction of tenants in states,
other than West Bengal, where tenancy reform had been poorly implemented.
Land reform and agricultural productivity in India: a review of the evidence
Land Reforms, Employment and Poverty in India

Found this on net on URL to see more related info!
Changes in Land Tenure under British Rule
India's invasion by the British brought about, in the course of time, a complete transformation in the country's land tenure system. The East India Company experienced difficulty in its trading because the sale of British goods in India was insignificant. On the other hand, the exportation of gold and silver from England to pay for Indian goods was soon prohibited. The company found a solution by securing money from India to pay for Indian goods. It collected taxes for the Indian rulers which, in the beginning, brought revenues of only 10 % of the levied taxes, but, since the control over the amount of levied taxes became lax at the end of the Mogul period, its revenues increased. In addition, they were assigned areas as "jagir:°' The decisive breakthrough came when, in 1765, the office of 'dewan' for Bengal, Orissa, and Bihar, namely the financial sovereignty for these areas, was assigned to the Company with the concession for levying taxes in exchange for a global sum of Rs. 2.6 million per annum.
After some time of experimentation, in 1793, Corwallis' Permanent
Settlement brought a final regulation of the procedure for levying taxes,
which led to decisive changes in land tenure. The British did as if all the
land belonged to the state and was thus at their disposal. They registered
the local tax collectors, who were called zamindars, as owners of the land
in their district. These zamindars had to collect and deliver the taxes; the
amount was fixed at the beginning and remained the same permanently. To give them an incentive, they were free to decide how much to demand from the cultivators. On the other hand, the fixed lump tax sum was an incentive to put more land under cultivation and, thus, have more taxpayers in one region. In order to do so, one could rot bleed the individual farmers too much.

Riaz Haq said...

From Facebook:

Riaz, my reading of Pakistan history does not support a few assertions you've made. Pakistan did not have an industrial structure at the time of partition to support. When the industrial structure did develop - in the 1960s under Ayub - it was given a lot of protection from foreign competition, cheap access to government finance (through PIDC etc.). You forget the 22 families that almost owned Pakistan's commercial assets. But then there was a counter revolution. Bhutto's socialism was largely a response to Ayub's 22 families. He nationalised the industry and hence broke the back of capitalism in Pakistan.

Athar Osama

Riaz Haq said...

Athar: "Pakistan did not have an industrial structure at the time of partition to support."

Athar, I agree that Pakistan had no heavy industry in 1947, but it did have many industrialists like Adamjees, Dawoods, Habibs, Manshas, etc who migrated from India and could have been better supported by the govt in 1940s and 1950s under civilian rule. They were Pakistan's Birlas and Tatas.
In fact, they were better. Pakistan's first budget projected a revenue of Rs 150 million and govt had to borrow Rs 80 million from the Habibs to pay govt employees' salaries and meeting other contingencies.
It took a military dictator Gen Ayub Khan to see the light and do what was necessary, but Bhutto quickly destroyed the nascent industries by taking them over, and rolled back the progress made under Ayub to restore feudal primacy in Pakistan.

Anonymous said...

Actually India's mega corporations particularly Tata is on its own bigger than PAkistan's Industrial output.
TATA revenue $80 billion in FY11

India's mega corporations are kind of like South Korea's Chaebol and Japan's Zaibatsu.

Anonymous said...

They were Pakistan's Birlas and Tatas.
In fact, they were better.

Really? How?

Please read and tell me exactly how any of these holds a candle to this behemoth???

Anonymous said...

'But Nehru not only left the industrialists like Birla and Tata alone, his policies protected them from foreign competition by imposing heavy tariff barriers on imports. In Pakistan, there was no serious land reform, nor was any real protection given to domestic industries from foreign competition.'

Riaz I thought u believed in free trade and low tarriff barriers?

Btw do Pakistanis as consumers and a nation have the steely resolve to patiently live with substandard products while the Pakistani industry learns the ropes??

Remember Industrial bases aren't created overnight it takes 20-30 years for an industry to stand on its own two feet.

Hats off to Nehru for seeing this through even against the loud protests of IMF,WB,US,UK etc about 'free trade' and 'open markets' etc

Haseeb said...

Riaz, AOA. Very well done. Thanks for all the great work you are doing. Lead on brother. Haseeb

Riaz Haq said...

Anon: "They were Pakistan's Birlas and Tatas.
In fact, they were better.
Really? How?"

My yardstick is not the amount of wealth but how much do these rich industrialists care for their nations.

Going by this standard, I think Pakistan's Habibs stand heads and shoulders above their Indian counterparts.

Here's why:

In 1947 when Pakistan was struggling to survive financially because India refused to give its share of central bank reserves inherited from the British rulers, the Habibs provided Rs. 80 million cash to the state of Pakistan, more than half of the nation's first total budget of Rs. 150 million.

Shams said...

I guess you are aware that Pakistan's agriculture contributes barely 20% of the total GDP, whereas the industry contributes 25% and the rest comes from business and services such as banking, airlines, hotels, transportation, telecom, etc.

That is why I am not totally convinced with the findings of your blog post, but you are right to some extent.

