Story of Japan, Germany and Pakistan
By: Tarique Khan Javed
President, Overseas Pakistani Investors Forum.

Choice nations make and their results:

The case of Japan and Germany:
After the Second World War Japan and West Germany came under US rule. USA applied free market policies on these economies. As there were no constrains many rules applied in US were not applied in these countries and ideal, unbridled, classic capitalism was practiced in these economies. Clever foreign exchange policy was adopted which kept the exchange rate of DM and Japanese Yen at much lower level than the market level. It gave these countries competitive edge over US and other countries. In the case of Japan USA embarked on major land reform which broke down traditional economic and political base away from feudal lords to common people. This also enhanced the purchasing power of people and thus local demand was increased to support rising industrial production.

As USA took care of external defense, national resources were applied to economic growth and provision of basic needs of common man.

From the ashes of the war these two countries emerged as second and third largest economies of the World with GDP of $ 4 and 3.5 trillion respectively. After taking care of the needs of their people they become one of the biggest donors of the world. West Germany absorbed East Germany after they disassociated from Soviet Union. It was a huge undertaking as East Germany under communist rule had become very poor and backward. In modern history there is no parallel to this event when a country take care of a country of equal size and provide jobs and basic necessities for such a large number of people without sinking her self. It was a testament of the resilience of the West German economy. Without firing a single bullet Germany was doubled in size thanks to its relative economic prosperity. East Germans were most obliged to be part of United Germany. Their conditions improved instantly.
 
Japan was not rewarded by additional territories but it earned  the admiration of World with its most reliable cars and electronic goods. It enjoys the highest respect of the World as one of the biggest donors of the world. It is a major funder for all good causes of the world. It was not tempted to capture Korea or China.
 
The case of Pakistan:
Pakistan after independence become the most important allay of USA and West while India joined the Soviet Union alliance. USA provided Pakistan security umbrella like it did to Japan and Germany. It also paid for creating most modern military in the region. Latest technology including nuclear were made available to Pakistan as a close allay. Two third of Armed forces budget of Pakistan was paid by USA upto 1965.

Like Japan and Germany free economic policies were applied in Pakistan. As the defense expenditure was limited, resources were applied to economic development and provision of necessities of the people. Pakistan emerged as an economic miracle of 1950s and 60s. Its industrial and agriculture growth was so impressive that it became the subject of study and duplication by others. Pakistan’s Two Gap Model was studied and copied by S. Korea and other future Asian Tigers.  The model called for initial creation of budget and balance of payment deficit to absorb external finance leading to foreign debt to be paid off in due course out of surpluses generated in external trade as the additional production capacity created by borrowed money starts producing first in the form of import substitution and eventually as exports. Pakistan did a splendid job in creating import substitution industry however before it could reach the stage of surplus exports out of engineering goods the process was disrupted.

Turning point- 1965 war:
The outbreak of 1965 war launched wit the purpose of capturing held Kashmir gave a fatal blow to Pakistan. It alienated USA and West from Pakistan who by that time were trying to improve relationship with India and did not approve of Pakistan’s adventurism. Realization in East Pakistan that the Army had not done anything to protect that province gave a major boost to separatist tendency. The fruitless war and signing of Tashkent treaty made Z.A.Bhutto leave the government and launch PPP which promised nationalization of industries and educational institutions. Pakistan’s march to economic prosperity was blocked. Unrest between 1965 and 1971 slowed down investment. Dismemberment of East Pakistan reduced its size.
 
Failed experiment of  Socialism and Islamization:
Nationalizations in 1972 killed the private enterprise and created massive unemployment and inflation which made the live of people very touch. Thankfully Bhutto allowed mass migration of Pakistani workers to newly oil rich countries. This helped reduce economic misery somewhat. However the brain drain was massive and changed the composition of Pakistan’s society for good. Subsequent Islamization process in dying days of Bhutto’s rule and Zia Ul Haq gave a major impetus to migration of creative, educated, rich and talented people from Pakistan. They left for better life else were leaving the relatives to suffer in a narrow minded society thus created.

Zia’s Afghan policy not only brought in three million Afghan’s in the country but also huge quantity of arms and drugs making the society tenser and dangerous. Afghan policy led to 9/11 and the War on terrorism still goes on with grave consequences.

Cost of failed initiatives-$ 300 billion and rising:
Our initiative to capture Kashmir and Kabul has so far cost us $ 300 billion and we did not capture an inch of additional land. Instead like Japan and Germany if we had concentrated on economic development, there are reasons to believe that we would have emerged as very prosperous and economically powerful country. Not only Kashmirs but Sikhs and Afghans would have begged to be part of Pakistan and we may have acquired large chucks of Indian and Afghans territories in to Pakistan, without any fight perhaps.

