Elite capture hinders growth

The government derives legitimacy from the people’s mandate. The welfare of the people is the hallmark of any government’s policy framework.

This framework is apparently suffering from an execution malaise in Pakistan owing to multiple factors, raising questions about accountability and transparency. Pakistan has become a country of elite capture. The economic and political elites are hand in glove in capturing fortunes at the cost of economic growth.

The recent IMF report speaks volumes about elite capture in its Technical Assistance Report, which delineates Pakistan’s Governance and Corruption Diagnostic Assessment. The collusion among various elites in Pakistan has severely damaged the economy. 

Crony capitalism is another form of elite capture, which is a critical concern in the new push toward privatisation of state-owned enterprises and entities. The larger and most pressing question is how to rid the country of elite capture in the larger interest of the economy and the people of Pakistan.

Generally speaking, authoritarian rule that moves away from democratic values gives rise to monopolies. Corruption is the outcome. The corruption vulnerabilities in Pakistan’s existing economic model are ultimately steering the entire system toward elite capture. 

The sugar and wheat scandals are clear proof of elite corruption that has impacted the economy, pushing more people into poverty. Corruption is undoubtedly hindering the economy. 

The IMF report clearly indicates corruption and corrupt practices – along with weak accountability and transparency – as the main reasons behind evolving elite capture and its impact on economic growth. The lender has cited the National Accountability Bureau’s recovery of Rs5.3 trillion as proof of weaknesses in the economic system. The government’s governance and economic reforms can reportedly push GDP growth to 6.5 per cent over the next five years.

The political elites in Pakistan use the weak judicial accountability system for their personal benefit. They are involved in corruption and related practices, manipulating and extracting money from projects intended for the general public. 

The accountability mechanism is so weak that culprits roam scot-free by paying a portion of their corruption proceeds. The legal framework and anti-money laundering efforts go to waste due to a corrupt system that can easily be exploited by elites wielding influence in the corridors of power.

A prime example is the repeated sugar export and import scandals in the last four years, a clear case of elite corruption. Elite sugar mill owners are usually part of the government, sitting in public accounts committees of parliament. No one can challenge them. They are free to make decisions in their own best interests. Who can arrest such corruption?

Apart from sugar and wheat scandals, numerous other cases show how elite capture and corruption are disturbing the entire governance system. The Competition Commission of Pakistan (CCP) has reportedly issued show-cause notices to various private schools for the sale of compulsory logo-bearing notebooks, workbooks and uniforms, treating almost 26 million children as captive consumers. 

The CCP has also begun a probe into cartelisation among edible oil mill owners, who have been raising prices and extracting money from the masses. The edible oil issue was highlighted during a recent meeting of the Price Monitoring Committee, which reviewed food prices across the country. These are typical examples of elite capture and corruption systematically operating in Pakistan.

The recent spate of so-called judicial reforms has raised questions about the institutional strength of the judiciary and the entire judicial process. Rule of law has apparently become subservient to executive whims, with whimsical orders clearly favouring the elite of the elites. 

Rule of law is essential to ensuring accountability and transparency in order to strengthen the system. Governance and economic reforms are pivotal to attracting foreign direct investment. A strong legal framework and an effective accountability mechanism can check rampant corruption in society. But who will bell the cat?

The reality is that the elites themselves are the decision-makers, so they prefer a tamed and weakened legal process that cannot succeed. The new tweaks in the constitution of Pakistan clearly indicate such underpinnings. Economic reforms without a strong judiciary and rule of law are nothing but a dream. 

The anti-money laundering system needs to be strengthened. The misuse of corporate vehicles, shell companies and informal money-transfer systems facilitates the concealment of corruption proceeds. Elite capture, in its worst form, is the outcome.

The government appears confused about how to tackle economic challenges. The lack of governance and economic reforms, coupled with elite corruption, has given rise to poverty. Rising poverty, inequality, unemployment and hunger are adding to the already large poor segment of society. 

The government appears to have no solid plan to address rising poverty except by providing alms through social protection programmes such as the Benazir Income Support Programme (BISP). The World Bank recently reported persistent increases in poverty in Pakistan, with an additional 7.0 per cent of Pakistanis having slipped below the poverty line.

The government is busy securing more multilateral and bilateral loans. No substantial investment is in the offing, as political uncertainty is adding further confusion to an already chaotic situation on the ground. There seems to be no long-term planning, nor any consensus among the political leadership on how to address the most urgent corruption issues.

The need of the hour is for all major political parties to sit down and sign a charter of economy with a clear vision to move out of this economic and political mess. The poor are the worst hit by economic mismanagement and political rifts. 

The threat needs to be addressed by breaking the shackles of evolving elite capture. The role of the IMF needs to be highlighted with care, as it merely forwards proposals as a lender rather than suggesting ways to escape debt and elite traps.

Economic growth is key to resolving all ills, and it should not be compromised under anyone’s diktat. The time has come to make decisions in the nation’s best interest to help improve the economy. 

The economic system needs to be revamped, reformed and revitalised for the good of the people of Pakistan. Elite capture and discrimination are making things worse. Pakistan faces many challenges, particularly corruption in the taxation system, which is worsening the situation.

The taxation system is regressive, burdening rich and poor alike. Those in the tax net are exploited, while those outside it remain free. The state needs to reconsider its budgetary proposals to support the poor and marginalised. 

The exploitation of the poor by the rich must be checked. Economic reforms are essential. FBR reforms are currently limited to tax collection and do not envisage a broader reform agenda for the redistribution of wealth.

Elite capture is the worst form of discrimination in any society and, without exception, prevails at all levels in Pakistan, hindering economic growth. The political, social, economic, and taxation structures are designed to promote elite capture. 

The sorry state of affairs is that elite capture is reaching a degree of discrimination that is not only unethical and immoral but also criminal. The feelings of the general masses are alarming.

One can only emphasise to policymakers that corruption vulnerabilities are reaching levels of discrimination comparable to the worst internal systems of apartheid, harming the formation of an equitable and just society and posing an existential threat to the state. 

Governance and economic reforms are urgently needed to eliminate corruption at large, which is fuelling elite capture in Pakistan.

The writer is a former additional secretary and can be reached at: [email protected]

Disclaimer: The viewpoints expressed in this piece are the writer's own and don't necessarily reflect Geo.tv's editorial policy.

Originally published in The News