Reformation of economic policies during Ayube Khan

                     Reformation of
economic policies during Ayube Khan



 



  

Background:



                      



There is a huge disconnect between the economic challenges
Pakistan faces, some of which are very complex requiring skilled economic
minds, and the way economic policy-making is conducted. In the initial years
after Partition, economic policy-making was dominated by the CSPs who selected
by unquestionable high standards of the exams they had to pass to qualify, were
deemed to know everything. They could run the Cabinet Division one day, an
airline the next, or be a central bank governor the day after that, with equal
competence and efficiency. Professionals and more specifically professionals in
economics had no place in their scheme of things.



First Agricultural Reforms:



First agricultural reforms in Pakistan were introduced by
General Ayub Khan in Jan 24, 1959. According to these reforms an individual was
not allowed to own 500 irrigated and 1000 of non-irrigated land in Pakistan.
The remaining lands were given freely to the landless farmers. It was also
narrated that no surcharge or extra money will be taken from any landless
person in retuI.



 Agricultural growth, inequality and loan: 



The military coup d’etat, which brought General Ayub Khan
into power, established the 



dominance of military and bureaucracy in Pakistan’s power
structure. The associated 



political system while it weakened the nascent democratic
institutions of the legislature, 



press and the judiciary, constituted authoritarian power
behind a  civilian facade called 



“basic democracy”. The economic strategy  of the government, while it induced rapid 



GDP growth, sharply accentuated inter-personal and
inter-regional inequalities, which 



generated explosive political tensions. These tensions erupted
in a mass movement 



Against President Ayub Khan in West Pakistan and a national
independence movement in 



East Pakistan that culminated in the emergence of the new
state of Bangladeshrn for the transfer of land.



 



Land Reforms:



The first of our self-styled saviour generals also disliked
the notion of feudalism. A commission was set up present recommendations and it
presented its report within three months of the military takeover in January,
1959. Deemed “radical” by the then military junta, it side stepped the issue of
ceilings on land holdings by proposing a fairly liberal one and was in its own
words “pragmatic” and “middle-of-the-road” – an often abused set of terms used
to represent anything that cannot be handled appropriately due to political realities.
In reality, it was far from revolutionary.



Recommendations included:-



·        
A ceiling of 500 acres for irrigated and 1000
acres for un-irrigated land be imposed with due compensation to owners (the
complex issue of Produce Index Unit has been left in this essay). Land was to
be redistributed amongst to tenants already cultivating the land.



·        
Abolition of Jagirs which had already been
abolished in Punjab and NWFP in 1950. However, the 1.1 million acres of Jagirs
in Sind were abolished alongwith 150 and 258 acres in Bahawalpur and
Balochistan respectively.



·        
Permanent proprietary rights for occupancy
tenants.



·        
Idea of “economic holdings” and “subsistence
holdings” of no less than 50 acres was proposed in order to consolidate
holdings (in reality economic holdings was supposed to create a middle class
amongst the peasantry and to attract private investment in agriculture).



One person however dissented with the majority opinion on
the land ceiling recommended and his name was Ghulam Ishaq Khan, later to
become the serial 58-2(b) user. GIK viewed the imposed limit as way too liberal
and he thought that “the net effect of the proposed measures … [will leave] the
concentration of land in families instead of individuals”. Therefore, he
proposed the ceiling of 150 acres and 450 acres for irrigated/un-irrigated land
alongwith a 300/900 acres limit for families to own land
(irrigated/un-irrigated). He also dissented on a number of other issues
(exemptions for orchards, transfer of land by gift, etc.). Clearly, GIK was the
“revolutionary” amongst the committee members.



Industrial Reforms:



His era witnessed rapid industrial progress (mainly in the
western wing of the country) with two five-year economic development plans.
However his so-called 1958-68 "development decade" actually became a
decade of exploitation and deliberate promotion of inequality between classes
and regions with the 22 big industrial families amassing most of the wealth.
The record reveals that Pakistan's Second Year Plan (1960-1965), the one that
covered a good part of the martial law period, was a substantial success from a
statistical point of view. But there was little overall improvement in the
life-style of the general population.



 



President Ayub Khan introduced industrial development
program under the doctrine of "functional inequality on the familiar plea
that government should tolerate "some initial growth in income
inequalities to reach high levels of saving and investment." This growth
was to be achieved through a system under which income inequalities were to be
permitted for a long time until the benefits of such a system would trickle
down to the disadvantaged groups at the later stage.