Agriculture in Pakistan is a big business. Pakistan's average cotton yield is 750 kg per acre, and wheat is 1,000 kg per acre. At cotton spot price of Rs. 9,000 per 40-kg bale, and Rs. 950 per 40-kg bag of wheat, a large landholder with 1,000 acres will get a gross revenue of $2,000,000 in cotton and $300,000 in wheat.

There are many landlords who do own 25,000 acres or more, but no all of that is cultivatable. Either way, the largest landlords with 25,000 acres or more of "cultivated" land are known to take home a gross revenue of no more than $30-50 million per year if they are growing cotton, and $3 to 10 million if they are wheat growers. Agricultural equipment such as tractors are thrashers are a "consumable" items.

Compare that to the industry and business, and let's keep an eye on politicians as well -- the only dollar-billionaires in Pakistan are either the industrialists and businessmen (Sharifs, Hashwani, Dawood, Yacoub, Mansha, etc.), or the politicians (Zardari, etc.).

Hence there is no basis to suggest in your blog that the agriculturists have a largest money pool in Pakistan. They make less, and none of them is known to have a nine-digit net worth (in dollars).

Their power comes from the voting power of their hari slaves. That is why true democracy in Pakistan is not good for country's growth and stability. True democracy, if it ever comes, will be a long time coming.

Riaz Haq said...

Shams: "I am not totally convinced with the findings of your blog post, but you are right to some extent."

As part of India's 2G scandal revelations, the Billionaire businessman Mukesh Ambani has been quoted as bragging that India's ruling Congress Party is "Apni Dukan" (our shop), implying that he owns the ruling party. No ordinary Pakistani, certainly not any Pakistani industrialist, could make such a claim about owning the ruling PPP. Only a Pakistani feudal can. This is the crux of my post.

Anonymous said...

In 1947 when Pakistan was struggling to survive financially because India refused to give its share of central bank reserves inherited from the British rulers, the Habibs provided Rs. 80 million cash to the state of Pakistan, more than half of the nation's first total budget of Rs. 150 million.

That's fine but how do you square this with financing the entire Indian independence movement right under the noses of the British running the very real risk of being imprisoned and loosing everything.Remember in 1910s it was far from certain that the mighty British Empire would simply let India go.

Also Tatas also created the blue print for India's industrial base by building steel plants right under the noses of the British despite massive opposition from them who were keen to have India only as a resource colony.

Anonymous said...

Dear Riaz

Whether any country's Private sector is big or Corrupt or an Oligarch is a SECONDARY MATTER

The PRIMARY thing is the Industrial Base , Industrial and Manufacturing Capability and the Technological strength that the private sector of any country brings to the country

Indian private sector is of course busy Amassing wealth

But the private sector is not into basic and low tech goods alone

Indian private sector is technogically very advanced and strong

Riaz Haq said...

Anon: "The PRIMARY thing is the Industrial Base , Industrial and Manufacturing Capability and the Technological strength that the private sector of any country brings to the country "

Yes, but to what end?

Surely, "Industrial Base , Industrial and Manufacturing Capability and the Technological strength" are not the ends in themselves. Or, are they?

Anonymous said...

Indian private sector is technogically very advanced and strong

Compared to 3rd world countries it is but we have a long long long way to go before we can compare our industrial base and tech capability to US,EU.Japan or even China.

We should not rest on our laurels we are in very early stages of our development comparable to China in 1990s but unfortunately unlike China back then we face a very turbulent international financial enviornment just when our export sector is firing up.

This is NO time for bravado!

Anonymous said...

Surely, "Industrial Base , Industrial and Manufacturing Capability and the Technological strength" are not the ends in themselves. Or, are they?

Well they sort of are a good industrial base makes you financially solvent and ushers in a technocratic middle class.How this evolves ofcourse is a different matter more a comparatively earier question of dividing the cake the industrial base is about baking one in the first place.

ALL industrialized countries have had high inequalities and concentration of wealth in the initial stages of development.No exceptions.

Pavan said...

Thanks Riaz. Good balanced piece. I hope your Indian readers will appreciate it. Just a point about taxes paid. Our federal budget is about 14% of GDP. This includes a fiscal deficit of about 5% so the total taxes collected could not be more than 9% of GDP which includes the money transferred to states. There are some taxes at state level too like excise etc which are used by the states. Pavan

Aamir said...

well the same formula is being used everywhere in the world .. the rich buy Politicians ... e.g republican of US ?

Riaz Haq said...

Aamir: "well the same formula is being used everywhere in the world .. the rich buy Politicians ... e.g republican of US ?"

Yes, the US has oligarchs too. However, the American oligarchs are nowhere near the top in terms of controlling as large a percentage of GDP as some other nations like Russia, Malaysia and India. Take a look:

Russian Oligarchs 30% of GDP

Malaysia 20%

India 17%

Taiwan 14%

Mexico 12%

Saudi Arabia 12%

Turkey 9%

Brazil 6%

Philippines 5%

Indonesia 5%

South Korea 4%

China 4%

Anonymous said...

Yes, the US has oligarchs too. However, the American oligarchs are nowhere near the top in terms of controlling as large a percentage of GDP as some other nations like Russia, Malaysia and India. Take a look:

This is misleading u are comparing TOTAL WEALTH with ANNUAL GDP.

I think a better measure will be TOTAL WEALTH/Capital stock of the Country.

