Feisal Naqvi

Archive for June, 2011|Monthly archive page

Time for a reality check

In Uncategorized on June 28, 2011 at 4:33 am

There is an old joke about there being only two things wrong with most legal writing: The first is style; the second is content. In much the same way, there are only two things wrong with the wealth taxbeing proposed as the cure for Pakistan’s economic woes: The first is theory; the second is practice.

Let us start with theory first. Wealth is not just an accumulation of money; it represents accumulated savings. Savings are good because when those funds are made available to banks, they get redistributed into loans and credit for entrepreneurs which, in turn, is good for the economy. In other words, there is a direct link between public savings and the amount of liquidity in the economy.

The chain of events I posit above is actually easier to understand in reverse. Nobody disputes the fact that easy credit is good for business. Self-evidently, if people don’t put their money into banks, banks will have less money to dish out. And if people are going to get taxed for keeping their money in banks, then they will indeed be less likely to keep their money in banks. To put it another way, why would you keep your money in a bank (rather than under your mattress) if you knew the government would take some of the money you keep in the bank?

At this point, policy gurus like Mosharraf Zaidi (whom I greatly respect, not least for his efforts in setting up economycheck.com.pk) are liable to turn around and tell you that out of all available alternatives, a wealth tax is the one which least impacts the poor and that, furthermore, it works in many other countries.

The short answer is that Pakistan is not the same as many other countries. Our legal and regulatory framework is a particularly toxic mess and, unlike India, our deep history of mistrust between the business community and the state has only been reinforced since independence, not mitigated. Finally, the mobility of capital in today’s world means that a wealth tax is not just useless but actively harmful.

Edward Terry, an English clergyman at the court of Emperor Jahangir, remarked acidly some 400 years ago that while there were many rich businessmen in the lands of the Great Mughal, “it is not safe for them… so to appear, lest that they should be used as fill’d sponges”. Since Jahangir was neither the first nor the last ruler to regard his merchant community in that manner, local businessmen in turn developed an acute aversion to any public knowledge of their wealth.

Now review our history from 1947 onwards, and it is evident that the ingrained hostility of Pakistan’s business community towards the government has been reinforced on a constant basis. For local businessmen, modern history begins with land reforms under Ayub. Then came the nationalisation of industries, both big and small, by Bhutto Sr. That was in turn followed by our ‘decade of democracy’ in which our rival leaders fought each other via statutory regulatory orders. And then the coup de grace, the NAB Ordinance of 1999, in which it became a crime to default on any loan, even any government utility bill, for any or no reason whatsoever.

The net result is that our business community has developed the financial equivalent of Tora Bora, impervious to whatever ‘daisy-cutters’ may be dropped on them by the marauding forces of the finance ministry. Many businesses thus operate on the basis of word of mouth advertising, family relationships, cash payments and sanctions delivered by large gentlemen with cauliflower ears. More importantly, such businessmen also tend to keep their wealth hidden, either in the form of cash or gold. Finally, even to the extent they own land, it is most often held benami through intermediaries.

In social terms, the fundamental problem with a wealth tax is that it both invites and rewards lying. In the recent wealth tax return filed by Shahbaz Sharif, the claim that one of his wives owns exactly zero jewellery has been met with widespread sniggering. I have no knowledge one way or the other and I hasten to add that the lady in question may well own zero jewellery: My only point is that nobody knows and nobody will ever know. Which is a hell of a dumb basis on which to establish a tax law.

The final problem with a wealth tax is the mobility of capital; which is a fancy way of saying that if the government taxes my wealth here, I can just as easily shift my wealth to places which don’t tax my wealth (and which don’t ask questions either).

In times gone by, the difficult part was getting the money out of Pakistan and in monitoring one’s overseas investments. Hiding money overseas was thus the prerogative of particularly rich people who could afford to fly out of Pakistan (and get visas). The average rich guy was stuck here.

All of that has changed. Despite everybody’s best efforts, getting money to Dubai is a piece of cake. Buying property in Dubai is a piece of cake. And getting yourself to Dubai is also a piece of cake.

