Sunday, 5 February 2017

Understanding Pakistan: Episode 3

Podcast Episode 3: "Decade of Inequality" The Ayub Khan era 1958-1969
Hosts: Aamer Raza and @takhalus
Editor: Aamer Raza
Artwork: Ghulam Shabier
With thanks to for their continued support

All views expressed are personal and do not reflect patari or Qissa Khwani official views.

Production notes

There were a few challenges with this episode. The first was myth busting. It is widely believed by many Pakistanis that Ayub Khans era was one of milk and honey. Now the facts say otherwise but how does one deconstruct this era in a way most people (academic or otherwise ) would easily comprehend?

In other ways this episode required us to do quite a bit of research in and about people that most Pakistanis aren't aware off and books that are not widely read.

Aamer references Economist Mahbubul Haq in the title of this episode. Here is what Mahbub would later write in 1973

Speeches and Articles by Dr. Mahbub ul Haq

System is to blame for the 22 wealthy families
(Article published in 'The London Times', March 22, 1973)

Five years ago I made a speech alleging that 22 industrial family groups had come to dominate the economic and financial life of Pakistan and that they controlled about two-thirds of industrial assets, 80 per cent of banking and 79 percent insurance.

At that time, Pakistan was still living through a period of great euphoria. President Ayub was completing his tenth term in office and the country was cheerfully celebrating his first decade of development. Pakistan had undoubtedly done extremely well economically under President Ayub’s pragmatic leadership and almost all key economic indicators pointed to a fast rate of expansion. The growth rate in the gross national product had been nearly 6 per cent a year for a decade and a healthy export performance of 8 per cent a year had defied many predictions.

However, some of us who were living closely with the economic management of the country had already begun to develop our doubts about the long-term viability of such a pattern of growth. While the world was still applauding Pakistan as a model of development – since outside donors always need some success stories for their own comfort – we were getting quite concerned that all was not well with the distribution of benefits of growth.

Some of the indices were fairly disturbing. The real disparity in the per capita incomes of East and West Pakistan had more than doubled during this decade even though we were reluctant to admit it publicly. The real wages of the industrial workers, concentrated in a few key urban areas had been reduced by about a third by a combination of inflation and weak bargaining power of the unions. Personal income inequalities had increased substantially.

It was evident that most people had remained unaffected by the forces of economic change since the development had fast become warped in favour of a privileged minority.

One can best illustrate this imbalance by looking at the distribution of certain public and private services. From 1958 to1968 Pakistan imported or domestically assembled private cars worth $300 million while spending only $20 million on buses. During the same period, about 80 per cent to 90 per cent of private construction can only be described as luxury housing.

It was in these circumstances that I tried to focus national attention on justice in the distribution of wealth in the midst of celebration over a rapid rate of growth. I say this with no desire for self-vindication because I recall how painful a decision it was. I was chief economist of the National Planning Commission and much of what I had to say was an indictment of the economic policies of the Government during a period in which I was intimately associated with planned development.

It was little surprise to me that the mention of 22 families in that atmosphere was treated as a bombshell, both by a stunned Government and by the private sector in Pakistan. It is most annoying to question success right in the midst of it. What surprises me, however, is that in the past five years there has been so little analysis of the basic issues inherent in Pakistan’s industrial and economic situation and so little action despite all the hysteria about the 22 families. This has been disappointing because references to 22 families should only be treated as symbolic of the basic problems of income distribution and social justice in Pakistan.

A myth has spread by now that the 22 families own all the wealth in Pakistan. This is simply not true. The problem must be viewed in its proper perspective. The modern industrial sector was, at most, 10 per cent of the national product of Pakistan in 1968 (including East Pakistan) and now is about 15 per cent of the national product of West Pakistan. Even if the 22 families control two-thirds of the industrial assets in the modern sector – and the word is control, not own – it still represents a rather limited control over total wealth in Pakistan.

