History of Economic Development

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³History of Economic Development´
1947-1988

Statement of the problem:
This research is about the economic development in different eras. It is keenly observed that in which period there was more economic growth. To a considerable extent, politics was responsible for the wide fluctuation in the performance of the main sectors of the economy. Some reasons for these fluctuations can be discerned if sectoral performance is analyzed in the context of political periods. Pakistan¶s political history can be divided into five periods. The first lasted for just over eleven years (1947-1958) and was characterized by competitive parliamentary democracy. Governments changed rapidly during this period as the indigenous leaders of the areas that constituted Pakistan began the process of recapturing political power from the migrant community. The second period lasted for a little over thirteen years (1958-1971) and saw two military dictatorships---the first under General Ayub Khan (1958-1969) and the second under General Yahiya Khan (1969-1971). During this period, the military and civilian bureaucracies forged a strong political alliance with a number of middle-class urban and rural groups. The third period represented a brief interregnum in the rule by military; during these years (1972-1977), Zulfiqar Ali Bhutto managed to retain political control with populist support. The fourth began in 1977 with the establishment of Pakistan¶s third military dictatorship and lasted for a little over eleven years. Although the martial law was lifted on December 30,1985, and a civilian government headed by prime minister Muhammad Khan Junejo was sworn into office the same day, General Zia ul Haq did not allow a substantial amount of political power to pass into civilian hands. He was prepared at best to share power with a group of politicians who did not question the military¶s continued presence in the political field. This partnership between the military and political establishments collapsed on May 29, 1988, when General Zia Ul Haq dismissed Prime Minister Muhammad Khan Junejo and his cabinet, dissolved the national and provincial assemblies, and ordered elections to take place in November. Zia was killed in an air crash on August 17, 1988, but the

caretaker government he had appointed stayed in place to oversee the elections, which were held on November 17. These elections ushered in the fifth period, a return to a parliamentary democracy under Benazir Bhutto. Bhutto¶s administration allowed the military considerable authority in areas including defense and foreign affairs. This arrangement worked for less than two years. On August 6, 1990, Ghulam Ishaq Khan, who succeeded Zia Ul Haq as president, dismissed prime minister Bhutto, dissolved the national and provincial assemblies, and called for general elections on October 24. Politics in Pakistan had come full circle: Ghulam Ishaq Khan¶s brief civilian interregnum had served to underscore once again the difficulty in achieving consensus among the country¶s important but diverse social and economic groups on a wide variety of issues. Pakistan¶s political history thus reflects a constant tussle among social groups for participation in or control of the political process. It is interesting to speculate as to how these conflicts may have affected economic decision making and, consequently, economic performance. Economic performance during major political periods (average annual growth rates, in percentage)1 Competitive First and Civilian Third Return of Parliamentry

Parliamentary Second Democracy 1947-1958 Military

Dictatorship Military (Bhutto)

Dictatorship Democracy 1977-1988 1988-1990

Dictatorships 1972-1977 (Ayub Yahya) 1958-1971 and

GDP Agriculture

2.9 1.6

5.3 3.9 8.1 6.0

5.4 2.1 5.2 7.8

6.7 3.5 8.9 6.1

4.5 5.5 5.4 2.2

Manufacturing 8.7 Other Sectors 6.1

1

Government of Pakistan, Pakistan economic survey 1989-1990, Islamabad: ministry of finance, 1990

Pakistan is country who got worse economic condition in inheritance. First two decades were proved helpful in obtaining good economic condition. Pakistan¶s economy got a boost in Quaid¶s era. Although next years are considered the period of uncertainty but from Ayub era Pakistan entered a new era of economic development. In this particular study I will try to explain the phenomenon of economic growth in each and every regime.

Era of heavy burden on weak shoulders:
At the time of independence in 1947 the provinces that separated from the two wings of the country----East and West Pakistan----were considerably poorer than those that remained in India.2 The shaking economy was very much relying on agriculture but due to heavy movement across the borders ceased all activities. Moreover, the refugee problem was so disastrous that a decade was required to tackle it.

