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Economic intelligence culture in France

Gagliano Giuseppe

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The tensions underlying international exchange are indicative of the importance of cultural factors in economic warfare and oblige companies to be aware of the scientific progress if they intend to continue developing.

It took France a long time to define a culture of its own in the field of intelligence, and until the previous century, the French word renseignement had a negative connotation. The political elite considered this activity to be degrading and comparable to dirty police work.

The French government felt the need to launch certain reforms in both its external and internal services only after the First Gulf War, thanks also to constructive political consensus. This reform process focused on security that did not give due consideration to the decisive role that finance and markets have come to assume today in determining a people’s and a nation’s future, in an offensive context in which Western countries are not the only protagonists.

The main concerns of the French political elite regarded the use of renseignement in increasing the nation’s power and the ways that the offensive practices, typical of the information warfare, could be used while maintaining respect for the rules of democracy.

The management of conflicts linked to information has now become more complex due to the lack of strategies capable of managing and controlling virtual markets, the immaterial world represented by Internet, and the presence of new weapons capable of influencing public opinion.

With his interdisciplinary point of view, Christian Harbulot offers a reflection to understand the nature of the relations of power existing between national economies by juxtaposing strictly economic factors with historical, geopolitical, or cultural factors that affect economic warfare.

The reason why the elite were so unable to formulate a clear doctrine in this regard is perhaps due to previous historical factors. For three times in little less than a century – in 1815 with the succession of King Louis the 18th to Napoleon, in 1870, with the support of Bismarck against the Paris Commune, and in 1940, with the collaboration between Pétain and Nazi Germany – a national force interested in taking power created an alliance with a country that had defeated France on the military level. This contributed to the beginning of a certain wariness in public opinion of patriotism, which became devoid of substance when the enemy was presented as an indispensable ally. The Colonial Wars and the Cold War, with their ideological view of power as an act of domination and the substitution of national idealism by solidarity for struggling peoples, reduced the dimensions of patriotism to a minimum. The Cold War imposed ideology as the dominant key to the reading of events and the unity of the Western world assumed top priority against the threat from the Soviets, thus re-dimensioning the balance of power between the economies of the Western nations.

Only the arrival of General De Gaulle at the head of the fifth Republic produced an attempt at redefining the challenge posed by relations based on power in an economic perspective.

General De Gaulle tried to ensure a homogenous approach to the strategy of power and a better positioning of France on the international scene in 1958, but encountered great difficulty in having this approach accepted by civil society. He proposed an alternative to the Cold War based on an equilibrium between East and West and a conciliation between the world’s North and South, but this attempt at compromise failed, due to the lack of international support (the United States opposed this pursuit of strategic autonomy) and also the scarce interest shown by the French elite.

De Gaulle had a wide and articulated vision of France’s power also on the economic level, with its positive foreign trade balance; on the military level, with the advantages derived from the growth of its power; on the diplomatic level, with a permanent seat on the UN Security Council. The main concern in managing the territory was the modernization of the infrastructure to attract foreign investment.

This one-way vision did not permit the assessment of the intentions of these foreign investors or the drawing of a balance of failures or unfair business practices.

If the existence of the USSR served the purpose of uniting the Western world, its demise as an ideological empire and potential nemesis restored the previous relations of power between nations – in other words, the pursuit of supremacy over markets and resources and the creation of long-lasting relationships of dependence.

The evolution of the international situation continued demonstrating the exacerbation of the balance of economic power between the dominant nations on the international scene and in the areas contested for energy and mining resources.

After De Gaulle, no reflection on the growth of power ever completed the defensive approach conceived in the wake of the Second World War.

History shows, however, that up until the Restoration, the elite had had a clear perception of the contribution made by the economy in the growth of a nation’s power, the symbol of which was the model of development based on trade adopted by the United Kingdom. The clarity of French vision about the reality of the relationships between economic forces faded after 1815 when the resistance structure applied by Napoleon to contrast Britain’s commercial offensive was dismantled. London’s strategy of influence based on the propaganda of free trade bore fruits with the rise to power of the future Napoleon the 3rd,: he would sign the free trade agreement with England in 1860 despite opposition from French industrialists. Liberalism as the fundamental basis of the market economy came to replace a realistic vision of the balance of economic power for nearly a century afterwards.

This tendency for the conceptualization of economic warfare during peacetime has legitimized the numerous works created since 1997 by the Paris School of Economic War. Furthermore, by the end of 1988, the continuing lack of competence in the matter of France led Thierry Gaudin, Director of the Ministry of Research’s Prospects and Evaluation (CPE) and Jean-Pierre Quignaux, Secretary General of the Association for the Diffusion of Technological Information (ADITECH) to fund a study on economic warfare at a time when the international economic situation fully warranted its legitimacy.

Harbulot decided to publish Techniques offensives et guerre économique for the first time at the end of 1988, when all the international analyses existed in the conceptual shelter of the Berlin Wall, and talking about economic warfare seemed like an abuse of language. The Wall that had delayed the spread of new technology in the industrial fabric succeeded in disguising the history of certain peoples, the rootedness of their cultures and their national peculiarities for more than thirty years. With the fall of the Berlin Wall, the binocular vision of our world was abruptly clouded over. Its geopolitics and the analysis of its economic clashes had to be reconsidered, and it is from this point of view that the retrospective assessment of Christian Harbulot assumes particular significance, with its emphasis on the need for a resumption of research in this field in order to evaluate the consequences of current events and permit a reading of the future sufficient to prevent certain events from occurring.

Harbulot urges to become aware of the threat: in the international market, with competition in every direction, no one can afford the luxury of fighting a war of reaction.

Yet even in France, Harbulot claims, a certain desire for non-aggressive competition still prevails that is certainly not favorable in terms of competitiveness or creating jobs, due also to the mostly verbal and improvised ways in which awareness of economic warfare is transmitted.