Pakistan is a pro business country form beginning:
While India opted for socialism and protectionism, Pakistan opted for capitalism and open market policies. The result was that like Japan and Germany, Pakistan expanded rapidly while India struggled. Pakistan was able to provide jobs, food and cloth better for its people compared to India.  As a close western ally Pakistan was given excess to latest technology and innovation while these were blocked for India. Any visitor in 1960s could very clearly see the vast difference in two countries. While Pakistan had latest cars, computers and electronic items, India was using 1930 models Ambassador cars, old model trucks, low capacity Russian computers and out dated electronic items. Even in 1984 when I first visited India I felt that I have gone back 50 years in time as soon as I landed in India. Rajiv Ghandi himself a Boeing pilot, married to Italian wife, first realized the mistake of previous rulers and its cost and reversed the policy in 1990s and sought and got latest western technology. Since then things have improved in India with the adoption of free economy policies initiated by Man Mohan Singh as Finance Minister. However comparatively India is still a very restrictive economy and lots of obstacles are placed on working of the foreign companies. With strong socialist indoctrination the mind set of the politicians, bureaucrats and intellectuals is anti business.  Pakistan even after a phase of socialist experiment is intellectually much more pro business.

With this background it is likely that once the negative impact of Afghan policy are over in coming one or two years. Pakistan will embark on the road of rapid economic development and leave India and other countries in the region far behind.    

Conclusion and recommendation:
We have lost lot of time experimenting failed ideology of socialism and unpractical ideology of Islam. USSR had to go through a very painful transition to market economy while China had to take refuge in market economy to feed its unemployed. Islamic economic system is not operating in any Muslim country including Saudi Arabia. Therefore with all its short comings market economy as adopted by our founding fathers has proven to be the best option. Marching on the path chosen
by our founding fathers we will find our rightful place in the community of nations. With its current resources Pakistan should be the 7-8th largest economy of the world with GDP of USD 1.5-2 trillion, export of 200 to 300 billion and per capita income of USD 10,000 to 13,000 in next 40 years. To achieve this first we need to bring social justice and harmony in society and this will entail sacrifice by the rich to make life of poor tolerate able. Without this people may go to revolutionary route of China or Iran which will entail a killing of upto 5 to 10 lac people and an extended period of instablity.It is not worth it. We can achieve the redistribution of wealth and tax burden without a revolution as done in Japan, Europe, Canada etc.

To make Pakistan a just, peaceful country marching towards its great economic
destiny; urgent implementation of following measures are recommended:

• We should adopt an isolationist foreign policy and resolve to withdraw from all initiatives aimed at capturing Kashmir or Afghanistan. So that we can direct all funds towards betterment of the people. We have already spent       $ 300 billion on these misadventures and gained nothing.

• Implement the 1977 Land Reform Act. After that further reduction in ceiling may be debated. Ideally a maximum limit of 20 acres per family may be considered to provide land to maximum number of families without hurting productivity.

• Announce immediate inclusion of PATA and FATA into Pakistan. All facilities available to rest of Pakistan must be available to them. Cost should not be a consideration.

• Right of local population on the natural resource like oil,gas, coal as per Act of 1935 may be restored to remove injustice in Baluchistan. Such rights were taken away after discovery of Sui Gas. Such rights are still available in India and Bangladesh.

• Establish parallel Islamic Courts for family related  and minor commercial cases all over the Country, as already in place in Nigeria. People may choice between the British designed Courts and Islamic courts. Both parties must agree to Islamic Court.

• Make State Bank of Pakistan completely independent to ensure that inflation never crosses above one or two percent while the target should be zero. Bank should be able to deny loan request from government all the time.

• The target for indirect taxes should be only 20% of total tax collection while rest may be raised from direct taxes on rich people.

8. Immediate relief can be provided to poor by:

>  Removing all Sales Tax on Electricity and Gas.
>  Removing  Oil and Gas development surcharges on Petrol, Gas, Diesel     and Furnace oil.
       > Removing all custom duty on:

• Edible oils ( between 9,000 to 16,800 per metric ton)
• Sugar 10%,
• Salt-20%,
• Peneucilline-25%,
• Bandages 20%,
• Cigarates-35%,
• Wine and Beer-90%

and all other items used by the common man. All sales Tax and Excises duties on these items can also be removed.  This will immediately bring down prices of these items and provide relief to the poor.

• Government to support agriculture produce prices by buying at international market level and not below, so that farmers get a fair return for their hard work and build a surplus to improve living condition. This will eliminate smuggling of food grains as well.
  
• To find employment for teeming millions 8 Free Economic Zones (FEZ) should be established all over the country. To start with the entire coast from Korangi Industrial Area up to Kati Bandar be declared the Ist FEZ of the country. The zone may be named after Benezir. The Benezir FEZ will take care of its entire requirement like power, water etc and will be run like company. It will have its own security system with the entire area behind a high wall. Only people clearing all security clearance may be allowed in the area to ensure a safe and pleasant working environment.

• Mandatory saving scheme for Overseas Pakistanis may be introduced linked to passport renewal to direct their savings in productive investments. Bulk of their saving may be directed to development of FEZs in the form of allotment of industrial lands which will ensure a stable value. This will draw a large number of 8 million Overseas Pakistanis back to Pakistanis with their estimated $ 800 billion wealth.

• Overseas Pakistanis may be given opportunity to investment in Government Bonds in USD, Euro, Pound at 3 to 6% above market rate, plus insurance of repatriation at end of deposit period. This will bring in a huge sum of money and will not be counted as external debt. It is estimated that Pakistanis have $200 billion deposits in Swiss Bank accounts only. Pakistan can get rid of IMF by doing this. India avoided IMF by attracting such deposits from its Overseas citizen in late 1980s.