To put this in practical terms, suppose I have money to invest. If I put it into a bank, the tax-wallahs will hound me to hell and beyond as to how I made that money. If I buy a plot, I can hold it benami but that tends to produce litigation in the long run. But if I go to my friendly real estate agent, my money disappears, I get a good excuse to visit Dubai and nobody gets to ask me any questions. Which option would you take?

Nobody likes paying taxes. Consequently, people only pay taxes when they are forced to. In Pakistan, given our current legal system, trying to force people to pay a broad-based tax on wealth is simply not possible (beyond a certain degree). I understand Mosharraf Zaidi’s point that a wealth tax is more equitable than any other available option; but we’re not dealing with equity here. The only question is what works, not what feels good.

Published in The Express Tribune, June 28th, 2011.

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Learning to live with the chai-wallah

In Uncategorized on June 14, 2011 at 5:14 am

Given that this column appears in an English-language Pakistani newspaper, the chances are good that you, the reader, are in the immediate vicinity of somebody whose job includes serving you tea.

So, raise your voice, or pick up the phone, and call for some tea. When the chai-wallah comes, take a good, hard look at him. He may work for you. If he is a serf from your village, you may even have power of life and death over him. But in the democracy that we wish to become, he is your true master. Let me give you a few minutes to recover from the shock. And then let me explain to you why democracy actually is a good idea.

Let us start with the assumption that former president Pervez Musharraf did many good things. From freeing the press to defanging the Hudood Ordinance, there is plenty for which the Commando can take credit. At the same time, many of the substantive achievements of the Musharraf regime have simply disappeared. Take, for example, the local government ordinances; dead as a doornail now. Ditto for reform of the tax laws.

The point then is that dictators — even well-intentioned enlightened dictators — build on foundations of sand. When they go, their achievements tend to go with them. By comparison, democracies work slowly and fitfully. The achievements of a democratic regime are built on foundations of stone. What a democracy builds tends to stick around for a very long time. Or in other words, so far as political reform is concerned, democracies and dictatorships have the same relationship to each other as the fabled tortoise and the hare.

There is an old saying that nobody ever learns from anybody else’s experience. I suppose that is why every generation in Pakistan feels compelled to make the same errors made by its predecessors. But speaking for myself, the great debate between an enlightened dictatorship and an egregious democracy finally got resolved some years ago when I realised that the cavalry — aka the 111 Brigade — was not going to remove the current set of fools. In short, I was stuck with them; and the chai-wallah.

In my case, this realisation has forced me to think differently. Previously, when confronted with a governance problem, I used to try first to discover the solution and then to worry about selling that solution to the powers that be (who would then be responsible for onward sale of the solution to the masses).

You might ask why I need to change my ways. After all the masses have always been… well, you know, out there. What’s the big deal about them now?

The answer to this question is that because of our newly developed media, the masses are no longer just ‘out there’; instead, they are very much part of our lives. This means that politicians can no longer peddle a convenient populist line of pablum to the masses while doing something completely different. Instead, the arrival of an independent media — and by that I mean the television media — means that politicians are being forced to keep at least a minimal relationship between their version of the truth and the actual facts. In other words, what the public thinks is rapidly turning into a substantive constraint on policies far more than ever before. We now have no choice but to build our future on the basis of what ‘the people’ actually think. Which, given the rubbish that has been stuffed down their throats for the past 60-odd years, means that we may be forced to live for quite some time with the consequences of our past propaganda; which, in turn, scares the living daylights out of me.

Let me put this whole point in context. For the past six decades, the Pakistani masses have been sold the story of India as an existential threat so much so that it has become part of our basic philosophy. In the meantime, we actually are facing an existential threat from a completely different source, one which is killing our citizens in very large numbers. But, try as we might, nobody seems to be able to get people to believe that the Tehreek-i-Taliban and others of their ilk are actually threats. Instead, they seem quite happy to listen to delusional ex-cricketers tell them that the Taliban are just poor, misunderstood folks who can be set to rights so long as we shake hands with them using a special Islamic pinky-swear (and throw out the Americans).

The object of this column is not to go into yet another round of army-bashing or Imran-bashing. The ignorance of our masses is a crime for which all shades of political opinion are equally responsible. All of us, from the left and the right, have colluded in treating the ordinary Pakistani, as the saying goes, like mushrooms (that is, in the dark and covered with manure). But until such time that the people are educated into some semblance of reality, we will be forced to live in their unreality. You cannot sow seeds of hatred and hope to reap peace in return.