At the time of partition Pakistan had to receive a sum of Rs.750 million as its share of hard money in the banks of India. At first India didn¶t show any inclination to transfer this money to Pakistan; but later saner elements prevailed and it gave Rs.200 million to Pakistan; while Rs.500 million were to be transferred to Pakistan later on which didn¶t come to happen till now. Again Quaid strategy was to work with limited resources. Quaid vision about economy was too much clear from very first day because he was well aware of upcoming challenges. As he gave an interview to New York Times in 1942, he stated: ³If we are willing to live sensibly but poorly so long as we have freedom, why should the Hindus object? ---- the economy will take care of itself´.3 Fulfilling the national requirements was given the priority on exports, but great emphasize was on developing good trade terms with other countries of the world. To develop the economy there was a crucial need of currency and in this regard need of a central bank was must. So to meet the economic requisites State Bank of Pakistan was
2 3

Shahid Javed Burki, Pakistan-the continuing search for nationhood, Oxford: west view press,1991, 5 Dr Anwar Iqbal Qureshi, Economic History of Pakistan, Lahore: Islamic book service, 1978, 85

developed. Quaid inaugurated the bank and addressing the inaugural ceremony he said, ³We must work our destiny in our own way and present to the world an economic system based on true Islamic concept of equality of manhood and social justice. We will thereby be fulfilling our mission as Muslims and giving to humanity the message of peace which alone can save it and secure the welfare, happiness and prosperity of mankind´.4 After the death of Quaid, Pakistan became the victim of political disintegration. The only worth describing thing of next few years is the first five years plan which was mostly implemented in the start of Ayub era.

The Golden Age of Pakistan¶s Economy:
Ayub Khan, the first military dictator of Pakistan, assumed complete control of the state in October 1958 and reigned over the golden period of Pakistan¶s economic history. With the help of Harvard advisors, Ayub Khan vigorously implemented the Planning Commission on Economic Management and Reforms with impressive results. GDP growth in this decade jumped to an average annual rate of 6 percent from 3 percent in the 1950s. 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 ³soft state´ to a ³developmental´ one that had acquired the semblance of political legitimacy. By 1969, Pakistan¶s manufactured exports were higher than the exports of Thailand, Malaysia and Indonesia combined. 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.

4

http://qurratulain.wordpress.com/2006/08/28/jinnahs-strategies-to-run-pakistan-in-post-partition-era/

Ayub also introduced second five years plan in 1960. The second plan raised the rate of net investment above the critical; level of 10%, regarded as one of the elements for take-off in Rostow¶s model. Including expenditure on the Indus basin replacement works, the rate of gross investment exceeded 18% by the end of the second plan. The overall growth rate increased to over 5% per annum. But much more significant from the point of view of long-term expansion were the marginal saving rate of 22% and1.3% income elasticity of exports during this period.5 Ayub Khan adopted an energetic approach toward economic development that soon bore fruit in a rising rate of economic growth. Land reform, consolidation of holdings, and stern measures against hoarding were combined with rural credit programs and work programs, higher procurement prices, augmented allocations for agriculture, and, especially, improved seeds to put the country on the road to self-sufficiency in food grains in the process described as the Green Revolution. All major infrastructure of Pakistan like dams and irrigation system was renewed and established in his era. Although some critics say that foreign debt knocked at Pakistan¶s door in Ayub era but it is also considerable that his policies made Pakistan a most rapid growing economy in the world. The perception that income inequalities between the East and West had increased substantially and that wealth was concentrated in the hands of twenty-two families fuelled resentment among Bengalis who accused Ayub¶s regime of reducing the East to an internal colony. There is no doubt that economic growth touched the heights of the heaven but the feelings of deprivation in East Pakistan were so much increased that a political and social rebellion started there which resulted in the downfall of East Pakistan in 1971.

Pakistan on the track of socialization:
When Bhutto came into power in 1971, Pakistan was a fully capitalist society. Ayub¶s policies made Pakistan a heaven
5

