WASHINGTON DIARY: Tumbling markets —Dr Manzur Ejaz

When the stock market in the US tumbled, no one came to the rescue of the millions who lost their shirts. It was understood that when you gamble, you should be prepared to lose. On the contrary, the Pakistani rich and powerful are on another tangent

Financial markets have tumbled all over the world but nowhere, except in Pakistan, have stockbrokers gone on a rampage.

Energy prices have overwhelmed industries in every country but nowhere other than in Pakistan have industrial groups retaliated by shutting down their businesses and shamelessly demanding subsidies.

It is rather amazing that the group that has become filthy rich in the last few decades at the expense of common Pakistanis is not willing to accept the negative side of capitalism when it cuts into their gains.

The new economic order ushered in with the Reagan-Thatcher era in the western world has thrived through bubble-to-bubble markets. First it was the stock market, which ballooned. It sucked in everyone from busboys to big money in the frenzy, and when the stock market collapsed, it ruined many.

Then, speculative capital entered the housing market and did exactly the same thing. Once the housing market was shattered, speculators created a bubble in commodity markets (oil, grain, etc). Basically, western economies have survived by replacing one bubble with another. Now they are looking for a new one to come out of this recession.

Developing countries, including Pakistan, which followed the same economic model under World Bank and IMF guidance and pressure, are facing similar consequences. Pakistan’s real estate market bubble was as bizarre as the one in the US. The only difference was that as real estate prices were raised, land grabbing by the rich and powerful became a common phenomenon. Extra-legal adventures in the real estate market made matters worse. However, since common Pakistanis had joined the frenzy, collapse of the real estate market did not result in agitations and rampages.

On the other hand, the stock market bubble — the most enduring and prolonged — remained the gambling arena of the rich and powerful and a limited class of fortune hunters from the middle class. The Karachi Stock Exchange index has risen from the 1500s in 2002 to around 16,000 in 2008. In other words the stock market has risen about nine and a half times. Consequently, the rich, the powerful and the get-rich-quick middle class may have made huge amounts of money.

The exceptional advances in the stock market were made possible by the money pumping policy of the State Bank of Pakistan. Such a skewed monetary policy could only result in a rise in inflation. In addition, the corporation that made money in the stock market did not invest in key sectors of the economy. Basic infrastructure continued to deteriorate, leading to debilitating electricity shortages. Of course, the sky rocketing commodity prices played a role too, but even in the absence of commodity inflation, Pakistan’s stock market bubble was destined to burst.

Now, when the stock market party has come to an end, the players who enjoyed the unprecedented gains are crying foul. They, in fact, want the government to subsidise their gambling. And, as expected, the government is obliging them by creating a fund to buy sinking stocks on prices not supported by the market itself. Once again, it shows that the ruling elites scratch each other’s backs when needed.

In a country where the rich have become richer and the poor, poorer, the blessed classes are showing aggression in safeguarding their gains. They were worshipping the gospel of ‘free markets’ as long as they were the beneficiaries. And now when the same markets have turned on them, they are demanding the government to change the course and manage the mess.

Such an approach is not unique to Pakistan. The US government has been salvaging the banks and home-builders who were the main culprits in creating the bubble. The US treasury has been doling out support to the industries that brought destruction on to themselves by greed-ridden follies.

However, millions of traders and other participants have been ruined. When the stock market in the US tumbled, no one came to the rescue of the millions who lost their shirts. It was understood that when you gamble, you should be prepared to lose. On the contrary, the Pakistani rich and powerful are on another tangent.

Pakistan’s elites never believed in a fair-playing field. They always flourished under government patronage. Consequently, unlike Indians, none of Pakistan’s industrial groups has been able to compete in the international arena. Notwithstanding the inherent flaws in the free market system, Pakistan’s economic elite has never really believed in it. Our economist friend, Dr Nadeem-ul Haq, an adherent of free markets, is fully justified in saying that the Pakistani elite is a class of ‘rent-seekers’ who always prey upon common citizens.

The weakening of the movement for economic justice further encouraged the elites. While the poor are committing suicide due to ever-increasing economic impoverishment, the rich are aggressively protecting their wealth accumulated through ‘rent-seeking’.

They rampage the stock markets, shut down operations and force the government to keep their privileges intact and to subsidise them when they become victims of their own mistakes. They have turned into the economic equivalent to the Taliban, damaging society more than the bearded half-educated warriors of Afghanistan and Tribal Areas.

The survival of such a system is doubtful. Public backlash is inevitable resulting in more anarchy and destruction. This is the real danger to the survival of a healthy Pakistan. However, Pakistan’s elite is as oblivious to it as its counterparts in decadent countries have been!

The writer can be reached at manzurejaz@yahoo.com

Source: Daily Times, 23/7/2008

 

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