Also remember that most Indian firms are listed on the sttock market and the current high valuations are a transient phenomena.Also Indian business leaders rarely control >20% of their companies.The balance is owned by banks and financial institutions(which are about 80% government),retail and FII investors.

Taking all this into account while concentration of power in India is there it is nowhere near as powerful as JP Morgan or John D Rockefeller's clout in 19th century America.

Riaz Haq said...

Anon: "Also Indian business leaders rarely control >20% of their companies."

The data I have shared only counts the equity owned by the Indian billionaires, not their entire companies' market caps.

Any way you look at it, the concentration of wealth by Indian oligarchs is huge, surpassed only by their Russian and Malaysian counterparts who are known to be extremely corrupt cronies of their equally corrupt politician friends. It's crony capitalism at its worst.

Anonymous said...

The data I have shared only counts the equity owned by the Indian billionaires, not their entire companies' market caps.

Let me explain:
Indian GDP is $1.6 India produces $1.6 trill of goods and services EVERY YEAR
Ambani is worth approx $25 billion.However he DOES NOT on a pro rata basis produce $25bn worth of value every year.

The way to do this would Ideally be the CAPITAL STOCK of India Inc ie about $5 trillion($3 trill BSE +2trill unlisted ) and THEN divide it by his weath to see how much influence he has.

Other than that these stats are just talking points.

Riaz Haq said...

Anon: "However he DOES NOT on a pro rata basis produce $25bn worth of value every year."

GDP is a standard benchmark used by economists and others to compare countries in terms of national debt, spending, deficits, wealth inequalities etc. Based on this benchmark, India ranks third as an oligarchy behind Russia and Malaysia.

Anonymous said...

Dear Riaz

Prior to 1991 we were passionate about socialism

Indian government , people political parties all supported socialism

So we put all sorts of restrictions on the private sector and gave a lot of support to the public sector

But it led to bankruptcy

Today though there are is concentration of wealth as you say but generally the entire country has benefitted from higher rate of economic growth , higher output, better standards of living

India being a democracy , even inflation is loudly protested by the people , if you follow Indian news media you must have noticed ;
how the Govt. keeps an eagle's eye on inflation

So as you repeatedly point out the disparities of income in India ; you must remember that Indian people would have thrown out such " wrong " economic policies IF THEY were NOT being Benefitted

The Indian people know MUCH more than you that ,which policies are good or bad for them

Anonymous said...

Dear Riaz

Today two NEWS items have appeared that VALIDATE India's New economic policies

These are
1 USA OWES India 41 Billion dollars
ie India too holds US treasury Bonds

We in India have been Surprised and are pleased as PUNCH by this news

Today India is lending money to USA ,IMF, Africa,and European Union

Just 20 years ago we had only 1.5 billion dollars in reserves

2. April June FDI ie 3 months FDI is 13 Billion dollars

So even if stock markets are down FDI inflows are big

Ashmit (India) said...

There is a very fundamental problem with you arriving at the conclusion that India is the third biggest oligarchy, and thereby the implicit suggestion that pakistan has fared better.

You use the information presented in the "billionaire's index" as a reference point. But pakistan barely has a couple of billionaires. That doesn't mean that wealth is widely distributed in paksitan and that money is NOT concentrated in the hands of a few MILLIONAIRES, if not billionaires.

Gentlemen such as Abdul Ghafoor and Ali Lakhani have amassed great wealth, but are still shy of the billionaire tag.

The following link gives a rough sketch of the top industrialists in Pak and their net worth.


I did a rough calculation. The combined net worth of the names listed, stood at 26.15 billion dollars. And SURPRISE - it stacks up to about 16.25% of the pakistan's GDP. Furthermore, the data listed on the link appears to be a little old. I'm sure the net worth of these behemoths would have climbed.

40 rich guys (pak) - 16.25% of GDP

55 billionaires (India) - 17& of GDP

You'r in dreamworld, my pakistani friend. Surrounding yourself with twisted data doesn't change anything for your country.

The only difference is that Indian oligarchs are bilionaires. whereas, oligarchs in pakistan are millionaires, trying to get a toehold in the big league.

If not crony capitalism - then I guess it fair to extrapolate that some thing is seriously wrong with Pak.


Riaz Haq said...

Anon: "The Indian people know MUCH more than you that ,which policies are good or bad for them"

Indian electorate consists mainly of poor, hungry and illiterate people who swing elections to Congress or BJP to their own detriment. The Indian people are easy to manipulate by corporate-owned media which sings praises of India's corporate sector and tries to hide facts from them about the depth and breadth of poverty that is worse than sub-Saharan Africa.

Last year, the Indian mainstream media imposed a blackout on 2G scandal revelations until a small news outlet broke the story.

Here's a quote from a recent interview of Prof Noam Chomsky about Indian media:

"The media in India is free, the government doesn’t have the power to control it. But what I saw was that it was pretty restricted, very narrow and provincial and not very informative, leaving out lots of things. What I saw was a small sample. There are very good things in the Indian media, specially the Hindu and a couple of others. But this picture (in India) doesn’t surprise me. In fact, the media situation is not very different in many other countries. The Mexican situation is unusual. La Jornada is the only independent newspaper in the whole hemisphere."

Riaz Haq said...

Ashmit: "There is a very fundamental problem with you arriving at the conclusion that India is the third biggest oligarchy, and thereby the implicit suggestion that pakistan has fared better."

