Economic Reforms Under the Bhutto Regime*

Journal of Asian and African Studies VIII, 3-4 Economic Reforms under the Bhutto Regime* W. ERIC GUSTAFSON University of California, Davis, U.S.A. THERE IS AN Urdu couplet which, in free translation, runs, "The elephant has two sets of teeth, one for eating and one for show." Ripping this couplet rudely out of context - if it had one - I would like to pose the question of the extent to which the economic reforms of the Bhutto regime are for show, and the extent to which they get down to real business. It seems to me that there are some of each, but there is also the melancholy prospect that none of them will work, and we will be left only with the show. Cynicism about Pakis tan has become one of Pakistan's most prominent exports, and I hope that I will not add unduly to the supply. I In the first burst of reform moves, clearly the "show" motivation was dominant. After an election campaign which made much of the evildoing of Pakistan's twenty-two families, it was only natural that on his second day in office, Bhutto should attack. He seized the passports belonging to the twenty two richest families and their relatives and dependents, and sealed the borders of the country to all but religious pilgrims to prevent the flight of capital from Pakistan. This act was showing the tusks; it seems hard to imagine that the Government thought it could in fact accomplish much in the way of stemming the flight of capital by prohibiting exit. But the move did provide action, and action which was easy to take. I In January the tempo accelerated. On the second of January it was an nounced that Ahmad Dawood and Fakhruddin Valika, two prominent in dustrialists, were under house arrest in Karachi (Pakistan Times, 1/2/72, 1 :2), and this news was followed in the papers the next day by the announcement of the nationalization under the Economic Reforms Order (1972) of twenty firms, most of which were owned by members of the twenty-two families, with the * This paper covers the reform efforts through early September 1973. I am grateful to a number of Pakistani friends for comment. They prefer to remain nameless. New York Times, 22 December 1971, 1:6. The passports were later returned at a meeting in Karachi at which Bhutto adopted a somewhat conciliatory tone towards the business men. Pakistan Times (Lahore), 3/6/72. The President told them that "all restrictions on their travel abroad had been withdrawn to enable them to increase exports." 242 JOURNAL OF ASIAN AND AFRICAN STUDIES headline STATE CONTROL OVER TEN INDUSTRIES, and a subsidiary headline FOREIGN INVESTMENT NOT AFFECTED. These twenty firms were supposed to be in ten industries which sounded like what Nehru used to call the "commanding heights" of the economy: iron and steel, basic metal industries, heavy engineer ing, heavy electrical machinery, assembly and manufacture of motor vehicles, tractor plants, heavy and basic chemicals, petro-chemical industries, cement, and public utilities. The experienced observer of Pakistan's economy would be less bowled over by the list than the innocent reader of the New York Times, since he would recognize that Pakistan's capacity in almost all of these areas was slim indeed, and not very much at all was being nationalized (PT, 1/3/72, 7: 8). Further, Bhutto promised, "It is not the intention of the Government to extend control over other categories of industry" (7: 8). No compensation was to be paid to dismissed directors or managing agents, although they- along with other shareholders - were permitted to retain their shares ( 1 : 4). The Govern ment was to appoint new managing directors.l The next salvo was fired on 16 January. Under the "Managing Agency and Election of Directors Order, 1972," Dr. Mubashir Hasan, the Finance Minister, announced the abolition of the managing agency system, terminating the agents' agreements and contracts without compensation. (The order simultaneously abolished sole selling agencies.) Control of companies previously wielded by the managing agencies was transferred to the directors of the companies.z In strong language Hasan said, according to the Pakistan Times, Allegations have flown about that the choice of industries to nationalize depended on whether they were run by Bhutto's enemies or not. The San Francisco Examiner and Chronicle reported on 16January 1972, under a picture ofYusefHaroon in a Fifth Avenue apartment decorated with fresh flowers, that he said he "qualifies as a refugee 'because the government has nationalized all my properties, my industries,' an action he claims was taken 'because of my political differences' with Bhutto" (2A: I). As an aside, the same article gives a clue as to the level of foreign reporting about Pakistan; the article asserts that the 22 families "have surnames like Saigol, Valika, Fancy, Ghandara [sic] and Habib." Gandhara Industries (one of those nationalized) was of course named after the ancient Gandhara culture of the North-West Frontier Province, and was the creation of Captain Gohar Ayub Khan, the son of the deposed President, and of his father-in-law, General Habibullah. Political motivation might be looked for here as well, but Gohar Ayub had apparently managed to sell all his shares in Gandhara Industries to the National Investment Trust and the Investment Corporation of Pakistan in August 1969, after his father's fall, curiously enough (Feldman 1972: Appendix B). In any case, a move which appeared to strike at Gohar Ayub's interests would have evoked intense pleasure in many people, even if by that time the gesture might have been a bit too late to have real meaning. Local observers say that the real exercise of political vengeance came with the cancellation (in the closing days of martial law) of the Government's sale of the Bannu Sugar Mills and the Sutlej Textile Mills to General Habibullah. I have been unable to find the text of the Economic Reforms Order. It is doubtless in the Gazette of Pakistan, to which I have no access. 2 PT, I/ 17/72, I :I. Another eleven industrial units were also taken over the same day, falling in the ten industrial categories previously announced. "According to APP, the Minister said that the Government had taken over all the units it wanted under the .

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