The globalization of exchange is changing the very nature of economic warfare. This new state of affairs gives intelligence culture an extraordinary strategic importance, even more so in light of the fact that information is a capital with a long-term return. In addition to being a production factor, it is also an offensive and dissuasive weapon, and the absence of information engineering has become a strategic problem at the level of SMI. Even if, as Harbulot explained, this weakness in regard to foreign competition is not necessarily synonymous with defeat, the French companies’ ability to take action remained insufficient for a long time.

The opening of national markets to foreign exchange has multiplied the difficulty in interpreting phenomena related to competitors and competitiveness. Faced with this revolution in the world market, the approach adopted by French companies remains one of merely “sailing by sight” that has no place in a dynamic national industrial policy.

Active economic aggression measures are a source of concern primarily for the strategic sectors of armament or atomic energy, whereas most other economic actors perceive this type of risk too passively.

Proposals for action in the Martre Report: the third way for French industrial policy

The expression “economic intelligence” officially entered the public debate on national competiveness together with the request for public intervention in regard between 1992 and 1994.

Merit must go to Jean-Louis Levet, Chief of the technological and industrial development service at the Plan’s General Commissariat since 1992 for the possibility to transform the thoughts of Harbulot and Baumard into an official Report. He was convinced on one hand of the need for a radical review of the relationship between the State and industry allowing to seize the new opportunities offered by technological evolution and globalization and on the other of the need for France to implement a new policy of offensive competition on three fronts: the use of natural resources; the use of new strategies for new forms of protectionism, and new ways for the State to intervene in the economy, all of which in the context of a concerted long-term strategy.

Harbulot and Baumard defined the issues to be addressed:

-reflections on the way to encourage economic intelligence at company level;

-the study of foreign economic intelligence systems;

-the development of written knowledge on economic intelligence;

-the development of educational content addressed to higher level university professors and the encouragement of the sharing of experiences between operators in the sector;

-lastly, the launching of a national reflection by public administrations utilizing governmental economic intelligence measures.

The collaboration between Harbulot and Baumard resulted in a joint effort in defining the major working areas for the Plan’s work group, with an objective of methodological nature, namely, uniting the disciplines of information engineering and political nature, or in other words, remedying the absence of a French economic intelligence structure.

Furthermore, the integration of Harbulot into the Plan’s various work groups enabled the reinforcement of ADITECH, which if up until then had been a mere association, since then became the ADIT (Technological Information Diffusion Agency) through Ministerial Decree in May, 1992, under the control of the Ministry of Foreign Affairs and the Aerospace and Research Ministry.

In the context of the Report, under the leadership of Henry Martre, a previous Chief Executive Officer for Armament, a work group specifically dedicated to questions of economic intelligence was set up: Baumard would work with Harbulot, the former on the comparative analysis of the world’s economic intelligence systems, the latter on national reflection on the issue.

The Report, which was published in 1994 in La Documentation Française, documented the degree to which French companies were obliged to operate under increasingly more complex circumstances and unpredictable dynamics that demanded the implementation of economic intelligence systems capable of further developing the strategic management of information, economic potential, and the number of jobs. The Report reiterated the meaning of economic intelligence intended as the coordinated research, processing and distribution of information, which can be useful to economic actors. These actions need to be conducted with guarantees of the protection necessary for the preservation of the nation’s business assets in the best conditions of quality, terms, and costs

It was through the work of Harbulot that the term and the definition of economic intelligence first appeared in an official document.

The Report clearly shows Harbulot’s vision: describing economic intelligence as an activity, not another type of information, involving the leading economic players, the companies.

The sources remain open, disproving the argument that paints economic intelligence as being involved in actions at the limits of legality.

However, it is precisely in regard to the greater availability of open sources that certain problems linked to economic intelligence emerge, such as the data distribution and protection: the circulation of data inside the company assumes fundamental importance whenever it transforms into a news leak, a constantly increasing risk in today’s ever more interconnected world.

The Report urged the State to take rapid action, and provided four embracing proposals:

-Involving companies in the practise of economic intelligence

-optimizing the flows of information between the public and private sectors;

-the creation of databases;

-getting the world of education and training involved.

The Report is permeated with the awareness that the problem is primarily political and that reasoning through the dictates of economic intelligence means changing our ways of perceiving the economy:

Economic intelligence, together with the intention to impose an enlarged horizon of comprehension including companies, agencies and nations, provides a response to the urgent need of understanding the economy in other terms than those of mere and overly simplistic competitiveness. The question is political and requires the directors of the organizations above to enter into awareness because it regards a view of the economy that is not neutral”.

The Report issued by the group led by Henry Martre developed a summary of the thought of C. Harbulot and P. Baumard and provided keys to the comprehension of the world. It gave official form to a particular description of the relations between states on the international panorama in which the latter compete with no legal holds barred: the end justifies the means, and above all else, justifies the marshalling of actions in favour of the economy by intelligence services.

Conceived in terms of systems, networks of protagonists, intentions, and influence, and the coordination of decision-making centres, this view gains leverage from the fears derived from the invisibility of the threats. The central position of the State, the guarantor of national cohesion, is confirmed, as is the accent on the importance of unity and national cohesion, taking Japan and Sweden as examples. France can take control of its future only in a collective perspective, therefore must remedy the absence of interaction between the public and private sectors and overcome the usual priority given to maintaining a defensive position, with the objective of mobilizing the political class in regard to the importance of controlling and using information as an arm of domination.

Harbulot accuses both France to be unprepared for “economic warfare” and its policies to continue believing that a united Europe would provide a fertile field for French economic patriotism.

Harbulot defined economic patriotism as a three-dimensional value system, consisting of a cultural dimension that looks to the roots of the productive system; a dimension of conflict based on the relationships between the competing forces, and a temporal dimension influenced by the evolution of technological progress.

In order to promote the passage from an information culture that is closed and individual to one that is open and collective, he suggested creating an economic intelligence instrument through the concerted effort of public and private parties.