It's clear you have either not read or not understood what I wrote.

As to inequality, there is plenty of Gini data over the years to show that Pakistan has lower poverty and it is more egalitarian than India and most other countries of the world.

Mayraj said...

Gee something India and Pakistan have in common!

“The results of the poll on the theme ‘Corruption and the Lokpal’ show the Central government being overwhelmingly perceived as being corrupt and shielding those who have stashed money abroad.”
Corruption is the big issue

Rahul said...

ummm...Lower poverty.. ... Now you will quote the MPI poverty index of 2010 where Pakistan has 51% and India 55%. But he will forget to quote the new UN report which says India will reduce it to 22% by 2015. (in 2011 its already 51%)

As for egalitarian, I recommend a book written by ANATOL LIEVEN, titled"Pakistan a hard country". This writer is of course biased against India, but he will cure the riddle of "low poverty","industrial powerhouse", "egalitarian" asked by Riaz.

Riaz Haq said...

Rahul: "Now you will quote the MPI poverty index of 2010 where Pakistan has 51% and India 55%"

I can also now quote a recent 2011 World Bank report.

In spite of recent poverty declines with its rapid economic expansion, India still has higher poverty rates than Pakistan, according to a 2011 World Bank report titled "Perspectives on poverty in India : stylized facts from survey data" released in 2011.

Overall, the latest World Bank data shows that India's poverty rate of 27.5%, based on India's current poverty line of $1.03 per person per day, is more than 10 percentage points higher than Pakistan's 17.2%. Assam (urban), Punjab and Himachal Pradesh are the only three Indian states with lower poverty rates than Pakistan's.

Rahul: "As for egalitarian, I recommend a book written by ANATOL LIEVEN, titled"Pakistan a hard country"."

Good recommendation. I have read Lieven's book, and it confirms that Pakistan has lower poverty and lower Gini i.e. less inequality than India.

Here's a quote from page 215 of Lieven's book "Pakistan: A Hard Country" :

"This system (of kinship groups) has a critical effect on Pakistan's remarkably low inequality rating according to the Gini Coefficient, measuring the ratio of the income of the poorest group in society relative to the richest. In 2002, according to UN statistics, it was 30.6, compared to 36.8 for India, 40.8 for the US, and 43.7 for Nigeria.

Anonymous said...

I think a broader insight is that the Hindu elite modernized under the British to a much greater extent than Muslims.

There were hardly any Muslim corporations in British India comparable to TATA,Birla,Mahindra etc.

Muslims were(are?) still living in the past with jagirs of land being the chief determinant of status.

In 2015 as per current trends India will be 2-3 times richer than Pakistan.

Rahul said...

Perhaps Riaz, read only that part of the book, not the other parts.

The author gives a vivid explanation of the Pakistani society. It accurately describes that the structure of Pakistani society prevents innovation, modernism, women rights, and progressive industries and infrastructure.

The lower of gini coffiecient is also well described by the author. The author says that, in order to maintain the kinship, the corrupt landlords, distribute the ill-gotten wealth(through corruption and drugs) to their followers. Therefore the followers get the money, not the needy, but the flatterers. This structure prevents growth of capital and modern industries. So the landlord does not create money but simply distributes what he gets through corruption.

Gini coefficient is of course not a main economic and developmental parameter. Otherwise USA would not be at such a high HDI rank, other factors count mainly.

While the blogger compares the figures of current poverty rates, he fails to appreciate the potential of India in reducing poverty from 51% to 22% in just a span of 4 years.

The book accurately describes that except Northern Punjab, and parts of Urban Sindh, how all other regions are quite backward, and the people also do not want to change the methods. This is stark contrast to India, where the society is fighting to remove corruption, actively supported by all sections of the society.

Riaz Haq said...

Rahul: "It accurately describes that the structure of Pakistani society prevents innovation, modernism, women rights, and progressive industries and infrastructure."

While I agree with Lieven's criticism of Pakistan's feudal oligarchs and politics of patronage (and I have written about both), I disagree with your characterization that it "prevents innovation, modernism, women rights, and progressive industries and infrastructure." Pakistan has a larger middle class than India's and it has a more advanced infrastructure than India.

On page 35, Lieven says:

"Pakistan also contains islands of high technology-above all the nuclear industry, which (whatever you may think about its strategic implications, is a very remarkable achievement for a country with Pakistan's economic profile, and shows what Pakistani state can achieve if it really sets its mind to it, and can mobilize enough educated, honest and committed people."

Rahul: "Therefore the followers get the money, not the needy, but the flatterers. This structure prevents growth of capital and modern industries. So the landlord does not create money but simply distributes what he gets through corruption."

Not entirely true. The needy do get a lot of help as part of patronage system and Lieven points it out by saying that they maintain large staffs regardless of need and offer help to their constituents when asked.

As he criticizes Pakistan which is the subject of his book, he does not spare India either when he does comparisons.

For example, on page 34 he says:

"Certainly, most people in Pakistan are poor (by whatever standard he has in mind); but all the same, as a result of economic growth, together with the effects of Islamic charity and the circulation of state patronage to kinfolk and followers of successful politicians, Pakistan lacks the huge concentrations of absolute poverty to be found in India's cities and countryside."

Deepak said...

