62 Comments

Noah, thanks for putting this together. As a Pakistani-American with family still in Lahore, I think you hit the nail on the head.

A few observations:

1. Completely agree with privatization. Regardless of the impact on debt, the truth is most Pakistani state institutions are hopelessly inefficient and corrupt. Most of my friends will never fly PIA to Pakistan ( look up PIA flight 8303), and everyone with the means has switched from the national power grid to privately provided solar energy.

2. The real tragedy of Pakistan is elite capture by the army, bureaucracy and landlords. The army itself is the biggest landowner and business empire in the country. The only analogous system I see is Egypt.

3. As such, the elites have no incentive to change anything. And even if a leader emerged promising change, the vested interests in these institutions would bring this person down (as has happened several times in Pakistan’s history).

4. I completely agree that peace with neighbors is essential for Pakistani stability. Once again, the army has undermined all such efforts to justify continued investment in its infrastructure.

In the end, it’s just a tragic story. The Pakistani people are smart, industrious and entrepreneurial. They deserve better.

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Weirdly little emphasis on Pakistan effectively being ruled by its military in Noah's article. For instance, the word "army" appears just once in a suggestion that it provide "security from terrorists and criminal gangs" (which would be nice, but seems a starry-eyed hope given the army's own striking resemblance to a pro-terrorist, criminal gang). Prime ministers, to a crude approximation, either bend the knee to the army (and nationalists and landlords), or they get ousted (https://news.sky.com/story/in-pakistan-it-seems-there-are-only-two-ways-prime-ministers-leave-office-military-coups-or-assassinations-12737632).

With Pakistan's crooked, army-dominated political establishment, there's little reason to expect privatization to help, and multiple reasons to expect it to fail:

‣ Pakistan's SOEs aren't valuable enough to clear its foreign debt (https://www.noahpinion.blog/p/pakistan-needs-a-plan/comment/49760299);

‣ the privatization process itself is one more opportunity for corruption and digging Pakistan's hole deeper; and

‣ indeed Pakistan already engaged in significant privatization since 1991, and has ended up where it is.

Education would probably help (but takes time to kick in). FDI might help (though given how flighty and unstable it is, there's no guarantee). Peace would help (but is only very partially in Pakistan's gift; it's not like Modi's smiled benignly on Kashmir). Stability would help, but that's Noah being the economist assuming the can opener like in the old joke.

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I have had my eye on Pakistan since the 1960s, and all I have ever seen was absolutely toxic politics. If you think our political parties hate each other in the US, that is nothing compared to Pakistan, where jailing and executing your opponents is routine. It seems very unlikely that the elites of Pakistan will somehow quickly learn to pull together to rescue their own country.

In addition, the danger in selling off state assets in a politically dysfunctional environment is that they will be sold cheaply to political cronies as they were in the 1990s in Russia.

As everyone knows I'm sure, Bangladesh used to be part of Pakistan—it was the poverty-stricken part of Pakistan!— but because of its healthier politics it has been able to move ahead quickly.

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I think default, at least on the Chines debt, and maybe the Gulf debt will be necessary. The Fund cannot suggest that, but it could not be part of the "punishment" when it happens.

A huge problem that Noah does not mention is water. Because Pakistan does not price irrigation water properly and subsidized tube wells, it grows very water intensive crops like rice and sugar cane in naturally very dry places. Pricing Indus water and removing the tube well subsidies would free resources for investment.

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Seriously, privatization is the shock doctrine writ large and will terrify Pakistanis.

The annals of bad privatizations of state assets are long.

This really could have used much more depth on which state assets? How?

Otherwise, it comes off as being as bad as the Chinese. "Dear Pakistan, we are upset that you gave China the red carpet treatment and now it's biting you. We would love to come in and loot your railroads and mines. Sincerely, the West"

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First thing Pakistan needs to do is stop lying to itself. Pakistan is less than 10% of India's economy. Fantasy of parity with India has resulted in Pakistan's bloated military and Kashmir obsession. Pakistan needs to stop thinking that it can take Kashmir by force, something it has failed to do in 1946, 1965 and 1999. Pakistan needs to realize its place in region and world and try to move up step by step like Vietnam and Bangladesh.

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Political stability is the bedrock, and it's going from bad to worse. The problems stem from putting culture & religion in conflict with economic growth.

The trend is in the wrong direction. There's zero hope in sight unless Pakistani politics can be at least half as secular as Jinnah was!

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I remember the collapse of the USSR. Revolutions in countries that hold nuclear weapons are terrifying prospects. Let us hope that Pakistan figures out a way out of this.