The point of this column, therefore, is to get you — yes, you the reader — to understand the consequences of democracy. If you want peace with India, your chai-wallah has to want peace with India first. If you want the army to stop screwing around in Afghanistan, your chai-wallah has to want that first. If you want your government to give a damn about business laws, your chai-wallah has to give a damn about it first. Because if he doesn’t, all the candlelight vigils in the world are not going to make a damn bit of difference. This is the chai-wallah’s world; we English-medium types just happen to live in it.

Published in The Express Tribune, June 14th, 2011.

The price of sovereignty

In Uncategorized on June 7, 2011 at 4:57 am

On that fateful day when the world’s most wanted terrorist was found in Abbottabad, different people had very different reactions. Some people wept with sorrow. Some people were stunned at the magnitude of our security apparatus’ apparent incompetence. And some people were distraught at the fact that Pakistan’s territorial sovereignty had been so gravely compromised.

So far as I understand, the reaction of the military in Pakistan has been mostly in terms of the last option. The faujis concede that, yes, there was an intelligence failure of colossal proportions. But for them, the key issue is that an outside force came into Pakistan, invaded our airspace and could leave without being challenged. My understanding is, therefore, that many within the army have called for cooperation with the US to be reduced. Some writers have taken this position further and demanded that a formal complaint be lodged with the UN.

Obviously, I disagree with that approach. However, rather than get into a slanging match, I would like to explore the basis for these divergent views.

A patient inquiry is required because, notwithstanding our pretensions of being a parliamentary democracy, all major national security decisions are made not by our elected representatives but by the military itself. I understand the Constitution provides that the military is answerable to a civilian hierarchy. Unfortunately, Pakistanis live in an alternative reality in which the military (like Skynet) has become self-aware and has decided to take its welfare into its own hands. This may change in the future, as and when the Almighty decides to grace us with suitable political leadership. Till that blessed event happens, the only way to change our national security policy is by changing the military’s mind. Sneering at the faujis, while occasionally fun, is not going to help. Instead, we need to persuade them that their security paradigm needs to be revised, not just for our sakes, but for theirs as well.

My main argument for the consideration of the faujis is that sovereignty is a virtue not in absolutist terms, but in instrumental terms. In other words, sovereignty is a desirable attribute for a society because it allows the members of that society to live better lives — howsoever ‘better’ may be defined. If sovereignty does not produce a ‘better’ life for the citizens of the sovereign entity, then it is not worth having.

I presume that the answer to this contention is likely to be some outraged variation on the theme that one day of freedom is worth 100 years of slavery (or words to that effect). But is that really true? If the US or Canada was to offer free citizenship complete with jobs on arrival to each and every Pakistani, the number of people choosing to leave would greatly outnumber those choosing to stay. Yes, there would still be some diehard patriots determined to stay but they would be few and far between. So, let’s stop kidding ourselves: The people of this country do not value sovereignty with the same obsessive single-mindedness as the military evidently does. And since the military at least purports to be acting in the people’s best interest, shouldn’t it consider this fact?

For now, the answer from the military is ‘no’. General Kayani’s recent speech at PMA Kakul is now mainly remembered for the fact that he was holding fort only 800 meters away from the compound of Osama Bin Ladin (then still alive). However, what General Kayani said that day also bears remembering — that the nation’s honour should not be traded only for prosperity.

The obvious retort to General Kayani is that the military does not have to choose between honour and prosperity. Instead, the military gets to keep both its honour and its prosperity primarily because the entire nation sacrifices mightily for the benefit of the armed forces. Nobody disputes the fact that the massive size of our military budget robs the social sector (e.g. education and health) of much-needed funds. To put it simply, the army lives well on my tax dollars. Consequently, till such time that the army shares the pain we are forced to suffer, it has no right to tell me what choice to make. (not to mention the fact that the army has no business telling us citizens what choices to make in the first place).

