by Dr. Nadeem Ul Haque
Colonial heritage and the state
Colonial administrations cultivated the image of the state being the ultimate benefactor of the people because its survival depended on such propaganda. The people in the colony became dependant on the state as this notion took root, gratefully accepting the favors handed down to them. Favors of the state also became important means of winning political support and loyalty. Allies were rewarded while enemies were bought off by the bestowing of titles or granting of land or a government contracts.
As a corollary, colonial states looked suspiciously on the development of the private sector that developed outside state control because such independent initiative could represent a challenge to the colonial state as it challenged the dependance ont he state that the colonial masters wished to maintain. Moreover, since the state also wished to maintain a monopoly on the accumulation of capital, entrepreneurship was discouraged.
As the state increasingly took on this role of a benefactor, entrepreneur, and provider, people lost their ability to take initiative. They came to rely on the state for even the most minor of matters. They developed the attitude that state handouts were all that they had to compete for. Government functionaries came to control their lives, and they turned to him for everything. This dependence stifled initiative and innovation and the people were reduced to following government directives. Community self-help, individual pride of achievement, and cooperative endeavors, were all severely curtailed.
As the notion of the state as a benevolent deity became entrenched, all ideas based on social contract philosophies which form the basis of all democratic thinking were discarded at all levels. The state could be kind enough to bestow some favors on you. But there could be no expectation from the state. It was anathema to suggest that, perhaps the reason for having a government might be to provide certain commonly used goods and services for the people such as security, infrastructure, and clean water and air. Thus the old Kennedy saying was fully in effect: "ask not what your country can do for you but what you can do for your country". Surprisingly, the average American is always watchful of where his tax dollars are going and frequently raises the question with his leaders and representatives. On the other hand, we, in Pakistan, to this day have not questioned our government on their plunder of our resources. We learnt well our colonial lesson.
Our perceptions of the role of government
Even today, economists, bureaucrats, and policymakers, in Pakistan, have not forgotten that lesson. They remain quick in making the assumption that the state can and should have a large role in the economy and despite historical evidence they continue to assume that the state remains the old benevolent deity. And as such, the government is above reproach. There is no need to question the government's use of our tax rupees.
In this intellectual tradition, our economists continue to apologize for a big government. Plans continue to be made providing wish list after wish list for increased government expenditures and departments and institutions. We moved from planning to "roti, kapra aur makan" to nationalizations to "basic needs" to participation. In each of these phases of economic thinking, the focus was on additional expenditure. Thus, new government departments were created, leading to more political handouts. None of the economists who were proposing these expenditure-increasing policies, were willing to entertain the possibility of government waste and misallocation of resources. Since the colonial administration was not there to serve, why should such a constraint be place on our current government.
Steeped in the tradition of the English Labor party philosophies of the mid-twentieth century, these intellectuals have been calling not only for a larger and growing role for the government, but they have also expected too much of the government. All our problems at even the smallest level were to be solved by some government department. The government, therefore was therefore working for too many objectives. In their view, it is the government alone that can achieve the desired objectives of a redistribution of incomes ownership of assets and land, increased education, better health etc. The eminent Pakistani economist sees the large and benevolent state as the ultimate salvation. He uses many arguments to support his case. The poor illiterate masses are incapable of helping themselves and therefore the government must provide for them. It needs to feed, clothe, educate, and look after the health of the poor. The rich are too rich and are overly fond of conspicuous consumption and therefore equity considerations require the government to step in. In their opinion the private sector is greedy and incompetent and has little, if anything to contribute to our economic development. The aims are all laudable. And no one can deny that these economists genuinely care and have hearts that bleed for the poor. For this, they are occasionally rewarded with jobs and contracts by the large and ever-growing government.