 



Dr. Mahbub ul Haq, probably the most influential adviser of
his government and drafter of the Second Five-Year Plan, was responsible for
much of the thinking embodied in the Plan. He accepted the proposition that
"the route to equality lay through inequality" on the ground that
during the earlier phase of industrialization such inequality was inevitable.
He argued that "the under-developed countries must consciously accept a
philosophy of growth and shelve for the distant future all ideas of equitable
distribution and welfare state. It should be recognized that these are luxuries
which only developed countries can afford."



 



The theory of "social utility of greed" was also
championed by Pakistan's Harvard adviser to the Planning Commission, Gustav F.
Papanek, who advocated that income inequalities not only contributed to the
growth of the economy but also made possible a real improvement for the
lower-income groups. In his work on Pakistan's economic development model
pursued in the sixties, Gustav Papanek defended the very high rates of profit
allowed to the private sector on the plea that since the bulk of these profits
were being reinvested, they produced economic growth which was essential for
reducing poverty and thereby reducing inequality.



 



 



The policy of income inequality between classes was pursued
simultaneously with a policy of regional inequality in terms of East and West
Pakistan and in terms of regions within West Pakistan. During the decade
1959-60 to 1969-70, per capita gross domestic product in terms of 1959-60
constant prices grew only by 17 percent in East Pakistan, but by 42 percent in
West Pakistan. The central government also conceded that disparity measured by
the difference between per capita incomes in West and East Pakistan expressed
as a percentage of the per capita income of all Pakistan had increased from
38.1 percent in 1964-65 to 47.1 percent in 1969-70.



 Industrial Growth, Inequality and Loan Dependence: 



The decade of the 1960s is seen by many as the ‘golden age’
in terms of the high growth 



rates achieved through the provision of subsidies and tariff
protection to industry and an 



elite farmer strategy in agriculture. It was also a period
when the mold was set for the 



emergence of an economic structure that was to lock
Pakistan’s economy into increasing 



income inequality, a narrow and inefficient industrial base,
and increasing loan 



dependence, for the next four decades.  



Following the Korean boom in 1953, the government had
introduced a policy framework 



for inducing the large profits of traders in jute and raw
cotton to flow into the 



manufacturing sector. This was attempted through a policy of
encouraging the domestic 



production of consumer goods through a variety of protection
measures during the 



1950s



During the 1960s import substitution industrial growth in
the consumer goods sector, was 



more systematically encouraged by the government



 Planning Commission:



 The third period of
the planning process began in October 1958 with the assumption of power by the
military government of Ayub Khan.  The
new regime chooses to make economic development through a marked economy and
reliance of the private sector as its primary objective.  The new government gave proper attention to
achieve the following targets:



 



•        Rapid
industrialization in the country,



•        Removal of
food shortage,



•        Removal of
political instability, and



•        To overcome
the problem of deficit of balance of payment.



 



The status of the Planning Commission was raised to a
Division in the President’s secretariat. 
The President himself assumed the chairmanship of the Planning
Commission and Deputy Chairman, with the ex-officio status of a minister, was
made the operational head of the Commission. 
Provincial planning department was organized.  The Planning Commission was also provided the
secretariat for National Economic Council (NEC) which looked after the
day-to-day work of NEC and was also responsible for final approval for annual
development.



 



During this period the Second Five-Year Plan (1960-65) and
the Third Five-Year Plan (1965-70) was made. 
Second Five-Year Plan was so successful that Pakistan led to an example
for hunger nations of the world.  But
unfortunately Pakistan had to fight war against India in 1965.  Then there was a hue and cry against Ayub
government and another government got the power.



Trade:



 



The magnitude of protection provided by the government to
private sector industry was 



such that it enabled domestic manufacturers to earn large
rupee profits on the production 



of goods that were not internationally competitive. It has
been estimated that during the 



1960s, Pakistan’s main industries (when input costs and
output values are both measured 



in dollar terms) were producing negative value added.
Indirect subsidies such as the 



Bonus Voucher Scheme combined with the overvalued exchange
rate, enabled domestic 



manufacturers to earn large rupee profits on exports that
brought no gain to the economy 



in terms of foreign exchange.  It has been argued that the phenomenon of
negative value added in industry was an important reason why during the 1960s,
in spite of import substitution and large export volumes, foreign exchange
shortages persisted



 



 Bonus Voucher Scheme: 



The bonus voucher scheme is enabled exports of certain
manufactured goods to receive in addition to the rupee revenue of their
exports, bonus vouchers equivalent to a specified percentage of the foreign
exchange earned. The vouchers could be sold in the market (to potential
importers) for a price usually 150 to 180 percent above the face value. Thus
the exporter not only earned the rupee revenues from exports but also an
additional premium through sale of the bonus vouchers