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BDS: Notes for Session 8 to 10

Korea-Japan-Taiwan
East Asia is the centre of world economic dynamism today.

Since the onset of the export led growth in the 1960s the GNPs of South Korea and
Taiwan have averaged 10% growth; the manufacturing expansion has doubled that
rate.

Japan

Characteristics of Industrialization

1. State protection

2. Adoption of foreign technology

3. Cheap labor advantage

4. Technological innovation

5. Late-comer advantage

6. The onset of each phase was abrupt and unexpected; inspired admiration and
fear

Industrial life cycle (origin, rise, apogee, and decline) has been controlled and
mastered in Japan – Korea and Taiwan receiving the declining industries.

The theory of the product life cycle is compatible with the liberal, neo-mercantilist
and Marxist or world system theories.

The world system posits a tripartite division of world into core, semi-periphery and
periphery. The periphery serves the role of middle class: stabilizing and disciplining
those below to serve the interests of those above and providing a mechanism of
social mobility; the means of mobility being war, diplomacy, product cycle and so
on.

Post-war American hegemony, based on ideas of liberal democracy, free trade, and
open systems provided a diffuse hegemony.

Characteristics of Japanese Imperialism and Colonialism:

1. Contiguous territories colonized

2. Brought industry and infrastructure of communication and transportation to

the colonies (raw material and labor sources) rather than vice versa

3. Paranoid colonizing power: Colonization was defensive in Japan’s perspective.

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4. Anachronistic: Wilson and Lenin against colonialism

5. Lateral imperialism: military presence; more repressive

6. Industrialization of Taiwan and Korea under the trio of state organization,

central banking and zaibatsu conglomerates

7. Forced adoption of Japanese culture and beliefs

8. Industrialization remained skewed in favor of the metropol

Korea was heavily industrialized by Japan; the best-developed industry in the third
world. Korea and Taiwan became more like semi-periphery.

Korea was more internally disturbed due to Japanese colonialism: population shifts
and the agrarian disruption.

Japan’s neo-mercantile policy features emerged in the 1930s:

1. Product cycle

2. Administrative guidance throughout the economy

3. Vehicles of credit, (funds were highly mobile among various industries)

4. State planning agencies, MITI (ministry of international trade and

industrialization)

5. Promotion of industries of national importance by official and semi-official

banks

6. Suppression of the labor classes

This 1930s model appeared later in Taiwan and South Korea

Postwar Japan

American occupation: zaibatsu destroyed, unionists and leftists unleashed, Imperial

Army disbanded; reverse course adopted for Japan; military power taken away and
controlled economic freedom allowed.

Triangular structure between America Japan and south-east Asia: Core, semi-
periphery and semi-periphery.

Particular feature of American Imperialism: Japan is dependent but has the

autonomous capability. It could follow neo-mercantile policy and gain economic
power.
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Elite unity, the absence of clash between firms with national and firms with
international interests, docile labor: much easier for Japan to move out of declining
industries into the advanced ones.

Postwar Korea and Taiwan:

Taiwan emerged stronger after the inflow of Kuomintang and the China mainlanders
in 1945-49: human capital, land reforms, powerful colonial bureaucracy, and
military component.

Korea after civil war: Northern occupation brought land reforms – became more like
Taiwan.

America gave not only military and economic aid but also provided technology to
both these countries. These countries enjoyed in 1950s an incubation period,
allowed to few other countries.

Both followed similar import substitution policies. Bureaucratic capitalism; export

led industrialization in the early 1960s.

Both Korea and Taiwan can be called Bureaucratic, Authoritarian, Industrializing

Regimes BAIRs.

Long-term and short-term planning by the state

Here state (EPB) not the zaibatsu provided the capital and brought sectoral mobility
of financial capital.

The state provides investment subsidies, tax remissions, and prohibition of unions
to foreign firms

Exclusion of labor, exploitation of women low expenditure on social welfare

Korea and Taiwan remain highly dependent on the U.S. for security, food and oil.
Both have had their policies influenced, if not dictated, by the U.S.

Conclusion

The developmental “successes” of Taiwan and Korea are historically and regionally
specific, and therefore provide no readily adaptable models for other developing
countries interested in emulation.
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Japan: a meteoric rise

The third largest industrial manufacturer; its rise has been unexpected and very
rapid; it has built powerful and technologically advanced industries from scratch.

The Meiji Period 1868-1912

The formative period: the foundations of the modern Japan were laid in this period.
Direct reversal of the policy of seclusion but motivation was the same underneath.

Meiji Restoration 1868: the new elite sought to endow the feudal, agrarian country
with the institutions and economic organization of modern state. This was very vital
for the survival of the country. This was a change from the policy of isolation
followed by the Tokugawa regime.

Some steps which were followed were:

1. New legal and administrative system were adopted

2. Reorganization of armed forces

3. Infrastructure of transport and communication built

4. Advanced technology imported

The existing social and cultural setup proved highly receptive to the change and
innovation. The model of state industrialization was a novel thing at the end of the
nineteenth century.

A close working relationship grew up between the bureaucracy and the zaibatsu.

Agrarian change was carefully regulated to keep the landlords’ privileged position
intact.

High literacy, pre-industrial maturity and no prejudice against change made Japan
receptive to western models of development.

Need for raw materials and new markets, together with the need for independence
were the reasons to expand overseas.

Japan’s policy was more mercantilist in nature than liberal. Industry was financed by
government; foreign capital was not allowed to dominate industry. State-business
alliance determined the terms on which Japan integrated into world market.

Nationalism and militarism played a big role in the economic policies.

Economic effects of the First World War

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Had very beneficial effects for Japan; Japan filled the gap for exports created by the
absence of the main belligerent powers. It created opportunity for the home
industry.

Concentration in the modern sector continued; zaibatsu consolidated their position.

Modern sector: light manufacturing and cotton and textile; heavy industry: steel,
chemical, mining and engineering. Although industrial dualism continued, the gap
between large-scale and small scale industries continued to widen.

The main industries were controlled by zaibatsu and the arms industry by the state
– no place for foreign capital.

Conditions of Labor

Lifelong employment system for the loyal male worker; similar arrangement for the
management personnel; the idea of “company man” evolved.

Economic Crisis

The financial crisis of 1927 strengthened the position of the large banks.

The Japanese economy came out of depression rapidly. Government orders for war
material stimulated the demand for expansion of heavy industry.

Meanwhile Manchuria was industrialized.

War and the growth of nationalism

The preservation of sovereignty gave military a central role in the Japanese state
and society.

The occupation brought democratization, which aimed at those considered

responsible for war: army, big business and the landlords. However, the need for a
viable Japan (communism) brought more lenient policy for big business.

Recovery

The new entrepreneurs were more willing to learn from the occupying power; they
saw the need to restore Japan’s economic strength.

Land reforms of 1946 removed big landlords.

Despite the changes by the U.S. Japanese capitalism preserved many of its old
features. Same banks, firms and zaibatsu reappeared.

The whole capitalist world enjoyed a period of sustained growth, from the 1950s.
Economic aid flowed from the U.S. in the form of capital and technology.
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Reasons for success

Advantage of late-comer

Sustained high rates of investment in modern, imported technology, together with

abundant supplies of labor under conditions where capital was able to appropriate
major portion of gains in productivity.

The more favorable international economic conditions which followed the Korean
war

No adverse influence from religion or caste system

Mercantilist-style symbiosis between state and private enterprise

The state played a crucial role in long-term and short term planning

The state bureaucracy was very supportive

Sogo Shoshas: new centers of economic power parallel to the zaibatsu; acting as
bankers, financing trade flows, insurers, warhousers and distributors. Their
knowledge of foreign markets makes them indispensable.