The distinction, unfortunately, was lost in the heated discussions of the past five years. What is more, it was not so much the concentration of income and wealth in the hands of a few industrial family groups which raised fundamental questions of policy. Such a concentration was probably inevitable in the initial stages of development and to give them their due, the early entrepreneurs did an excellent job of rapid industrialization. What gave us real cause for anxiety was the growing collusion between industrial and financial interests so that a few family groups had come to acquire control over basic economic decision making.

For all practical purposes, the 22 families had become by 1968 both the planning commission and the ministry of finance for the private sector. They preempted most investment permits, import licenses, foreign credits and government patronage because they controlled or influenced most of the decision-making forums handing out such permissions. They had virtually established a stranglehold on the system and were in a position to keep out any new entrepreneurs.

The 22 families were a by-product of government policies and a primitive capitalistic system. The Government did not have the courage to change the company law of 1913 under which the industrial sector of Pakistan was still being governed in 1968. This antiquated framework of capitalism permitted the industrial sector to have managing agencies, cartels, trusts and all other anti-social practices aimed at cheating both the consumer and the Government, The latter became both a conscious and unconscious ally of the private industrialists by giving them generous protection, excessive tax concessions, explicit and hidden subsidies, and representation on many decision making forums.

If we are to evaluate properly the role of the 22 families in Pakistan, we must see it in the perspective of the capitalist system that the country has evolved over time. In blunt terms, Pakistan’s capitalist system is still one of the most primitive in the world. Under it economic feudalism prevails. A handful of people, whether landlords or industrialists or bureaucrats, make all the basic decisions and the system often works simply because there is an alliance between various vested interests.

Unfortunately, most of the criticism of the 22 families in the past five years has been directed to individual family groups rather than to the reform of the basic framework of capitalism. The present Government has introduced some limited reforms by abolishing the managing agency system and introducing a more progressive labour policy as well as by taking away management though not ownership, of certain key industries. However, these are rather small patches on a thoroughly rotten fabric of a primitive and feudal economic system. What is required is a fairly drastic surgery if a move towards a more enlightened and socially responsible capitalism is to be made.

Pakistan badly needs to broaden the base of its economic and political power to evolve a development strategy that reaches out to the bulk of the population; and to innovate a new lifestyle which is more consistent with its own poverty and its stage of development. This is not going to be easy because in the past, modernization was foisted on a basically feudal structure in which political participation was often denied, growth of responsible institutions stifled and free speech curbed, and where all economic and political power gravitated towards a small minority.

There is not much that can be done to save development from being warped in favour of a few in a system like this unless the basic premises of the system are changes. The new constituency of peasants, labour and students that President Bhutto hopes to fashion has still not taken shape. Unless there is such a new constituency, unless the existing power structure is drastically shaken, there is not much of a mandate or instrument available for radical change.

The slogan of 22 families, therefore, has been rather overdone in Pakistan and taken too literally, At times, it has become a convenient camouflage for action against a few individual industrialists rather than reforming the economic, as well as social and political institutions. This is sad because the 22 families are a symptom, not a cause. The basic problem is not the 22 families, individually or collectively, but the system that created them, And it is time that Pakistan looked to the basic causes of its problems and not merely to the symptoms.


- Bhuttos final speech: "On Indo-Pakistan War, 1965 Speech in the National Assembly, March 16, 1965"

Diaries of Field Marshal Mohammad Ayub Khan, 1966-1972 Hardcover – 26 Apr 2007
by Mohammad Ayub Khan (Author), Craig Baxter (Editor)

Ayub Khan: Pakistan's First Military Ruler by Altaf Gauhar (ISBN: 9780195776478) from Amazon's Book Store. Free UK delivery on eligible orders.

"My Brother" by Fatima Jinnah

- Pakistan: Trouble with Mother Friday, Dec. 25, 1964 Time magazine

- Remembering Azam Khan 7 October 2010 The Daily Star

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