Feisal Naqvi

Archive for March, 2010|Monthly archive page

The economics of judicial interventionism

In Uncategorized on March 22, 2010 at 5:20 am

wo years and more into the entrails of a judicial “revolution”, it is worth asking what the fruits of that revolution have been?

The short answer to the above question is that the world has not changed. Poverty remains endemic to Pakistan, violence is rampant and the executive branches are still as visibly ineffective as ever. Does that mean the lawyers’ movement should be termed a failure?

The answer this time is absolutely not. An independent judiciary is only one piece of the development puzzle, not the solution in itself. In fact, the true danger the judiciary faces is not the possibility of doing too little but the danger of attempting too much.

Over the last six months, the burden of dealing with inflated public expectations has threatened to overwhelm the judiciary on numerous occasions. The clearest example of this came when the Lahore High Court took suo moto notice of sugar prices and suddenly fixed the price of sugar at Rs 40 per kg.

Given its vociferous support for all things judicial, the sudden declaration of the Lahore High Court placed the Punjab administration in an awkward bind: it could either side with the populists baying for the blood of sugar barons, or it could try and strike a blow for fiscal sanity by explaining to their lordships that economic realities were under no obligation to obey judicial dictates. The administration eventually settled on a policy which resulted in the worst of both worlds; failing both to ensure the availability of affordable sugar and to protect their legitimate interests in allowing sugar prices to float.

The judicial obsession with sugar prices was particularly troubling from the perspective of the establishment because it seemed to indicate that their lordships had gained a taste for popular acclaim. Former secretaries sat around worriedly in their clubs and sniped bitterly about how governments would now operate from the High Courts instead of the secretariats. The fact that suo moto notice of sugar prices was followed by a host of other suo moto actions only fanned the flames of such grievances.

The Federal Government belatedly decided that it would take on the judiciary. Unfortunately, it chose the wrong battle.: Instead of picking a fight over economic policy, the PPP regime decided to get into a war over the appointment of judges. In the beginning, the Federal Government seemed to be making some headway with its arguments in favour of parliamentary sovereignty. But then the PPP government massively overplayed its hand by notifying the elevation of Chief Justice Khawaja Sharif of the Lahore High Court to the Supreme Court. The Supreme Court immediately called the Federal Government’s bluff by suspending the notification the same day and the Federal Government caved in miserably.

It is now anybody’s guess as to how the judiciary will react in the weeks to come. The optimistic view is that the judiciary is so secure in its current position that it need not worry about populist sentiment. The other view is that having reached such giddy heights of popularity, there is now no need for it to adopt a more circumspect approach.

What is more difficult to debate is that some of the more recent decisions on economic issues have not been unqualified successes. Take for example, the fabled Steel Mills judgment.

Two years ago, the Steel Mills imbroglio marked the first real tussle between the Musharraf regime and a newly confident judicial branch. As per public perception, the judiciary prevented the illegal sale of one of Pakistan’s major assets for pennies, that too to a supposed stock-exchange buddy of Shaukat Aziz. Like many other beliefs held dear by the average Pakistani, this one too is absolutely wrong.

The main substantive ground on which the Steel Mills judgment struck down was that the 4,500 odd acres of the Steel Mills complex had not been included in the valuation. This was and remains a fundamentally flawed piece of legal reasoning.

The winning bidder in the Steel Mills case had agreed to pay US$362 million for the Steel Mills complex, inclusive of all assets. The amount was more than the reserve value of the Steel Mills case carried out by an independently engaged financial advisor. That reserve valuation was in turn determined based on a methodology known as the Discounted Cash Flow (DCF) method.

The Supreme Court struck down the privatisation of the Steel Mills in part because it hopelessly misunderstood what the DCF method was. The real force behind the judgment though was not a valuation dispute but a general sense amongst the public at large (and the members of the august bench) that something fishy was going on combined with a residual feeling that major assets like the Steel Mills really ought to be owned by the state and not by sneaky private sector bandits with dubious antecedents.

Fine, but what then are we left with? In 2008-09, the Steel Mills ran up losses of Rs. 22 billion which will have to be made up by the Government of Pakistan. Throw in the winning bid of US$ 350 million as well as the US$ 250 million the winning bidder had committed in court to investing and the net financial loss to the country from the Steel Mills decision is over Rs. 60 billion! The mill itself is functioning well below capacity and all plans for development and modernization appear to have been shelved for the foreseeable future. In the meantime, the prospects of privatization in Pakistan have been poisoned for the foreseeable future.

Unlike elected governments who are subject to recall by the masses, there is no equivalent mechanism for correction by the public when it comes to the judges. If the judiciary becomes overly fond of the spotlight, there will come a time when the same forces of public passion which today shout slogans in favour of judicial independence will instead riot in opposition. It would be better for all concerned if that day never came.

This article appeared earlier in The Friday Times issue of March 19, 2010.