Bases of Pakistan’s Second Five-Year Plan Dawn, Karachi, March 23, 1960

A long-term plan of economic development reflects a nation’s vision of its economic destiny against the background of its conception of ideal collective and individual existence.

The Second Five-Year Plan which Pakistan is about to launch can be studied item by item, in a sharp economic focus, only after relating economic thought with the national political consciousness and moral pre-occupations. The merits of this particular Plan cannot be assessed before we find a defence for the system of life from which it grows, and which it will further shape.

It will, of course: be rejected out of hand by an opinion conditioned by communistic views on ideal methods of production, nor will it bear scrutiny if examined on the socialistic principles of ownership and distribution, and it is not based even on the principle of totally uncontrolled free enterprise.

A passionate advocate of any one of these systems will in all probability differ sharply with our approach. I shall, therefore, seek to analyze and interpret our economic planning in the perspective of the Government’s development policy. The Plan becomes rational, realistic and significant only when regarded from this angle of judgement.

The direction, pace, labour organization and priorities at various stages of development cannot be determined in isolation from the totality of national urges which include, besides a desire for economic sufficiency, freedom of choice in thought, profession and residence.

When the varied urges of man find expression in constructive actions, these actions are often seen at cross-purposes, each seeking priority and importance over the other. Men react with varying degrees of intensity to different urges and attitudes towards values and ideas.

The economic determinist who sees only the economic factor in all human actions; the theologian who relates human actions to the will of God, and the laissez-faire philosopher who believes in total non-interference in the individual’s economic life, are all conditioned in their thinking by some system of influence or indoctrination. Each of them would have us live in a society based exclusively upon his system of values, with its peculiar rationalized economic complexion.

Our Second Five-Year Plan has been formulated on what we consider are the most realistic bases. I will take the liberty of explaining what the elements of these bases are:

The first and the foremost consideration is the recognition of the essential freedom of man who resents every new yoke that restricts his activities. This recognition is reflected in the Plan. Almost 56 percent of internal resources are calculated on the basis of private savings which will be ploughed into investments needed for the Plan.

The Plan recognizes the importance of allowing the individual to productively exercise his ingenuity and genius. The Government’s desire is not to impose any rigid economic and social structure upon the people but to clear the way for the real role of the majority.

It will not be out of place here to say a few words in defence of the system of partially free enterprise on which our economy has been based and will remain based till the people feel differently. There is no denying the fact that a society whose economy functions on the principle of free enterprise affords a greater chance for the free natural growth of personality and faculties, nurtured by the benefits of civilization.

Karl Marx, however, denied this and propounded the theory of the inevitability of concentration of wealth in a few hands in an industrializing society leading to much misery for the working class, and resulting in an eventual struggle of the classes. But this has not happened in the economic history of all nations. The United States is a classic example.

The chain of economic conditions which finally placed the means of production in the hands of large corporations owned by millions of people instead of a few, and the benefits that flowed from this, making USA the envy of much of the world, are too well-known to be repeated here. Pakistan has much to learn from the US history of economic transitions, but cannot base its economic future entirely on the same lines of development.

This takes us to the second base of our new Five-Year Plan, namely, the necessity and responsibilities of the public sector. An organization like WAPDA or PIDC visualized and planned by administrative and economic experts, with the force of Government approval and resources can produce superior and speedier results than can the private entrepreneur whose capital resources are limited. In an underdeveloped country like ours it is essential that such resourceful and superior public organizations be geared up to implement the efforts of the private sector in nation-building activities. The public organizations must, however, restrict their activities to pre-determined fields and allow the flexible private sector to fill in the gaps.

This, however, does not mean that the private entrepreneur who has the means of capital formation on a big scale will be excluded from undertaking large-scale industrial or agricultural projects. On the contrary, every facility would be given to him. The planned large-scale development activity by the public sector may be irreconcilable with unfettered free enterprise. As, however, no unfettered system of free enterprise exists anywhere, over the years, a happy marriage has taken place between planned enterprise and free enterprise.