A different and more considered response to General Kayani is that we need to move towards a different paradigm of sovereignty. The army clearly defines national sovereignty in terms of the state’s ability to prevent itself from being physically invaded and conquered (hence the outrage over the OBL raid). That is obviously one aspect of sovereignty but it is not the exclusive or even the dominant aspect of sovereignty. All those other aspects, however, are being ignored by the military. For example, nations are sovereign so that they can protect their people, keep them safe and allow them to be. But Pakistanis are not safe today: Instead, they are dying in record numbers.  Similarly, sovereign nations provide a safe haven for their citizens so that those citizens can become prosperous. But our ‘sovereignty’ is killing our prosperity.

A friend of mine made the interesting observation that the army only thinks about peace with India when it takes over because that is the only time that it is forced to take a broader view of things; the rest of the time it concentrates on preserving its institutional interests. We can’t afford that tunnel vision on the part of our military any more. If our armed forces don’t take a broader view of what constitutes our national interest, pretty soon there will be no nation left to defend.

 

This column appeared first in the Express Tribune on 7 June 2010.

How to spend billions and not make friends

In Uncategorized on June 7, 2011 at 4:06 am

Raymond-Davis-LahoreIf it were fictional, the Raymond Davis saga would have had a shot for best original screenplay.  This one had it all — shootouts, car chases, duplicitous allies and one humdinger of a courtroom climax.

The bare bones of the Davis episode are well known. On  January 27, 2011, a man subsequently identifying himself as Raymond Davis shot and killed two men at a busy intersection in Lahore, Pakistan’s second largest city. After shooting the two men, Davis emerged from his car and  filmed  their bodies with his cell phone. He then got back into his car and tried to drive away. However, in an unusual display of efficiency, he was chased and arrested by two traffic wardens. A separate vehicle then tried to assist Davis but in the process ran over and killed a  motorcyclist.

In his initial interrogation, Davis stated first that he had acted in self-defence and second that he was a contractor employed by the U.S. Consulate in Lahore. The subsequent statement was particularly important because applicable diplomatic conventions distinguish between the limited immunity of consular officials as opposed to the absolute immunity enjoyed by embassy officials on duty. This statement was then corroborated by Assistant Secretary of State Philip J. Crowley who also added the mysterious rider that “reports identifying the employee’s name are false.”

There onwards, the issue snowballed. To begin with, the autopsy report for the two alleged killers apparently showed that they had been shot at a distance of up to 50 feet by 9mm rounds, with some of the shots striking the alleged assailants in the back. In other words,  medical evidence indicated that Davis was  an expert marksman who had  used  deadly force  to  kill people, one of which was 50 feet away at the moment of his  death and probably running away to save his life.  The next revelation came when a local newspaper claimed that the two alleged assailants were not just run of the mill hit-and-grab thugs but intelligence operatives overtly tailing Davis. This was subsequently denied by the ISI, Pakistan’s feared spy agency. In the meantime, Davis’s resume turned out to include a stint as a special forces soldier. More importantly, it emerged that not only had he been employed in the past by Xe Services (a.k.a Blackwater) but that he was currently in the employ of the CIA.

Not surprisingly, these revelations produced a media storm in Pakistan. Our community of journalists is conspiracy-minded at the best of times: for them, the indubitable fact that a gun-toting American had shot and killed two locals in broad daylight before causing the reckless death of another was confirmation of every paranoid fantasy. The geo-political issues were also overlaid with additional tragedy: the wife of one of the men killed by Davis committed suicide by swallowing insecticide. As she lay dying in a government hospital, her last words to the gathered media were that she did not believe the killer of her husband would ever be brought to justice.

Under applicable law, the Pakistani government had the simple option of declaring that Davis has diplomatic immunity. However, any such step would have come at a heavy political price since it would be seen, with considerable justification, as kow-towing to U.S. pressure. In recognition of this fact, the PPP government sought to temporise but that only caused both sides to increase the pressure. The US apparently attempted to procure immunity for Davis by threatening to cut off aid. There was also a story in the US press (subsequently denied) about expelling the Pakistani ambassador. The opposition in Pakistan in turn accused the government of secretly conspiring to release Davis, a charge given increased credence by the sacking of Pakistan’s former Foreign Minister who then held a press conference strongly implying that his departure was due to his opposing immunity for Davis.