Japan’s typical response to recession has been more hard work and fierce
competition, rather than protectionism, caution or contraction.
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The Soviet model: a critical view

Soviet industrialization will remain enshrined in history due to its

1. Unprecedented character

2. Scale

3. Rapidity

4. Human cost

Early industrialization

Came as an import; not an autonomous development

Tsarist regime found its power undermined by the industrialization of western

Europe, in contrast to its own backward economic base

Peasant agriculture was of low productivity; peasants’ low buying power due to
taxes and dues

Textile machinery, railway and other technology was imported, but this could not
transform the structure of Russian economy

Contradiction: the changes necessary to maintain Russian power would upset the
power of the landowning classes and the Tsarist regime

Edict of 1861: failure of reform to free the serfs; gradual in nature; left the
traditional peasant village (mir) intact; led to some differentiation of the peasants:
Kulaks appeared later from the capitalist peasants who were better off;

First attempts at industrialization were made in 1890s by government spending;

Economic problems encouraged disastrous foreign adventures: 1904 war with

Japan, which led to attempted revolution;

The urban working class played an important part in the 1917 revolution; it had
become hereditary by 1917 and was concentrated in urban industrial areas;

Stolypin reforms of 1904 aimed to promote peasants’ prosperity through land

reforms; these reforms were overtaken by war; agrarian problem could not be
solved; growing population, low agricultural produce, land still with the gentry;

Pre-war “Pseudo-industrialization”: little home market, imported machinery,

underdeveloped agriculture;
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The Revolution and its Aftermath

Urban workers revolution; peasants rebellions in the countryside (supported by

Lenin); the Bolsheviks had little support or control in the villages – depended on the
peasants for food and some raw materials for the industries;

Industrial decay; production levels dropped drastically;

War Communism gave way to New Economic Policy as the Revolution lost its earlier
force and vigor;

New Economic Policy

Serious debates about which way to industrialization was appropriate to Russian

conditions;

Marxists were agreed that the condition for socialism was the fullest possible
industrialization; that communism was an international system;

The challenge was to restore the industry, transportation, exchange between

country and the town and win the support of the peasantry; the resources from the
agriculture had to be secured to feed population and the industry;

Stalin and others advocated a more practical approach and inward looking
development;

The Five Year Plan

The consumption had to be curtailed in favor of infrastructure projects for a

considerable period of time;

Crisis in agriculture (refusal to supply raw materials and food) came to a head with
Stalin’s collectivization campaign; Kulaks as a class destroyed; peasants joined
collectives out of fear;

The Consequences of Collectivization were: Peasants resentment; Destruction of

agricultural property; and great human suffering;

Industrialization

The whole country turned into a construction site; bias towards machinery and war
material production

Plans made by a technocratic type bureaucracy and imposed from above;

Positives:
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A viable model for the underdeveloped countries; efficacy of planning; society

without landlords and capitalists could by viable and dynamic; disciplined labor
force; rapid growth; human capital built in a very short time;

The Human cost

The largest cost was borne by the peasantry: “dekulakization”;

Repressive apparatus of the police: GPU; NVKD; KGB;

Purges of 1930s: millions were deported, imprisoned or executed;

The Second World War

Some of industrial achievements were destroyed but inland industry survived;

Russia emerged stronger because of temporary elimination of germany and japan,

dwindling of British empire; it consolidated its position in eastern Europe;

Reconstruction

Huge projects; labor partly supplied with political prisoners and prisoners of war;

Intensive development; strength in heavy industry;

Uneven sectoral growth created problems of supply;

Bureaucratic planning and control;

Arms race with the capitalist powers of the world (12-14% of GNP on conventional
and nuclear weapons): created conflicting demands on the resources; consumers
suffered;

In another way arms race tied up scarce human and industrial capital;

As leaders and the bureaucracy were growing old, orthodoxy and stagnation set in;
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China: the slumbering giant awakens

The attempts at industrialization have been accompanied with social and ideological
upheavals of an unprecedented character;

Chinese civilization, more than 4000 years old; for a long time it was ahead of
Europe in social, cultural and political organization; by the time Europeans started
to knock at her door, things had changed (superior technology, military power, and
economic organization);

Europeans forced unequal treaties on China; a prey to capitalist colonizers; the

revolution of 1911 failed to establish a viable, centralized regime; warlordism and
civil war, the invasion by Japan; Communist party emerged from this turmoil;

The old order

Why no change and ultimate stagnation?

Bureaucracy supported the upper classes to maintain law and order; no movements
comparable to Renaissance and Reformation, which could challenge orthodoxy or
stimulate individualism, invention and innovation;

The Chinese economy was sophisticated but regulated, not led by market forces
(under the Ming and Ching dynasties, latter ( Manchus) ruled until 1911);

Had abundant land and labor; in 18th century population began to grow more
rapidly;

Labor intensive industries; no impetus to change the methods of production; supply

was sufficient;

Society dominated by the gentry and the officials; all surplus scooped up by the
gentry, local officials and the state;

Merchant class played only a subordinate role; no middle class with capital to force
a change; more inward looking character of the state and society;

Foreign technology received passively;

Market for Indian opium traded for tea and silk; treaty ports system and open door
policy (spheres of influence marked out by different European powers);

Foreign Influence
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Treaty ports encouraged the development of comprador capitalists whose interests

were bound up with the foreigners, not with the independent development of
national economy;

An abortive attempt at mining and shipping on western lines in 1860s;

1895: foreign-owned industries were legalized, which took advantage of abundant

labor; foreign capital also flowed into railway, shipping and banking; enclaves of
foreign industries had no organic relationship with the economy as a whole;

Inland agriculture was declining at the same time; no dynamic change; defeat of
Taiping Rebellion removed the possibility change from below;

The nationalist government after 1911 could not change matters; civil war,
warlordism and conscription, neglect of public works, all these factors increased the
hardships of the rural masses; Communist Party built its propaganda on this
discontentment;

The differences between peasantry continued to widen: a capitalist peasantry

similar to Kulaks appeared;

Modernization did not come from the treaty ports, except in their restricted
hinterlands; the authorities also failed to bring this change or win popular support
for it;

China was integrated into the world market in a subordinate position; the Chinese
entrepreneur was also content to play a role subordinate to the state and foreign
capital; however, the bureaucratic capitalism failed to provide a dynamic change;

Post 1949, the Soviet model appeared to be relevant, but Party was not united;
theoretical or practical reasons led to difference of opinion in the Party;

The New Regime

Collectivization was opposed by some in order not to antagonize the peasantry, and
on technological grounds;

Nationalization of foreign-owned businesses;

Planning

China did not have data, expertise and other information to undertake economic
planning; dependence upon the Soviet Union; starting with investment in heavy
industry the Soviet help in men and material was sought;

Soviet-style management was also imported: one-man management by the plant

director who had wide powers to fulfill the targets given to him; this model was
criticized by some;
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Break-up with the U.S.S.R. in 1960; China had to go it alone;

Collectivization finally came;

The Great Leap Forward

Collective farms were changed over into communes, each comprising about 5000
households; not just an economic tool; cultural transformation; communal kitchens,
dining rooms, schools and other facilities;

Failure of harvests led to agrarian problems; organization problems appeared in the

industry; incompetent direction, overuse of labor and shortage of supply;

Mao came under more criticism from Party leaders;

The Cultural Revolution

A way of reasserting control over the Party; “economism” and “capitalist roaders”
were criticized; Cultural Revolution was a campaign to re-assert the revolutionary
principles;

One-man management was replaced by greater worker control; the bonuses were
removed, moral incentives were more important;

The campaign proved disastrous: industrialization halted; party leaders were

hounded out; educational system was disorganized; the Revolution did not solve the
policy issues either: what policy to adopt, what kind of planning is best;

The New Orthodoxy

Teng Hsiao-ping, one of the old capitalist roaders re-emerged to take control party
after Mao’s death in 1976;

Greater emphasis on modernization, growth and improvement of living standards

with the help of technology and organizational means;

Communes were dissolved; under the “get rich” slogan peasants were given more
economic and decision-making freedom;

China was opened to the outside world; more freedom for foreign capital after 1979;

Plant management reverted to the previous system: plant director exercising

greater control; return to incentive and bonus system;

China has since become more willing to learn from other countries; the ideal of self-
sufficiency is not being followed;

Economic interests have overtaken support for revolutionary movements in the

world
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A Relative Success

Respectable level of growth: 6 -7 percent; 10% industrial growth;

Social inequalities have persisted; bureaucratization has become more prevalent:

privileged class; corruption among officials;

The state is in control of capital and of industry despite claims by some that it is
returning to capitalism;

LECTURE # 16

READING: EARLY GROWTH OF BUSINESS ENTERPRISE IN PAKISTAN: 1947 – 1958

PAKISYAN’S INHERITED ECONOMY

- Predominantly an agricultural economy

- Industrial assets worth only Rs.580 Million

- No modern industry of any significance

- 1414 out of 1467 were located in Pakistan and mostly controlled by Hindus,
foreigners and the Government

- Muslims tended to be military officers, government officials and landlords.