For this reason, plans such as our Five-Year Plan try to combine the requirements of the public and the private sectors. For the time being partially planned and partially free enterprise is the safest solution. This compromise provides an opportunity to the enterprising individual, who has sufficient capital, to add to national output. At the same time the Government can also make its contribution through the public sector.

The third base of the Plan is its increased accent on the development of agriculture, at some cost to industrial development, especially in the public sector. This shifting of emphasis from the development of large-scale heavy and medium industry to agriculture has come in for much honest criticism based upon a different appreciation of priorities. The Plan realistically recognizes both external and internal shortcomings. It is clearly aware of the fact that both industry and agriculture cannot receive equal treatment all the time.

It was after, a long and thoughtful discussion and deliberation that agriculture was assigned priority. For an underdeveloped country like Pakistan, it is essential to have self-sufficiency in food; otherwise its sovereignty becomes illusory. Perpetual import of food grains makes a country more dependent on others besides causing a pathetic wastage of foreign exchange, which is so essential for the development of the national economy.

The position of the fully industrialized countries is different. Some of the Western countries are not self-sufficient in food but being highly industrialized they are in an invulnerable position. Their need for food grains is not a drawback for them because their industrial advancement enables them to take counter-measures. But we in Pakistan cannot at present think of an industrial advancement to the same extent that some Western countries have achieved. In the circumstances, we must concentrate on improving our agriculture.

We have not only to increase our production but also to provide safeguards against damage by floods and disease. It is well within our grasp to achieve self-sufficiency in food and this we can only achieve if we apply correct methods of agricultural development and production. The problem has to be tackled on a war footing. We have to mobilize all our energies in this direction. Sick lands, which are so heavily waterlogged and saline, will have to he reclaimed. Vast new areas of arid lands will have to be made fertile by the construction of dams and canals.

Agriculture must be treated as an industry in order to achieve spectacular results. Concessions given to industry such as tax concession and other reliefs may have to be made applicable to agriculture. If profit is the real incentive for greater production in the industrial sector, why cannot it be the same for agriculture? If the country seeks to attain self-sufficiency in agriculture, and this it must, the grower must be given attractive incentives.

It must not be forgotten that more than 80 percent of our people live on and by the land. Progress in the field of agriculture means the progress of the overwhelming bulk of our people. Pakistan, as already stated, has limited resources for the development of industry. It should seek to become the Denmark of Asia but not its Germany. A German historian once said. “If God is made of steel I believe him.” Where is our iron and steel, our copper manganese, coal and ore? Until we strike oil, cotton is our steel, and jute our oil. We are a pastoral people and we should be proud of it. Agriculture is and should remain our prima donna. We have neglected it far too long. This, of course, does not mean that there should be a halt to industrial expansion. On the contrary, our efforts should be intensified.

The emphasis, however, should be shifted, to the extent necessary, to give agriculture the attention it requires. Agricultural raw materials still remain our chief source of earning foreign exchange without which no advancement is possible in industry or in agriculture. As the agricultural revolution can be achieved much quicker and agriculture is our major industry, the gain in terms of foreign exchange will be much larger. It is only economical to concentrate on the development of agriculture.

It is, however, imperative that the private sector should concentrate more on establishing industries geared to agriculture. It is in the interest of the private entrepreneur to go in for manufacturing agricultural tools and providing engineering works as he is likely to attract a growing demand in these products and services as agriculture grows with the help of the major measures visualized in the Second Five-Year Plan.

Agriculture must receive the same pressing attention which housing or social welfare does. Man must eat, have shelter and wear at least protective clothing before thinking of indulging in modern amenities. Advancement in agriculture will help procure more food at cheaper price for the common man. His housing needs are also receiving careful attention and benefits of social welfare will flow through the Village AID programme and the national development organization.

The fourth base of the new Five-Year Plan is the increase in taxation to the tune of one billion rupees. It has been clarified in the Plan that the burden of the additional tax will he placed on those who have the ability to pay it.

To this day industry has enjoyed attractive concessions mostly at the cost of agriculture. Although Pakistan is an agricultural country and 90 percent of its foreign exchange earnings accrue from agricultural products, this pivotal industry has been badly neglected. Subsidization of industry at the cost of agriculture for ever is an indefensible position. Industrial development will not be retarded by an increase of one billion rupees in taxation if the principal burden of this taxation falls on the industrial sector.