Moin Baqai and Irving Brecher, Development planning and policy in Pakistan (1950-1970), Karachi: National institute of social and economic research ,1973, 35

for private enterprises. Bhutto was a socialist minded landlord who was well educated from abroad and had as clear vision of his socialist policies. When he had strengthened his rule he started to implement his desired policies. Bhutto started his implementation by nationalization and land reform policy. The nationalization policy of PPP is outlined in its manifesto.6 Bhutto introduced socialist economics policies while working to prevent any further division of the country. Major heavy mechanical, chemical, and electrical engineering industries were immediately nationalized by Bhutto, and all of the industries came under direct control of government. Industries, such as KESC were under complete government control with no private influence in industry's major decision. In July 1976, the process of nationalization reached the rural areas as well, where more than 3,000 small units engaged in flour milling, rice milling, and cotton ginning were taken over by the government.7 Land reforms are basically required for redistribution of land which could have several benefits that could be social, economic and administrative. There is always inverse relationship of large land holding and productivity therefore land reforms are always treated as strategy for better production. So in Bhutto era, intentions were somehow like that. Land reforms were carried out on regular basis in all over the country. The land reform programme provided increased support to landless tenants, and development spending was substantially, particularly on health and education, in both rural and urban areas, and provided µmaterial support¶ to rural wage workers, landless peasants, and urban wage workers. The landownership ceiling was officially lowered to about five hectares of irrigated land and about twelve hectares of no irrigated land; exceptions were in theory limited to an additional 20 percent of land for owners having tractors and tube wells. The ceiling could also be extended for poor-quality land. Owners of expropriated excess land received no compensation, and beneficiaries were not charged for land distributed. Official statistics showed that by 1977 only about 520,000 hectares had been

6 7

Pervez Tahir, Pakistan: An economic spectrum, Lahore: Arslan Publication, 1974, 95 http://reviewessays.com/print/Bhutto-Regime-Nationalization/27051.html

surrendered, and nearly 285,000 hectares had been redistributed to about 71,000 farmers.8 The policies of Bhutto led Pakistan to a political change rather than economical. A country wide restless awoke among the people who were more politically used by antiBhutto forces.

Pakistan under Zia:
Under Zia, the previous ruler Zulfiqar Ali Bhutto's nationalization policies were slowly reversed and gradual privatization took place. General Zia greatly favored egalitarianism and industrialization. Between 1977 and 1986, the country experienced an average annual growth in the GNP of 6.8%, one of the highest in the world at that time. The economic policy performance of the Zia period was much better than that of the Bhutto period. The point, however, is that the long period of political stability and sustained growth under Zia offered opportunities for tackling the difficult underlying structural issues, which were not exploited. There is another spectrum of Zia¶s economic policies. Some people consider all economic growth in vain due to rise of foreign debt. During Zia era the total national debt grew at an average rate of 17.7%. The influx of foreign aid did little to help the debt situation as it soared to 630 billion rupees. In fact One contribution to this was the costly non bank borrowing, e.g. from national saving schemes, and the ratio of debt to GDP kept rising. Interest payments on debt also rocketed to about 28 percent of revenues.9 It was the fortune of Zia era that Pakistan was fighting a proxy war which was over funded by US and capitalist forces of the world. That war gave a strong support to country¶s economy.

Conclusion:
It is well defined that in Pakistan¶s economy there is hell of discontinuity. If a government tried to ensure continuous growth, the succeeded ones always negated previous policies. This is only reason for not permanent and stable
8 9

http://www.mongabay.com/history/pakistan/pakistan-farm_ownership_and_land_reform.html http://www.economistan.com/?data_id=243

economy. It is a need of hour that all political leadership should start to work in the best interest of Pakistan to save the country otherwise we have to face the music because upcoming world is the world of economy. A country with sound economy will lead the whole world. Pakistan can only be economically stable if it has continuity in its economic policies.

Bibliography: I. II. III. IV. V. VI. VII. VIII. IX.
Pakistan, Government of, Pakistan economic survey 1989-1990, Islamabad: ministry of finance, 1990. Burki, Shahid Javed, Pakistan-the continuing search for nationhood, Oxford: west view press, 1991. Qureshi, Dr Anwar Iqbal, Economic History of Pakistan, Lahore: Islamic book service, 1978. Baqai Moin and Brecher Irving, Development planning and policy in Pakistan (19501970), Karachi: National institute of social and economic research, 1973. Tahir, Pervez, Pakistan: An economic spectrum, Lahore: Arslan Publication, 1974. http://qurratulain.wordpress.com/2006/08/28/jinnahs-strategies-to-run-pakistan-inpost-partition-era/ http://reviewessays.com/print/Bhutto-Regime-Nationalization/27051.html http://www.mongabay.com/history/pakistan/pakistanfarm_ownership_and_land_reform.html http://www.economistan.com/?data_id=243

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