Some business in the hands of Khoja Ismailis, Dawoodi Bohras and few
Bengalis

- Inflow of 6.5 million Muslim refugees and outflow of 5 million refugees from
West Pakistan had a major disruptive effect on Pakistani areas. Hindu
businessman moved to India.

DEVELOPMENT PRIORITIES OF THE GOVERNMENT:

- Immediately after partition, the emphasis naturally was on the settlement of

refugees, building of infrastructure, building government buildings, power,
transport and defense.

- Temporary relief for the refugees required huge resources by the

Government.

- Tensions with India over Kashmir led to a permanent requirement for

strengthening of the defence capabilities.

- Promotion of Industrial growth through private sector.

- However, no long term planning for development, just fire-fighting.

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- To promote industry, government used an over-valued exchange rate, import

controls, low direct taxation and fiscal incentives to private industry.

- Agricultural produce prices have been kept low while manufactured

consumer prices were kept high.

- PIDC helped the private sector by setting up projects in medium and large-
scale manufacturing.

- Rapid economic and industrial growth, however, a distinct slowdown from

1956-58

DEVELOPMENT OF INDUSTRY:

- Memons, Bohras and Khojas moved to India and quickly filled the gaps left by
the departing Hindus.

- In addition, Chiniotis and Gujratis also contributed immensely towards

business and industrialization. Chiniotis were the first to build textile and
consumer goods industry in Pakistan.

- In contrast, a large number of Hindu families remained in East Pakistan and

very few muslim business families most to East Pakistan.

- The prices in International market arose due to the Korean War in early
1950’s. On the other hand, the cotton and jute prices were kept low,
therefore, traders made windfall profits and the emergence of a large group
of traders in Pakistan.

- Since there was a large capital formation with merchants, they gradually
transformed into industrialists.

- The liberal import and export policy was reversed and due to this imposition,
the prices of consumer goods arose and thus gave an incentive to produce
domestically to these rich merchants. Furthermore, Machinery was still cheap
to import. Consequently, annual industrial growth was around 34% up till
1955.

- The industrial development was at the expense of the agriculture sector.

- Since the agriculture was at a decline, therefore, the per capita income did
not increase. (The contribution of manufacturing in GNP was too small and
the high population growth).

- In 1956, Agri Dev. Policy was announced which included plans for increase in
distribution of fertilizers, heavy subsidy, improved seeds, control of soil
erosion and irrigation. However, this policy could not be fully implemented
due to disruption of power in 1958 by the army.
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- The government control was excessive and therefore a businessman’s

success was his access to government channels.

- Government facilitated the business by venturing into endeavors too risky for
these family businesses. The model was to invest, develop and then
disinvest. These large families were the major beneficiaries of these policies.

- The bureaucracy was in power from day 1 and controlled the structure of the
government.

- The initial public image of the businessman was not very positive. Upper
class Muslims tended to be in military, government or landlords.

- The capitalist class had emerged with the usual vigor, aggression and
manipulation characteristic of the capitalistic structure.

- Growing resentment among the public due to increasing disparity of incomes

and living standards. Popular opinion was that wealth has been accumulated
through corruption and exploitation.

READING: PAKISTAN’S INDUSTRIAL DEVELOPMENT AND BUSINESS ENTERPRISE IN

THE 1960’S

- Outstanding results of the important sectors of the economy (large scale

manufacturing, agri sector, per capita income, etc.)

- But these policies of the government generated political and economic

tension.

- Rising disparity of income and living standards

- The growth strategy of the 1960’s had two premise; doctrine of functional
inequality and acquisition of foreign loans for planned investment due to low
domestic saving rate.

- Liberalized trade and made it much easier for new investment to come in.

- Prices of agri produce were kept low to support the industry

- A policy of protection, tax concessions and credit for investments on very low
interest rates for the industry.

- Social sector (education, health and housing) were at a low priority.

- Wages were kept low through restrictions on trade unions etc.

THE SECOND FIVE YEAR PLAN (1960-65)

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- The objectives of the plan were to increase GNP, Per capita income, food
production, large scale industrial production, export earnings, savings, jobs,
economic growth in less developed areas. All targets were exceeded.

THE THIRD FIVE YEAR PLAN (1965-70)

- Emphasis on intermediate and capital goods rather than consumer goods

- However, the launch was delayed and subsequently changed due to 1965
war, substantial reduction in foreign loans and poor agricultural harvest.

- The policy shifted towards consumer goods and agriculture (subsidies,

improved agri inputs, better credit facilities, improved prices, etc.).

- Targets were under achieved.

PRIVATE INDUSTRIAL INVESTMENT & THE ROLE OF THE GOVERNMENT

- Investment Sanctioning

o Formal government permission for every new investment during

1950’s

o Ayub made new investments easier through investment schedule

o Industries mentioned in investment schedule did not need formal

approval and could easily obtain loans for import of machinery for
these industries.

- Fiscal Policy

o Exemption and rebates on industrial profits

o Tax holidays, accelerated depreciation

- Exchange Control & Import Licensing System

o Import of machinery & industrial inputs at overvalued exchange rate

o Liberalization of import policy by reduction of direct controls on import

o Export bonus scheme

o But after 1965, because of the foreign exchange stringency the

government was forced to reintroduce strict administrative controls on
imports

BUSINESS / GOVERNMENT RELATIONS

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- Started off with hostility but soon developed a culture of partnership between
government and business in the development effort.

- Leading businessmen were called upon to advise the government on policies

(Advisory & Consultative bodies)

- Ayub wanted a collective mobilization of the business community but it was

not to be so mainly due to strong primordial ties.

- The 22 families fought amongst themselves in the process of building their

personal empires.

- Development of strong network of personal connections between Ayub, his

family, and a group of leading business families.

- Inclusion of representatives of leading businessmen in politics to financial

resources for his party. In return, these businessmen accelerated their own
growth of business through key positions and links.

THE MONOPOLY HOUSES & INDUSTRIAL CONCENTRATION

- Concentration of wealth in a few hands and they were mostly minority groups
such as Memons, Bohras and Khojas. Also Saigols and Colony. No East
Pakistani family in this group.

- Close linkage between industrial and financial capital (Industrialists having

control over banks and insurance companies).

- The monopoly houses had a far reaching influence in the economy during the
1960’s

INCREASE IN INCOME INEQUALITIES

- Popular feeling was that there was massive increase in income inequality due
to lavish spending and the issue of 22 families in the face of extreme poverty

GROWING REGIONAL IMBALANCES

- Difference in growth rates of East & West Pakistan were immense.