A high tax-percentage is not in all cases a disincentive to industrial development. In the modern age most of the large industry is owned by corporations. A corporation is a juristic person with the same rights and obligations as an individual. A corporate person generally accumulates a large aggregate of wealth. Seventy or 80 percent of taxation on gross income, running into millions and billions, still leaves lucrative profits. For instance, it enables oil companies to provide their directors and personnel with regal salaries. There is no exhaustible limit to industrial development. It has markets at home and abroad. Its income increases correspondingly with its growth.

Such conditions do not prevail in the field of agriculture. The rate of investment in agriculture is limited. It faces greater danger from floods and damage by insects and exhaustion due to water logging and salinity. In addition, agriculture is heavily hit by periodical economic recessions that industry faces every 15 or 20 years. The real crisis confronting industry is economic recession, which effects agriculture as well. The only independent threat that industry faces is strikes. Industrial production, sales and gains are on a day-to-day basis. It is,, therefore, relatively easier for the industrialist to recover from the shock of recession and strikes by judiciously balancing production against demand. But when the farmer becomes the victim of recession, he requires at least one season to offset the set-back.

A higher percentage of income-tax on limited incomes strikes at the roots of the growth. Notwithstanding these obvious difficulties the demand from industries has been to shift the burden of taxation on agriculture.

The expectation of a more generous measure of foreign aid and loans forms the fifth base of the Five-Year Plan. The necessity of readily available foreign exchange is obvious but I find it necessary to dilate upon this aspect of our economic necessity at length because it is here that the Plan is most vulnerable. What I am going to write from here onward may seem a little out of joint with the main theme of this article, nevertheless I find it essential to enlarge upon the problem of foreign aid and loans and to analyze their mechanisms carefully.

The fact of the matter is that our tapped and known sources for earning foreign exchange are meager. We have jute, cotton, wool, hides and skins, and inferior tea as our main foreign exchange earners and all of these are primary commodities. These commodities are singled out for mention because they earn almost nine-tenths of our much needed foreign exchange. Industrial development, which is at present principally based on two raw materials, jute and cotton, is in such a nascent stage that with the full benefit of the Bonus Scheme, the foreign exchange earned from all manufactured and semi-manufactured products was Rs. 400 million in a period of ten months. Relatively speaking this is good progress but far from sufficient.

Foreign exchange will be a Cleopatra to the Plan. If this Plan is to succeed, it must conquer foreign exchange and not be conquered. Each one of the particular primary commodities mentioned above faces hazards. Jute has remained a stagnant crop in the sense that its demand has remained steady. Substitutes like paper keep making gradual inroads into its markets. Difficulties relating to cotton are too well-known to be repeated here. At present America expects to export five million bales of its superior variety with the comfortable cushion of a heavy subsidy. The competition is extremely acute. We face not only internal limitations but also international.

The basic problem of economic development of the underdeveloped countries is that of finding adequate investment. The rate of domestic savings is too low and, even what there is, is swallowed up by the enormous rate of population increase. Here we come face to face with one of the several handicaps with which our problems are bedeviled. To break through we need to earn more foreign exchange in addition to international assistance. We can only earn substantially if we are paid reasonably for our products. Only then would we be able to increase our capacity for the contribution to our own development. However, our capacity to contribute to our own development depends largely on our export earnings. It is, therefore, a matter of considerable concern that the returns from the sales abroad for primary commodities have diminished very considerably over the last several years.

A fall in the price index of primary commodities in the course of 1957-58 has reduced export earnings of the underdeveloped countries by about eight percent, representing a loss in one year in their import capacity equal to about six years’ loan to them by the International Bank of Reconstruction and Development at the 1956-57 levels. It is, indeed, pertinent that the total financial aid which we have received from different sources up-till now has been less than half of the total loss which we have suffered on account of the fall in the prices of our primary commodities. Today, the purchasing power of the export value of our primary commodities is a little less than 50 percent of what it was in 1948-49. As this is an agonizing and frustrating problem, we will have to face it with the sense of urgency that the circumstances demand.

