How Pakistan can join the South Asia growth boom

A guest post by Murtaza Hussain

"Trees cocooned in spiders webs after flooding in Sindh, Pakistan" by DFID - UK Department for International Development, CC BY 2.0.

I’ve written very upbeat and optimistic posts about the growth of two giant South Asian countries — India and Bangladesh. I wish I could write a similarly glowing post about the third South Asian giant: Pakistan. But instead, Pakistan seems mired in a low-growth equilibrium, with low investment, low standards of living, and a constant need for financial bailouts by the IMF and/or China. Much of the problem seems political-economic — the country alternates fairly frequently between military and civilization governments, and can never seem to get leaders who are focused on economic development. Pakistan’s quarter of a billion people deserve better than this, especially because the country’s South Asian neighbors are proving that growth is possible:

So I asked Murtaza Hussain, one of my favorite Twitter personalities, and a semi-regular commentator about Pakistani issues, to write me a guest post about how Pakistan could fix its political economy in order to get on the development track. Murtaza is a writer for The Intercept, and he writes his own Substack as well.

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This past week was a happy one for many Indians, who celebrated the milestone of becoming the world’s most populous country at a time when their economic and political fortunes are also on the rise. For their neighbors in Pakistan the news of late has been far less upbeat. The past year has been a disastrous one for Pakistanis, who have faced spiraling inflation, low economic growth, catastrophic floods, terrorist attacks, and blowback from a political standoff that has paralyzed the country’s elite. While a rising economic tide has lifted many boats in Asia this century, Pakistan remains stuck in a cycle of stagnation and crisis.

It is seldom appreciated in the West, but Pakistan is the fifth largest country in the world by population and its roughly 240 million citizens make it a larger country than Nigeria and Brazil. Pakistan is also a young country, with a median age of just 20.4 and a majority of its citizens under the age of 30. By midcentury, Pakistan could have a population greater than 330 million, making it an outsize part of a global population that is generally growing older and more scarce. As such, the fate of Pakistan is important to the fate of Asia and the world generally in the coming decades.

Despite its grave challenges, Pakistan is home to many talented, hardworking, and honest people whose potential cannot be abandoned to poverty and misgovernance. Just as India’s recent post-liberalization economic growth should be a cause for celebration regardless of one’s views on its present BJP government, getting Pakistan onto a constructive track should be a matter of general interest to the world, beyond the vicissitudes of short-term politics. But first it’s important to understand how Pakistan got to the parlous state it is in today.

Getting Sick

Pakistan was originally imagined as a utopian project alongside other 20th century nationalisms created from the wreckage of European empires, in this case, the British Raj. In its early years, the country did benefit from an esprit de corps that allowed it to consolidate a relatively capable state from a fractious population consisting of refugees andeven managing to outperform India economically for many years. This relative economic success, or at least ability to keep pace, helped feed a brash and confident Pakistani nationalism that defined the country’s identity for decades and was symbolized byiconic institutions like its once-proud national airline and armed forces.

Source: World Development Indicators

Things have begun to change for the worse, and Pakistan is no longer keeping up with its neighbors. Today, Pakistan economically lags not just an emerging India, but also Bangladesh, the former East Pakistan, which has become the wealthiest country in South Asia per capita four decades after launching a successful independence movement and facing down a genocidal assault by the Pakistani military. India today is increasingly treated as an emergent global power, while Bangladesh is hailed as the next in a line of Asian tigers who have liberated themselves from poverty. While its two siblings from the Partition are competing to attract foreign investors and have their say in international politics, Pakistan is looking very much like the sick man of South Asia.

The World Bank has slashed growth estimates for Pakistan to an anemic 0.4% for the current year. That figure could be pushed even lower given ongoing social and political unrest in the country. Inflation hit a staggering 35 percent this March, as the purchasing power of Pakistani consumers plummeted and food shortages forced many to become dependent on aid for survival. The country’s elite meanwhile has failed to negotiate a new IMF bailout as it remains trapped in a standoff between supporters of former Prime Minister Imran Khan, the military, and Khan’s rivals in the Pakistani political establishment.