The question that should be asked is whether the government has delivered all that it promised. Alternatively, given the current state of government management, can it be expected to deliver on a such a large number of objectives. A little thought and observation is enough to convince us that answer to either of these questions would be in the negative. As an example, observe the mismanagement in the nationalized banks and the development finance organizations. These institutions have been used primarily for delivering gifts to the rich and famous-- the rent-seekers who thrive on unproductive activity like obtaining licenses, preferential credit that is later converted to grants, and other such government favors. The banking sector, which the private sector was managing rather efficiently, has suffered large losses which poor citizens will have to pay for through higher taxes. Meanwhile, the rent-seekers who received those grants from the banking system, continue their plunder via the government. Nationalized industry is in general considered to be characterized by large overheads, excessive employment.
In contrast, consider the response of the private sector to increased profitability in the textile sector in recent years. Investment in this sector has expanded rapidly recently and is now beginning to show some export potential. Another interesting area where the private sector was able to do a considerable service to the national economy is that of education. For over thirty years, in keeping with the philosophies of the "learned", the government was the sole provider of education. Despite many plans developed by the government and their resident economists/scholars and despite wasting considerable public funds on an overgrown education bureaucracy, neither the quality nor the extent of education improved. In the late seventies, the private sector was allowed to set up schools and an almost instantaneous and rapid growth in the number of schools was experienced in almost all urban centers thereafter. Although there is a large variation in quality among these new schools, it is fair to say that on balance these private schools have served to improve both the quality as well as the extent of education in the country.
The private sector is not infallible. Of course, private companies can and will fail all the time. The difference is that when they do, the public does not have to bear the loss. In the case of a government-run organization, the public does not find out the extent of the loss that is being incurred, and the fact that their taxes are paying for it. Moreover the losses persist for a far longer period than they would if the money were coming out of the owner's pocket. Consequently only a profitable and efficient private firm survives contributing to the economy and employment, while an inefficient government firm that continues to drain the budget is extremely hard to kill.
Our eminent economists could also, if they wanted to, look at other countries, to obtain further evidence of how costly government inefficiencies can be. Many countries, including England, have dismantled government monopolies and reduced the role of the government for the sake of eliminating waste and inefficiencies. Communism too, has disappeared because of the price exacted by excessive government controls. In the former communist countries, privatization and a more balanced role of the government are being rapidly achieved.
The economics of budgetary allocations
In Pakistan, though privatization is finally underway, a proper definition of the role of the government still has to take place. The debate on the role of the government continues to revolve around the sectoral allocations of expenditure. We continue to hear of how the government should increase its expenditure allocations to for example, education, health or social services in general.
But is the main issue only an increase in expenditures or is it one of management. Never once do we hear of how well or badly the existing expenditure allocations are utilized. Unable to transcend the thinking handed down by our colonial masters, we discuss only how much the government will spend on us without recognizing that the money being spent is ours. No effort has been made by economists and intellectuals to defined properly what an ordinary citizen should realistically expect from the government. Neither has any attention been paid to the related issue of how the various government institutions can be made accountable for providing services to the peoples. Certainly, no effort is being made to be more mindful of how our money is spent. Nor do economists and academics serve to create an awareness of how the taxpayer should get a service in return for his taxes from the government.
Unfortunately, even in this changed world, our economists remain full of high-sounding Fabian notions, such as increased government intervention for labor intensity, reduction in population growth, mass literacy etc. Regardless of how hackneyed these recommendations have become from plan to plan they continue to be reiterated. Like a litany, they are repeated regardless of the inability of the government to deliver on them, or the current levels of wastage in pursuit of these objectives. These recommendations are always accompanied by a demand for increase budgetary allocations, and sometimes even the creation of a new organization. No backward looking evaluation is ever done of the earlier increases in expenditures by any of these individuals.
In conclusion, it would be unfair to place all the blame on only the economists for as always they only reflect the thinking of the society that they live in. Within the group of the economists, there may be those who might wish to express alternative views. But will the media air those views? After all, the media is one of the main beneficiaries of the government regulation, controls and advertising. Can we expect the media to place public interest over self-interest?