- Transfer of real economic resources from eastern provinces to the western

provinces

- Disproportionate government expenditure in the two regions

- Pro-industrial government policies also leading to this disparity

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LECTURE # 18

READING : Pakistan During Democracy 1988-99

Benazir Bhutto 1988-90

- 1988 elections, PPP won 92 seats out of 207 and formed govt
- military and civil bureaucracy was in real power
- conflict arose with president and army on power gaining issue
- ethinic voilance started in Karachi and Hyderabad
- on August 1990, Benazir govt was dismissed by the president

Nawaz Sharif 1990-93

- October 1990 elections, IJI coalition of Nawaz Sharif won 2/3 majority.
- Govt in all 4 provinces as well
- Intensified violence in Sind
- Conflict with president over appointment of chief of army staff
- 17th April, 1993 govt was dismissed by the president
- supreme court restored govt on 26th may, 1993
- under army pressure, both Nawaz and president resigned

Benazir Bhutto 1993-96

- 1993, ambiguous parlementary victory
- Farooq ahmad Khan laghari of PPP became president
- No intervention with army
- A number of judges were appointed, which bring her in conflict with
Supreme Court
- 24 judges were dismissed by Supreme Court on June, 1994 which were
appointed by Benazir
- conflict with MQM resulted in civil war
- Murder of Benazir brother, Murtaza in September 1996
- Conflict with judiciary , ethenic violence resulted in dismissal of the govt
by president on 5th November, 1996.

Nawaz Sharif 1997-99

1997 elections, PML won 135 seats out of 207
13th amendment which took powers from president including assembly dismissal
conflict with Supreme court on appointment of judges
President and Chief Justice resigned
1997, Rafiq Tarrar of PML was become president
- ANP and MQM dropped out from coalition
- Conflict with army. Chief of army staff (jahangir Karamat) resigned in
1998
- Dismissed Perwaiz Musharaff COAS. October 12, 1999, army took control
of the govt
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Macroeconomy
- Economic growth slowed down during 1988-99
- Low rates of savings and investments, politicized decision making in
allocating public resources, structural problems in large scale
manufacturing, and chronic financial and political turmoil.
- Budget deficits kept on rising
- Remittances declined due to reduced labor demand abroad
- External debt increased from $20 to $3o
- Rupee depreciated almost 133%

Agriculture and industry

- agriculture product down
- textile sector showed mix performance
- sugar industry grew rapidly due to govt incentives ( capital goods were
provided by industry of Sharif family)

Privatization under Benazir

- unsuccessful efforts made to privatize big govt units

- some banks etc were privatized

Privatization under Nawaz

- privatization commission was established in January, 1991

- 64 out of 115 industrial units were privatized till 1993
- objections raised on transparency of system

Deregulation
- Nawaz deregulated Banking and Air line and Telecome sectors
- Many players came in these sectors and monopoly destroyed
- Cellular companies came in 1990
- 100% equity allowed to foreigners

Foreign Accounts Liberalization

Nawaz govt introduced foreign currency accounts in 1991

Loan Defaulters
- caretaker govt of Moeen Qureshi published defaulters list in 1990
- total Rs. 300 billion was outstanding
- Nationalised banks were the victims
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Stock Market
- in 1991, Nawaz ended restriction on foreign investment in shares,
restrictions on repatriation of returns
- 5 fold growth from 1990 to 1994
- Roller coaster ride in 1990s

Pet Projects

Nawaz Motorway Program

- in 1991, Lahore Islamabad – 4 (6) lane motorway. Contarct with Daewoo
- in 1993, Islamabad Peshawar- M1 motorway. Contract with Bayender

Nawaz Yellow Cab Scheme

- in October 1991, soft loans granted to reduce unemployment mainly
through taxi.
- In 1993 benazir halted the programme

Benazir Power Policy

- private power and infrastructure board set up in 1994 to attract private
sector in electricity generation business
- agreements signed with 19 IPPs
- incentives include, guaranteed US 6.5 cents per KWH, exemption from
corporate tax, custom duties and sales tax. WAPDA had to pay tariff on
unused capacity of 40% of IPPs
- Nawaz tried to correct the problem in his tenure but
international pressure restrained him

Benazir Social Action Program

- world Bank developed this program, which came to Pakistan in 1993

- aimed at improving primary education, basic health care, family planning
and rural water supply and sanitation
- foreign aid from world bank, asian development banketc
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LECTURE # 19

BUSINESS AND POWER IN PAKISTAN

- Conducive internal developments in the business sector remain a necessary

pre-requisite for any society to experience broad and soundly based
economic development.

- Socialist economies are an exception and may re-emerge at any point in time
due to the inequalities caused by the capitalistic model.

- To analyze the business and power model in Pakistan, power structures and
business environment has to be studied from the Mughal period.

- In Mughal period, the salient features are high population and big cities,
satellite town, trade and manufacturing, artisanal groups, agrarian surplus,
specialized crops, short and long distance trade, transport logistics, banking
and credit.

- The Mughal maintained a lavish style and therefore needed an extractive

pyramid through which they could extract the surplus out of the economy. To
do this, they had to develop a feudal disposition which would provide this
surplus.

- Therefore, power remained with the court, military and the feudal instead of
entrepreneurs.

- The merchants and financial creditors did enjoy some influence, but could not
counter the influence of these landed elites.

- The production systems lacked innovation and change and were mainly
entrenched in tradition and social organization (hereditary occupation).

- The production units remained micro-sized except for a few state-run

karkhanas.

- In the colonial period, most of these existing structures were encouraged due
their utility to the British.

- Increasing consumption of imports, therefore, crowding out local

development of large-scale investment (this continues to be till date!).

- In the British period, canal irrigation was developed for raw material
extraction (extortion) and thereby making it a surplus agrarian region.
 27

- Some agro processing such as rice mills, flour mills and ginning mills were
developed in this region.

- The British did not promote any industrialization in the region, so that the
main source of livelihood remains agriculture.

- The agriculturist was leveraged by the government by land settlement and

canal irrigation departments.

- The greater monopolization of economic resources by the military in the

colonial era was clearly a precursor to its exercise of political authority after
1947.

- Punjab supplied more than half of the British Indian army. Therefore, army
was important to the British and did not want industrialization in the region.
Land grants to military.

- Muslim resentment against Hindus due to financial leverage.

- Muslim agrarians were under debt due to their lavish lifestyles despite the
decrease in incomes due to depression. However, they were saved by
partition of India (saved by the bell).

- If the market forces had continued to function, a significant change in the

traditional landholding structure might have been possible.

- Congress was a mature political organization with proper organizational

structure at grass root level.

- Therefore, could resist military, bureaucracy and the landed elites.

- Brought land reforms at the very start to break the power of the feudal and
supported the businessman.

- PML on the other hand, lacked proper political organization, and had to make
alliance with the landed hierarchies of Punjab like the Punjab National
Unionist Party.

- Due to these alliances, the feudals have been part of the power structure in
Pakistan and had a profound effect on the development of business in
Pakistan.

Bhutto: the 70s 1

1
Prepared using: ‘Bhutto’s Social Democracy’
 28

ZULFIQAR ALI BHUTTO: BACKGROUND AND FORMATIVE YEARS

• Born: July 5th, 1927, sindhi

• Hanged: April 4th, 1979
• Son of: sir Shahnawaz Bhutto (landlord, politician Bombay)
• Study: BA from UC Berkeley, Law from Oxford
• Stance: socialist (impressed by USSR)
• Early politics:
o Oct 22, 1958: joined Ayub Khan cabinet
 Minister for fuel
 Minister for foreign affairs

FALL OF AYUB KHAN AND THE RISE OF BHUTTO

1. Ayub Khan Regime: 1958 – 1969 (the 60s)

a. 25th March 1969: succeeded power to CNC Yahya Khan
b. Reasons for this ouster:
i. 1965 war: major economic setback
ii. 1966: removal of Bhutto, let to reduced unpopularity
iii. The development process in 60s created tensions:
1. Capital formation of industrialists at the cost of peasants &
rural/urban worker (low wages, restrictions on labor unions).
Main beneficiaries: large and middle class farmers and
industrialists.
2. East Pakistan not given due share. (very slow development)
3. Agri mechanization: displaced peasants cannot be
accommodated by industry.
2. ayub’s legacy:
a. 2 sectoral model:
i. industrial sector (engine of growth) and argi sector (finance the
growth),
ii. resources from all the sectors were siphoned to the industry
1. balance in favor of industrialist
2. worker and input cost maintained at min  major cause of
agitation
a. lower cost of raw material: exchange rates kept low
b. export bonus vouchers: to compensate exporters
i. sold in the market at 90% premium
c. agri prices: much lower than international market
d. subsidies, credits (IDBP & PICIC) & licenses (raw
material)
3. no non productive expenditures (e.g. health, education, worker
benefits)
b. effects:
i. distorted market mechanism, inequitable
 29

ii. 22 families controlled: 66% assets, 70% insurance & 80% banking.
They failed to reinvest. High subsidy protection caused: no
improvement in quality and costs. Underutilized plant 25-55%.
iii. Over invoicing the cost of plan  extra $ exchanged in black market
iv. Resentment among workers, peasants, and urban professionals
 30