The skyrocketing costs of basic goods this year, driven partly by energy shortages and price spikes due to the Russian invasion of Ukraine, have combined with Pakistan’s political dysfunction and the increasing impacts of climate change to create a perfect storm of challenges. While the country is unlikely to unravel, its weakening state and social contract could generate more serious problems ahead. After years of deferrals, the bill finally appears to be coming due for Pakistan's corrupt and unaccountable political system.

A Captive State

At the root of Pakistan’s many crises is the issue of elite capture of the state and economy. A study in 2021 by the United Nations Development Programme (UNDP) highlighted the level to which Pakistan’s economic system has been turned into a machine for extracting subsidies and other perks for the country’s elite at the expense of the vast majority of its citizens. Unlike many other developing countries, Pakistan is a consumption-based society that spends lavishly on elite consumer goods and pricey defense systems rather than investing its capital in productive industries necessary for future growth. Among the beneficiaries of Pakistan’s kleptocratic economic system are a small handful of corporate and political power brokers, the country’s class of large feudal landowners, and its sprawling military establishment – the latter which serves as the guarantor of Pakistan’s national security while also doubling as its largest corporate conglomerate and real estate developer.

This elite conclave manipulates the Pakistani economy to afford itself massive subsidies and economic privileges estimated to total up to $17.4bn a year according to UNDP estimates. In doing so, these incumbents give themselves an edge over any new domestic competitors emerging in the economy while propping up inefficient elite-owned enterprises. Pakistan’s weak state institutions and capital controls have also allowed elites to move tremendous amounts of wealth outside the country and insulate themselves from the threat of taxation, further draining Pakistan’s coffers and depriving its citizens of desperately needed public investment. On top of this institutionalized corruption, Pakistan also faces onerous financial obligations on its foreign debt which consumes roughly a third of its budget.

Pakistan’s anemic and corrupt economy is a major contributor to its political instability and the growth of radical movements that have ravaged the country. The issue of land reform is a prime example. One percent of the Pakistani population controls 22 percent of all arable farmland according to UNDP figures, a situation which dooms millions of Pakistanis to life under conditions of modern feudalism. Inequality of access to land was previously identified in the Pakistani province of Punjab as a driver of support for militant groups and the phenomenon is far from unprecedented.

A similarly exploitative land ownership situation was once common to many developing countries in Asia, many of which were also rocked by radical movements that killed millions during the 20th century. The 2014 book How Asia Works by Joe Studwell outlined this situation well, stating that “land inequality and agricultural dysfunction are at the heart of the world’s most dangerous societies,” and adding that, at present, “Pakistan is perhaps the most outstanding case in point.”

Although Pakistan is ostensibly democratic, with periodic elections and a relatively free press, the political system is felt by many Pakistanis be a mere parody of democracy. Power shifts between a few connected families in an endless game of thrones that seems to have very little to do with the struggles of ordinary citizens. The net result of the current system is that a small class of politically-connected Pakistanis are able to live according to near-first world standards, while the vast majority of the population is left to fend for itself in the face of inequality, militancy, and a deteriorating natural environment.

A Military with a State

Pakistan is a poor, developing country with an abnormally powerful intelligence service, sprawling military, and the world’s fastest growing nuclear arsenal. The reason for this evident misallocation of resources lies at least partly in its history. Pakistan was created in the aftermath of British withdrawal from the Indian subcontinent and the chaotic process of Partition. The original vision for Partition, poorly conceived and even more poorly implemented, suggested that the two countries would part ways amicably and have good relations with one another, including trade ties and soft borders. Things didn’t work out that way. From the beginning, the two states created in the aftermath were born into an environment of extreme violence and fraternal hatred whose emotional weight could be compared to that of Cain and Abel.