For Harbulot, economic intelligence is the systematic search and interpretation of the information available to everyone for the purpose of understanding the intentions and capabilities of the protagonists. Economic intelligence incorporates all the capacity of surveillance of the competitive environment (protection, vigilance, influence) and is distinguished from traditional intelligence by the nature of its field of application (open information), the nature of its actors (inserted in a collective information culture context), and its cultural specificities (each nation’s economy generates its own specific model of economic intelligence). This is represented by means of an economic intelligence diagram with three levels: the companies, the nation, and the world.

Overall, the Report would be judged faint-hearted in the measures it proposed, but more innovative in the vocabulary it employed, by officially introducing, in fact, both the new term “economic intelligence” and a different vision of reality, with the objective of generating a shift in mentality that justified the urgent implementation of a government action plan.

The proposed scope of the Report was the improvement of the offensive and defensive capacities of both national and corporate economic intelligence.

For the purpose of providing these recommendations with a follow-up, Martre promoted the creation of the Comité pour la Compétitivité et la Sécurité Economique (Economic Competitiveness and Security Committee) in 1995 with tasks similar to those of the US National Economic Council. The establishment of the CCSE significantly empowered French economic intelligence, which could already vaunt the fact of having promptly supplied the French government with news regarding the abandoning of the gold standard and the devaluation of the dollar received from US Treasury Department sources at the start of the Seventies. Furthermore, being characterized by close cooperation and trust between the public and private sectors, French economic intelligence also has a highly centralized structure that enables quick reaction times and a noteworthy ease in acquiring confidential information.

The system’s flexibility is achieved through the involvement in the “Economic intelligence structure” at territorial levels.

C. Harbulot was, together with P. Baumard, one of the protagonists between 1990 and 1992 of the construction of French economic intelligence, supported in his conviction that the international context would play a determinant role in the creation of new relationships between the State and businesses business. The discussions about security – promoted on the other side of the Atlantic – along with the political and economic uncertainties linked to the building process of the EU, had already prepared the ground for change.

Christian Harbulot and the creation of “Economic Intelligence”

Christian Harbulot was the first French author to address the topic of economic intelligence, presenting ideas that sparked the debate on its importance, given that the gaining of consciousness of the changes on the international scene could no longer be postponed, and recognizing the priority of economic questions over military ones.

The writings of C. Harbulot are authentic essays on the nature of economic confrontation written with the objective of convincing the political elite that an offensive use of information is a key factor in ensuring a Nation’s success.

Through comparative cultural analysis, Harbulot explained why certain peoples had mobilized and addressed the conflictual aspects of the market economy while others had not, and advanced his reasoning by which information capital is at the same time a leading factor in production but also an offensive weapon, in addition to being an arm of dissuasion.

Harbulot demonstrated how Japan’s economy was further ahead than America’s, and naturally France’s, precisely because it was capable of exploiting all the potential of intelligence activity in the sector. The United Kingdom, the United States, Germany, France, and Japan developed their own cultural model of market economy. In particular, Harbulot believed that Germany and Japan had gained remarkable economic leverage from their information and intelligence assets and had implemented more offensive and more effective economic policies because they were based on concerted strategies between private or public companies, between administrations and bank networks. Businesses in these two countries optimized their profitability by reducing the gap between information and intelligence, between open practices and closed practices, between what is available to the entire world and what instead must remain secret, moving from information – the mere awareness of information – to action, or rather information that can be useful for intelligence.

Harbulot often accused French political power of not giving the right amount of importance to “economic warfare”, thus remaining vulnerable to the risk of losing the control of its own economic information independence when faced with the massive growth of the Asian economies, all of which are – as opposed to those in the West – founded on unspoken rules of economic warfare.

For France, instead, the complete ignorance of the offensive potential of information engineering would be the cause of the scarce competitiveness of its companies.

Furthermore, the concept of “economic defence” – intended solely in a military perspective – is equally invalid.

This can be summarized by quoting Luttwak:

A nation’s cohesion is no longer born from the fear of a military threat but an economic threat instead, in a context in which the importance given to military alliances decreases and geo-economic priorities prevail instead.

In short, the elite in power in France still needed to be convinced of the existence and the importance of “economic warfare”.

The term “economic warfare” appeared too strong and radical right from the start, especially when used by authors like Bernard Esambert, who compared a nation’s loss of jobs and wealth and the lowering of its standard of living tout court to the disasters of war. Yet for this author, as well as Harbulot, the underlying idea is that a nation’s economic success is based on the concept of “culture” considered as a weapon that some nations use better than others: Japan’s economic dynamism can be explained by the strength of its cultural power, as might be Germany’s economic power as well. The French economy was playing a defensive game, instead.

However, the vocabulary suggested by Harbulot and terms regarding concepts like “combat culture”, “economic confrontation” and “economic warfare” were seen as scarcely convincing and overly radical. Thanks to the work conducted together with Philippe Baumard, the terms “confrontation” and “warfare” were replaced with that of “intelligence”. The use of the term intelligence derived from a combination of the French definitions of “surveillance” and “veille” and the Anglo-Saxon and Swedish definitions of the concept of intelligence intended as reasoning, planning, and ability to establish relations between various elements, or more simply, active information gathering activities. However, the term economic intelligence invokes an entirely new category in the field of economic geopolitics that expresses new needs for cooperation between the public and private sector.

P. Baumard proposed a methodology for the creation of a business intelligence system before constructing together with Harbulot a common reading of the stakes at risk linked to the new forms of competition based on offensive approaches to information. The ideas of Harbulot that were given most credence and which best describe the French situation are based on the use of subversive cultural elements in economic warfare.

The analyses of Philippe Baumard are very similar to those of Harbulot, especially concerning changes in terminology: from the concept of “surveillance of the environment”, “intelligence” came to signify the “intelligence of the environment” reflecting the prospect of greater tactical and strategic interaction of information.

Various other authors have considered the ambiguity of the term intelligence. The British give it a wider range of significance than the Americans did, for one thing. To make matters worse, difficulties in translation contribute to the confusion. The French word “intelligence”, for example, refers nearly exclusively to a human faculty, the intelligence of an individual, but not the activity of by which a government agency or a private company collects information. The French word renseignement is applied to the activities of national security agencies and not those of private companies or a particular social group: it expresses the product, the information that was collected in the environment, and makes tacit reference to the secret services.

