Yet another scandal, and yet another burst of public outcry. Financial scams now seem to be part and parcel of our governance. However, the most surprising aspect about the recent revelations contained in the FIA report is that it's a surprise at all! The real shock is not that some fat cats laughed their way to riches on public dole, but that people in this country were expecting things to be any different than before. And while all the acerbic discourse surrounding the matter seems to be exclusively directed at the mill owners, other important aspects of the debate remain obscured or little discussed.
I will start from the role of the government in the sugar industry. This is where the problem starts with a plethora of hard to understand regulations. Historically speaking, the antecedents of public led regulation reside in attempts to preserve public interest at large (from monopolies, for e-g).But in Pakistan's sugar sector, government pokes its nose almost everywhere. It's hard to understand why, for example, the government feels the need to fix the price at which sugar millers are forced to buy sugarcane? Where's the public interest in that? It's like forcing an investor to buy an asset which he may not want to. If the aim is to protect the grower, then one bad transaction would lead the grower to forsake sugarcane for another crop, which would be a loss to the mill owner.
It confounds common sense that a government would first dictate the volume of purchase and monetary payouts, and then also force a fixed sale price upon the producer without taking into consideration the cost of these actions. The obfuscation of mutually agreed, beneficial market transactions between growers and producers is further compounded by the ridiculous policies like shielding local industry from competition, which exposes Pakistani consumers to higher prices. Simply put, if the aim is consumer welfare, then it would behove the government to stay out of it. Its only 'interference' should come through the CCP to discourage collusive behaviour.
If the government's intervention makes a mockery of the whole process, the common understanding of issues related to this sector also presents a sorry picture. There are dangerous fallacies and half-baked truths about the industry that everybody seems to accept without any effort at investigating them. Begin with the hue and cry over increasing encroachment of sugarcane on land where cotton was once grown, as if it is only be design. This completely ignores the fact that when the 2010 floods devastated standing crops all over Pakistan, the only crop that remained standing was sugarcane. Put another way, it provides insurance against the vagaries of nature, an aspect that is highly critical for small landholders. Additionally, decline in cotton yields also owes in part to lack of research into new, resistant varieties and use of inferior quality seeds.
Similarly, the charge against sugarcane as a water guzzling crop stands true only if one neglects the total volume of water used in the sugar value chain. If this aspect is considered, then sugarcane's water use is at par or lesser than cotton's.
Let's now turn to another important aspect of this kind of debate, which takes us beyond the swanky numbers and politics. Has anybody ever considered, or noticed, why large-scale investments in Pakistan seem to be concentrated in industries like sugar or power production rather than Artificial Intelligence (AI) or IT? The answer to this question would need an excursion beyond the realm of economics, into the way that power structures in our society are built and practiced. Plus, it will require a closer inspection of what Jahangir Tareen, one of the main accused, divulged in his interview after the FIA report went viral.
Majority of our actions (if not all) are a behavioral and cognitive response to the environment surrounding us. Pakistani society is a power and title obsessed society. Exercising power and holding title comes in different forms, perhaps none better than being member of the legislature. To become one, one has to have the support of the populace whose lives mainly swirl around micro level issues (thana, katchehry, public offices, etc.) which require the intervention of powerful middlemen, who hold some kind of title and monetary and political influence. In turn, these middlemen require reciprocity in the form of political support to become members of the legislature. And without the political support of these influentials, a party cannot form a government in Pakistan. This is exactly what Tareen said in his interview when pointing out that without the support of influential families (especially in the Punjab), Khan wouldn't have been in a position to form government.
But buying their loyalty comes at a price, one that we are witnessing now and have witnessed countless numbers of times before. As Milton Friedman famously remarked, there is no such thing as a free lunch! Intervening on behalf of the people is never an inexpensive endeavor, and becoming part of the legislature affords an ample opportunity to recoup those expenses. One just needs an avenue for extracting rents. Sugar mills are just one of the comparatively successful ones. Rest assured, though, that were if not the sugar mills, some other avenue would have come to their rescue.
This helps these individuals maintain their standing, influence and respect in the society via their ostentatious display of wealth. Contrast this with other disciplines which get short shrift in terms of influence and sway. For example, you'd find some top notch economists at various institutions across Pakistan. Yet they hardly conjure any influence in policy making circles, and would find it difficult to run around and solve peoples' problems. There are no Prado's, sugar mills, thousands of acres of land or private planes that can give them the required stature to command respect from the society.
The gist of the argument is that the sugar scandal is not just about rent-seekers employing devious tactics to make merry. It's also about the overall governance, the pathetic state of decision making, questionable economic management and the overall structure of the society (especially its power relations) that propels these kinds of instances. In pocketing taxpayer money, the sugar barons are no guiltier than those who got loans waived off, or those whose decisions cost the taxpayers billions of rupees (Peshawar BRT, for example).In fact, they'd appear angelic if one considers the trillions of rupees spent on brick and mortar infrastructure over the years, at least half of which remains unutilized, thus constituting utter waste.
So why is the ire directed only at sugar barons? If we expect such scandals to subside, there is a need to completely overhaul of the way we are governed and also a change in the way that people perceive power and influence. Otherwise, another such scam would always be around the corner.
(The writer is an economist, a Research Fellow at PIDE and AS Institute. He tweets @ ShahidMohmand79)
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