Dear Mr. Riaz,
Your articles always try to prove Pakistan is better than India but I still acknowledge this article is good. I once heard Parvez Musharraf saying," The cause of the fail of democracy in Pakistan is because the founding fathers of Pakistan tried to merge feudalism with democracy and it turned out to be a disaster."

These rich billionaire whatever they are, they always try to expand their business by investing more which will bring more jobs to the people, create more educated class and if they invest outside their country it will create brand of their own country like Lakshmi Mittal,Aditya Birla and Tatas. I don't think Zagirdars and waderas will ever do such things.They don't have such wisdom. Whatever Zagirdars/Waderas got that is because of their loyalty to British but Industrialist created everything from scratch.

Sunil Mittal started his Airtel company with just 30 employees in 1992 and by 2010 his company has revenue of $9.3 Billion and assets of $15.5 Billion with operations in South Asia, Africa and parts of Europe. So, the story of Infosys's Narayanmurthy who sold his wife's jewelry to start his business. Such type of people give inspirations to young entrepreneurs.

India has right now external debt of about $237 Billion(15% of GDP) and Pakistan has about $57(33% of GDP). There is something called Standard and Poor's credit rating. All super economies has AAA rating.
China has AA- rating. India has BBB- rating and Pakistan has B-. B- is just above CCC rating (for Bankruptcy) which denotes Pakistan economy is still in chaos. Pakistan faced CCC just recently in 2008 and India in 1991. But I will still acknowledge Pakistan is better than India in many parameters as they fared well between 1947-1989 and India failed to do so in their idiotic socialism. But current trends show that Pakistan will even lose that in coming years.

Riaz Haq said...

Here's an excerpt from Dr. Ishrat Husain's lecture remembering Pakistan finance minister Shoaib in 2009:

The period from 1958 to 1969 during which President Ayub ruled and Mr.
Shoaib served as Finance Minister for most of these years is considered as the
golden era of Pakistan’s economic history. The period had strong macro
economic management and the economic indicators were extremely impressive.
Agriculture grew at a respectable 4 percent while remarkable rates were
achieved in manufacturing (9 percent) and trade (7 percent) GNP growth rates
exceeded 6 percent on average throughout the period. Economic growth was
very strong on all fronts.
Structural changes that took place under the stewardship of Mr. Shoaib
laid the foundation for Pakistan’s subsequent economic performance.
Manufacturing sector which was quite nascent increased to nearly 15 percent of
DGP. Pakistan’s economic model was considered a benchmark for the
developing countries. By the end of the decade, Pakistan’s manufactured
exports wee higher than the combined manufactured exports of the Philippines,
Thailand, Malaysia and Indonesia. It is purely a matter of conjecture as to where
Pakistan would have stood today in terms of per capita incomes if it had
continued the economic policies of 1960s.
A country’s economic outcomes depend upon a host of factors (a) Initial
resource endowment; (b) External environment; (c) Strategy and policy
framework; (d) Administration capacity; (e) Political stability.
Pakistan inherited a weak resource endowment as the part that
constituted India was relatively advanced in terms of natural, human and physical
resources while the two wings of Pakistan separated by 1,000 miles of Indian
territory were quite backward.
Delivered as the 19th Shoaib Memorial
External environment facing Pakistan in the decade of the 1960s was
mixed. The war of 1965, however, caused immense economic damage to
Pakistan and foreign aid flows did suffer in the post 1965 period.
The strength of the economic performance in this decade can mainly be
explained by the strategy and economic policies pursued during this period, the
efficiency with which these policies were executed due to improvement in
administrative capacity and the political continuity and stability that prevailed until
late 1968.
Economic policies pursued by Ayub-Shoaib administration in the 1960s
were outward-oriented, liberal and supportive of the private sector. State played
a facilitating and enabling role by providing incentives, supplying infrastructure
(particularly in irrigated agriculture), institutions and technology. Macroeconomic
management was sound and prudent and fiscal and external balances were
managed well. Inflation remained in check and the annual rate of growth in
prices was only 3.3 percent. However, rapid economic growth and
industrialization resulted in income inequalties and regional disparities that had
serious political repercussions subsequently. Social sectors were neglected and
industries for capital goods were not set up. Import substitution strategy had a
positive pay off but also nurtured rent-seeking and pressures for protection
against external competition thus masking the inefficiencies of domestic
industries. Exchange rate policies created distortions and arbitrage
opportunities. But the positive contribution that made Pakistan self-sufficient in
wheat and rice was the adoption and diffusion of Green Revolution technologies
that also helped uplift the living standards of the rural population.

Riaz Haq said...

Sugar mills have been one of the vehicles of political patronage in Pakistan.

In an August 2011, Zulfiqa Mirza told the media that "Asif Zardari is so generous that if you gave himn a glass of water he'd give you a sugar mill".

In Mirza's case this is definitely true as he himself admitted that he had received the permit to install his sugar mill with the help of Asif Ali Zardari, according to Daily Times.

In a Friday Times Op Ed in Sept 2011, Najam Sethi wrote that "Mr Mirza owes his great wealth (sugar mills sanctioned during the PPP's two stints in power) and power (his wife is the Speaker of the National Assembly) to Mr Zardari's largesse".

No wonder so many politicians own sugar mills that they dominate the business and control its supply and prices to enrich themselves.