It was with this purpose that Pakistan successfully moved, in the 14th General Assembly of the United Nations, a resolution asking for urgent examination by a committee of experts, in consultation with the countries producing primary commodities, of the ways and means of establishing a compensatory machinery to offset the drastic fall in the prices of primary commodities. If the decline in their prices continues and if the corresponding increase in the price of manufactured goods also persists, it would become all the more difficult to achieve the objectives of the Plan.

In addition to our own difficulties of earning foreign exchange we must take serious note of the disturbing trends in the procedure of aids and loans received from foreign sources. Because of our clear, consistent and morally correct foreign policy, we are denied assistance from many sources.

The “neutralist countries,” by adhering to a policy of being in both courts, have a wider scope for tapping aid and assistance from all sources. Not only is our source confined but this same restricted source is now imposing restrictions which did not exist hitherto. When the Marshall Plan was launched in Europe no restrictions were placed on the liberal aid that flowed into Europe to rehabilitate its economy within the shortest reasonable time.

Similarly, when the Point Four programme was first introduced by former President Truman, it was based on the principle of the Marshall Plan. It is unfortunate that at this crucial stage of our own development, the United States should feel the need to make certain modifications in its loan utilization. It is, one supposes, the moral duty of prosperous European countries to step in to the extent that U.S. is compelled to contract.

Whether Western Europe and Japan will react in such a way is still to be seen. What is more uncertain is whether this is the way for the United States to seek Europe’s association as a contributor to the development of underdeveloped countries. Mr. Douglas Dillon, the U. S. Under-Secretary of State in charge of Economic Affairs, recently visited Europe with the purpose of persuading European countries to share this responsibility. In countries like ours the dominating fact for the next two decades is the revolution of rising expectations and industrial advances with a view to creating several new Japans! Asia is no longer the godown of the spirit of resignation. Its people are vibrant and impatient for a better life on earth.

Almost all prominent statesmen recognize Asia’s revolution of rising expectations. The current economic wealth of Europe and America combined is in a position to fulfill these expectations. The problem is not the inadequacy of the combined resources and strength to assist in the realization of this revolution, but to find the ways of gaining effective cooperation of the wealthy half of the world for this purpose. Such co-operation cannot be achieved if the United States continues to bear the full burden without Europe providing its own share, or if U.S. adopts protectionist policies to force Europe to make its contribution.

It is recognized that the rapid growth of wealth has made the opulent half of the world able and competent to help poorer countries. Further, the need for keeping down the cost of living should make these countries all the more willing to welcome the prospect of importing cheaper goods from the less developed countries. Instead, the tendency in foreign investment, particularly of Europe has been to shy away from the export of capital on the pretext that there is sufficient demand at home.

The tendency in general economic management especially in U.S., has been to tighten financial policy to defeat inflation and then to increase production to help those who are hurt by this squeeze. A control has had to be imposed on the rate of industrial growth in order to keep prices down. But then, simultaneously restrictions on various form of agricultural or textile imports have been imposed to put prices up again. This is what has been called “the first stage of illogicalities.”

The Economist, London, of December 12. 1959, dealing with this issue lucidly states, “The growth of regional free trading ideas in Europe arising originally from an urge towards greater political unity among the six countries of the continental Common Market is a development which ought to have helped the whole free world’s economy to move in the way that it needs to be going. Free trading ideas, like measles, are apt to be contagious. Certainly an advance of liberalism has been the reaction in the rest of Europe where the seven-nation free trade area has now been formed and where a dramatic change now seems likely to come over the thinking of big business.

“A short while ago, any British businessman calling on the Board of Trade was most likely to be clamoring for protection for his industry; now he is just as likely to be pressing for a scheme of freer trade, because he fears what may happen to his markets in France when the Germans can sell there over a lower tariff wall. No doubt German businessmen calling on Dr. Erhard will be expressing the same apprehension about British competition in Scandinavia.

“It is reasonable to suppose that similar pressures towards liberalism may grow in America, but the danger is that the initial reaction may be the other way; if European countries reduce tariff barriers against each other but not against America, then the American authorities may come under pressure actually to increase tariff or quote protections in their own country as a ‘defence against discrimination.’

