Revisiting the elitist economy of Pakistan
ISHRA T HUSAIN

Several observers and media persons have asked me to update on the latest assessment of my thesis propounded in the book " Pakistan : The Economy of an elitist state. " They are interested in exploring the question whether the polices and programs pursued during the last six years have made any dent on the elitist model of the economy that I had put forward in February, 1999 or not. 

As I was one of the players involved in the economic management of the country it is natural that my perspective would be highly subjective. But it is equally incumbent upon the policy makers to share their own views and perspectives with the larger society and leave it to them to the judgment themselves. 

This article therefore outlines the changes which in my view, have helped arrest or recede the onslaught of the elitist model and the areas where the elite capture has remained intact or unscathed. Let us begin with a survey of the charges that have helped in the containment or retreat of the elitist class in Pakistan. 

First and foremost the pursuit of the agenda of privatization, deregulation and liberalization has reduced the direct and indirect powers of patronage enjoyed by the state and state actors in a significant way. As market forces determine most of the key prices of inputs and outputs in the economy the distortions created by administered prices have been subdued and a healthy competitive environment has been created. A level playing field does not tilt the ground in favour of those privileged, patronised and preferred by the government of the day. As tariff rates have come down substantially the incentives for smuggling and illicit trade have been curtailed. As most public enterprises had become the dumping ground for excess labor and major sources of private profits, leakages and consequential fiscal indiscipline their privatization has stopped the transfer of rents to the elite class. Deregulation of financial services, telecommunications and aviation industry are beginning to benefit the ordinary users of the services. 

Second, the removal of subsides of all kinds has been criticized on grounds of equity but the truth is that subsidies in Pakistan have invariably been pre-empted by the powerful and influential segments of the society. Any allocation of limited resources can either be made by price or quantity. Subsidies involve a rationing by quantity and only those who have access to the corridors of power can benefit from them. The poor in whose names the subsidies are purported to be disbursed have always been the losers as they can hardly access those who are administering the subsidies. The elites who receive the subsidized goods or services resell them at the prevailing market price and pocket the difference. It is, therefore, quite sensible from an economic and social viewpoint that most of the subsidies have been by and large, eliminated during the last six years removing a powerful source of enrichment of the elites.It is ironical that the biggest hue and cry against the removal of subsidies is raised by the same class of people but in the name of the poor of this country .

Third, the financial sector in Pakistan has been traditionally closed to the middle, lower meddle and low income groups. The major beneficiaries in the past from this system have been the government, public sector enterprises, big corporate houses, multinationals and well known and powerfully connected individuals. The reforms carried out during last several years have opened up the doors of our financial institutions to small land holders in agriculture, small and middle enterprises, salaried classes and through microfinance institutions to the poor and low income groups. Although the coverage extended to these groups is still not very large but the prudential regulations have been revised and rewritten to facilitate the flow of bank credit to these groups and sectors in future.This relaxation of capital constraint should be able to put additional purchasing power in the hands of a large segment of producers and workers and improve their economic lot. In this way the stranglehold of the elite classes on the economy will be eased as others who did not have access to credit previously can outclass them by sheer hard work and higher efficiency in combining their labor with bank provided capital. 

Fourth, the allotment of urban land plots by KDA, CDA and LDA at highly subsidized rates to the chosen members of the elite classes, sanction of loans by nationalized commercial banks and development finance institutions at the instance of the government, grant of the government, grant of licences for setting up sugar mills and other industrial ventures, favoured allocation of scarce commodities out of import/export quotas or domestic production such as steel products and the issue of statutory regulatory orders to specific individuals or firms have been done away with. The discontinuation of these practices has given a set back to the state induced wealth accumulation by the elites in the country. 

Fifth, the introduction of universal self assessment and introduction of technology in tax assessment and tax collection are the steps in the right direction whereby the collusion between large businesses evading taxes and the unscrupulous tax collections has been disrupted. The on going restructuring of CBR whereby the contact between tax payer and tax collector will be eliminated, the salaries of tax collectors will be enhanced, their training and orientation revamped, the rules, procedures and dispute resolution mechanisms simplified will further disable the elites from their tactics to deprive the exchequer of its legitimate dues. 

Sixth, independent regulatory agencies for protecting consumer interests in public utilities such as electricity, gas, telephone, etc. are just beginning to take shape. They are still in their early infancy stage and it will take some time before the teething problems are sorted out. Further these type of agencies should be set up at the provincial and district levels also for regulating water, education health, edibles, food etc. as they affect day to day lives of the ordinary citizens. There is always an apprehension these agencies themselves will be captured by the regulatees i.e. the members of the elite class and therefore steps have to be taken to ensure that this does not happen. 