PAKISTAN PEOPLES PARTY: (SKILLED AND SEMI SKILLED PROCESSIONALS)

1. Formed: Nov, 1967

2. comprised of:
a. traditional
b. rural: collectivization for agriculture
c. socialist industrial labor: worker control,
d. urban left outs: economy along socialist lines
3. huge public support: mass rural campaign, rather than going to landlords

1970 ELECTIONS AND PPP RISE TO POWER

1. 1970 elections: (East and West Divide)  army and west Pakistan not willing to
accept
a. Awami league clear major in East Pakistan (160/162 seats)  army surprised
b. PPP won 58.7% seats in West and 27% in East
c. Yahya khan: postponed the first meeting of national assembly
d. Mar 7, 1971: awami league took over administrative offices in east
e. Mar 25, 1971: coercive military action in east
f. 8 months bloody civil war  Bengali freedom fighters ready to fight for their
rights
g. Nov 23, 1971: India fully fledged war attack
h. Dec 26, 1971: General Niazi surrendered to Gen Arora (90k prisoners, 5 sq
miles land lost)
i. Dec 20, 1971: Bhutto sworn in as president and Chief Martial Law
Administrator
j. Stance against the army: army under president: removed the post of CNC of
army, navy air force
k. Freed mujib and others
l. Apr 10, 1973: new constitution ‘Westminster model’  powerful prime
minister

INDUSTRIAL POLICY AND PERFORMANCE UNDER THE PPP 

NATIONALIZATION

1. control:
a. Public sector: everything except
b. private sector: retail and distribution
2. PPP agenda: Improving working condition of labor force:  extracted from private
sector taxation
a. Pension, insurance
b. Health education, recreational and other facilities
3. 1972 – 1976: every industry was nationalized  check out the pace! Woof!
4. aug 1972: formation of BIM (controlled 53 production units, 23 major projects
implementations)
5. Loss of east Pakistan: (raw material lost: jute & tea)
 31

6. devaluation of currency (1$ = 9Rs)

7. lists of items to be important: A-free & B-tied  liberalize import policy
8. abolished:
a. export bonus scheme
9. unlucky conditions: bad weather (73-74), oil crises (73), no foreign aid
10. effects:
a. capital flight  ME and Europe
b. little private investment
c. Admin and defense boomed; commodity sector: suffered (2% vs. Ayub 12%)
d. huge debt & budget deficit

AGRICULTURE:

1. argi bad times after the 1971 war

2. Bhutto set out structural changes in agri sector.
3. PPP aim: elimination of feudalism, protect peasantry  could not be translated into
reforms
4. slowdown in agri because of: declined to 1.7%  below pop growth rate
a. weakening in thrust of green revolution
b. adverse rainfall, droughts and flood  73/76
c. breakup of Pakistan
d. nationalization of agri
5. low agri output  import bill rising  food price increase (2.25 times, bt 70 - 74)
6. rise export increase 4 fold
7. corrective measures: (but to no use)
a. subsidies: food, fertilizers
b. prices support of gov

COTTON:

1. planned targets not met, while area cultivated increased

2. bad weather, periods floods (1973) and drought  formation of Cotton Export
Corporation
3. July 17, 1976 nationalized 600 ginning factories
4. Performance was excellent in 1973, 1974  high world demand, hit 33% of world
export market.

OTHER REFORMS:

1. civil services: Bhutto set to reduce their power

a. yahya fired 303
b. Bhutto fired 1300 alleged with corruption and inefficiency wtf!
c. 1793 constitution:
i. Government power to hire/fire civil services personal
ii. Lateral hiring:  to break the CC cohesively, resulted in nepotism
 32

iii. Eligibility from underdeveloped areas included

2. labor law:
a. changed the definition of ‘industrial unit’
b. relief to labor (social security, not well distributed in fact) badly hurt SMEs
c. businessmen left PPP and combined with religious party towards Zima’s coup
d. capital flight, low private sector investment  lower employment

3. nationalization of schools:
a. plan: quality education at min cost
b. results:
i. quality of education declines
ii. condition of state school dismal
iii. resentment in the middle class
iv. union activities in school and unis

4. health sector:
a. opened 4 med colleges  produced 6000 docs/annum
b. 1973 martial law against migration  resentment in middle class
c. BHUs, RHUs, divisional hospital Plan:  failed to take off due to insufficient
funds
d. Nepotism, drug sale, and lack of equipment failed everything

5. pharmaceutical
a. scheme for genetic medicines:
i. sales of most brand names were banned
ii. pharmaceutical companies to supply medicines to chemists
iii. reduced price for common man
b. effects:
i. chemist protested with reduced profits
ii. foreign companies left
iii. quality of domestic medicine poor
c. gov reverted to old system within an year

Mughal Empire

• Assessment of India's past as a manufacturing nation differs.

• One view is that it was a manufacturing nation at par with pre
industrial Europe. High exports low imports.
• Other view is that because of self sufficiency, lack of trade and
stagnation in economy, technology was primitive, caste based social
system, predator admin
• During Mughals, trend in demand for manufacturing goods was
upwards and substinence was inhibited by rural elite as they followed pompous
life styles.
 33

• Poverty was there but it was there in pre industrial Europe as well.
However there were affluent masses like Malabar(fishermen)
• There was great demand for ornaments as everyone wore it.food,
clothing, shelter, basic necessities had great demand. E.g. of ghee which
Manrique mentions in many of writings and clothing demand there due to
Mughals pompous dresses. Akbar had sewed for him 1000 dresses every year
• There was a sizeable middle income group like paper manufacturer,
barber, carpet maker etc.
• Great demand for housing, but not uniform pattern, Agra houses were
like castles, Lahore just stone and brick, while in Burhanpur they were made of
mud and dung.
• Means of transport was object of display along with quality clothing
• Mughal revenue demand was 50% of produce, out of which 61% went
to mansabdars.
• Lahore, Agra, Delhi were busiest market places
• Lavish spending by nobles. They had 3-4 wives, each of which had 3-4
slaves, plus 4 workers for elephants etc.
• Mughal period expenditure manly on construction work, road building,
horses and elephants etc.
• Rich also made some charitable expenditure that went into mosques
and hospitals
• Mughal peace had increased urbanization
• Textiles, sugar and dyestuff all exported. Dutch exported silk to Japan
and English to Europe.
• After 1630s famine, output of non food grains declined and dyestuff
was the major one to get the hit.
• Other miscellaneous items being produced like opium, tobacco, drink
etc.
• Weakest area of Indian economy was production of minerals because
of technology limitations and unfamiliarity with deep mining. However iron was
there and exported along with gun powder.
• Chief manufacturing industry in Mughals was of boats. European type
ships were made in response to demand as English were getting high prices
from Portuguese.
• Hereditary defined the occupation, plus little difference in pay
restricted everyone to new horizon of developments.
• Jajmani system, hereditary occupation. The jajmani system is a
reciprocal arrangement between artisanal castes and the wider village
community, for the supply of goods and services
• Dadni system, The company used to engage local merchants to
procure goods from the market on its behalf. They were called dadni-merchants,
because they received advances from the company for delivering goods under
stipulated terms. Money was advanced to them so that they could go into the
local market and transfer the advance, if necessary, to the actual manufacturers
for delivery of goods according to a stipulated time and specifications.
• Whip culture for artisans, interest on advance. Middlemen did it. Real
wages low, so were just suffice for substinence.
 34

• Organization not really there. Whenever work came up, a lot people
collected to do it. e.g ship building.
• Possibilities of savings more in Mughals than Europe as small no. of
people had great wealth, but their ostensible way of life prohibited it. Further it
was not channeled into production or investments.
• In contracts to good, technology was backward in Mughal period.
• They thought why go for a machine when a person can do it. eg. No
wheel barrows for house building or multispindle wheels for cotton. Not even
screws were produced locally.
• One heavy industry was of canons and hand gun.
• Labor was highly skilled and without precision instruments built ships.
• Specialization there in luxury and textile market and each variety
produced by a particular sub caste unlike Europe. ( labor intensive)
• Landed aristocracy was there as mansabars were also jagirdars and
serfdom existed.
• Patronage by nobles was important for poets, painters etc.
• Professional classes worked on the hereditary caste system.
• Money lending (baniyas) business flourished in Mughals ( as vast
empire so transfer of funds ) but had a love hate relationship due to religious
dispositions.