The fact that Pakistanis have a sweet tooth is not lost on the nation's ruling elite, particularly the powerful political families and the Pakistani military. While the military owns Fauji sugar mills, more than 50% of the sugar in Pakistan is produced in sugar mills owned by the most powerful politicians of all major parties and their families.

Multiple sources indicate that the mills owned by President Asif Ali Zardari’s family and the ruling PPP leaders include Ansari Sugar Mills, Mirza Sugar Mills, Pangrio Sugar Mills, Sakrand Sugar Mills and Kiran Sugar Mills. Ashraf Sugar mills is owned by PPP leader and incumbent ZTBL President Ch Zaka Ashraf.

The media reports also indicate Kamalia Sugar Mills and Layyah Sugar Mills are owned by PML-N leaders. Former minister Abbas Sarfaraz is the owner of five out of six sugar mills in the NWFP. Nasrullah Khan Dareshak owns Indus Sugar Mills while Jahangir Khan Tareen has two sugar mills; JDW Sugar Mills and United Sugar Mills. PML-Q leader Anwar Cheema owns National Sugar Mills while Chaudhrys family is or was the owner of Pahrianwali Sugar Mills as it is being heard that they have sold the said mills. Senator Haroon Akhtar Khan owns Tandianwala Sugar Mills while Pattoki Sugar Mills is owned by Mian Mohammad Azhar, former Governor Punjab. PML-F leader Makhdoom Ahmad Mehmood owns Jamaldin Wali Sugar Mills. Chaudhry Muneer owns two mills in Rahimyar Khan district and Ch Pervaiz Elahi and former Minister of State for Foreign Affairs, Khusro Bakhtiar have shares in these mills.

Riaz Haq said...

After the Storm: The Instability of Inequality
Nouriel Roubini, Project Syndicate: "This year has witnessed a global wave of social and political turmoil and instability, with masses of people pouring into the real and virtual streets.... While these protests have no unified theme, they express in different ways the serious concerns of the world’s working and middle classes about their prospects in the face of the growing concentration of power among economic, financial, and political elites."
Read the Article

Riaz Haq said...

Here's an interesting piece about democracy and oligarchy by Michael Hudson:

Book V of Aristotle’s Politics describes the eternal transition of oligarchies making themselves into hereditary aristocracies – which end up being overthrown by tyrants or develop internal rivalries as some families decide to “take the multitude into their camp” and usher in democracy, within which an oligarchy emerges once again, followed by aristocracy, democracy, and so on throughout history.

Debt has been the main dynamic driving these shifts – always with new twists and turns. It polarizes wealth to create a creditor class, whose oligarchic rule is ended as new leaders (“tyrants” to Aristotle) win popular support by cancelling the debts and redistributing property or taking its usufruct for the state.

Since the Renaissance, however, bankers have shifted their political support to democracies. This did not reflect egalitarian or liberal political convictions as such, but rather a desire for better security for their loans. As James Steuart explained in 1767, royal borrowings remained private affairs rather than truly public debts. For a sovereign’s debts to become binding upon the entire nation, elected representatives had to enact the taxes to pay their interest charges.

By giving taxpayers this voice in government, the Dutch and British democracies provided creditors with much safer claims for payment than did kings and princes whose debts died with them. But the recent debt protests from Iceland to Greece and Spain suggest that creditors are shifting their support away from democracies. They are demanding fiscal austerity and even privatization sell-offs.

What is missing is the counterweight to a tiny minority who didn’t set out to be petty kings but who know perhaps realize that there is no one and nothing in their way as things stand. . . . As things stand: things will change. Revolution is as likely as oligarchy; more likely I would say. And revolution has more modern precedents than does oligarchic recession. But I do think that society is not presently well-balanced to restrain finance-capital: so it’s them or us who goes down. Let’s make it them.

Riaz Haq said...

Here's a Bloomberg story titled "Pakistan, Land of Entrepreneurs":

On a warm Sunday morning in November, Arif Habib leaves his posh home near the seafront in southern Karachi and drives across town in a silver Toyota Prado SUV. About half an hour later, he arrives to check up on his latest project: a 2,100-acre residential development at the northern tip of this city of 20 million. He hops out, shakes hands with young company call-center workers who are dressed for a cricket match, and joins them at the edge of the playing field for a traditional Pakistani breakfast of curried chickpeas and semolina pudding. After a quick tour of the construction site, he straps on his leg pads, grabs his bat, and heads onto the field. “The principles of cricket are very effective in business,” says Habib, 59. “The goal is to stay at the wicket, hit the right balls, leave the balls that don’t quite work, and keep an eye on the scoreboard. I feel that my childhood association with cricket has contributed to my success.”

Habib, who started as a stockbroker more than four decades ago, has expanded his Arif Habib Group into a 13-company business that has invested $2 billion in financial services, cement, fertilizer, and steel factories since 2004. His group and a clutch of others have become conglomerates of a kind that went out of fashion in the West but seem suited to the often chaotic conditions in Pakistan. Engro (ENGRO), a maker of fertilizer, has moved into packaged foods and coal mining. Billionaire Mian Muhammad Mansha, one of Pakistan’s richest men, is importing 2,500 milk cows from Australia to start a dairy business after running MCB Bank, Nishat Mills, and D.G. Khan Cement.

