Judicialisation of economics
THE emergence of an independent Supreme Court (SC) under Chief Justice Iftikhar Muhammad Chaudhry can be traced to the Steel Mills privatisation case in 2006. Through this, the SC declared illegal the privatisation of the Steel Mills.
In 2010, SC intervention in the liquefied natural gas (LNG) case, in effect, struck down LNG contracts. Therefore, a judicialisation of economic matters has been a developing phenomenon in Pakistan.
In the above backdrop, the SC judgment of March 30, 2012, in the rental power plant (RPP) cases seems to be a part of the above trend. But there are qualitative differences as the judgment points to a greatly intrusive judicial interventionist role in certain matters of economic policy and rights.
A few preliminary comments. The rental power judgment contains an extensive examination of economic facts as it includes around 21 detailed factual charts. Therefore, the SC is no longer reluctant to deal with highly technical issues.
Secondly, the assisting applicants in this rental power case were not public-spirited citizens/organisations (i.e. Steel Mill case) or journalists (i.e. LNG case) but politicians like Faisal Saleh Hayat (PML-Q) and Khawaja Asif (PML-N). In other words, it is the politicians themselves who are inviting the judiciary to interfere in economic governance.
The rental power judgment itself is a long and complicated 90-page judgment but its main findings can be summarised as follows.
Firstly, ‘socioeconomic development of the country’ is declared as a constitutional duty of government and the non-supply of electricity, or high cost of electricity, a violation of the people’s fundamental rights. Therefore, the requirement of constitutional political governance has been set quite high by the SC.
Secondly, the SC has declared the rental power policy itself illegal by stating that the “RPPs’ mode of generation of electricity has proved a total failure and incapable of meeting the demand of electricity”.
Therefore, unlike the Steel Mills privatisation and LNG judgments, in which specific contracts were declared as illegal and not the privatisation or LNG policy itself, this judgment declares the rental power policy itself as a failure and declares that the shortage could have been resolved by rectifying and developing the already installed electricity generation and distribution system.
Thirdly, the reasons given by the SC for declaring the rental power policy as a failure is that “after spending billions of rupees in the shape of seven per cent to 14 per cent down payment and exemption from payment of customs duty as well as six per cent withholding tax … only 120MW electricity is being generated by the RPPs and its cost is on a very high side”. This is not legal logic but pure and simple judicial economic analysis.
Fourthly, the awarding, and execution, of the rental power contracts was full of illegalities and was done in a non-transparent manner. Therefore, the SC declared illegal all rental power contracts.
Fifthly, the SC declares repeatedly that prima facie corruption and corrupt practices are obvious in the awarding and execution of rental power contracts. As a consequence, the National Accountability Bureau (NAB) has been directed to proceed against government and private individuals involved in such alleged corruption.
In other words, as in the Steel Mills corruption case, SC economics is based on the belief that corruption is a key obstacle to socioeconomic development.
Sixthly, as rental power contracts were illegal and non-transparent, the SC proceedings led to the recovery of over Rs8.6bn of the money paid to rental power companies. Apart from corruption, if there is one thing which is dominant in the SC judgment, it is the recovery of money. In short, the SC has become a recovery institution for the alleged losses suffered by the people of Pakistan.
How do we assess this judgment?
Firstly, if the SC had already comprehensively pointed out the illegalities and non-transparent nature of the rental power contracts and these cases could have been decided on these grounds of illegalities and non-transparency alone then why was there a need to go further and declare the rental power policy itself a failure?
Should the SC be making such economic policy choices? Shouldn’t such policy decisions be left to the government and parliament as long as they are made in good faith and in accordance with the law? Why should rental power be ‘judged out’ as a way to solve our energy problems?
Secondly, the whole SC economic jurisprudence is based on the presumption that corruption is fatally detrimental to socioeconomic development. But not all academics agree with this presumption e.g. Mushtaq H. Khan who shows that corruption and development have coexisted in newly developed countries.
In short, it is true that corruption is bad for development but it may not be the most important obstacle to economic development. Therefore, this theory of eradication of corruption as the panacea for socioeconomic growth has to be re-examined.
More importantly, the unintended consequence of involving NAB and the Federal Investigation Agency in rectifying bad commercial contracts may lead to the flight of economic investment from Pakistan. Corruption should be criminalised but criminalising every bad commercial or contractual decision, or every violation of law, may have negative consequences for business.
Thirdly, in the SC’s institutional perception, eradicating corruption and recovery of public money increases the SC’s standing among the public. This is critical because public and moral legitimacy is the real source of judicial power. But should the public mood, or the powerful business and media lobbies constructing the narrative of the ‘public mood’, dominate economic policies?
What about unpopular but necessary economic decisions?
But let us appreciate the paradoxical dilemma faced by the Supreme Court. If it does not act against this rampant corruption, it will probably lose its public and moral legitimacy. But if the SC interferes in corrupt economic policies and contracts, it is criticised for affecting economic investments.
Not many supreme courts in the world have faced such paradoxical dilemmas.
The writer is a lawyer.