The year was 1979 and the place was Cambridge, Massachusetts. All seats in the large hall were quickly filled up, as were aisles and the area in front of the rostrum. With time, people could only find standing space against the walls.
The vast turnout at the event was prompted by many factors. The Shah of Iran had been overthrown a few weeks ago, sending shockwaves through the academia and the large ‘development community’ of Cambridge. The audience also included distinguished faculty members from MIT, Harvard and Boston universities – some of whom had been advising the Shah on various issues for many years. The question that plagued their minds was: how did this happen and where had they gone wrong?
The fall of the Shah and success of the Islamic Revolution in Iran have been discussed at length over the years. But this was among the first of these discourses and it was especially important because the man invited to unravel the mystery was none other than the father of modern economics and the winner of the Nobel Prize for Economics: MIT professor Paul Samuelson.
How could the government of the Shah that had all ingredients of the growth model available in abundance – a large amount of capital; the best technology and management skills; advisers from the West; and an abundant supply of land and labour in Iran – fail to satisfy the people to the extent that their deep resentment translated into a revolution which ultimately overthrew the entire system of governance?
The audience listened in pin-drop silence as Paul Samuelson spoke for nearly two hours about how the “development of societies is a complex phenomenon”. Although economics plays an important part in the processes of development, there are non-economic forces in societies – customs and social norms; laws and systems of governance; organisational behaviour; ethics; politics; and even genetics – that also have a role to play in the success or failure of the development of societies. An interdisciplinary approach would be far more suitable to address the interplay of various forces in society, and create an environment for sustainable development.
In his presentation, he included examples of societies that were not flagged out for development by classical growth models (like South Korea), but were still making rapid strides in development. He referred to Argentina, which was among the five most developed countries at the beginning of 20th century but eventually lost its way in the negative fallout from the interplay of various forces that created challenges which the country is still grappling with.
While several countries have learnt their lessons since then, our growing emphasis upon capital – which we keep borrowing from abroad – betrays a dependency syndrome that we have stubbornly refused to reform our in-house non-economic forces, such as rule of law, the integrity of our leadership, and merit-based systems of governance. There are many countries that have witnessed development despite the scarcity of capital in the initial stages and have outperformed Pakistan by improving the quality of their non-economic forces – laws, politics and systems of governance.
Singapore, for instance, was devoid of capital and other classical ingredients of growth. As Lee Kwan Yew told this writer during an interview: “We created assets where none existed”. It relied on the power of rule of law, the integrity of the country’s leadership, and merit-based systems of governance to achieve astounding levels of social and economic development over a short period of time.
Vietnam is another example in this respect. A war-torn country that had emerged from decades of destruction, it found no country – either in the East or the West – that was willing to invest in its resources for many years. It also tapped its internal assets – social organisation and the integrity of its leadership – to establish conditions where even Japan and the US, its erstwhile enemies, poured capital and technology and turned Vietnam into one of Asia’s success stories.
A study of the comparative systems of governance in several developing countries reveals that if they would adopt a similar level of governance in Singapore, the per capita income of their citizens would increase by 300 percent –as long as all other factors remain the same.
If this model is applied to Pakistan, our current per capita income is likely to rise to $5,000, excluding the mountain of debt riding on the back of our society. And our current nominal GDP would have already included Pakistan in the club of trillion-dollar countries.
As the head of the Board of Investment (BOI), I went to market some investment projects to encourage corporate and government leaders in Singapore to enter Central Asian markets with us. Although Lee Kwan Yew appreciated the rationale of these investment projects, he referred to our non-economic forces and observed that if Pakistan put its own house in order (ie, reformed its rule of law, the quality of its leadership and its merit-based systems), I wouldn’t need to come to Singapore to seek FDI. In fact, he would come to Pakistan with his business leaders with the intention to do business with the country.
Similar advice was also given to our country’s leaders by Dr Mahathir Muhammad. But it has all been like water off a duck’s back. In open defiance of the laws of economics as well as democratic norms, the scarce resources of a poor country are being dispensed at the whims of a dysfunctional system that is trapped in a medieval culture. Consequently, there has been little to show for the vast amount of money spent in the name of development.
Let’s not forget the fact that developing societies and providing basic needs to their people was never an objective of any ruler in the Subcontinent until Independence. The medieval culture of governance is historically programmed to deliver windfall gains to its masters and impoverish the rest of society. The deep-seated cycle of poverty, illiteracy, unemployment, discrimination and disparities that now afflict the third generation of citizens proves the fact that the medieval culture of governance has not been uprooted and continue to rule the roost. The only force that has kept longstanding public resentment from boiling over is probably their genetics.
This conflict between the culture of medieval governance and the development of society cannot be resolved without upholding the rule of law and the integrity of our leadership as well as strengthening our merit-based systems of governance. No amount of borrowing that is pumped through the sieves and loopholes of a medieval system can translate into development as much of it would only surface in faraway countries.
Rule of law, the integrity of our leadership and merit-based systems of governance can liberate society from the shackles of medieval governance; create new opportunities; absorb shockwaves from social and economic shifts in the balance of power; and place its citizens on a trajectory of sustainable development. This reforms package of non-economic forces comes forth as a win-win situation for society and the state. The only losers will be the rent-seekers.
The writer designed the Board of Investment and the First Women Bank.
Email: smshahalum.mit.edu