Philippe Baumard focused his work on semantic problems and the difficulties of understanding and using the term in France in regard to the terms “veille” and “renseignment”. Baumard would attempt to renew the image of “vigilance” and “surveillance” in the perception of companies by exploiting the Anglo-Saxon concept of intelligence. However, his meeting with C. Harbulot – whom he even criticized for his use of the French term renseignment, declaring his preference for intelligence, as well as for the expression “intelligence économique” which he preferred to indicate with “economic confrontation” – would lead to the integration of the expression “intelligence économique” in the debate on the adaptation of public actions in regard to the problems posed by the management of information in 1992.

In this way, both style and terminology would become more moderate and closer to the vocabulary used by government administrations.

The progressive development of semantics for the topic contributed to a comprehension of the facts that was more appropriate to the changing times. The function of “vigilance” was very useful to the French contributors, and enabled the shift to the successive concept of economic intelligence intended as information assessed, interpreted, and put to use, also in terms of offence, by companies.

P. Baumard underlined the progress made by the United States in the topic in many ways: with an intense proliferation of texts, with an American economic intelligence community structured around the former members of intelligence services working together in the SCIP association, and with the renewed interest being taken by universities on this issue and journalists who make less confusion between “business intelligence” and spying. In France as well, the reasoning advanced by C. Harbulot proved to be decisive in the implementation of plans for action that would be submitted at the highest levels of government.

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Economy

Back to IMF: Whither Pakistan’s Medina Model

Amjed Jaaved

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Pakistan has been availing International Monetary Fund loan packages without stricto sensuo acting upon reforms since late 1980s. Its finance minister is now horn-locked with the International Monetary Fund ferreting out strings, a tangled skein, to a US$ 6 billion to $12 billion bailout package.    Pakistan could complete one IMF package that ended in 2016. That too with a number of requirements relaxed.

IMF’s worries

The thorny questions hovering over the instant package are opaque US$ 60 billion Chinese loans (diversion of IMF dollars to China), trimming unbridled spending,  nurturing  bloated state-owned corporations,  inaction against tax dodgers (low tax-to-Gross Domestic Product ratio), sluggish textile exports (lost out to Bangladesh), and US$7.6 billion debt-stricken energy sector. Besides, current-account and budget gaps have swelled to more than 5 percent of gross domestic product and foreign-currency reserves have plunged to the lowest in almost four years. In response authorities have devalued the rupee five times since December and hiked interest rates the most in Asia. The GDP growth of about 5.2 per cent in 2018 rolled down to 2.9 per cent in 2019 and a further decline to 2.8 in 2020.Inflation jumped from 3.9 per cent in 2018 to over 7.6 per cent in 2019. Already grey listed, Pakistan is fighting tooth and nail to wriggle out of stigma notwithstanding virulent Indian pressure to freeze it so.  

Interest-free Medina-model rhetoric

Pakistan had to go to the IMF doorstep despite cricketer-turned-prime minister Imran Khan’s reluctance. He was enamoured of Medina model as every Muslim should. Both Islam and Marxism did away with `interest’ as primum mobile of capital formation. But, Alas! Imran had to wake up about bitter reality of the economic world around. Much to his chagrin, even chairman of Pakistan’s Islamic Ideology Council has warned (October 22, 2018) him against `romanticism’.  He urged the government to set up a task force to realize a “Medina State” and suggested the formation of a task force to realize this vision., The whole of Pakistan,  with wistful eyes, looks forward to fulfillment of this dream of `new Pakistan’.

We now live in a different world.

Unlike Medina, today’s Pakistan is a complex state. Shortly after his arrival at Medina, the Holy Prophet Muhammad (PBUH) built a mosque and a market place there. Like the mosque, the market place could not be privatised. There was free entry and exit of traders (akin to perfect competition under micro-economics) and caravans to the market. No monopolies, duopolies and cartels! A section of the market caravanserai was reserved for foreign traders. The whole world could sell their goods there free of any taxes.  

Some clever local traders tried to take advantage of robust trade. They used to buy caravan camel loads outside the Medina (before they reached Medina), and sell it at dictated price. Islam outlawed this practice as talaqqiur rukaban (seeing faces of riders).  Islam prohibited all types of future trading involving element of uncertainty (advance purchase of raw tree-fruit, fish in the pond, and so on). Islam prohibited usury (riba) in all its forms (loan giving at agreed interest taffazzul, or loan profiting due to delay naseea). When Bilal (may Allah be pleased with him) tried to exchange his coarse-quality dates with fine-quality dates the Holy Prophet forbade him. He told him to sell his dates for cash and buy better dates at prevailing price. The Prophet did not live in a 300-kanal-and-10-marla house (like Pakistan’s prime minister). Nor did he, like our numerous politicians, own assets abroad. He bequeathed a dozen swords but no precious metals (Golda Meier). Islam globalized free-market mechanism (laissez faire). It changed attitudes and avaricious mindsets. Being a dominant religion, Islam dictated its own terms of trade.

To fulfil its promises, Pakistan’s government budgeted public-sector development- programme outlay of only Rs. 800 billion for the federation and only Rs 850 billion for the provinces. The government has a Hobson choice. With India, at daggers drawn, could it divert security allocation to welfare? Some writers described Pakistan as a `garrison state’.

For an economic turnaround, Pakistan’s visionary prime minister has to shun rhetoric, and decide upon suitable economic policies. It needs to look at the economic world around, beyond Medina.