These companies have prospered in a country that, since joining the U.S. in the war on terror after Sept. 11, has lost more than 40,000 people to retaliatory bombings by the Taliban. Political violence in Karachi has killed 2,000 Pakistanis this year, and an energy crisis—power outages last as long as 18 hours a day—has led to social unrest. Foreign direct investment declined 24 percent to $244 million in the four months ended Oct. 31, according to the central bank.

At the same time, some 70 million Pakistanis—40 percent of the population—have become middle-class, says Sakib Sherani, chief executive of Macro Economic Insights, a research firm in Islamabad. A boom in agriculture and residential property, as well as jobs in hot sectors such as telecom and media, have helped Pakistanis prosper. “Just go to the malls and see the number of customers who are actually buying in upscale stores and that shows you how robust the demand is,” says Azfer Naseem, head of research for Elixir Securities in Karachi. “Despite the energy crisis, we have growth of 3 percent.”

Sherani of Macro Economic Insights estimates the middle class doubled in size between 2002 and 2012. “Those who understand the difference between the perception of Pakistan and the reality have made a killing,” Habib says. “Foreigners don’t come here, so the field is wide open.” The KSE100, the benchmark index of the Karachi Exchange, has risen elevenfold since mid-2001. Shares in the index are up 43 percent this year alone. Over the past decade, stocks have been buoyed by corporate earnings, which were bolstered in turn by rising consumer spending.
Today, Habib has 11,000 employees and annual revenue of 100 billion rupees. He plans to expand into commodities trading and warehousing. “I’ve created all my wealth in Pakistan and reinvested all of it here,” says Habib, who drives himself to his cricket matches and is never accompanied by security guards. In 1998, when Pakistan’s share index fell to a record low after the government tested nuclear weapons, Habib bought shares even though “people thought I was mad.”...

Riaz Haq said...

Here's a News story on increasing private wealth in Pakistan:

KARACHI: Pakistan has seen significant increase in the number of wealthy people as compared to a total of approximately 22 families during the era of Field Marshal General Ayub Khan in 60s, experts told The News.

According to a study of a financial think-tank from Switzerland, there are 415 people in Pakistan, who own more than $30 million each as compared to 310 last year, registering an increase of 33.9 percent, which is a record in Asia. Collective income of these people remained around $50 billion, the study revealed.

Only seven to eight business groups of the 22 families continue to operate their businesses significantly and the remaining families have either closed their businesses or have shifted abroad.

Dr Ishrat Husain, former governor of the State Bank of Pakistan (SBP), and a renowned economist, said only Dawoods, Adamjees, Sehgals, Shaikhs, Nishats and a few others have survived the economic ups and downs during this period, while Haroons, Batlas, Valikas, Isfahanis, Noons, and Rangoonwalas, have disappeared from the economic scene.

The nationalisation process in 70s also affected their economic position, he said, adding that some of the families went abroad and later shut their businesses due to one reason or the other. “Disputes and rivalries within the family and group also forced them to wind up their businesses,” Dr Husain said.

In 1947, the first budget projected a revenue of Rs150 million and the government had to borrow Rs80 million from the Habib Bank Limited to pay salaries to its employees and meeting other contingencies.

Likewise, Dentonic tooth powder was the first industrial project launched in the country followed by the inauguration of the first soft drink, Pakola, which was launched by the then prime minister.

Dr Riaz Shaikh, head of Social Sciences at Shaheed Zulfikar Ali Bhutto Institute of Science and Technology (SZABIST), said that several well-established individuals and families had emerged after the nationalisation process initiated by Zulfikar Ali Bhutto. “Now the number of such individuals and families has increased to hundreds, if not thousands,” he said.

Families of Agha Khan, Kasuri that owns a school chain, Patel family that owns hospitals and Malik Riaz, top real estate developer, along with several others are some of them.
A few top families in the list included Sehgals, Habibs, Dawoods, Adamjees, Crescent and Valikas.
(Shahid) Rahman wrote that nationalisation retarded Pakistan’s growth in many ways but its worst consequence was the scars inflicted on the psyche of the big businesses, which were flourishing even after passage of two decades. “It alienated the industrialists from the economic mainstream and, as if by a collective decision, several of the original 22 families who pioneered development in Pakistan switched off investment in the long gestation projects,” he wrote.

The Pakistani businessmen who were planning mega projects in 1971 and are still capable of setting up mega projects resigned to remain spinners, sugar manufacturers or at best cement manufacturers.

Field Marshal Ayub Khan’s decade of development (1958-68) divided the society into two categories, privileged and underprivileged, which led to the explosive situation of the 1970’s, culminating in the severance of Pakistan and induction into power of a socialist government of Bhutto.

The second phase, (1971-77) under Pakistan People’s Party was the era of dismantling monopolies, nationalisation, hitting at the power base of industrial barons and clipping their wings, while 11 years rule of General Zia-ul-Haq was the period of status quo for the economy....

Riaz Haq said...

Here's "Tale of Two Indias", a story of pro-rich bias in Indian media:

..These are just some of the English-language news brands, not the national and regional language media. And this is just one holding company in which Ambani has substantial stakes. We’re not talking about other news media where Reliance Industries accounts for substantial ad revenues, just so you get the picture…

Now to get back to junior – or Akash Ambani: There have been reports that the young man was driving a glitzy Aston Martin Rapide early Sunday, following a Saturday night party, when it crashed in Mumbai’s upscale Peddar Road area, injuring eight people. Some reports say two people were killed, but the Mumbai police now say there were no deaths.