Malign Growth? Agricultural Colonization and Roots of Backwardness in

Punjab

• Economic growth has occurred unequally all around the globe. Regions with
economic growth have benefited and some regions did not have any
transform ing effect.
• Economic growth there in 3rd world countries and contact there both within
and with industrial countries.
• Colonizers destroyed productive system( e.g. opium in Bengal instead of
rice).
• Punjab was the main source of army recruits for British and had a Land
Alienation Act 1900 to protect against commercial and trading groups.
• Mukjhergy and Naved argue that Punjab was suffering the same status as
others.
• In Punjab 9 major canal projects were completed. Canals channeled water
from rivers to bunjar zameen.
• Canals were made in regions where there was no rain and hence sparsely
populated. So they brought canal colonies with them.
• Punjab lands were state owned so development goals could be attained
easily.
• Punjabis got the land in return for beholden to state.
• Rich people had more influence for acquiring land because of relations with
state thean the poor.
• These allegiances with people gave British great authority.
 35

• Positives of canal colony. Small land holdings given to peasants who became
respectable market producer. Also, densely populated areas became diluted.
• The negative was that only land holding castes got land.
• Land holding caste with brutish still 1947, therefore political forces had little
support here unlike other subcontinent areas.
• Over population/un productive land, resulted in surplus turning into army.
Thus representation of certaiun castes and regions in military had a distinct
influence on civilian grants.
• Also govt did not give ownership, just possession, so certain rules had to be
followed. e.g. size of residential and commercial premises etc.
• So because of that relation of peasants and govt was strained and to top that
the subordinate bureaucracy spread corruption.
• Further the punishments ( cash fines, withholding of irrigation facilities) were
adding fuel to fire.
• Clonization bill 1906, state as propriter, colonists as tenants with all the
conditions. Mass opposition to it.
• Bill retreated, committee formed, bill in 1912, well received as according to
their wishes.
• New act said shifted propreitery rights to peasants after a certain qualifying
period with no regulations. Negative was that ity fostered absentee
landlordism and hence retarded development.
• So landowning classes stuck to traditional systems and no transformations
resulted.
• Apart from land owners, land lords were also given land.Army servicemen
also given land in exchange.
• Landholders given land in exchange for –ve impacts like loss of river wter
supply and loss of tenants.
• Private canals were allowed to influential class.
• Local luminaries got land to keep people's feelings from rising against
government.
• In otgher parts of India duw to sweep of congress, land holding class eroded.
• In Pakistan, canal colonies, so landlord culture remained, further league allied
with landlords, so no proper land reforms even now.
• Land given to Punjabi bourgeoisie, non landed rich thru auction. Only non
landed poor did not get land.
• Further opposition to colonial rule was weakest in Punjab, as bourgeoisie
fitted well in admin cadre, entrepreneurship grew in market towns, doctors
and lawyers were in demand.
• No industrialization in Punjab, although cotton was exported. Burgoise
became rural ( reverse of Europe)
• Also educated people went to India at 1947, so no development.
• Landholders could have brought transformation, but laid back attitude,
rented out lands and primitive methods hampered it.
• Military grants also hampered economic development and meant that
recruitment came from Punjab.
• Military participated through land owners and breeding of animals.
• In military there were agricultural castes, so nexus formed between
landholders, military and social status.
 36

• That is why military has dominated Pakistan and maintained status quo, The
Punjabis helped British like Pakistan is helping America. Both help conquer
others.
• State was also unable to bring reform in other areas like revenue assessment
because of vested interest of landlords.

Positives:

1. emergence of new agrarian sector eased the pressure on other parts of

province.
2. surplus production, marketing networks shook society out of inertia.
3. colonial rule benign in comparison to other lands and stimulated economic
growth.
4. paved the way for green revolution after 1947.

Negatives:

• Used as metropole satellite.

• Fear of competition with local industry so no transformational industrial
change to local industry
• Surplus not for development but for military and admin
• Political rights and justice system flawed (contacts with rich people).

On the Political Economy Of Backwardness

• Economic growth is not distributed equally in history around the globe but is
spotty
• Capitalist did not move to labor intensive countries for their development, but
used them as satellites for metropoles.
• Didn’t do anything positive for these satellites and infact exposed them to
markets and disrupted their growth.
• If there is a complete substitution of feudalism with capitalism, then ok, if
partial, it is more problematic.
 37

• All modern machines and products were for foreigners as the poor locals
could not afford it.
• People from under developed countries went abroad to broaden their horizon
and know what was happening as compared to what could have happened.
• These young guns have limited opportunities to turn around things.
• In west bourgeoisie rose against upper class, while here, they joined them.
• Exit possible through younger generation and business, but it is slow.
• Ongoing demands didn’t give time for gradual movement. Landlords, govt
machinery and businessmen all extracting surplus.
• Middle class had to break away from ruling elite and show peasants that
there capable. But there was no outside stimulating factor like labor
movements in Europe.
• More output = economic growth + no deterioration of living std.
• More output mean more resources put into industries and not agriculture.
• Rich people can have surplus for investment but they have so many needs
tha cant be satisfied.
• Reason for backwardness, shortage of funds and opportunities
• Large population of poor people want food and clothing no other investment
opportunities.
• Since demand of other goods low, so they are imported instead of home
production.
• Also since no infrastructure lie power road etc., so businessmen apart from
erecting factories also have to invest in that.
• Businessmen dnt invest because of short term profits and riches and dnt
have money or resources of that scale.
• Output can also be increased through better utilization of land, making it fit
for agriculture., which requires investment.
• Also there are small holdings in underdeveloped countries, so development
an issue.
• In such a climate monied peole are not willing to invets.
• Govt can do a lot in this case. More tax in unproductive investments, create
infrastructure, setup schools for training, control inflation, prioritize
industrilaizaton for resource allocation.
• But in underdeveloped countries, govt dsnt do iut because of inefficient civil
service. If correput officials start applying tax system, the economy wiul
deterirate further.
• Ruling class controls everything and when they see a social upheaval, they
go for dictatorship funded by foreigners.
• Military and foreign aid are temporary solutions. Change has to happen
internally.
• This lending is evil in itself as it brings certain condtions e.g. recent imf.

• The transition although painful as to be abrupt

 38

Changing Attitude towards business in India

There is a difference between doing business and performing just professional

duties. Business is an activity that involves transactions against goods and services.

Business plays an important role in transformational stages of a society. In 16th

century. Business had occupied an important role in Indian society.

Similarities in 16-18th century between India and Europe.

Existence of powerful merchant class, substantial body, self confident artisan

class and class links with rulers

Even then it couldn’t flourish in the next 4 centuries.

Before Mughals:

• Businessmen's gradual rise in status and privileges as they gave support to

govt regarding military expenditures
• They had positive attitude towards themselves and society also trusted them.

