A Question of Real Growth

The article Was Published in the Magazine "South Asia"

Since a military government is not bound by political exigencies, it can easily formulate and implement policies which may not seem people-friendly – at least in the short term.

In today’s world, military rule is considered the worst form of government as opposed to democratic regimes. It is, however, generally argued that growth is not directly linked to the regime polity. Instead, the economic success of a country lies in higher investments and coherent economic policies. Nevertheless, Pakistan has witnessed a higher growth rate of GDP under military rule as compared to democratic governments. 

Since its inception, Pakistan has experienced several episodes of martial laws as well as democratically elected governments. The 66 years of the country’s existence can be divided into seven regimes; Regime 1 (1947-1958) in which the country achieved 3.1 percent growth per year. During these first 11 years, the sole emphasis of the government was on setting up a base for a sustained growth process. The GDP growth during the second phase (1958-71), in which the country was governed by a military ruler, was 6.8 percent. Regime 3 (1971-1977) was the first pure democratic spell and had a 3.9 percent growth rate. 

General Zia’s martial law, or Regime 4, had a 6.6 percent GDP growth rate, while a slower growth of 4.5 percent was observed during the second democratic regime – from 1988 to 1999. This democratic era that spanned over almost eleven years can be further divided into four short intermittent governments of the late Benazir Bhutto and Mian Nawaz Sharif, both of whom served in office for two incomplete terms. 

On average, the growth rate was 5 percent during Regime 6 (1999-2008). It was the government of General Pervez Musharraf. Although the democratic government of the PML-Q was in power during 2002-2007, it is largely believed that the real power was exercised by General Musharraf. 

Regime 7 was the democratic dispensation from 2008 to 2013 in which the country experienced a very low growth rate on average at 2.9 percent per annum. 
On the surface, it is clear that in Pakistan the growth rate during military regimes was much higher than in democratic regimes. Apart from the GDP rate, several other indicators also improved during military rules. For example, the overall public debt reduced considerably while the position of the foreign exchange reserves improved remarkably during the Musharraf regime. The standard of living increased during all three military rules. It was also observed that since industrial growth was higher during these periods, income disparity widened, which is an integral part of the development process. 

Various factors were responsible for a better GDP growth during military rules. The first was the overwhelmingly high foreign aid. The Ayub Khan government received huge sums in foreign aid. It also received the technology that helped bring about a green revolution in the country. General Zia’s government received foreign aid due to the Afghan war. During his rule in the 1970s, industrial productivity increased manifold due to investments in high-tech industries. 

Similarly, the government under General Musharraf received aid due to the country’s participation in the war against terror. Known as the Coalition Support Fund (CSF), this aid was given without any conditions attached. 

Contrary to this, democratic regimes faced several difficulties: sanctions, repayment of debt and debt-servicing of loans taken out during military regimes. The need to borrow short-term loans from the IMF - on strict conditions – also arose during the rules of democratically elected governments, which negatively affected the overall economy. 

The nature of foreign aid received by military rulers is different from the aid received under IMF programs. For instance, project-specific aid has a multiplier effect on the overall economy. If invested in a project, such aid generates employment opportunities. Moreover, due to the aid-externality effect, public, private and multinational investors are encouraged to invest in the country. 

Sustained economic growth is possible if policies are consistent, investors have confidence in the government and the rule of law is established for long intervals. This is possible if either the same government continues in power for a long period or a change in government does not result in a change of policies of the previous government. It is also observed that economic managers of military governments give special incentives to investors. Although this increases the rent-seeking behavior, yet it leads to higher growth since the investors make long-term investments. Indonesia, Malaysia, Taiwan, Singapore and South Korea are some other countries that prospered under military rule. Unlike a democratic government which functions amid the constant fear of a military takeover and faces criticism of the opposition as well as the public, military governments are hardly answerable to any authority and mainly work without consensus. In short, such governments do not have to face the political and legal hurdles which a democratic government can face in the implementation of its policies. Since a military government is not bound by political exigencies and can afford to look beyond self-serving goals such as getting elected in the next elections, it can easily formulate and implement policies which may not be people-friendly in the short run. Another advantage enjoyed by military governments is that they are less prone to political instability as compared to democratic regimes. Dr Eatzaz, Acting Vice Chancellor of the Quaid-e-Azam University, terms the 1990s as an era “marked by musical chairs of democratic governments” of Benazir Bhutto and Nawaz Sharif. The collapse of one elected regime after another resulted in significantly low economic growth. Ironically, there was political stability during all three military rules and hence the country registered higher growth. It can be said that growth is not linked to the system of governance but instead to the policies adopted by a government. In military regimes there is less confrontation and more freedom to opt for different policies and implement them. This gives positive signals to investors as they hope that their objectives will be achieved without much difficulty. It is thus easier for them to take crucial investment-related decisions. However, the role of foreign aid cannot be ignored as it has vital importance, especially in the context of economic growth of Pakistan.