Comparing 30 Years of Military Rule in Indonesia and Pakistan

General Suharto stepped down 15 years ago tomorrow. Here's an excerpt of today's New York Times story on the Indonesian strongman's legacy:

"Mr. Suharto’s spirit continues to loom over modern-day Indonesia. He brought the country back from the brink of political, social and economic calamity in the mid-1960s, dramatically reduced poverty and by the early 1990s had turned Indonesia into one of the Asian tiger economies. But he also governed with an iron fist, sending his jackbooted military into separatist-minded regions, jailing and exiling political enemies, quashing democratic institutions and the news media, and presiding over what some claim is one of the most corrupt governments in modern history.....Tuesday is the 15th anniversary of Mr. Suharto’s resignation as president.  .... Since then, Indonesia has undergone a dramatic transformation toward democracy and now has open elections and the world’s 16th-largest economy. Yet corruption remains endemic, crime is higher than during Mr. Suharto’s “New Order” regime, and Jakarta and other large cities have chronic traffic problems".

Both Indonesia and Pakistan have each seen about 30 years of military rule.  So why has Indonesia become an Asian tiger economy and Pakistan has not?

One possible explanation is that while there was 32 years uninterrupted military rule with sustained development in Indonesia, Pakistan has seen three stints of high growth under military generals in 1960s, 1980s and 2000s separated by  three periods of slow or very slow growth under civilian rule in 1950s, 1970s and 1990s. Pakistani military rulers have also been less ruthless and more benevolent than Gen Suharto.

Pakistan has also experienced economic and social progress comparable to Indonesia's during periods of military rule. There has been much better governance and significantly faster rates of economic and social development during military rule than under civilian leaders. Many economists persuasively argue  that Pakistan would have developed as fast as South Korea had the Ayub era policies continued uninterrupted for another decade or two.

Pakistan's first  military dictator General Ayub Khan's period is labeled by Pakistani economist Dr. Ishrat Husain as "the Golden Sixties". General Ayub Khan pushed central planning with a state-driven national industrial policy.  Countries like Malaysia and South Korea saw Pakistan as a model for export-led growth, according to Prof Stephen Cohen. In fact, South Korea sought to emulate Pakistan's development strategy and copied Pakistan's second "Five-Year Plan".

Here's how Dr. Husain recalls Pakistan of 1960s:

"The manufacturing sector expanded by 9 percent annually and various new industries were set up. Agriculture grew at a respectable rate of 4 percent with the introduction of Green Revolution technology. Governance improved with a major expansion in the government’s capacity for policy analysis, design and implementation, as well as the far-reaching process of institution building. The Pakistani polity evolved from what political scientists called a “soft state” to a “developmental” one that had acquired the semblance of political legitimacy. By 1969, Pakistan’s manufactured exports were higher than the exports of Thailand, Malaysia and Indo.... Though speculative, it is possible that, had the economic policies and programs of the Ayub regime continued over the next two decades, Pakistan would have emerged as another miracle economy."

Pakistanis have found that each time a military ruler has been forced out and replaced by a civilian government led by politicians, both the economic and the social indicators have suffered. For example, Pakistan's decade of 1990s under the PPP and the PML rule is remember by economists as the lost decade. It was followed by a rebound of robust social and economic development during the Musharraf period from year 2000 to 2007.

In the 1990s, economic growth plummeted to between 3% and 4%, poverty rose to 33%, inflation was in double digits and the foreign debt mounted to nearly the entire GDP of Pakistan as the governments of Benazir Bhutto (PPP) and Nawaz Sharif (PML) played musical chairs. Before Sharif was ousted in 1999, the two parties had presided over a decade of corruption and mismanagement. In 1999 Pakistan’s total public debt as percentage of GDP was the highest in South Asia – 99.3 percent of its GDP and 629 percent of its revenue receipts, compared to Sri Lanka (91.1% & 528.3% respectively in 1998) and India (47.2% & 384.9% respectively in 1998). Internal Debt of Pakistan in 1999 was 45.6 per cent of GDP and 289.1 per cent of its revenue receipts, as compared to Sri Lanka (45.7% & 264.8% respectively in 1998) and India (44.0% & 358.4% respectively in 1998).

The year 1999 brought a bloodless coup led by General Pervez Musharraf, ushering in an era of accelerated economic growth that led to more than doubling of the national GDP, and dramatic expansion in Pakistan's urban middle class. Pakistan became one of the four fastest growing economies in the Asian region during 2000-07 with its growth averaging 7.0 per cent per year for most of this period. As a result of strong economic growth, Pakistan succeeded in reducing poverty by one-half, creating almost 13 million jobs, halving the country's debt burden, raising foreign exchange reserves to a comfortable position and propping the country's exchange rate, restoring investors' confidence and most importantly, taking Pakistan out of the IMF Program.

