A world stood on its head

By Shahid Javed Burki

General Pervez Musharraf has said repeatedly that he will transfer all executive authority to the person who will be sworn in as Pakistan's next prime minister. This will happen some time after the elections scheduled for October 11. The general will stay on as president and promises to keep a close watch on the performance of the elected prime minister.

He told The New Yorker magazine a few days ago that he is "going to shed all power to the prime minister. So what's left for me? I have to make sure that Pakistan is governed well. Is that unrealistic? I will give him full authority. If he does not do well, I will check him." In watching the elected prime minister's performance General Musharraf will no doubt look at the way the country's new chief executive handles Pakistan in a world very different from the one the politicians dealt with when they were last in charge.

In the fall of 1999 the world was a neatly arranged place. There was no conflict over economic ideologies. It was widely accepted that capitalism, moderated by some control by the state, was the best way to manage economic affairs. That belief was applied by the Washington-based international financial institutions - in particular the International Monetary Fund and the World Bank - in their dealings with the developing world.

Most world economies were being brought together by a process usually referred to as "globalization." Global output and trade were increasing at unprecedented rates and a "new economy" supported by the rapid development of information technology was changing the way the world worked. The new economy seemed not to be subject to the laws that had governed the old economy.

A prolonged period of growth, particularly in the United States, seemed to have overcome the trade cycle according to which every period of growth was checked by a slowdown. Most countries seemed willing to shed some sovereignty in order to accommodate an internationally accepted code of behaviour that protected, inter alia, basic human rights, rights of women and children, rights of minorities, the physical environment. And then the terrorists struck America and changed the world.

Since October 12, 1999, when General Musharraf dismissed Prime Minister Nawaz Sharif, the world has been stood on its head. A great number of assumptions about the way the world was moving are no longer valid. Pakistan's own position in the global political order has changed dramatically. Poor governance, a weakening economy and growing domestic violence had reduced Pakistan to a near-failed state. The military takeover had further marginalized the country. The world had little appetite for military coups when General Pervez Musharraf overthrew an elected prime minister.

That is probably the reason why he is still shy of calling his action a coup. It is also the reason why it took him several months before assuming the title of president. "The world saw me as a dictator, an aberration to democracy," he complained in his interview with The New Yorker. But the world's view changed when the general decided to support the war on international terrorism led by the United States. Suddenly the doors that had been closed to Pakistan and its military leaders were opened. General Musharraf found himself to be a respected member of the leaders of the world.

Will this welcome survive the transfer of power from a military government to the one likely to be dominated by politicians? The answer to this question depends in part on the understanding the politicians, about to assume power in Islamabad, will develop of the world in which they will begin to operate.

September 11 redefined the global political system. Its most pronounced consequence was to bring out the administration led by President George W. Bush from behind the high walls of isolation that he had begun to build right after assuming power in January 2001. Instead of going its own way, America decided to lead the world against what it labelled the "forces of evil." But the American-led war against global terrorism was not the only development that reoriented the world.

That was one but not the only reason why the world has been stood on its head, why what was expected from the evolving global political, social, and economic order will not come to pass and why a country in Pakistan's situation will have to be exceptionally vigilant to draw benefit from the new direction in which the world is now proceeding.

Will Pakistan's politicians, new and old, be equal to this task? To answer this question we must first define the task. To define the task we must understand the environment in which it will be performed. I will attempt to do all this in this series of three articles beginning with the one today.

In fact, it is now clear that the world began to change even before the terrorists struck New York's World Trade Centre and the Pentagon. The change began in March 2001 when the technology bubble burst sending the American economy into a virtual tailspin. All bubbles eventually collapse but the bursting of the one associated with technology was especially significant. Its significance lay in the fact that a great deal of what was expected from the world economic order was predicated on the technology revolution continuing unabated.

The decade of the 1990s was an extraordinary period for the global economy for a number of reasons. The first of these was the clear emergence of the United States as the leading force in global economy. It acted as an engine that pulled the rest of the world behind it. America's predominance was the consequence of many factors. Two of these were especially important - largely unfettered capitalism which allowed private entrepreneurs a great deal of freedom and the emphasis on information technology that, when applied to the workplace, began to change in many profound ways the way the economy worked.

The United States, it was said, was developing a new economy. The new knowledge-based economy was producing an unprecedented increase in the productivity of the American workforce. With population still increasing at close to one per cent a year - largely helped by a continuing flow of new migrants into the country - and with productivity growing by at least three per cent, the American economy was expanding at close to four per cent a year. There seemed no reason why this rate of growth would slow down. The exponents of the new economy celebrated when the rate of unemployment dropped to an all-time low of 4.5 per cent and there was no pressure on wages and hence no increase in inflation.

The other feature of the American economy - relatively unrestrained capitalism - also came under pressure with the bursting of the technology bubble. It transpired that a number of large corporations had indulged in various forms of corrupt behaviour, sometimes described as "aggressive accounting." The Financial Times recently estimated that "the barons of bankruptcy - a privileged group of top business people - made extraordinary personal fortunes even as their companies were heading for disaster." While these companies crashed, destroying hundreds of billions of dollars of investor wealth and losing 100,000 jobs in the process, their executives walked away with gross earnings estimated at $3.3 billion.

What is the relevance of all this for a country such as Pakistan? There are a number of reasons why the collapse of the technology bubble, the slowdown in America's GDP growth, the attendant decline in world trade, and the loss of confidence in corporate America matter to Pakistan. Had the boom in technology continued, Pakistan with a large population could have benefited by exporting skilled workers to the US and Western Europe. Pakistan's fledging IT industry would have also taken a share of what was then a rapidly developing market for software. In fact, the IT policy introduced by the Musharraf government in early 2000 was predicated on the continuation of the technology revolution in the industrial world.

The shadow that has been cast on corporate America will also impact the developing world. Pakistan, short of domestic savings and dependent on external capital flows, had hoped to become an attractive destination for investments by transnational corporations (TNCs). In the new world, the TNCs may prove to be much more cautious in committing their resources for investment in emerging markets. Just to take one example, the difficulties encountered by AES (the American Energy Company) will have an effect on Pakistan. This company had heavily invested in the developing world, including Pakistan. However, the Enron episode followed by the investigations that have been launched involving a number of other energy companies, have slowed down all investments by the enterprises operating in this sector.

The sharp increase in global trade was also seen as a sign of the new international economic order in which mercantilism of the past was giving way to open trading systems, particularly among the industrial countries. In 2000, world trade increased by an astounding and unprecedented 12 per cent. The countries that had well-developed export sectors took advantage of the explosion in world trade. It would have taken a great deal longer for the economies of East Asia, devastated by the currency crises of 1997-98, to recover and go back to growth again had global trade not expanded as fast as it did.

However, the world today is much more protectionist than in 1999. The United States has slammed import duties on steel and has legislated a new farm policy that provides additional favours to the farming community. The European Union has responded with initiatives of its own. These developments also matter to Pakistan. Because of the poor management of the economy in the 1990s, Pakistan did not take advantage of the expansion in global trade. It could have done that with the right set of policies had world trade continued to grow.

By dwelling on these changes in the direction in which the world economy is now moving I want to underscore an important point. The world in which the politicians will begin to operate in October will be much more difficult with fewer opportunities for the developing world than the one they knew a few years ago.

[taken from http://www.dawn.com/2002/08/13/op.htm]

Date/Time Page Created: 12/01/2004

Date/Time Last Modified: 12/1/2004 8:30:24 AM

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