Interest outlawed under Pakistan’s constitution

Under preamble to Pak constitution `sovereignty’ belongs to Allah Almighty, not to people themselves as under US constitution. The elected representative can wield authority within defined religious limits. Interest is outlawed under

Article 38 (f) of the Constitution of Pakistan, quoted heretofore _ Article 38 (Promotion of social and economic well-being of the people) The State shall…(f) eliminate riba

[economic interest]

as early as possible. The Islamic preamble (Objectives Resolution) was inserted in draft constitution under Pakistan’s prime minister Liaquat Ali Khan’s influence. Unlike Pakistan’s most `leaders’, Liaquat Ali Khan was financially scrupulous. Aside from his honesty, Liaquat Ali Khan could not foresee he would be the first to sow seeds of religious discord. Jamsheed Marker, in his book Cover Point, observes ` charge against Liaquat was that he moved the Objectives Resolution, which declared Pakistan to be an ‘Islamic State’ (ibid. p. 33)”. Unlike the US and many other secular constitutions, the Objectives Resolution (now Preamble to 1973 Constitution) states `sovereignty belongs to Allah Almighty’. The golden words of the constitution were warped to continue an interest-based economy. We pay interest on our international loans and international transactions. Do we live in an interactive world or in an ivory tower? Isn’t Islamisation old wine in new bottle?

Follow-up to `Interest’ outlawed

The Security and Exchange Commission of Pakistan enforced Shariah Governance Regulations 2018. This regulation is follow-up to Article 38 (f) of the Constitution of Pakistan, and Senate’s resolution No. 393 (July 9, 2018) for abolition of riba (usury).

(extortionist interest) and normal interest/profit are indistinguishable. They disallow even saving bank-accounts. They point out that riba is anathema both as `addition’ (taffazzul) and due to `delay'(nas’ee) consequent upon fluctuating purchasing power.

The regulation is welcome but there are unanswered questions about Islamisation of finance in Pakistan. We pay interest on our loans and international transactions. The sheiks put their money in Western banks and earn hefty interest thereon.

Future trading is hub of modern commerce. Yet, it is forbidden under Islam. At International Islamic University, I learned that Islamic law of contract does not even allow advance contracts concerning raw fish, fruit, or anything involving element of `uncertainty’. Islam does not allow even tallaqi-ur-rukbaan (buying camel-loads of goods from caravan before they had reached Madina open-market. Holy Prophet (Peace be upon him) forbade Bilal (may Allah be pleased with him) to exchange poor-quality dates with superior-quality dates. He was advised to sell off his dates in open market for cash and then buy better-quality dates with money so earned.

Interest-based real world

Complex `interest’-based world

Gnawing reality of complex interest-based economic world has now dawned on the government. To quote a Murphy Law `nothing is as simple as it seems at first’. Pakistan needs to review the whole gamut of its economic structure (feudal lords, industrial robber barons, money launderers, and their ilk) and International Monetary Fund conditions. In his lifetime, even our Holy Prophet had to engage in commercial partnerships with the non-Muslim also.

Even Marx did not live in Utopia. He, also, constantly searched for solutions to the problems of the real world around. Disgusted at the simplistic interpretations of his ideas, he cried in boutade: “If this is Marxism, what is certain is that I am not a Marxist”. Keynese offered panacea of deficit financing with concomitant inflation to swerve 1930-Depression unemployment and stagnation. He also reacted to mis-interpretation of his ideas, saying `I am not a Keynesian’.

Keynesian theories preceded a lot of discussion about Gold Exchange Standard, stable prices.  To create more money, deficit financing (paper money) was resorted to. As a result the hydra-headed monster of inflation was unleashed. Keynes believed inflation was a `short run phenomenon typical of a full- employment stagnant economy’. But, it became a long run phenomenon. Keynes postulated `With perfectly free competition, there will always be a strong tendency for wage relates to be so related to demand that everyone is employed at level of full employment’. When Keynes was asked about persistence of inflation (too much money chasing too few goods), he replied `In the long run we are all dead’. Post-Keynesian economists coined the term `stagflation’ to explain the phenomenon. With visible massive joblessness, Pakistan is far from a full-employment economy. The paltry household income has to bear the brunt of forced reduction in purchasing power due to rising price level, or falling rupee value.

We adopted floated exchange rate that ballooned our debt burden. No economist has ever applied his mind to effect, positive or negative, of international debt burden on Pakistan economy. No-one ever visualized even the idea of `odious debts’.

Pak government discourages savings

Keynes postulated savings are equal to investment. But, Pakistan discourage savings and encourage consumerism by reducing profit on saving deposits, and increasing taxes on small savings. Locke and others say government can’t tax without taxpayer’s consent. In Pakistan, the govt. picks people’s pockets through withholding taxes and reduction in National Saving Schemes profits. Even unissued bonds lying in Pakistan’s State Bank vaults are included in each draw.  The prizes on such bonds are devoured by State Bank, a body corporate, without buying them. Pakistan’s hidden economy is more than the monetized one. It needs to evolve politico-religious milieu and macro-economic theories that suit our country best. It should promote savings while blocking illegal cash flows by introducing magnetic-card transactions in everyday life.

Pakistan’s burgeoning interest-based debt burden

External Debt in Pakistan increased to US$ 95097 million in the second quarter of 2018 from US$ 91761 million in the first quarter of 2018. External Debt in Pakistan averaged US$ 54065.23 million from 2002 until 2018, reaching an all-time peak of 95097 US$ Million in the second quarter of 2018 from a record low of US$ 33172 million in the third quarter of 2004. International Monetary Fund expects Pakistan’s external debt to climb to US$103 billion by June 2019. Pakistan Government Debt to GDP 1994-2018 presents a dismal picture. Pakistan recorded a government debt equivalent to 67.20 percent of the country’s Gross Domestic Product in 2017. Government Debt to Gross Domestic Product in Pakistan averaged 69.30 percent from 1994 until 2017. It reached peak of 87.90 percent in 2001 and a record low of 56.40 percent in 2007. Successive Pakistan governments treated loans as free lunches. They never abode by revised Fiscal Responsibility and Debt Limitation Act. Nor did our State Bank warn them about the dangerous situation. State Bank however passively reported, every Pakistani owed over Rs115, 000 as the country’s burden of total debt and liabilities increased to Rs. 23.14 trillion by the end of December 31, 2016.

Pakistan’s debts not payable being `odious’?