Given this potential minefield of complications, the Pakistani government decided that at least for the purposes of public consumption, discretion was the better part of valour. It therefore refused to take a firm stance on the immunity question, saying  it was up to the courts to decide. In the meantime, the Pakistani government and the US began to explore alternate options to resolve the situation. Since Pakistani law allows for the heirs of a murder victim to forgive his killers in exchange for payment of blood money, a simple trade of money for forgiveness appeared to be the best option. Lo and behold, this is what happened. On 16 March 2011, the news broke that a $1.4 million deal had been reached between Davis and the heirs of the deceased. In a late-night hearing, a judge quickly recorded the compromise and sentenced Davis to the exact time already served by him in prison with respect to the charges of carrying an unlicensed firearm. Davis flew out the same day while the heirs fled to other cities within Pakistan to avoid media scrutiny (as well as the possibility of disappointed militants expressing their frustration in more violent ways).

Analysis in the Western media of the Davis imbroglio focused on the rupture it had caused in Pakistan’s typically fraught relations with the United States. The refusal of Pakistan’s government to certify immunity for Davis was portrayed as yet more proof of the essentially duplicitous nature of Pakistan, an ally in name which begs for money with one hand but stabs the US with the other.  Underlying this analysis was the unspoken assertion that given the overall level of assistance being provided by the US, Pakistanis should have overlooked the facts on record, even if they were unusually egregious.

Despite its explosive nature, the Davis saga remained of little interest to the general public in the West. All of this changed on May 2, 2011 when the world woke up to find that Osama Bin Ladin had been found – and killed – by a team of US special forces in Abbottabad, a pleasant town known primarily for housing Pakistan’s premier military training institution, the Pakistan Military Academy, Kakul.

The rumblings of discontent which began after the Davis affair suddenly expanded to a cacophony. So far as the average American was concerned, Osama Bin Ladin had been living in Pakistan under a giant neon sign saying “OBL wuz here.” Or as Jon Stewart put it in a memorable episode of the Daily Show, Pakistan could have caught Osama with a rod and reel. Nor was Stewart the only comedian to find grist for his mill in the discovery of Osama. Jay Leno joked that the newly married Prince William and his bride were thinking of going to Abbottabad to get some quiet time while cartoonists had a field day.

Since the initial surge in coverage, some sanity seems to have prevailed upon the Western media which has now conceded that (a) Abbottabad is three hours away by car from Islamabad (and not a suburb of our capital) (b) Osama’s hideout was not a million-dollar mansion and (c) that it was 15 minutes away by car from the Pakistan Military Academy (and not across the road). In addition, both Robert Gates, the Secretary of Defence, and Hilary Clinton, the Secretary of State, have since publicly stated that there is no evidence to show that any senior officials within the Pakistan government were aware of Osama’s whereabouts and that there is in fact, some evidence to the contrary. But in terms of Western public perception, the image of Pakistan as a back-stabbing, ungrateful nation of terrorists has taken firm hold. And if there is one argument which seals that perception, it is that the US has rained billions of aid dollars on Pakistan, all to no avail. One cartoon summarised Pakistan’s relationship with the US as “you scratch my back, I’ll stab yours.”

I am no expert on geo-politics and the US-Pakistan relationship is complicated enough to keep a whole tribe of analysts busy for the rest of their academic lives. Instead, the simple point being advanced is that more than 10 years after 9/11 reignited the US/Pakistan love-hate relationship, there is some logical basis for the fact that the ordinary Pakistani sees plenty of reasons to hate the US and very few to appreciate it.

Trying to explain why most Pakistanis look askance at the United States is difficult. To begin with, there is a widespread belief that the United States is at best a fair-weather friend as shown by the manner in which the US “abandoned” Pakistan after the Russians quit Afghanistan. The validity of this allegation has been acknowledged by several U.S officials, including Secretary of State Hillary Clinton. There is also a sizable community convinced that the US is secretly planning to take over Pakistan and destroy its nuclear assets. Their views are supported with reference to loose talk in Washington fora about Pakistani nukes possibly falling into the wrong hands (and the ambitious schemes to stop such possibilities). These potentially valid grounds for anti-Americanism are then layered on top of less rational arguments fuelled, to name a few, by (a) doctrinaire leftist dogma left over from Pakistan’s fling with socialism in the 70s (b) jingoistic nationalism peddled by the Army and its sympathisers; and, (c) the well-known fact that the US is an oil-obsessed, Muslim-hating, Great Satan secretly ruled by a cabal of one-eyed Jewish financiers (or something like that) .