Mughals:

• Mughals were centralized state with feudal aristocracy with no need to go for
trading/manufacturing.
• Even those involved in trading like Shaista khan used crook methods to
extract out each others wealth.
• In mid 16th century merchants operated from ports. Landlords threatened
merchants so much that Aurungzeb had to issue a Firman.
• Artisans were also man handled. By force they were told to work for nobles
and given wages according to the noble's wishes.
• Traders were given assistance only if they used bribes and if benefactor
(political) or a merchant lost, merchant also went down with him in terms of
his business.
• Therefore most of the merchants went to East India Company and some
artisans converted to Islam.
• One business that flourished during Mughals was money lending and banking
because of mansabdari system and requirement to organize and speculate in
finance section.
• First there are only Marwari baniyas in Rajhistan but then commissary officers
started to settle in different cities and formed a net.
 39

• This had a love hate relationship with Mughals as Usury(against Islam), and
benefit of transferring money.
• Since Mughals were against baniyas and were also declining in power, so
baniyas joined the British camp. ( empire for British vs opportunities for
baniyas).
• Businessmen didn’t show their wealth as state might confiscate it.
• There was no business community.
• Also class feeling transformed into caste feeling. ( profession locked with
caste)

British Period:

• As British gained power, attitude towards local businessmen changed.

• No such capitalistic aspects like market mechanism (suppressed local
industry as it may become competitor), legal system (just collected info and
applied the local tradition as law).
• British were first concerned with exporting finished goods and then started
with raw materials.
• But to keep the empire intact and gain benefit from military strength of India,
British gave local baniyas some facilities.
• Socity viewed the businessmen as exploiting the poor as well as good human
beings (built temples). Educated people had high hopes from these
businessmen against British.
• So Indian businessmen found self confidence and oppressed British formed
their own chamber of commerce and started meetings on the sidelines of
Indian national congress and INC's economic decisions were made with their
advice.
• Also, Indians started to venture into new businesses like ship building, which
was previously British stronghold.
• (Indian businessmen gave INC funds and got ISI in return, after
independence).

Europe vs India:

• In Europe before 15th century traders didn’t enjoy high position in society ,
unlike India where they were given support by the state.
• In next two centuries rise of powerful merchants in Europe, while Mughals
and then British suppressed he merchants in India.
• Trade grew and merchant communities grew in Europe. Accumulation of
wealth was feared because of Mughals in India.
• In Europe scientific revolution, idea of progress paved way for industrial
revolution, while in India people could not come out of the philosophies of life
and death.
 40

Overall Westernization was good for India as it brought social reforms for
emancipation of oppressed, rights of people and economic development thru
railway system. Idea of progress was absorbed in Indians.

Businessmen and partition of India

• Attitudes and activities of businessmen was one of the reasons ( not the
major cause ) of the partition of India.
• Businessmen did not oppose the partition before 1942, but after that strongly
favored it.
• Merchant communities were related to communalism movements.
• Little is know abt Muslim businessmen apart from AnjumaniIslam, under
Ispahani and adamji.
• More is known about Indian businessmen specially related to Cow Protection
Agitation in 1890s. Also, they supported the propagation of Hindi.
• Apart from religious groupings, there were caste, regional, indigenous vs
expat groups as well.
• This meant that 1909 separate electorate reform, it could not be said firmly
that Muslims will support Muslim league.
• Bipan Chandra and Smith both convinced that prior to 1940s there were no
categories like Hindu and Muslim bourgeoisie.
• Muslim majority areas like Punjab and Bengal, they did not occupy dominant
positions and in other minority areas had their say.
• One weakness of Muslims was finance.
• Before 1930, business partnerships were based on family and kinship basis.
Within muslims, khojas did not ally with memons.
• After 1930s co religious linkages started to establish and Jinnah also gave
support.
• First landmarks in making association was Muslim Chamber of Commerce in
1932, Calcutta. But it had more to do with getting a seat in provincial
legislature than communal difference. Also, evidence of this is that some
muslim businessmen continued to be part of Indian Chamber of Commerce.
• Ispahani and Adamji made the other chamber not on basis of communcal
difference but due to dominant position and autocracy of Birla. Muslim label
just came in handy for them.
• Once started, it culminated into FMCCI (AIML) and FICCI (INC).
• Most of the businessmen were Hindus ( evidence after partition what
happened). Muslims got their credit from baniyas but there is no evidence of
biased ness that Muslims were knowingly suppressed and kept out.
• Difference in education, scarce jobs made Muslims think that Hindus were
given special treatment, so they started asking for positive discrimination.
• Indian businessmen like Lala Lajpat Rai and Gokul Narang were staunch
supporters of hindues. On the other hand mulim businessmen of Punjab like
syed maratib ali were favorable to unionist party and not Muslim league.
 41

• Birla was against communal as he feared that Muslim govt will be detrimental
to their interests. But when fazl haq came in power in Bengal after 1937
elections, he appointed hindu in area of finance.
• Ispahani was the major financier of AIML.
• Muslim businessmen wanted provincial autonomy rather than a strong centre
and that too was what jinnah wanted and a separate state was only his
second option.
• 1936, question of separation of Bombay from sind, Hindus opposed it. But
Muslims continued to participate in Bombay chamber. So communal politics
didn’t play a role there.
• First British believed in unified India and Cripps mission was the first indicator
towards partition.
• It drew a wedge between provincial autonomy versus concessions to Muslims
overall in whole India. It could have been a fighting point for Jinnah and
Muslim businessmen, but even before that, the Congress (Birla), opposed it
saying that separate Muslim state is a more viable option because of
communal differences.
• There was a divide in Indian business camp over partition as Ahmedbad mill
owners sold cloth to Bengal, Birla and Sriram had factories in Pakistan. But
problem would have been solved if they got Calcutta, that meant dividing
Bengal, which was against the natives feelings.
• Industrial policy in 1945, transferred power from province to centre.
• Parttition attractive to Indian businessmen with Calcutta. Muslims also happy
with a separate Sind form Bombay, but Bengal had to divide. Overall there
were opportunities for both Muslims and Hindus, so separation was ok.
• Suharwardy plan of independent Bengal thwarted by big businessmen.
• Partition saw Calcutta given to India. But Indian businessmen could not
foresee that Calcutta jute mills were cut off from their raw material supplying
areas of Bengal.
• Also, after independence, most of countries budgets were sent in defense
expenditures so business interest suffered.
• Indian Businessmen feared sharing of power at centre with Muslims as they
knew Muslims will exploit their inherent differences.
• Businessmen hand in partition was limited to Calcutta only. There was no
other major part in partition.
• Feelings of communal difference were there, but even stronger were caste
and regional.
• Partition was zero sum game for Muslims and Indians. Indians migrating to
India faced tougher completion.
• Less trade between two countries meant cotton business of India badly hit.
Also jute mills of Calcutta faced competition from east Bengal.

Relations between the muslim league and the punjab

national unionist
 42

• Contribution of all india muslim league in the making of pakistan.

• Gaining support of punjab national unionist party in the PUNJAB.
Issues

• 1937 elections showed that congress was very popular but only among
the hindus, it secured only 5.4.% votes of the muslims. Not even muslim
league gained wide popularity.
• in the next decade muslim league became a formidable power in the
muslim majority areas under Jinnah.
• Wanted negotiations at the central level. Communalism , manipulation by
non communal factors were present such as class, existing power structure,
its relationship to british rule, internecine rivalries.
• Largely by the British and their unionist party established in 1920s. league
– unionist relations was an integral element in the growth of muslim league.
Unionist was the most popular party in the 1937 elections, unionists also
entered into inter communal coalitions with moderate sikhs and hindu MLAs.
Other parties were sikh akalis – communalistic. Only non communal – unionist
with hindu Jats.
• 1937 – no linkage between unionist and league
• Then formed a likage thru sikander jinnah pact 1937. but later adverse
effects
• Not until 1944 league challenged the unionists hold over punjab. Resulted
in break and no further reconciliation
• 1946 elections , sikhs and unionists - coalition against it, league gained
majority of punjab muslims but no office. League resorted to non-cooperation
movement in 1947 and succeeded in bringing down coalition.

