The pains of trade
FOLLOWING the nuclear detonations in 1998, when Pakistan was placed under sanctions and foreign exchange accounts were frozen to prevent a run on the reserves, something extraordinary happened in the minds of currency dealers and hawala operators.
They awoke quickly to the realisation that the very system upon which their collective livelihoods depended was now in danger.
Faced with this realisation, they came together in an remarkable meeting, led by their inimitable leader of years, Mr Malik Bostan, and decided that they had to work together to support the State Bank in preventing a flight of dollars from the country.
For a brief period, some of the most hard-boiled traders in the country put their particular interests aside and submitted themselves to the discipline of a collective interest.
At the meeting, Mr Bostan had yanked on every emotional string that he could, reminding his assembled colleagues of the spirit of sacrifice by invoking the sacrifices of army soldiers, and even resorting to poetry on various occasions. I hear people had tears in their eyes.
In return the currency traders sought respectability and a place in the mainstream of the financial system. They wanted their business to be registered, licensed and recognised as a bona fide financial service much like their brethren in brokerages and banks. It took some years, but they eventually got their wish.
Episodes of this sort have happened on many occasions, when a spirit of working together, of submitting to the discipline of a collective interest, arose almost spontaneously.
Sometimes the effort had a charismatic leader to help organise it, like in the case of Mr Malik Bostan. At other times there was no single leader to bring things together, but networks rooted in long association performed the job of building trust and being the vehicles for the creation and articulation of a collective interest.
One thinks of how banks have sometimes been brought together to recapitalise a smaller bank to prevent a run from happening, or to keep the market in overnight lending going through the darkest of nights in the fall of 2008.
One thinks also of the Pakistan Business Council (PBC) and its extraordinary awakening to a rapidly deteriorating situation in government finances following the collapse of the tax reform effort and the unhappy end of Pakistan’s last arrangement with the IMF.
The National Economic Agenda that was advanced by the PBC in April 2011 cannot be said to have embodied the specific vested interests of the business groups that are part of the industry think tank.
But more often than not, the collective interest never finds a voice. The reason for this is simple: most businesses in Pakistan want quick money on the cheap. They don’t want to think in terms of long time horizons, of large stakes, of a system that sustains us all. They don’t want to get bogged down in any strategic outlook. They only want to make hay while the sun shines.
And who can blame them? Given the kind of environment one has to do business in over here, an ability to adapt rapidly, to acquire and divest stakes with speed is an important ingredient for survival.
A businessman who is only in it for the short term is unlikely to ever want to see or know anything about a larger collective interest. And those who have small-scale fixed stakes in a hereditary business of some sort — shopkeepers, newspaper hawkers, truckers and oil tanker drivers, cottage industry manufacturers amongst so many others — almost always have some sort of trade association through which to speak.
But what baffles me these days is how big industry is unable to articulate a collective interest, in spite of the strategic stakes and long-term commitments they are bound into.
Take as an example how large manufacturing concerns are being undercut by malignant trade flows these days. Trade liberalisation is an old agenda and it is to be encouraged, especially with regard to our neighbour India. But malign trade flows have entered our economy in two forms that have no connection with trade liberalisation. These two forms are ad hoc duty concessions given to a specific category of imports and the misuse of the Afghan Transit Trade.
A large swathe of domestic manufacturing has been affected very negatively by these malign trade flows, yet they’ve had a hard time finding a voice through it all.
Sometimes this failure to find a voice has a very good reason: the parties involved are making good money out of the dysfunction in question.
An example of this is the circular debt and how the IPPs make money out of their government receivables through ‘penal interest charges’.
Hence we don’t hear too much complaining from the IPPs except on occasion — as in 2008, the year of the circular debt’s genesis when for a brief period Hubco raised a loud hue and cry. Notice their silence today, even though their receivables are more than four times what they were back then.
But malign trade is hurting fixed capital, and the auto sector is trying to find some sort of voice against it in the form of a surge in used car imports. Otherwise, though, the rest are all quiet.
This failure, on the part of large-scale fixed capital operators, to collectively find a voice against the growth of malign trade forms is puzzling. Either they’re taking far too restrictive a view of their own interests, or they have found a way to make hay while the sun shines. In any case, the impact of malign trade on the larger question of trade policy, and liberalisation, is critical to understand.
Also critical to understand is how malign trade feeds into a growing conflict economy on Pakistan’s western borderlands, particularly at a time when we are searching for a way to liberalise our trade towards the East. No discussion on the future direction of our trade policy can afford to ignore the political economy of malign trade.
The writer is a Karachi-based journalist covering business and economic policy.