Witness accounts say a “fully drunk” young man bearing a strong resemblance to Akash Ambani was in the driver’s street at the time of the accident. The young man was spotted getting into one of two tailing cars and fleeing the scene.

Nevertheless, the next day – and here comes the glorious moment – a 55-year-old driver employed by Reliance presented himself at a Mumbai police station and accepted responsibility for the accident.

Just so you know, there’s a rich history of rich, drunk Indians screeching around in daddy’s cars and killing impoverished souls who live on the streets of Indian cities.

In Sept. 2002, Bollywood superstar Salman Khan ran into a bakery in a Mumbai suburb and killed a man sleeping on the pavement outside the bakery.

More than a decade later, the case is still dragging through the courts. The charges have been lowered to culpable homicide not amounting to murder, the actor’s police guard who testified that Khan was drunk at the wheel was suspended from the police force, and the saga rolls on.

In short, if the average Indian believes the rich enjoy impunity, they’re probably right.

But this is hardly unique to India.

Now let’s examine a case that’s uniquely Indian.

‘In a hold-up with common criminals’

Enter Devyani Khobragade, Indian deputy consul in New York, who was arrested last week outside her daughter’s Manhattan school.

The incident sparked a level of outrage – and diplomatic pettiness – that took Washington, who’s no stranger to anti-US clamor, by surprise.

Apparently, the shock and horror is due to the way Khobragade was treated.

In an email published by several news sites, Khobragade described her ordeal at the hands of the NYPD: “I broke down many times as the indignities of repeated handcuffing, stripping and cavity searches, swabbing, in a hold-up with common criminals and drug addicts were all being imposed upon me despite my incessant assertions of [diplomatic] immunity,'' she wrote.

Note that “hold-up with common criminals”. Khobragade is not a commoner. She’s a diplomat. She’s educated, erudite, entitled – and her daddy, Uttam Khobragade, is a top bureaucrat who has been linked to the massive Adarsh Housing scam in Mumbai, a city that ranks among the world’s 10 most expensive cities for real estate.

Indian maids are made for exploitation

If you think anyone gives a hoot about Mme. Deputy Consul’s Indian maid who was heinously underpaid (try living in New York City on a $500 monthly salary), you can just fuggedaboutit.

The maid, Sangeeta Richard, fled her employer’s place in June and approached an immigration attorney in July. Very few details are available about Richard and her whereabouts, but the Indian government and press have made a fuss of the fact that her husband was granted a US visa.

Now here’s the fun twist: the Indian employer is accused of paying an illegal wage and falsifying documents in the US. In India, her maid has been charged with cheating and conspiracy. If Richard enters India, she will be arrested.

Riaz Haq said...

Here's a BBC report on "paid news" in Indian elections:

In recent years, India has seen a growing phenomenon called 'paid news'. This is where money changes hands in return for sympathetic press coverage.

There have been hundreds of cases involving politicians, celebrities and businessmen paying for favourable reports in the media dressed up as real news.

With the country gearing up for elections soon, the issue has been in sharp focus, but is there any chance of tackling the problem?

Riaz Haq said...

Your (Thomas Piketty's) data says that the top 1% in India owns about 8-9 % of national income. That's not much compared to the West, yet inequalities here appear starker. Is it that inequality being a relative measure, the absolute nature of poverty gets sidelined?

Let me make it clear that there are major problems with the measurement of income inequality in India. Of course, there are data problems in every country. But among all democracies, India is probably the country for which we have met the largest difficulties in getting reliable data. In particular, India's income tax administration has almost given up compiling detailed income tax statistics, although detailed yearly reports called "All-India Income Tax Statistics" are available from 1922 to 2000. This lack of transparency is problematic, because self-reported survey data on consumption and income is not satisfactory for the top part of the distribution, and income tax data is a key additional source of information in every country. The consequence is that we know very little about the actual decomposition of GDP growth by income and social groups in India over the past few decades.

You propose a 'utopian' global wealth tax to redistribute wealth. If it is so impracticable, what's the use of proposing it?

A global wealth tax together with a global government is certainly a utopia. But there is a lot that can be achieved at the national level and through intergovernmental agreements. In particular, countries like US, China or India are sufficiently large to make their tax system more progressive. For instance, the US — about one quarter of world GDP — could transform their property tax into a progressive tax on net wealth. They are sufficiently large to impose credible sanctions on countries and banks (like Swiss banks) that do not transmit the information they need to enforce their tax law.

You criticize economists for their 'childish passion' for mathematics in your book. How should they deal with their subject?

I am trying to put the distributional question and the study of long-run trends back at the heart of economic analysis. In that sense, I am pursuing a tradition which was pioneered by the economists of the 19th century, including David Ricardo and Karl Marx. One key difference is that I have a lot more historical data. With the help of many scholars, we have been able to collect a unique set of data covering three centuries and over 20 countries. This is by far the most extensive database available in regard to the historical evolution of income and wealth. This book proposes an interpretative synthesis based upon this data. I also use simple theoretical models in order to account for the facts.