Despite a few mutual attempts at conciliation, events since Partition have only underlined this dynamic. A few decades after its creation, Pakistan’s eastern wing broke away into the separate state of Bangladesh, notwithstanding a brutal campaign of suppression by the Pakistani military.. Bangladeshis overcame genocidal violence to win their independence, but their independence was also vouchsafed with Indian military support. This legacy has left Pakistani security elites with a burning desire to repay the favor by amputating from India the disputed Muslim-majority region of Kashmir – a territory where the Indian military has used similar tactics of mass killings, torture, and systematic sexual violence as tools of counterinsurgency.

Although large sections of its already massive budget go to non-combat related activities and the maintenance of its sprawling corporate empire, the Pakistani military has nonetheless been able to use the threat of India as a means of legitimating its outsize presence in national life. Elements of Pakistan’s deep state have also become radicalized over the past several decades, particularly following their participation in a successful U.S.-backed effort to expel the Soviet Union from neighboring Afghanistan. After prevailing in that conflict, Pakistani intelligence officials attempted to employ the same strategy of deploying non-state groups, including Islamic extremists, to attack Indian targets in Kashmir and even carry out acts of terrorism against Indian civilians elsewhere in the country. The results have been unhappy for Kashmiris, Indians, and Pakistanis alike.

Pakistan is on poor terms with nearly all its neighbors today, including in Afghanistan where it supported the Afghan Taliban in order to prevent the consolidation of an Afghan government with close ties to India. With the so-called “Global War on Terrorism” fading from global prominence, Pakistan has also become less important to the United States and its other financial and political patrons in the Middle East. To prop up its sclerotic, elite-centric economy in recent decades, Pakistan has relied on periodic influxes of funds from the West and wealthy Gulf Arab countries to keep the motors running. That windfall is now drying up. While the United States has checked out the region, Saudi Arabia has put aid recipients like Egypt and Pakistan on notice that the days of easy loans and other funding will be over unless they reform their economies to optimize for growth rather than elite patronage. The military and other elites show no sign today that they are willing to change their ways even in the face of this ultimatum.

Culture Shock

In addition to these structural challenges, Pakistan suffers from a problem of identity crisis. Envisioned as a secular homeland for subcontinental Muslims, it has more recently evolved into a religious-nationalist state where the authority of the government is frequently contested by extremist groups. Pakistan was imagined by its founder, Muhammad Ali Jinnah, to be a state that would be agnostic about the religion of its citizens. Yet today, the Pakistani government, partly under threat from extremists, has become very activist in the religious lives of its people – including by condoning persecution of certain groups, like Ahmadi Muslims, who have been deemed persona non grata by its religious establishment.

This extremist veto over politics has made it difficult for the state to function in areas, subjected some of Pakistan’s best and brightest to exile and death, and even prevented the government at times from appointing the most capable Pakistanis to critical posts. The radicalization of religious life in Pakistan has also fed local terrorist movements that have killed tens of thousands of its citizens, including in terrorist attacks deliberately targeting mosques, Sufi shrines, and the houses of worship held by its religious minorities. Despite competing in outward displays of piety, contemporary Pakistani culture also seems to be characterized by a persistent moral hypocrisy common to other countries with state-mandated morality.This evidenced by the persistence of widespread social injustice as well as regular scandals involving popular religious figures.

Pakistan is one of only two countries on earth specifically founded for a religious community. The other is Israel, where the secular founding class of the country remains entrenched in power despite recent challenges. Pakistan is at core an amalgam of ethnic groups who were part of the old civilizational zone of India. The attempt by Pakistani nationalism, a thoroughly modern phenomenon, to treat religion as the singular source of national culture has laid the groundwork for its present confusion.

Whereas India and Bangladesh can rely on relatively stable national identities that draw upon a healthy mixture of religion, land, and language to help foster cultural cohesion, Pakistan’s identity as a secular society founded in the name of religion has proven unstable. The result is a culturally mixed-up country highly susceptible to various types of demagoguery. Pakistani elites often behave as ersatz Americans who view their own countrymen with distaste, whereas the masses, who speak a diversity of languages and hail from as many different ethnic groups, are left to their own devices – often falling victim to the ideological one-upmanship of extremist movements promising to create a new golden age under their own interpretation of religion.