“This idea that it is logical to react to increased competition with one’s exports by putting up the duties levied on one’s imports belongs wholly to the era when unemployment was the capitalist worlds abiding economic problem and when price inflation did not exist.

“By far the best step now would be for America and Europe to vote their annual aid funds into some widely based central organization which could distribute the money flexibly among underdeveloped countries as needs arose and changed: no doubt some of the money must be earmarked for particular investment projects. but the organization’s main aim should be to keep in being a sort of revolving overdraft fund on which developing countries, short of foreign exchange, could draw, provided that their own internal economic policies were not the obvious main cause of their exchange shortage.

“There, then is the nature of the present watershed. The ideal outcome of Mr. Dillon’s voyage of exploration would be the formation of plans:

(a) to establish a new central fund for distributing Americo-European aid to Asia and Africa on a flexible system (delegated to the managers of that central fund): and
(b) to start extending the tariff cuts now being made within the two western European groups into a concurrent and wider (though no doubt initially less rapid) liberalization of European and American tariffs and quotas in trade with whole world.

“Worst outcome would be if the opportunities now presenting themselves were somehow mishandled into becoming excuses for retreats by America into greater protectionism and unilateral cuts in aid.”

To earn foreign exchange under these developments or to squeeze our foreign aid in these complex circumstances is not a tremendous task but, as the Chairman of the Planning Commission said, a back-breaking endeavor. With so much uncertainty over the aid component and the pitfalls in our own capacity to earn foreign exchange the Plan must, of necessity, be a modest one. However, even in its modest setting there is no assurance of the total of availability of foreign exchange required for the implementation of the Plan. New factors beyond our control may come into existence to upset the calculations.

Having enumerated and analyzed the bases of Pakistan’s Second Five-Year Plan and after having allowed myself a full discussion of the mechanism of foreign aid and loans, we must examine as to what exactly is the basic objective of the Plan. It certainly is not to grow more fodder or to persuade a handful of civil servants to get acclimatized to one wing or the other of the country!

The basic objective is to raise national income. But why should this be the fundamental aim? This is so because it is our duty to the country, and to the common man, to:

(i) increase our per capita income.
(ii) increase the common man’s purchasing power:
(iii) increase his investing power; and
(iv) increase his holding or saving power.

An amalgam of all these forces would enable him to advance politically, socially, culturally and above all economically. It would enable him to participate in national investment: to become a man of property. By these means the economy of the country would become more broad-based. By this process more and more Pakistanis would have a stake. a vested interest in the industrial and agricultural institutions of the country. The Plan’s purpose is to raise and not retard national income. This can be done by accelerating the existing momentum.

In all countries and in all systems, due to certain geographical, economical and historical reasons some regions are more prosperous than others. This is true of the United States as well as of the USSR. We should concentrate on the less developed regions of the country but this can be done without calling to attention those that are a step forward. It is necessary to view the development requirements of the lesser developed areas with sympathy and render as much assistance as possible. But it is also necessary, in the larger interest of the nation, to divert its resources into productive channels of investment.

Local requirements of development are planned to be met by Village AID and similar agencies which aim at stimulating the people to help themselves and bringing monetary assistance and expert advice of specialized departments where needed. It is proposed to provide such aid in a more liberal measure to the less developed areas, through intensified Village AID activities, than to comparatively prosperous areas.

The Plan, in its totality, is a realistic one that has its feet firmly on the ground. Its scope is limited. The capacity to spend depends on the capacity to earn. The power to invest depends on the power of developing and marshalling of resources. By increasing our earning capacity, we would be increasing our potential for spending.

In the past there was no sense of direction, no inspiration and, therefore, we have, notwithstanding the achievements, progressed at a snail’s pace. But even with direction, even with inspiration and stability it is not always understood or appreciated that a country like ours, with limited resources and with an economy heavily dependent on external sources, cannot generate economic development in immodest or reckless terms. We would face chaos, if we were to lose sight of budgetary discipline and balance. The romantic notion of forging ahead, irrespective of obvious limitations, would invite a galloping inflation with all its attached evils.