Again though, Noah, your training is making you a hammer looking for nails. Discussing Pakistan's future without talking about Islam is a huge blind spot. Culture matters, and capitalist, liberal-democracy isn't viewed very favorably in much of the world, especially in Muslim countries. For good reasons.

Pakistan does need a plan. But its plan isn't going to be one designed by Western economists.

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It seems that Pakistan shares a lot of dysfunctional features with Afghanistan, but most of all a poorly educated populace (less than 60% are literate) and government by force. There really isn't a solution without a political and cultural revolution which is unlikely to happen through internal forces.

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How much are Pakistan's SOEs worth, though? Assuming for argument's sake that you could privatize them all, how much of a dent would it make in the country's foreign debt?

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Pakistan was created to glorify Islam and ensure that Islamist ruled a part of India. These objectives have been very successfully met. Why should Pakistan ever change? Everything suggested by Noah will be perceived as a threat to Islam and will never happen. Pakistan will never get better.

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I'd put land reform on the table. I understand that Pakistans 12 (or so) families are massive estate holders as well as occupying positions of power in the country/. Tenants farmers endure lives closre to serfdom than a modern life.

I'd be curious to know more about the connections between these landholders and the military if anyone out there would care to share on that.

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Feb 17·edited Feb 17

Peace with India, opening up trade links and economic cooperation, sounds to me like the best of your suggestions.

One thing I don't see suggested is renegotiating the Belt and Road loans with China with a threat of defaulting.

SEI's are antidemocratic bastions of international corporate privilege. I'm not convinced that they would benefit Pakistan as a whole very much. I'd like to see some studies that quantify their benefits. In the mean time, readers might want to read "Crack-Up Capitalism" https://www.amazon.com/Crack-Up-Capitalism-Radicals-Without-Democracy/dp/1250871859/

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Privatization and foreign investments (especially if they are loans or purchases) are hardly uncontroversial solutions to the problems of countries in the global South. https://en.redjustice.net/mmt-kan-losa-tredje-varldens-skuldproblematik/

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Basically everything proposed here sounds like a positive outcome in theory, but I see some additional hurdles to implementation, beyond what other commenters have pointed out.

> It has plenty of talented people, as evidenced by the fact that Pakistani Americans, on average, out-earn almost all other ethnic groups in the U.S.

How many Pakistani Americans are there? How were they or their parents selected as immigrants to the US? How deep is the pool of people with similar human capital in Pakistan? What would it take to raise Pakistan's human capital to Bangladeshi levels?

> And various Islamist terrorists, including the Taliban, have attacked Pakistani cities. They might conceivably try to blow up foreign factories.

They might try, but it's probably easier to dynamite railroads and bridges, because it's easier for motorcyclists to get close enough (as shown by the Afghan Taliban).

> Pakistan should recognize that it controls part of Kashmir, and India controls the other part, and that’s how it’s going to stay.

I don't think this is the lesson Pakistan's generals learned from Nagorno-Karabakh. Azerbaijan recently reconquered its lost territory from Armenian separatists after three decades of confrontation, and this is despite having to fight uphill in the key 2020 conflict. And we have strong evidence that Pakistan's generals are well aware of that conflict: https://tribune.com.pk/article/97102/why-is-pakistan-the-only-country-that-does-not-recognise-armenia

Pakistan has a big disadvantage in what it can fund relative to India, but it also has the advantage of a longstanding alliance with China. An important question is this: Is India catching up with China militarily, or falling behind? (I don't know.)

Also, the large number of votes for Imran Khan's allies in the recent elections demonstrated widespread popular anger toward the military. There might be even more popular anger if Pakistan gives up on confronting India. What would justify the generals' power from then on? My guess is that the generals prefer the devil they know (bad economy) to the devil they don't (even less popular support).

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From your link about belt and road: "Several analysts argue that the premise of CPEC was fundamentally flawed, assuming that infrastructure – such as roads, bridges, and electricity – alone would generate growth and employment in Pakistan."

I don't fully understand your proposal because surely it's all been tried before. How is belt and road not FDI? It seems like China came, was very serious about investment and the investments didn't work because of general dysfunction. Privatisations are usually a part of the conditions the IMF impose to get loans, perhaps if they didn't do so here it's because nobody foreign wants to buy them? Invest in infrastructure is bog standard academic economics but belt and road is nothing but infrastructure and it didn't work because Pakistan is incapable of actually completing the projects even with lots of external assistance (the port not open after a decade).

It's hard to escape the conclusion that the problems are deeply cultural and cannot be fixed with simple policy suggestions that they have heard over and over for decades. An analysis of why their culture is like that would be more useful but I suspect not the kind of thing that can be done on a left wing blog.

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