In Pakistan, Britain’s obsolete corn laws still echo
A patchwork of statutes to restrict the import of foreign grain into Britain and to keep prices high were enforced between 1815 and 1846. Despite public outrage and food riots, the state intervened to protect the profits of the nobility and landed interests who dominated the parliament. The enactment of the corn laws and its eventual repeal may seem far removed from today’s Pakistan, both in time and geography, yet provides a potent example of how elite capture perpetuates the interests of the privileged few at the expense of the general welfare of the people.
The economist, David Ricardo, opposed the protectionist laws, and in response to them formulated the seminal economic concept of comparative advantage. In his 1817 book, Principles of Political Economy and Taxation, he laid out the ideas that demonstrated that a country that trades for products it can procure at lower prices from another is better off than if it makes the products at home.
He argued that protection of agricultural commodities promoted cultivation of less productive domestic land to direct profits toward landlords and away from the emerging industrial capitalists.
These ideas were seized upon by Britain’s fast-growing urban middle-class, merchants and manufacturers. The corn laws became the focus of their attack, highlighting how the interests of the landed elite functioned against the greater good. High staple food prices as a result of corn laws meant that urban working classes had little left from their income to purchase manufactured goods, thereby constraining the growth of the industrial sector.
Those in favor of repeal reasoned that it would benefit the entire nation since food prices would drop and increase purchasing power of the urban working class, which in turn would help lower labor costs, encourage domestic manufacturing, decrease unemployment, and boost international trade.
The Great Famine in Ireland, which killed roughly a million people, finally compelled Prime Minister Robert Peel to accept the advantages of free trade over the failings of protection. Thus, the undeniable logic of economic ideas, an unexpected agricultural misfortune, and changing dynamics of political interest in Britain, converged in the summer of 1846 to force the repeal of the corn laws. This not only weakened the political stranglehold of landed interests, but also established free trade as the pillar of Britain’s industrial dynamism in the Victorian era.
Not unlike the landed elite of 19th century Britain, Pakistan’s elite derives economic rent through the control of state institutions and resources. In agriculture, protective tariffs and support prices have prevented competition and limited improvements in productivity over time. Consequently, yields for most of the major crops compare poorly to global or regional averages.
The Pakistan elite, comprising, among others, of large landholders, industrial and banking groups, and real-estate developers also wield considerable political influence and control over economic policy. Not unlike the landed elite of 19th century Britain, Pakistan’s elite derives economic rent through the control of state institutions and resources. In agriculture, protective tariffs and support prices have prevented competition and limited improvements in productivity over time. Consequently, yields for most of the major crops compare poorly to global or regional averages. Combined with an underdeveloped storage market, this contributes to frequent food commodity shortages and precipitous price hikes.
However, elite capture in Pakistan is not limited to agriculture.
With the help of import tariff protection, licensing requirements, subsidies and regulatory control, profits are directed towards manufacturing sectors dominated by a select few business groups. These have dis-incentivized the growth of downstream industries since the high cost of inputs makes them economically unviable. Moreover, by making the domestic market more lucrative than competitive foreign markets, an anti-export bias is created. The perpetual claim to infancy status by long established incumbent players prevents competition from foreign entrants.
State intervention to shield profitability of domestic producers has not only resulted in artificially high prices for consumers, but the uncompetitive environment has resulted in stagnating productivity growth across the industrial sector.
The elite may appear to have little incentive to support policies that increase competition since that is likely to weaken their economic power. However, as the recent World Bank Systematic Country Diagnostic report highlights, slowing GDP growth and persistent external imbalances pose a constraint on the amount the government can redistribute, in turn affecting the amount available for subsidies. The report warns that if the existing system of patronage fails to deliver on jobs and services to a fast growing and youthful population, there is potential for breakdown of social cohesion that could lead to widespread instability.
Although previous reform efforts have repeatedly failed, self-interest now provides the incentives for stakeholders in the system to craft state policies that ensure inclusive and equitable participation of a broad cross-section of society in sustainable economic growth. This is further spurred on by the disruptive technological revolution taking place, which replaces existing sclerotic businesses and incumbent players as new entrants provide innovative pathways to economic growth and employment.
Finally, it is for the emergent Pakistani middle-class to demand change from their political representatives, as did those who crusaded against the pernicious corn laws. They should be encouraged by the fact that the extractive model cannot continue indefinitely.
– Javed Hassan has worked in senior executive positions both in the profit and non-profit sector in Pakistan and internationally. He’s an investment banker by training.