However, even outside the realm of popular hysteria, there are valid reasons why the average Pakistan is not enamoured of the United States. After Iraq and Afghanistan, the largest number of civilian casualties in the Great War on terror have been Pakistanis. Between 2001 and 2009, there were hundreds of terrorist attacks in Pakistan causing a total of 30,475 casualties (which figure includes both civilians and soldiers). Yes, Pakistanis now acknowledge that this is their war too. But, they also believe (with some reason) that if the U.S. was to pack up and leave Afghanistan, Pakistan would be a better and safer place.

On the other side of the relationship, Pakistan’s importance to solving the Afghanistan quagmire has been well recognised for many years. Bob Woodward’s last book, “Obama’s Wars” details how in November 2008, the newly elected President was informed by his advisors that the key to dealing with Afghanistan was to get Pakistan on board. In short, the US has known for many years that it needs to win over the hearts and minds of Pakistanis if it is to have any plausible exit out of an increasingly expensive and interminable war. To that end, the US has spent very large amounts of money. The point I am making is that this money has been wasted.

To begin with, the largest portion of cash flows from the US government to Pakistan consist of either direct budgetary support to Pakistan’s finance ministry or payments to the Pakistan Army. However, Pakistanis do not identify strongly with either their political masters or their army: both are instead seen simply as unpleasant and unavoidable facts of life. If US budgetary support for the Pakistani government resulted in any tangible benefit to Pakistanis, they might feel differently. However, the Pakistani government is both incompetent and corrupt. The average Pakistani thus feels no reason to be grateful for it (irrespective of the fact that things might even be worse without US assistance). Similarly, the fact that the US government buys toys for the boys does not give the average Pakistani a warm cuddly feeling.

Furthermore, even so far as development projects are concerned, the vast majority of US development assistance to Pakistan has till date been spent on low visibility service-oriented projects as opposed to high-visibility capital intensive projects. Click on the USAID website for Pakistan and one is confronted by a long list containing mostly “training” sessions and a number of small grants to various charities and NGOs.  In actual practice, the training projects amount to well paid sabbaticals for imported experts while the smaller projects simply get lost in the immensity of Pakistan’s population of 185 million people. The net result is that unless one has been fortunate enough to be touched directly, US aid to Pakistan may as well not exist.

The irony here is that this point does seem to have seeped into the minds of the mandarins at Foggy Bottom as well. Thanks in part to the efforts of the late Richard Holbrooke, USAID policy towards Pakistan was revised in 2010 to reorient efforts towards “high impact, high visibility infrastructure programs.” However, while some such projects are in the pipeline, none of them has yet to make headlines.  Moreover, even the projects in the pipeline do not qualify for flagship status, similar in impact to the F-16 fighters supplied to the Pakistan Air Force.

The irony though is that the revised aid model adopted by the US may well be too late. As shown by the recent House resolution on Libya, the American public’s appetite for war is waning fast. Furthermore, as was evident from the scenes of celebration outside the White House, the death of Bin Ladin provided not only some sort of catharsis to the American public but also a “mission accomplished” type sense of closure.  At the same time, the relationship between Pakistan and the United States is such that neither can afford to break off relations with the other, even when the United States withdraws all troops from Afghanistan (and certainly not before that).  Pakistan-US relations will therefore continue to be both delicate and important. And within that context, it makes sense for the US to utilise its options and its assets so as to maximise its goodwill amongst the public, rather than simply continuing to waste money.

The point of this column is not to argue that Pakistan deserves US support or US aid. Instead, the point of this column is to note that assuming the US is going to be giving aid to Pakistan and assuming the US would like a greater reservoir of goodwill amongst the Pakistani public, it would do well to help fund high-visibility projects of the type now being discussed rather than continuing to pamper an already bloated military sector.  Pakistan is not just an army with a vestigial state attached: it is a nation of 185 million people, some of whom happen to be in the army.  And it would be good for both the US and Pakistan if the US realised this.

This article appeared first in http://www.3quarksdaily.com on 6 June 2011.