1946- elections, The League excluded

• Fazl-i-hussain against ML efforts to gain foothold in punjab. Jinnah willing

to allow his men to cooperate with the non muslims parties in the assembly.
Was organizing unionist for elections and was loyal to british to keep the
province free from communal dissention.
• Reasons against ML were internal dissention and factionalism within
muslim unionists and that hinus and sikhs would also adopt communal issue
in electioneering and undermine support for non muslim unionist. 2 groups –
noon tiwana and daultana factions, ministerial possessions rivalry. Daultana
to replace hussain with sikander hayat khan.
• Jinnah support from majlis-i-ahrar and majlis-i-ittehad-i-millat, rep urban
middle class. They left him to contest on their own. Jinnah with iqbal, malik
barkat ali and khalifa shuja, ghulam rasool . only 7 contested and 2 elected.
Nothing big …
Sikandar jinnah pact 1937

• Promised to bring muslim unionists into the league.sikander at lucknow and

fazlul haq of bengal great adv. Support of 2 largest muslim provinces.
 43

Punjabs politics working against the league. Sikander criticized congress only
to side with the british against congress.
• Sikander seemed to immobilize ML at its origin. Iqbal had asked jinnah
to remove unionists from the AIML council cuz of their ani league stand,
jinnah allowed the unionist, PML interpreted the pact as virtually merging the
unionists into the league. Iqbal and PML leaders warned jinnah that sikander
wanted to minimize leagues influence int the punjab.
The league beleaguered : 1937-42

• Sikander wished to gain control over PML, he requested for the removal
of PML secretary Ghulam rasul and wanted to appoint his own nominee. Iqbal
refused. By 1938 Iqbal fell fatally ill and was removed from presidency and
replaced by nawab shahnawaz, a pillar of unionist party. By this time PML
was in a state of financial collapse.
• Sikander and shahnawaz changed the venue from lahore to calcutta.
Liaquat sided with sikander cuz he could not afford otherwise as sikander had
lots of land in punjab and his bro was a unionist MLA. Final denouement for
old PML at calcutta in 1938. jinnah started Punjab League anew and formed
35 member committee but sikander’s group got majority with 25 supporters
and PML getting only 10.
• Jinnah also had less knowledge of punjab politics and sikander tried hard
not to spread PML by suppressing league organization. Barkat ali helped to
form punjab muslim students federation. Sikander’s provincial autonomy was
in direct conflict with Leagues demand for separate muslim state, JINNAH
REALIZED his mistake in trusting sikander and he was finally removed from
the AIML working committee.
League – Unionist Clash 1944

• After 1940, league became stronger because of pakistan demand and also
because of mortality amongst political leaders of union party in 1930s.
daultana, mamdot and sikander all died, as well as chotu ram.
• Factionalism began to grow within unionist party as the new leader kihizr
had no experience of how to maintain cooperation ( as sikander had
maintained bewteen non tiwana groups ). Also people's confidence in
league began to develop as it had started to form ministries in sind and
bengal.
• Jinnah was angery as he was not consulted in appointment of khizer as the
Unionist leader. Jinnah said that as the MLAs had signed fr league so, it is
the league who should form the coalition ministry but kihizr resisted and
ultimately he was expelled from league.
• British backed PNUP and it gained a seat in viceroy's executive council as
a non league member, which was a big blow to league itself.
• Also, british made a mistake in making khizr the leaderas he was of the
landed caste and led to factionalism.
• Announcement of 1946 elections brought league into furtehr prominence
as people could see pakistan being made and knew that communcal
problems could only be solved by it.
 44

The Complete Break: 1945-47

• It was a blessing in disguise for league. as they could now concentrate

towrds their mission. JUI, MSF abd Muslim League National guard allied
and went for elections. It was the religious vs administrative political fight
in the elctions and at the end League won.
• However, since, because of comuncal award coalition was necessary, so it
could not form a minitry. Also, because of comunal differences coalition
with congress or akali was not possible.
• So, Unionist-Akali-Congress alliance formed governement.
• League abstained from non cooperation, as it knew that akali-congress
pact was uneasy and it wanted to test it's strength constituionally.
However, assembly was adjourned and a safety ordinance was passed
banning demostrations.
• Furtehr arrests were made of league members. This resulted into mass
movements, defying the safety ordinance and ultimately khizer minhitry
ended.

Conclusion:

• The league in Punjab never came to office, nor did it have time to build
from grass root level unlike conmgress.
• This explains the differing fates of two parties after independence.
• Also, big landlords were not overthrown and hence land reforms could not
take place in pakistan for a long time

Vilayatpur

◘ Comparison of social, economic and political life with current and

British India.
◘ Colony and House structure used to shows the peasant classes.
◘ Class 1: Sahotas, Jats, Brahmin, Syeds, Rajput, Gujjar
◘ Class 2: Herdsmen, cultivators, potter, dyer, drummer, Kammi,
Chamar, weever, Sweeper, mirasi, gold smith
◘ Class 3: untouchables
◘ Common land was a feature. No land enclosures and no big landlords,
◘ Main economic activity: agriculture.
◘ Family members helped in planting and harvesting.
◘ Brahmins and Syeds as priests.
◘ Profession determine caste or caste determine profession. Change
profession to change caste.
◘ Minor trade with other villages.
◘ Small home owned working area.
 45

◘ Sepidars: family of servants and artisans working for particular sahota

family for long time. Provide services and get paid in the form of percentage of
harvest.
◘ Marriage is an acid test for a culture. It determines the castes system
of society.
◘ Shopkeepers used to lend small loans.
◘ Irrigation through wells. Separate well owning group e.g. Mehtab Singh
and Noubta Singh.
◘ 93% cultivated area.
◘ Low productivity to export, wheat was major crop. Enough for local
consumption.
◘ Gur processiong and traded to nearby market.
◘ Property owners of wells.
◘ Rabi and kharif cultivations.
◘ 4 major occupation categories: cultivator, services, manufacturing and
agricultural labor.
◘ Zamindari and riyotwari system for revenue collection.
◘ Zamindari: joint body from a single head or family having the claim of
the village.
◘ Ryotwari: Each man owns his own holding.
◘ Pattidari: members’ share were determined by the operations of law of
inheritance.
◘ Bhaichara: land division in equal size lots and productivity.
Social and Polotical Organization

◘ Large caste group dominates the economic, social and ritual life of
community.
◘ Sahotas were dominant becase of numerical and economic condition
and were having high caste status.
◘ Other castes used to exercise power through relation with these high
castes.
◘ This caste system remained same during british and sikh regime.
◘ No law courts. Acceptance wsa required from Sahota’s.
◘ The classical view
◘ Village republicconcept.
◘ Caste and kinship system.
◘ Egalitarian system.
◘ Small family sizes.
Immediate effects of British rule

◘ Conservative revenue generation policy.

◘ Village under administration.
◘ Tehsils.
◘ Fixed names for villages.
◘ Importance to be given to village.
◘ Payment of revenue.
◘ Unjust and subjective re-classification. Some men ruling the whole
vollage.
 46

◘ Bhaichara collectively responsible for revenue generation.

◘ Pattidari system for reinforced resulting in breakdown of bhaichara and
zamindari system,
◘ Judges and law courts were placed, and land records were kept intact.
◘ Absentee land holder increased.

STATUS AND OCCUPATION IN 19TH CENTURE PUNJAB

◘ Hindu, Muslim and Sikh

◘ Hindus: Brahmin, Khashtri, Vesh, Shuder.
◘ Khashtri: landholding and trading class.
◘ Brahmin: Religions class.

◘ Muslim:
◘ Asrafiya: Syeds, Sheikhs, mughals, and Pathans.
◘ Sikhs: Jats

◘ Under British rule: Menial class denied of land holding

◘ Status: on land acquisition
◘ Proper land system
◘ Maintenance of law an order
◘ Labanas: having a lot of moving cattles. Traces in Lahore and Ambala
and were below jats,
◘ Kalals: jassa singh Kalal: change status by changing caste names.
◘ More sikh jats were in military.
◘ Rain based irrigation or wells based irrigation.