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Elite capture and lack of rule of law

The country will pay a heavy cost for the most recent appalling example of vigilantism in the name of religion as evidenced in Sialkot, roundly denounced by the country’s military and civilian leadership, as it will render our country even more infertile for foreign investment, or foreign tourism or indeed as a nation that can hold its head up high in the comity of nations.

An additional element – of the elite capture of all resources – has implied the elite amassing windfall profits with impunity payable by the general public. If one adds the continuation of flawed monetary and fiscal economic policies for the current appalling state of the economy especially in the context of the general public, then the picture is complete however at this stage there are many analysts who argue that the contribution of economic policies may be taking second place to elite capture and lack of rule of law.

While giving an interview to an American Islamic scholar and President of Zaytuna College in California, established in 2009 with total enrolment less than 50 and the number of graduates to-date not known, Prime Minister Imran Khan restated his thesis on elite capture but added a new element to the equation: “the problem was the elite capture of resources which deprived the majority of proper healthcare, education and justice… Lack of rule of law is the reason why Pakistan had not achieved its potential.” Notwithstanding his frequent threats to the elite (including members of the opposition as well as other powerful groups, religious as well as those representing financial interests) Imran Khan has singularly failed in ensuring the rule of law by capitulating to all groups who have demonstrated the power to disrupt economic activity and has not only not used the large number of police available to the government to ensure the rule of law but instead has ignored police fatalities by protesters while making secret deals with those very same protesters which must do wonders for the police morale.

One major remedial measure currently being implemented by the Khan administration consists of an addition to the curriculum: notably teaching children the moral values propagated in Islam. While one cannot argue against this addition yet if this was all that was required to end the existing levels of intolerance, fundamentalism and crowds taking the law in their own hands the transformation to utopia would be fairly easy to usher.

One would hope that with just one year and a maximum of six months left of the five-year term the Prime Minister focuses on establishing the rule of law through the use of the large number of law enforcement agencies available to his government with total police employees in Punjab 180,000, in Sindh 128,500, in KPK 120,000 and in Balochistan 38,000 — enough personnel not to require the services of the rangers and/or armed forces.

Imran Khan must have surely understood by now that elite capture is not going to end with threats and/or reports/cases prepared by law enforcement agencies that are unable or unwilling to collect enough evidence to lead to a conviction in a court of law, invariably leading to bail and/or acquittal. Be that as it may, one would have to agree with the Prime Minister that elite capture is the cause of a majority of existing economic problems.

In the value addition productive sectors, the elite capture is fairly well organized and sanctioned by the Securities and Exchange Commission of Pakistan through establishment of associations – the cement manufacturers association, the sugar manufacturers association, the textile manufacturers association, all Pakistan traders’ associations – to name just a few. This has enabled the association members to exert pressure collectively to raise their profits even in those subsectors that, in other countries, are unable to collude because the number of buyers and seller is simply too large to influence prices.

The farm sector output and prices are controlled by two powerful groups. First, the rich landlords who, irrespective of a civilian dispensation or military dictatorship, have been successful in: (i) hijacking low to zero interest on loans meant for the poor subsistence farmers as and when a government launched such schemes; this policy has been repackaged by the Khan administration with the issuance of a Kissan Card, essentially a debit card which seeks to provide subsidies from a depleted treasury to fund ambitious targets whose initial fallout on the general public would be a further rise in prices; and (ii) due to their inordinately high representation in the country’s national assembly they have succeeded in ensuring that income tax continues to be governed by the federal government as per the constitution with farm income exempt; however Section 41 of the Income Tax Ordinance has a condition notably that if an individual mentions farm income as exempt in the annual return he/she must have paid the applicable provincial tax on agriculture income. But again with heavy representation in the provincial assemblies as well, the tax applicable remains very low. In Punjab for example (a) land based tax is 500 rupees per acre of cultivated land in excess of 50 acres and on mature orchards 600 rupees per acre; or, whichever is higher, (b) the amount of taxable income exceeding 48 lakh rupees per annum is 300,000 plus 5 percent of the amount exceeding 4,800,000; and (iii) mechanization with a yield much above the national average.

Second, the aarthis with generational relations with the subsistence farmers, constituting 90 percent of farmers owning 48 percent of farm land with a size of less than 12.5 acres are known to not only charge exorbitant rates on loans but also manipulate supply to enhance their windfall profits. Shaukat Tarin has proposed interest-free lending to the poor farmers to break this nexus – a policy that was implemented in the past as well but hijacked by the rich. Time will tell if it will be successful this time around.

Trade organisations including chambers of commerce and industry as well as farmers’ organizations and professional associations have provided a platform to their members to protest government tax policies. And their overwhelming consensus is that the likelihood of their demands being met is directly proportional to the nuisance value they can generate – be it through shutdowns, violent streets and/or sit-ins (dharnas).

Politicians and more particularly those in the national

and provincial assemblies have the status of elite and use it to upgrade their travel tickets, influence the banking sector in the grant of a loan or in the award of a government contract (the ability is in direct proportion to the member’s relevance to the ruling government or in the case of a coalition member nuisance value) and demand protocol – all at the taxpayers’ expense. And senior bureaucrats also demand entitlements including official housing, cars and free utilities up to a limit.

And lastly, there is a continuous emergence of groups who can compel the government to accede to their demands, irrespective of merit, because of their disruptive capacity. A recent example is that the Economic Coordination Committee of the Cabinet’s approval of the dealers’ demand for higher margins while refusing the demand of Oil Marketing Companies to raise their margins.

And then there is the lack of accountability of federal ministers who have cost and continue to cost millions of dollars to the exchequer. The capacity of the Energy Ministry to reduce transmission and distribution losses and raise receivables remains compromised which implies higher tariffs for the consumers. And second year running it failed to import RLNG on time resulting in severe shortages this winter. Another example is the Aviation Minister who retains his portfolio though PIA, the national carrier, is barred from operations in the European Union and other countries due to his ill-advised statements on the floor of the House.

To conclude, merely identifying the problem as the Prime Minister did during his interaction with the President of Zaytuna University is not enough – the time for remedial measures is at hand.

Anjum Ibrahim, "Elite capture and lack of rule of law," Business Recorder. 2021-12-06.
Keywords: Economics , Economic cost , Civilian leadership , Economic policies , Economic activity , Khan administration , Income Tax , Provincial tax , Provincial assemblies , Tax policies , Economic coordination , European Union , Imran Khan , IMF , GDP

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