Pakistan’s debt burden has a political tinge. For joining anti-Soviet-Union alliances (South-East Asian Treaty Organisation and Central Treaty Organisation), the USA rewarded Pakistan by showering grants on Pakistan. The grants evaporated into streams of low-interest loan which ballooned as Pakistan complied with forced devaluations or adopted floating exchange rate. Soon, the donors forgot Pakistan’s contribution to break-up of the `Soviet Union’. They used coalition support funds and our debt-servicing liability as `do more’ mantra levers.

Apparently, all Pakistani debts are odious as they were thrust upon praetorian regimes to bring them within anti-Communist (South East Asian Treaty Organisation, Central Treaty Organisation) or anti-`terrorist’ fold.  To avoid unilateral refusal of a country to repay odious debts, UN Security Council should ex ante [or ex post] declare which debts are `odious’ (Jayachandaran and Kremer, 2004). Alternatively, the USA should itself write off our `bad’ debts.

But Pakistan and its adversaries are entrapped in a prisoner’s dilemma. The dilemma explains why two completely rational players might not cooperate, even if it appears that it is in their best interests to do so. .The ` prisoners’ dilemma’ was developed by RAND Corporation scientists Merrill Flood and Melvin Dresher and was formalized by Albert W. Tucker, a Princeton mathematician.

No demand raised for forgiveness of `odious debts

Several IMF and US state department delegations visited Pakistan. But, Pakistan could not tell them point-blank about non-liability to service politically-stringed debts. The government’s dilemma in Pakistan is that defence and anti-terrorism outlays (26 per cent) plus debt-service charges leave little in national kitty for welfare. Solution lies in debt forgiveness by donors (James K. Boyce and Madakene O’Donnell(eds.), Peace and the Public Purse.2008. New Delhi. Viva Books p, 251).

Debt forgiveness promotes growth

Debt forgiveness (or relief) helps stabilise weak democracies, though corrupt, despotic and incompetent.  Research shows that debt relief promotes economic growth and boosts foreign investment. Sachs (1989) inferred that debt service costs discourage domestic and foreign investment. Kanbur (2000), also, concluded that debt is a drag on private investment.

In fact, economists have questioned justification of paying debts given to prop up a regime congenial to a dominant country.  They hold that a nation is not obliged to pay such `odious debts’ (a personal liability) showered upon a praetorian individual (p. 252 ibid.). Legally also, any liability financial or quasi-nonfinancial, contracted under duress, is null and void.

No economist to steer economy

Economics is mumbo jumbo to Pakistan’s finance minister. Renowned economist Atif Mian could not take over as finance minister because of uproar against his Ahmediyya/Qadiani religious belief. In protest, another cabinet-slot nominee Khwaja Asim also regretted to assume office formally (though continuing informal help ).

Pakistan’s economy: Back to basic

Economics remains a match between limited resources vis-à-vis unlimited wants (Lionel Robbins). What are our resources or factors of production (land, labour and socio-economic milieu, capital and organisation)?  Through what system these resources could interplay to start capital accumulation (growth/development/technical progress) in our country?

Our agriculture is exposed to vagaries of nature (floods, famines, etc.). Besides, productivity of our agricultural sector is low because of disguised unemployment (farmers produce less as compared to their ilk in advanced countries).

People are shy of investing in productive capacity because they could earn more in marketing and other business lines (even in real estate).

We have to determine optimal balance between public and private sectors. We have to balance constraints of security and welfare.

Manufacturing sector, not agriculture, produced Asian Tigers. Studies reflect that there is

correlation between manufacturing sector and economic development in our country. We need to adopt such polices as make manufacturing primum mobile of our economic development.Let some industries be croissance des fleures and improve some nuclei (one school, one university, one hospital) before expecting to transform the whole country through a magic wand (Waterston, Development Planning: Lesson of Experience).

Lessons for an economic turnaround

We need to realize that economics is a social, an inexact, science, but responsive to dynamic environment. Keynesian post-1930-Great-Depression macro-economic policies understood that unemployment is not due to un- or under-utilised productive capacity. It is due to under-spending and lack of effective demand to buy over-produced goods.

Mega housing project to promote capital formation Pakistan government has announced to build a million houses under Naya Housing Project . The scheme smacks of Ragnar Nurkse (Capital formation in underdeveloped countries). Will effective demand increased through mega housing projects will spill over into increased buying of goods imported from China and other countries?

A faulty project

To solve any problem, its nitty-gritty (features) should be first identified: (a) Shelter-providers are highly stratified. (b) Defence Housing Authority caters for shelter needs of military officers. It strictly adheres to its formula of allotment of flats and plots. But, it excludes `civilians paid out of defence services estimates’ (c) The Federal Government Employees Housing Foundation (and affiliate Pakistan Housing Authority) is supposed to allot plots to retired employees. But, it does not follow the date-of-birth criteria. Now only Grade 22 employees (including judges) get plots. Those in Grade 17 to 21(septuagenarians like me or even octogenarians and nonagenarians) may die without a plot or a flat.  (d) The FGEHF misuses hardship clause which favours not so hard-up people. For instance, a Customs collector on deputation to National Accountability Bureau was quickly obliged with a plot. He was allotted plot first and asked to submit illness certificate later (e)  It is eerie that FGEHF’s definition of `employees’, now, has infinity as its limit. It includes non-employees like legal fraternity, including Supreme Court Bar Association. (f) According to media reports, the FGEHF reeks of corruption and favouritism. (g) Shelter for general public needs careful study, beyond rhetoric of market demand and supply _ The Korangi Town Project, Lyari Expressway Projects, Khuda Ki Basti, ‘Home Ownership Scheme for the People’(1964), and ‘The National Housing Policy’ 2001.Trusting FGEHF for `naya housing’? `A cat’s a cat and that’s that’. The new government should have the nerve to merge all shelter providers (in khaki and mufti) and devise a national housing policy, instead of focusing on `houses’.