The above facts were acknowledged by the last PPP government in a Memorandum of Economic and Financial Policies (MEFP) for 2008/09-2009/10, while signing agreement with the IMF on November 20, 2008. The document clearly (but grudgingly) acknowledged that "Pakistan's economy witnessed a major economic transformation in the last decade. The country's real GDP increased from $60 billion to $170 billion, with per capita income rising from under $500 to over $1000 during 2000-07". It further acknowledged that "the volume of international trade increased from $20 billion to nearly $60 billion. The improved macroeconomic performance enabled Pakistan to re-enter the international capital markets in the mid-2000s. Large capital inflows financed the current account deficit and contributed to an increase in gross official reserves to $14.3 billion at end-June 2007. Buoyant output growth, low inflation, and the government's social policies contributed to a reduction in poverty and improvement in many social indicators". (see MEFP, November 20, 2008, Para 1)

In addition to faster economic growth, Pakistan's human development index (HDI) also grew at an average rate of 2.7% per year under President Musharraf from 2000 to 2007, and then its pace slowed to 0.7% per year in 2008 to 2012 under elected politicians, according to the 2013 Human Development Report titled “The Rise of the South: Human Progress in a Diverse World”. Overall, Pakistan's human development score rose by 18.9% during Musharraf years and increased just 3.4% under elected leadership since 2008. The news on the human development front got even worse in the last three years, with HDI growth slowing down as low as 0.59% — a paltry average annual increase of under 0.20 per cent.

Going further back to the  decade of 1990s when the civilian leadership of the country alternated between PML (N) and PPP,  the increase in Pakistan's HDI was 9.3% from 1990 to 2000, less than half of the HDI gain of 18.9% on Musharraf's watch from 2000 to 2007.

Acceleration of HDI growth during Musharraf years was not an accident.  Not only did Musharraf's policies accelerate economic growth, helped create 13 million new jobs, cut poverty in half and halved the country's total debt burden in the period from 2000 to 2007, his government also ensured significant investment and focus on education and health care. In 2011, a Pakistani government commission on education found that public funding for education has been cut from 2.5% of GDP in 2007 to just 1.5% - less than the
annual subsidy given to the various PSUs including Pakistan Steel and PIA, both of which  continue to sustain huge losses due to patronage-based hiring.

Why is it that the military rulers have consistently delivered better economic and social results while the politicians have not been able to mach them? To put it all in perspective, let's recall how late Dr. Mahbub ul-Haq, the renowned Pakistani economist who is credited with the idea of UNDP's human development index (HDI), explained the corrosive impact of political patronage on economic policy in Pakistan.

In a 10/12/1988 interview with Professor Anatol Lieven of King's College and quoted in a recent book "Pakistan-A Hard Country", here is what Dr. Haq said:

"Growth in Pakistan has never translated into budgetary security because of the way our political system works. We could be collecting twice as much in revenue - even India collects 50% more than we do - and spending the money on infrastructure and education. But agriculture in Pakistan pays no tax because the landed gentry controls politics and therefore has a grip on every government. Businessman are given state loans and then allowed to default on them in return for favors to politicians and parties. Politicians protect corrupt officials so they can both share the proceeds.

And every time a new political government comes in they have to distribute huge amounts of state money and jobs as rewards to politicians who have supported them, and short term populist measures to try to convince the people that their election promises meant something, which leaves nothing for long-term development. As far as development is concerned, our system has all the worst features of oligarchy and democracy put together.

That is why only technocratic, non-political governments in Pakistan have ever been able to increase revenues. But they can not stay in power for long because they have no political support...For the same reason we have not been able to deregulate the economy as much as I wanted, despite seven years of trying, because the politicians and officials both like the system Bhutto (Late Prime Minister Zulfikar Ali Bhutto) put in place. It suits them both very well, because it gave them lots of lucrative state-sponsored jobs in industry and banking to take for themselves or distribute to their relatives and supporters."

To summarize, there is insufficient revenue collected by the state of Pakistan, and the diversion of this very limited revenue to political patronage fosters dependence on foreign aid and impinges on the nation's sovereignty. It also seriously harms Pakistan's ability to invest in education, health care and infrastructure development in terms of school and hospital buildings, roads, rails, and water and energy projects for Pakistan's future.