Despite these positive and favourable changes which are beginning to recede in certain cases the growing sphere of inherence of the elites in the economy there are many areas which have remained unchanged or in fact they may have in fact strengthened their hold. 
(a) The key institutions of state such as civil service, police, judiciary and the those responsible for delivery of basic services such as education, health, water supply, traffic control, housing etc. have actually became increasingly dysfunctional. The apathy, indifference and lack luster performance of these institutions have deprived the non-elites from access to justice, grievance redressal, resolution of daily life problems and basic social services. Corruption and sifarish rampant in these institutions have actually intensified the power of the well-to-do and influential. The new local government structure under the elected officials is undergoing a painful transition phase and adequate checks and balances on the unfettered powers of the officials have yet to be put in place. The poor remain at a distinct disadvantage from the current system as they have no direct access or control and have to seek the assistance of powerful intermediaries i.e. the elites to obtain relief. As an ordinary citizen it is almost impossible to get any service rendered by the government functionaries such as filing an FIR, registering a document, getting mutation of land, obtaining a passport etc without either paying a bribe or getting some powerful person's sifarish. 
(b) The judicial system remains clogged with hundred of thousands of cases of frivilous litigation that crowd out legitimate and serious cases of contract enforcement, property and land disputes, crimes to life and person and threats to public order. As there is no perceptible penalty against frivolous litigation the existing system is being grossly misused by the vested interests to their advantage by indulging in protracted proceedings that unnecessarily prolong the determination of the cases. The multiple appeal system and the absence of alternate dispute resolution mechanism add fuel to the fire and act as a further deterrent to the efficient functioning of the process. The present Chief Justice of Supreme Court appears to be sincere and seriously committed to bring about fundamental reforms in our judicial system. He has demonstrated courage and initiative by taking suo-moto actions in several cases of public interest. If he is successful in reforming the judicial system, enforcing rule of law and enforcement of law by all and sundry and getting rid of the corrupt and incompetent from the judiciary this will be the single most important step in breaking the back of elitism in this country. 
(c) Education has proved to be a great leveler providing opportunities to the children from the poor and disadvantaged classes to acquire skills and training and reach the highest pinnacles of success in their respective professions of choice by dint of hard work, merit and performance . Unfortunately, the fragmentation of the educational system in Pakistan right from the beginning of a child's life cycle has made it quite difficult to use education as a source of inter class mobility and improvement. Although several well meaning individuals and organizations are providing quality education to the children from the poor segments of the society their numbers and reach are still quite limited. A further expansion of these facilities through demonstration effect will of course have a beneficial effect but the government cannot be absolved of its responsibility to use the tax resources for providing access to quality education to the poor and disadvantaged. At present the public school system with a few exceptions, is jammed with mediocrity and inefficiencies and needs to be completely reoriented and revamped to meet this objective. 
(d) The taxation and public expenditure system can be another potent instrument in transferring some part of private incomes beyond a certain acceptable threshold from the wellto-do and the rich to the poor and disadvantaged. But unfortunately, the number of actual tax payers in relation to potential tax payers in Pakistan has still remained small restricting the ability of the state to perform this function of promoting equity. The recent wind fall gains made by the elite classes in the stock market and real estate have escaped taxation dwindling the tax collection and also generating a sense of lack of fairness in the society. The sooner the agriculture incomes, service incomes and capital gains are taxed and then used for spending on pro-poor service the better off the distribution of income will be in the society and the elite class will be presented from deploying the public finances for their own parochial benefits. 
(e) The financial sector has just begun to address the credit needs of the small farmers, small businesses, salaried individuals and the poor. The coverage so far, example, among the agriculture households is only 15 percent. Similarly, microfinance institutions (MFIs) have penetrated about 10 percent of the potential beneficiaries. There is an imperative need to monitor the activities of the banks and non bank financial institutions and keep aligning their incentives so that they can broaden their coverage and reach at least 50 percent of the target households and beneficiaries in the next 5 years. The availability of credit to such a sizeable number of households belonging to lower income groups will empower them socially and financially reducing their dependence on the elite class as intermediaries. The outreach of MFIs to the women clients in particular will have many collateral advantages in form of education, nutrition, better health, cleanliness etc. 

To sum up it is fair to say that my current assessment of the elitist capture of Pakistani economy suggests that the results so far are mixed. Some of the policy reforms and structural changes introduced in past several years are beginning to make a difference in the relaxation of grip of the elite class over the many facets of the economy. But the agenda for further reforms particularly in the institutions of the state, judicial system, educational system, tax and public expenditure system and further coverage of the financial sector remains highly demanding and daunting. The next five years are so should be devoted to bring about these reforms in an effective way and only then we will be able to say with some confidence that the roots of elitist economy are beginning to decay in Pakistan. It took over five decades for the elitist model to gain momentum in the country and take a firm grip over the economy. It would be 

highly unrealistic to expect that it can be dismantled within a short span of a decade or so.