China should change consumerist Pakistan into a productive economy

Let China help expand Pakistan’s manufacturing capacity and thereby reduce unemployment in Pakistan. All policymakers should act in unison. They include policy formulators (prime minister, finance minister, et. al), policy detailers (chief economic adviser, statisticians) and technocrats. The policy-makers should decide upon balance of priority. agriculture or industry, “closed” economy with import substitution, “living within means” and balanced budget or deficit budget. Will increased spending “crowd in” or “crowd out” private investment? Monetary policy objectives and the role of the central bank_ stability of employment and inflation, growth rate, balance-of-payments issues Role of foreign-direct investment and “non-bank financial institutions? Their impact on capital formation, consumption trends, and other macroeconomic aspects.

Technocrats, being apolitical unlike policy formulators, could implement policies single-mindedly. Our precious borrowed dollars should not be frittered away into increased imports.

Pakistan’s economic system?

During Ayub era, capitalist growth had a free hand.  That led to rise of 22 nouveau rich families. A university mapped them in `Concentration of wealth and economic power in Pakistan’. Dr. Mahbubul Haq, himself the architect of laissez faire growth strategy, identified his mistakes in `Seven Sins of Economic Planners in Pakistan’. During post-Ayub period, we experimented with Bhutto-brand socialism. Later we embraced Islamic mode of financing mostly by packing old wine in new bottle (PLS sharing for `interest’, modarba,  musharika for partnership, so on). At the same time we kept paying debt service and contracting new loans under capitalist international system.

The downtrodden remained so in our Islamic system. The international exploitative capitalist system, on the other hand, delivered goods. Rapid economic growth with substantial amelioration in lot of the common man.  Soviet brand collectivism collapsed into oblivion.

Capitalism accepts inequality in incomes as a fait accompli. So do studies by political philosophers like Aristotle, Tacitus, Moska, Michel, Marx, Pareto and C. Wright Mill. Yet, sans uniform health care, education, and other basic facilities to masses, life in Pakistan is more miserable than in the West. Why? Soul searching needed by rulers and ruled alike.

Islamic modernism

A fetter to Pakistan’s rapid economic growth is debate between radical Islamists (fundamentalists) and liberal reformers The liberals, like Farag Fuda and Abu Zayd (Egypt), read the sources of Islamic sharia in terms of time and place (historical relativism). They advocate reading holy texts in our own terms, interpreting them in accordance with spirit and intentions. The radials (conservatives) regarded the liberals as heretics or apostates. Farag was murdered in 1992 and Abu-Zayd exiled in following years.

The conservatives say `Islam is complete’. The man in the street sees no undisputed Islamic model in Saudi Arabia, Iran, Pakistan or anywhere. We `circumcised’ some banking, civil and criminal laws to show case them as Islamic. For instance, we introduced PLS, modarba, musharika. Practically, there was no tangible impact on society, economy or polity. In international aid and trade, we conformed to secular principles. We continued to interest-based loans and pay debt service. Islamic punishments, introduced by Ziaul Haq had questionable impact. Sami Zubaida points out in his book Law and Power in the Islamic World (p. 224), “It is ironic that so-called Islamic punishments are described as `medieval’, when in fact, medieval jurists and judges showed great restraint   in their application while modern dictators flaunt them as a religious legitimacy”.

The Islamisation of laws is regarded by critics as hypocritical. Pakistanis have a long list of Constitutional rights. But, a proviso makes them non-enforceable through courts. Pakistan’s qanun-shahadat (evidence law) defines qualifications of a witness (tazkia-tus-shahood). But, it softens its Palladian to accept any witness if the ideal witness is not available. The less said about sadiq and ameen clauses, the better. Under these clauses, even a three time priminister was sacked by Pakistan’s Supreme Court. 

A judge has to decide according to law not according to his conscience and divine authority. An example is ban on gambling like circuses by one judge. The decision was turned down on appeal as it is Pakistan’s Electronic Media Regulatory Authority, not the court to adjudicate such matter.

Conclusion

Pakistan could not emerge as an Asian tiger because of indecision about what system to follow. The vested interests, particularly religious obscurantists, often smother dissent from so called enlightened moderators. Rampant sectarianism in Pakistan with concomitant effects on economy is an offshoot of lacunae in religious interpretations by vested interests.

Pakistan has abolished interest (riba) in accordance with its fundamental law. Yet its banking sector and international transctions are interest based.

Let Pakistan face the truth. It needs to evolve and show case a politico-economic model of Islam that is compatible with international practices. Or else, dispense with hypocritical patchwork, and go for secularist IMF model.

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Economy

Financial Inclusion in Europe and Central Asia: The Way Forward?

Asli Demirguc-Kunt

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Authors: Asli Demirguc-Kunt and Cyril Muller*

If you are unbanked there is a high likelihood you are living on the edge of poverty, exclusion and vulnerability. If you struggle to attain or maintain a secure, well-paying job, you probably do not have a bank account or access to financial services. You are completely reliant on cash, which is unsafe and hard to manage. And, should you or a family member experience a serious illness or another unexpected financial burden, you could quickly fall deeper into poverty and despair.

Unfortunately, this is the reality for millions of people in the developing countries of Europe and Central Asia. As recently as 2017, around 116 million adults in the region still had no bank account. And almost 60% of the unbanked in the region are women. In today’s highly globalized, technology-driven world, it is a stark reminder that we have a long way to go to ensuring greater inclusion and opportunities for all.

Over the past decade, account ownership has been increasing overall in Europe and Central Asia – from 45% of the adult population in 2011 to 65% in 2017 – but the data masks differences across subregions. In the high-income countries of Europe, most adults already own an account, and about 55% save formally in a financial institution. However, countries in the South Caucasus and Central Asia, despite important increases in recent years, have much lower levels of banked adults.

Armenia, Georgia, Moldova, the Kyrgyz Republic, Tajikistan, and Turkmenistan are among the countries that have seen the greatest increases globally, but they started from a very low base.

What are the reasons so many people in the region remain unbanked?