Discussing the politics of patronage in Pakistan, Professor Lieven, the author of "Pakistan-A Hard Country", sees a silver lining to it by describing the difference between Nigeria and Pakistan in the following words:

"Rather than being eaten by a pride of lions, or even torn apart by a flock of vultures, the fate of Pakistan's national resources more closely resembles being nibbled away by a horde of mice (and the occasional large rat). The effect on the resources, and on the state's ability to do things, are just the same, but more of the results are plowed back into the society, rather than making their way straight to bank accounts in the West. This is an important difference between Pakistan and Nigeria, for example."

I personally see no better explanation for the boom under President Musharraf in 2000-2007, followed by current economic crisis since 2008, than the prevailing system of political patronage continuing to trump good public policy almost 23 years after late Dr. Mehboob ul Haq described it so well.

Having just voted and elected new leaders in general elections on May 11, it is important that the voters demand an explanation from the new leadership for their extremely poor performance in the social sector in the past. Without accountability, these politicians will continue to ignore the badly needed investments required to develop the nation's human resources for a better tomorrow. Forcing the political leaders to prioritize social sector development is the best way to launch Pakistan on a faster trajectory.

Here's a video discussion on the subject recorded on Pakistan's independence day:

Wide Angle Zoom: Formation and Future of Pakistan by wbt-tv

Related Links:

Haq's Musings

General Suharto Passes On

The Idea of Pakistan By Stephen Cohen

Saving Pakistan's Education

Political Patronage Trumps Public Policy in Pakistan

Dr. Ata-ur-Rehman Defends Pakistan's Higher Education Reforms

Twelve Years Since Musharraf's Coup

Musharraf's Legacy

Pakistan's Economic Performance 2008-2010

Role of Politics in Pakistan Economy

India and Pakistan Compared in 2011

Musharraf's Coup Revived Pakistan's Economy

What If Musharraf Had Said No?

Views: 395

Comment by Riaz Haq on August 27, 2013 at 7:54am

Here's an interesting debate on democracy vs dictatorship in terms of development:

Dictatorship does not necessarily result in development, defined by human well-being(which incorporates education, health, income, and safety from internal and external threats)and even by personal discipline. Furthermore, there is no conclusive evidence proving that either dictatorship nor democracy cause development. Nonetheless, we will prove dictatorships incorporate more control over the variables that define development so in consequence are a better course to get to it. Also, that dictatorships guarantee the Social Order, which is a very necessary prerequisite for any kind of economic accumulation process to be feasible. A form of government in which absolute power is concentrated in a dictator or a small clique, dictatorships are subject to retaliatory actions. We propose this should end.
Democratic nations should not take retaliatory actions against dictatorial governments in order to diminish their legitimacy, their power, and to promote their overthrown in exchange for a democratic alternative. This actions account for the diminishing of economic & diplomatic relations with Burma and Iran and the cut of economic aid to Honduras’ “de facto” Government.
We will prove that these sort of actions can only undermine the possibility of development finally kicking in this countries, since dictatorship is the best way to achieve it.

All the Yes points
Dictatorships breed development though efficient and straighfoward decision making
Dictatorship is a good breeding ground for personal discipline and order
Dictatorships better control the variables of human development
Dictatorships resist to income Redistribution Pressures
Dictatorship is a more economic institution: elections are a luxury reserved for developed countries.
Dictatorships regimes can be a path for countries move on from civil wars and focus on development
Dictatorships have a flexibility in economic policy that breeds growth
Dictatorship helps achieve social stability
The loger lasting and biggest economic miracles have ocurred under dictatorships
Dictatorship outperforms democracy in growth and economic develpment
A dictatorship breeds order and it's a needed step for both development and liberal democracy
Dictators have incentives to promote development and diminish social differences
All the No points
Opposition defines ambiguity
Opposition baffled yet undeterred!
Dictator’s decisions undermines the people and are unaccountable
Development is not possible when there is no succession in the government
Dictatorship priority is to maintain power
Dictatorship brings profit to dictators and its clique, but not to the citizens
Dictatorship is a threat to diversity and multi ethnicity
Dictatorship transforms national policies into irregularities
Good development should ensures freedom
Development occurs when a dictatorship revert into democracy

