Pakistan: The economics of corruption

Written by Lal Khan

The political debate in the ruling elite is shrouded with the issue of corruption. It is dubbed as the most serious threat to the system and eradication of this menace is being portrayed as the recipe for the social and economic salvation of this country. The most vociferous leaders on this issue are integral part of the military, civilian and the bureaucratic elite and are openly notorious for their corrupt practises and demeanours. However very little is said about its social economic and political aetiology and root causes. The most crude and obtuse explanation is the personalisation of the issue limiting it to the conduct and role of individuals. Firstly corruption is not the cause of the crisis of the prevalent socio economic system but it is a symptom of the diseased capitalism that needs and breeds this curse. It is the inevitable by product of the misery, dearth and the deprivation excruciating society. And corruption is not just a Pakistani phenomenon but where ever capitalism exists, corruption, prostitution and crime are its essential components. Corruption has rapidly soared in China ever since the process of the restoration of capitalism began under Deng Xiao Ping in the late 1970’s. According to an official report Indian capitalists have stashed away 1.4 trillion dollars in Swiss and other off shore financial heavens. This huge amount is from tax evasion and other corrupt practises of India’s national bourgeoisie. The Economist in its recent issue says, “the world has 50-60 active tax havens, with over t$21 trillion invested virtually tax-free and over 30% of global foreign direct investment is booked through these tax havens and it does not stop here as domestic investment is routed offshore to qualify for tax breaks reserved for foreign investors. Some suspect this accounts for a sizeable portion of ‘foreign’ investment in India and China. This is also the case in America, whose companies face one of the rich world’s highest corporate-taxes, also has some of the most energetic tax avoiders.” There is not a single capitalist country on this planet that can claim to be corruption free. The multinational corporations set aside huge sums of money in their budgets for the kick backs to the military and the civilian political elites with whom deals are done. Biggest culprits are rulers of the neo colonial states and prominent companies mainly the military industrial complex and the oil industry. These corporations also bribe the parliamentarians, political parties and leaders and the bureaucrats that are the policy makers in ‘defence’, infrastructural projects and other massive economic undertakings. The financial sharks and corporate businesses invest heavily in elections campaigns to get their backed politicians elected and then use them to get state bailouts, contracts and other economic privileges. The 2012 presidential race was the most expensive in US history with overall cost of $6 billion. But with the worsening of the economy the role of corruption and black economy becomes more and more intensive. Economists at Paris School of Economics and Global Financial Integrity have highlighted in recent studies that the elites of 139 low-middle-income countries have parked up to $9.3 trillion of unrecorded wealth offshore and this turns some of them from big debtors into creditors. “Developing countries as a whole don’t face a debt problem, but a huge offshore tax-evasion and money-laundering problem,” With the weak and debilitated economic base of the decayed Pakistani capitalism this parallel or the black economy has been expanding robustly. From about five percent in the mid seventies it has soared to about seventy percent of the total economy now. At the present stage the formal or the official economy is growing at the rate of less than three percent while the growth rate of the black economy is estimated to be nine percent. It is like a tumour that has over taken in size of the body in which it was rooted. This black economy is based on several sectors of the economy comprising of drug trade, human trafficking, extortion, kidnapping and ransom, counterfeiting, smuggling, illegal logging, software and music piracy and several other criminal activities. But the massive share of this black economy comes from the corruption in state and society. This black economy has had severe ramifications in politics, state and society with spiralling terrorism, crime and devastation. The covert fragmentations within the structures of the state are also due to the conflicts between the different warring factions representing the various segments of this parallel economy. Paradoxically this corruption and the black economy have been a buffer and a support for the economic cycle that is running this country. Due to the burgeoning crisis of the formal economy Pakistan has been relying more and more on this corruption. With ever increasing military expenditure and repayment of debt and its interest, there is hardly anything left to spend on the social and infrastructural sectors. Austerity, price hikes and blatant exploitation has pulverised the already impoverished masses. Due to the collapse of the living standards along with the decline in the buying power of the society there has been a severe contraction of the market. It is this black market consumption which keeps the economic cycle moving. This sector apart from being a cushion for the formal economy is responsible for 73.8 percent of the total employment in the country. Characteristically its investments are in short term sectors like the real estate, transport, health, education and other services sectors. It is shielded by the religious fundamentalist groups, several political parties, sectarian and nationalist chauvinist setups, sections of the state bought off by these lords of the black economy and outright criminal mafias. Those politicians parroting the rhetoric of ending corruption are either too naive or unashamedly deceiving the people. If corruption, the main source of the black market is eradicated then it will bring down the whole economic edifice of Pakistan as it is so large and actually the formal economy is enmeshed in this black economy. The stark reality is that Pakistan’s capitalism is in its terminal decay. Just like a junkie who is dependent on his fix, this decaying system is totally dependent on this informal economy. It is simply not possible to revive or recreate a healthy capitalist economy in this country. With little or no chance of the recovery of world capitalism in the near future Pakistan’s exports, foreign investment and industrial growth are almost ruled out. The debt burden continues to pile up. In the last five years the incumbent coalition democratic regime has acquired more foreign and domestic loans that the ones acquired in the previous sixty years. Any party in power in this system would not and could not have done much else. With the falling rupee the debt burden keeps on mounting. With about 2 percent of the population paying taxes, declining exports and record deficits the economy cannot run on the foreign remittances alone. Pakistan’s economic future is bleak to say the least. Within the present system no miracle can pull it out of the abyss into which it is unravelling. It is not a question of interpreting or predicting the system; the point is to change it.