Lack of trust in institutions is a major issue. Almost 30% of unbanked adults in the region report lack of trust in banks as a barrier to opening an account, which is reflected in the very low level of formal savings in the region. Less than 25% of people in the developing countries of the region borrow from formal sources. As such, informal borrowing is prevalent. In cases of emergency, people rely on family and friends rather than savings or borrowing from a financial institution.

Gender gaps in financial inclusion also persist, and are especially acute in countries such as Armenia, Kosovo, Turkey, Tajikistan, and Turkmenistan. In Turkey, for example, 83% of men have a bank account, while only 54% of women have one. Being unbanked is also associated with a lack of labor force participation, which underscores the challenges facing so many women in the region with respect to participating equally and fully in business and in the economy.

What is the way forward?

Inclusive financial systems provide a high share of individuals with greater access to resources to meet their financial needs, such as saving for retirement, investing in education, capitalizing on business opportunities, and confronting shocks. Inability to use these financial services can contribute to persistent income inequality and slow economic growth.

There are many opportunities to increase account ownership. Over 80% of the unbanked in Europe and Central Asia have a mobile phone. Providing these mobile users with internet access or digital financial services could be key to expanding financial inclusion.

For governments, switching from cash to digital payments can reduce corruption and improve efficiency. Making government, private sector and agricultural payments directly into accounts would go a long way. For example, moving public sector pension payments into accounts would reduce the number of unbanked adults in the region by up to 20 million, including 8 million in Russia alone.

Technology has a huge role to play. Digital payments – such as receiving payments or transfers directly into an account, making payments over a mobile phone or using the internet, paying utility or fees directly from accounts – can drive financial inclusion, as many countries are also experiencing major advances in digitalization.

Financial services must be used responsibly, nonetheless. As such, countries need to ensure greater financial literacy among citizens and provide consumer protection safeguards. Financial services should also be tailored to the needs of financially underrepresented groups such as women, the poor, and first-time users.

As the Europe and Central Asia region grapples with sluggish economic growth and uncertain prospects in 2019-20, inclusive financial sector development can help boost growth and reduce poverty. Rapid technological advancement and interconnectivity between regions also provide unprecedented opportunities to ensure everyone can benefit from financial inclusion and therefore participate equally and fully in society.

*Cyril Muller is the World Bank Regional Vice President for Europe and Central Asia.

World Bank

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Economy

Ambitions are affordable for Asia and the Pacific

Armida Salsiah Alisjahbana

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Three years of implementation of the transformative 2030 Agenda for Sustainable Development in Asia and the Pacific shows the region has some catching up to do.

Despite much progress, the region is not on track to reach the 17 Sustainable Development Goals set out in the United Nations 2030 Agenda for Sustainable Development. We are living in a time of booming prosperity, yet many are getting left behind. Basic needs, such as the freedom for all from hunger and poverty, ill-health and gender-based discrimination, and equal opportunity for all are elusive. Economic, social and planetary well-being has a price tag. Calculations by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) show that it is mostly affordable for the region.

Realizing ambitions beyond growth

What will it take to realize the ambitious 2030 Agenda focused on strengthening the three pillars of sustainable development?

The 2019 edition of the ESCAP’s flagship publication Economic and Social Survey for Asia and the Pacific is asking for the region to raise ambitions beyond mere economic growth. Countries facing high and growing levels of inequality and environmental degradation will have to change course from pursuing a growth path that neglects people and the planet.

The 2019 Survey forecasts continuing robust growth in the region which remains the engine of the world economy. Amid rising global uncertainty that challenges the Asia-Pacific region’s economic dynamism, there is a need for investments that not only sustain growth but also build social and environmental capital.

ESCAP analysis shows the region needs to invest an additional $1.5 trillion every year to reach the Goals by 2030. This is equivalent to about 5 per cent of the region’s GDP in 2018, or about 4 per cent of the annual average GDP for the period 2016‒2030.

At $1 per person per day, this investment is worthwhile. It could end extreme poverty and malnutrition for more than 400 million people. A quality education for every child and youth would become possible, as would basic health care for all. Better access to transport, information and communications technology (ICT) as well as water and sanitation could be ensured. Universal access to clean and modern energy, as well as energy-efficient transport, buildings and industry could be achieved. Climate and disaster-resilient infrastructure could be built. Resources could be used more effectively, and the planet protected.

Most of this investment is needed to protect and nurture people and the planet. Making a better world for our people by ending poverty and hunger and meeting health and education Goals, requires some $698 billion per year. Protecting our planet by promoting clean energy and climate action and living in harmony with nature, requires $590 billion per year. Another $196 billion per year is needed to invest in improving transport and ICT infrastructure as well as access to water and sanitation services.

Of course, in a region as diverse as ours, investment needs vary considerably. Least developed countries need to invest the most at 16 per cent of GDP while South and South-West Asia has an investment need of 10 per cent of GDP to reach the Goals by 2030. More than two-thirds of the investment in these countries will be in reducing social deficits – poverty, malnutrition, lack of health care and education as well as job creation. Landlocked developing countries need to invest most in improving transport and ICT infrastructure as well as water and sanitation services. East and North-East Asia and, to a lesser degree, South-East Asia, need to focus on clean energy and climate action investment.

Paying the bill

It should be remembered that the Goals support each other and an investment in one area has a positive effect on another. Good health depends not only on access to healthcare services but also nutrition, safe water, sanitation and good air quality. Education for all also promotes gender equality. Resource efficiency supports climate change mitigation.

Besides harnessing these synergies, sustainable development financing strategies will have to turn to public and private finance. The good news is that most countries in the region have the fiscal space to invest in the Goals. There is also a massive untapped pool of private financial assets estimated at $51 trillion in developing Asia-Pacific countries alone. Enhanced regional cooperation would also help the region offset external risks and build resilience by tapping into regional resources.

Above all, leadership will be crucial in making the transition to a development strategy that balances all dimensions of human and planetary well-being. The 2019 Survey aims to stimulate a regional dialogue and offers guidance on accelerating progress towards the Goals in the region.

UNESCAP

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