Comment by Riaz Haq on November 15, 2013 at 9:42pm

Here's a book review of "How Asia Works" by Amb Maleeha Lodhi published in The News:
An important new book explains why some countries have become economic tigers in East Asia while others are relative failures or paper tigers. ‘How Asia Works’ by Joe Studwell is a bold and insightful work that is essential reading for anyone interested in understanding the ingredients for economic success in this continent.
It challenges much conventional wisdom in the development debate. Most significantly the book questions key tenets of the so-called Washington consensus, which prescribes free market ‘solutions’ for all economies regardless of their level of development. Studwell establishes that a nation’s development destiny is shaped most decisively by government action and policies. History, writes the author, shows that markets are created, shaped and re-shaped by political power.
At the very outset, Studwell identifies three critical interventions that successful east-Asian countries and China (after 1978) employed to achieve accelerated economic development. The first, “often ignored”, and now “off the political agenda” in developing countries, is land reform. This restructured agriculture into highly labour-intensive household farming. In the early phase of development, with the necessary institutional support, this helped to generate a surplus, create markets and unlock great social mobility.
The second intervention, as countries cannot sustain growth only on agriculture and must transition to the next phase, is to direct entrepreneurs and investment to industrial manufacturing. Manufacturing allows for trade and technology learning. And trade, says the author, is essential for rapid economic development. Studwell then demonstrates – while challenging the champions of free trade – how nurturing and protection, along with instituting “export discipline”, builds the capacity to compete globally. Manufacturing policy is a key determinant of success he says, as an infant industry strategy offers the quickest route to restructuring the economy towards more value-added activities.
Holding that development is quintessentially a political undertaking, the author sees the relationship between the state and private entrepreneurs as a critical variable. History, he writes, teaches that governments should not run everything themselves. But governments have to use their power and the right policy tools to make private entrepreneurs do what industrial development requires.
The third intervention necessary for accelerated development is in the financial sector, aimed at directing capital initially to intensive, small scale agriculture and to manufacturing rather than services. Studwell argues persuasively that it was the close alignment of finance with agriculture and industrial policy objectives that produced north-east Asia’s economic success.
Detailing the role of financial policy, he illustrates how premature bank deregulation exacted a high price in Thailand and Indonesia. China, on the other hand, and other north-east Asian countries resisted that, instead using financial management to serve development needs and an accelerated economic learning process.

Comment by Riaz Haq on December 9, 2013 at 8:37am

Here are a few excerpts from a recent book "Street Smarts" by Hedge Fund Manager Jim Rogers:

"Many Asians say that the Asian Way is first to open your economy, to bring prosperity to your country, and then, only after that, to open up your political system. They say thar the reason the Russians failed is that did it the other way around. Russia opened up its political system in the absence of a sound economy, everybody bitched and complained, and chaos inevitably ensued. As an example of the Asian path to political openness, they point to South Korea and Taiwan, both of which were once vicious dictatorships supported by the United States. Japan was at one time a one-party state supported by the US military. Singapore achieved its current status under one-party, authoritarian rule. All these countries have since become more prosperous and more open.

Palto,in The Republic, says that the way societies evolve is by going from dictatorship to oligarchy to democracy to chaos and back to dictatorship. It has a certain logic, and Plato was a very smart guy. I do not know if the Asians ever read The Republic, but the Asian way seems to suggest that Plato knew whereof he spoke."

Not only is the Asian model different from that of the Soviets, it stands China in marked contrast to those thirty-year dictatorships previously mentioned. Chinese leaders have put a high premium upon changing the country's economy, presumably to seek prosperity for the 1.3 people who live there."
"And yet,in 1947, when it achieved independence, India was one of the more successful countries in the world, a democratic country. But despite democracy, or maybe because of it, India has never lived up to its potential. China was a shambles as recently as 1980. India was far ahead of it. Bt since then China has left India, literally in the dust....As China rises, India continues to decline relatively. Its dent-to-GDP ratio is now 90 percent, making a strong growth rate virtually impossible."

Comment by Riaz Haq on May 21, 2017 at 10:27am

Meet 'The Brothers' (Dulles Brothers) Who Shaped U.S. Policy, Inside And Out

Stephen Kinzer on NPR Radio

On the Dulles' ability to overthrow regimes in Iran and Guatemala but not in Cuba or Vietnam

They were able to succeed [at regime change] in Iran and Guatemala because those were democratic societies, they were open societies. They had free press; there were all kinds of independent organizations; there were professional groups; there were labor unions; there were student groups; there were religious organizations. When you have an open society, it's very easy for covert operatives to penetrate that society and corrupt it.

Actually, one of the people who happened to be in Guatemala at the time of the coup there was the young Argentine physician Che Guevara. Later on, Che Guevara made his way to Mexico and met Fidel Castro. Castro asked him, "What happened in Guatemala?" He was fascinated; they spent long hours talking about it, and Che Guevara reported to him ... "The CIA was able to succeed because this was an open society." It was at that moment that they decided, "If we take over in Cuba, we can't allow democracy. We have to have a dictatorship. No free press, no independent organizations, because otherwise the CIA will come in and overthrow us." In fact, Castro made a speech after taking power with [Guatemalan President Jacobo] Árbenz sitting right next to him and said, "Cuba will not be like Guatemala."