Democracy is the Best Medicine

Although life is hard for most Pakistanis, it remains rosy for the small class of elites who run the show. Given how well this sordid system works for them, it’s hard to imagine these powerbrokers getting together on their own and voluntarily dissolving it. Breaking Pakistan out of its impasse and imposing the economic and social reforms needed to get it on a path to progress requires a genuine democratic movement that breaks the monopoly on power held by establishment elites. Although the means for accomplishing such a feat are not yet evident, there is clearly an appetite for such a change.

The political emergence of Imran Khan was initially welcomed by Pakistanis who had grown tired of what appeared to be a rigged political game and were attracted to his record as a private philanthropist and critic of corruption. His party, the Pakistan Tehrik-e-Insaaf, or PTI, came to power on the back of a genuine outpouring of public support that united many conservative and liberal Pakistanis. Yet, once in office, the PTI functioned in large part as another vehicle for Pakistani elites to continue the same charade under a new banner, with many stalwarts of establishment parties laundering their reputations by joining Khan’s movement. Despite widespread popularity, the PTI has so far failed to build grassroots democratic institutions that could channel new talent into Pakistan’s closed political system in the manner that internally meritocratic Indian parties like the Aam Aadmi Party and BJP) have proven capable. The PTI today seems to be a party that begins and ends with Khan himself, and without whose presence its ideology and purpose seem unclear.

A genuine democratic movement, whether channeled through a reformed PTIy or via other means, could make demands on a few key short-term and structural issues that would be transformative for Pakistan if implemented. Among them are comprehensive land reform, which would break the hold of feudal landowners over much of the population, a land tax to increase government revenues and halt the phenomenon of out-of-control real estate speculation by elites, and cuts to funding and subsidy programs for elite corporate stakeholders and the military establishment – the latter whose share of public expenditure far outweighs the national security needs of the country. Over time, land reforms, financial regulation, and increased state revenues can generate a virtuous cycle of increased agricultural productivity, household wealth accumulation, and private capital formation needed to bring about the industrialization necessary to move Pakistan onto the development path of its Asian neighbors.

Pakistan also needs to embrace a more normal conception of statehood and citizenship rather than the messianic version currently promoted by its current elites. The country needs a neutral foreign policy that will stop adding to its lengthy enemies list and allow it to build the foreign political and economic ties necessary for growth. Reconciliation with India is unlikely under its present BJP government, which has made a draconian Kashmir policy a symbol of its own rule and shows little appetite for compromise with Pakistan. But disputes between the two countries can t be compartmentalized for the sake of critical political and economic interests, or at least to sideline distractions to both countries' growth. The conflict in Kashmir cuts at the emotional heart of Partition and India’s outrageous behavior in the region has not helped matters. Yet deferring the conflict a set number of years into the future in the expectation that more conciliatory diplomatic conditions will emerge is a reasonable approach that has helped other countries defuse similar territorial conflicts.

Furthermore, Pakistan should work on uprooting extremism through its investments in education promoting a secular ideal of Pakistani citizenship. Such an ideological program should not be hostile to Islam, which will remain the respected religion of most of its citizens. But it should promote the interests and wellbeing of the state and all its citizens as paramount, while treating religion as a private matter not appropriate for the exploitation of freelance demagogues. After four decades of revolutionary upheaval, which swept up Pakistan along with it, Islamism is cooling across the Muslim world.  There is no reason that Pakistan should miss out on this trend, nor should it be doomed to backwardness while countries like Indonesia and Bangladesh – which have similar religious demographics but a healthier political environment – have found the key to sustained economic growth.

Despite its challenges, Pakistan boasts a young and resourceful population whose ability to scrape a living out of their circumstances is often nothing less than heroic. Despite widespread illiteracy and government underinvestment in education, Pakistanis also have a culture that fiercely values education, honesty, and hard work – traits often seen in the Pakistani diaspora and the great success it has experienced in many countries, including the United States. The 21st century will undoubtedly be an Asian Century. The extent to which it is a happy one will depend in large part on whether one of its largest states can find a way to join in the success of its Asian peers.

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