S. Asian voters' message: Out with corruption

GOOD GOVERNANCE: Indian Prime Minister Narendra Modi (left) is greeted by his Pakistani counterpart, Nawaz Sharif, after he took the oath of office in New Delhi last month. The Indian leader came to power on the back of his economic track record in running Gujarat state.


    Jun 11, 2014

    S. Asian voters' message: Out with corruption

    TWO recent books - one by a French economist and the other by two senior editors of The Economist magazine - are enormously pertinent for today's South Asia.

    In Capital In The Twenty First Century, Thomas Piketty has constructed time series on wealth accumulation for hundreds of years for a dozen or so Western economies.

    He has found that whereas the historical return on capital was 6 per cent a year, the return on labour was only 1.5 per cent. Capital is owned by the rich; labour mostly by the poor. The difference between the two rates of return explains the rapid growth in inequality in Western nations.

    His recipe for stopping - possibly reversing - this trend is to create an activist state that will tax the wealthy in order to raise the resources to help the poor and the not-so-well-to-do.

    The Economist authors reach the opposite conclusion. In The Fourth Revolution: The Global Race To Reinvent The State, John Micklethwait and Adrian Woolbridge argue that the bloated Western states must slim down.

    Implicit in this approach is the belief that private enterprise that is able to function without the state weighing it down is the main source of innovation.

    Both books have raised issues that are relevant to the changes the electorates in South Asia want. The voters spoke with remarkable clarity about what they expect from policymakers they were putting in place in three countries that held meaningful elections in 2013-14: Pakistan's May 2013 elections; then this year's Indian election, and finally in the elections held in Afghanistan that are in the runoff stage.

    The three electorates have given the same message. They want good governance, by which is meant an end to big-time corruption.

    Corruption became the symbol of poor governance in all three countries. It polluted the political system and it placed a heavy burden on their economies. There was palpable disgust at the greed shown by a number of those who occupied positions of power.

    The focus on corruption brought into prominence two relatively new players in the Indian and Pakistani political systems.

    In India, the Aam Adami Party founded by Arvind Kejriwal, having campaigned for clean government, surprised most political pundits by gaining the most seats in the election to the Delhi legislative assembly. It stayed in power for a few weeks but left after it claimed that the reforms it wished to introduce in the system of governance were blocked by the usual vested interests.

    Mr Kejriwal had already demonstrated his passion for clean government and clean politics when he decided to take his struggle formally into national politics.

    In Pakistan, Imran Khan, the former cricket hero who chose to fight in politics, galvanised the urban youth by promising clean government.

    These two entrants promised change they sensed the people wanted. The voters listened but voted in the people who, while also promising change, were able to show that they had been able to translate promises into action.

    Under Shahbaz Sharif, who led his brother Nawaz Sharif's Pakistan Muslim League (Nawaz) in Punjab, the country's largest province, the economy had done relatively well, bucking the national trend.

    In the Indian state of Gujarat, Narendra Modi's Bharatiya Janata Party was able to release the energies of the private sector and produced gross domestic product (GDP) growth that was about twice as high as the national average.

    In Afghanistan, the electorate, unhappy with the rampant corruption of the Hamid Karzai government, voted for the two candidates with rich governing experience.

    A significant proportion of those who voted for change in these three elections were young, from the lower-middle class, and from the urban areas. More than other things, they wanted jobs that paid reasonably well, but they did not want them in the public sector.

    However, the private sector could provide jobs only if the economy expanded at reasonable rates.

    The sharp economic downturn in most of South Asia was the consequence of some of the perverse activities of the state. The regulatory apparatus built over time was done in the name of protecting the citizenry from the rapacious behaviour of many operators in the private sector. Instead, many of those who minded the regulatory system saw in its provisions rent-seeking opportunities.

    It is also of considerable interest that in India, the electorate was not looking out for handouts of the type given by Congress over the years to keep the less well-to-do in its camp. The same approach, with some differences, was adopted by the Pakistan People's Party, with equally poor political consequences.

    The new policymakers in Pakistan and India, therefore, have to decide what kind of state to develop in their countries. A good indication of which direction they would like to take their nations will come in the budgets for the year 2014-15. The Pakistani budget was presented on June 3; the Indian one will follow soon after.


    The writer is former vice-president of the World Bank and also former Pakistan finance minister. This is an excerpt of an article that first appeared in The Business Times.