Now, [Vietnamese Communist leader] Ho Chi Minh was not establishing an open society ... the fact is, he had a dictatorship, he had a closed, tyrannical society, and that made it much more difficult for the CIA to operate. So we find this irony that if [Prime Minister of Iran Mohammad] Mossadegh and Árbenz had been the tyrants that the Dulles brothers portrayed them as being, the Dulles brothers wouldn't have been able to overthrow them. But the fact that they were democrats committed to open society made their countries vulnerable to intervention in ways that Vietnam and particular North Vietnam then were not.

On how things might have been different had the Dulles brothers not intervened

It's quite possible, even likely, had the Dulles brothers not been [in Vietnam] or had acted differently, there never would've been an American involvement in Vietnam at the cost of a million lives and more than 50,000 Americans. Guatemala wouldn't have suffered 200,000 dead over a period of 35 years in the civil war that broke out after they intervened in Guatemala and destroyed democracy there. Iran fell under royal dictatorship and then more than 30 years of fundamentalist religious rule as a result of the Dulles brothers' operations. Had they not intervened in Iran we might've had a thriving democracy in the heart of the Muslim Middle East. ...

So you look around the world and you see these horrific situations that still continue to shake the world, and you can trace so many of them back to the Dulles brothers.

Comment by Riaz Haq on March 22, 2018 at 2:35pm

The chaebols: The rise of South Korea's mighty conglomerates
They are cornerstones of the economic, political and social landscape: Part one of a series looks at how these conglomerates -- like Samsung, LG and Hyundai -- saved South Korea from crushing poverty and defined a country's role on the global stage.

In 1953 the South Korean national GDP per capita stood at a mere $67 [Korean]. The US GDP per captia for the same year stood at an unadjusted $2,449. After the political turmoil that followed Japanese occupation and the Korean War, the country was in dire poverty. The threat of North Korea was real -- espionage on both sides of the aisle was commonplace, and the South Korean government of the time was either unable or unwilling to help its people recover.

And then came Gen. Park Chung-hee, the controversial landmark leader of South Korea, who staged a coup, and through a military junta became the president in 1963. Following official recognition of his regime by the US, Park decided that for South Korea to become a strong nation, it needed a strong economy.

Like the corporate trusts of the US in the late 19th and early 20th centuries, a relationship between the government and the private sector was formed that still defines South Korean politics and economy today. Park coaxed, wheedled, intimidated, manipulated and outright threatened the companies for cooperation. But the president also offered incentives -- government and foreign loans, relaxed regulations and tax cuts.

"South Korea can be defined as a 'developmental-state,' where the government actively intervened and worked closely with companies," said Cho Dong-keun, a professor at the department of economics of Myongji Unversity. "In some ways, it was necessary, because the market was imperfect. And the chaebols were born."

The Federation of Korean Industries was formed by the chaebols in 1963 to promote their interest and support Park's drive. It acted as the voice of the chaebols, and its mission was to foster coordination among them. Though influence has somewhat declined, the chairman of the Federation was at one point referred to as the "Prime Minister of Economy" by the press and wielded considerable political power.

Samsung and LG were already flourishing, both among the top ten companies in South Korea even before Park's regime took charge, and the pair didn't always welcome the government's initiatives. For example, Samsung founder Lee Byung-chull and Park disliked each other: Lee, who was older than Park (seniority being very important in Korean culture), thought of the president as an upstart, uneducated thug. President Park, on the other hand, thought of Lee as a man born with a silver spoon in his mouth.

During Park's five-year plans -- rolling periods of government-outlined economic development -- the government sometimes took successful subsidiaries away from the chaebols: On Park's orders, Samsung would cede a bank, a fertilizer manufacturer and a broadcaster, much to its dismay.

The government policy would also bring in new blood -- most famously Hyundai, which began as an unimpressive, middling construction firm, but become a powerful chaebol during Park's presidency. Hyundai's famed founder Chung Ju-yung, a peasant's son and an elementary school dropout, had a do-or-die spirit that Park felt was needed in South Korea. The charismatic Chung clinched projects and showed feats that were considered impossible. With Park's support, Hyundai built the 400km-long Gyeongbu Expressway that connected the capital city Seoul to South Korea's southern city in less than two and a half years.


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