Political oligopoly Oligopoly is a term used in economics to define the dominance of the market by a small number of large firms that can collude to control the supply and determine the prices of similar commodities so as to earn larger profits at the cost of the common man. The three characteristics of an oligopoly are: (1) a small number of large firms supplying identical products; (2) their control on the supply and prices in the market, and (3) the setting up of barriers to new entries. Its economic consequences are high prices of those particular commodities and perpetuation of production inefficiency of those products. Accordingly, even in a free enterprise system, governments intervene through legislation to break an economic oligopoly in the larger interests of the people and the country. However, in the political sphere even the most democratic countries tolerate the dominance of two to three political parties provided those are truly democratic in their internal functioning and external practices and are in healthy competition, not unhealthy collusion, with each other in governing the country. A political system dominated by two or three political parties, which are managed like business or personal property by particular families, degenerates into a dangerous ‘political oligopoly’. Under such a system, the legislative and executive power is used by the government to keep the ‘ownership’ of those parties with the same families and a joint effort is mounted by them to effectively block any threat to their power base. In Pakistan, we are faced with such a ‘political oligopoly’ controlled by two families. They work together to block the emergence of any new political force and exploit the country’s economic and human resources for the enrichment of their families and friends. The remaining few hundred ruling families have played it smart to split themselves to get involved with both the parties so as to remain in government regardless of which party comes to power after elections that are neither free nor fair. The most disturbing trend in the recent past has been that the two main political parties have joined hands to thwart of new political leaders. They have a common interest in perpetuating, rather than dismantling, their political oligopoly. Such a system has much more far-reaching social, political, law and order, human rights and economic ramifications than an economic oligopoly for a set of similar commodities. But most serious of all are the all-pervasive economic consequences that are summarised below: First, it has allowed them to follow economic policies of patronage that are favourable to the rich. The economic policies of both parties have explicitly or implicitly taxed the poor and subsidised the rich and thereby became a major instrument of transferring resources from the poor to the rich. As a consequence, income and wealth are concentrated in the hands of a few families that inherited land donated to them by the British rulers for their loyalty and a few industrialists who were allowed to amass wealth in the urban sector through licensing, loaning, and trading policies that helped them collect huge ‘rental income’ and accumulate enormous wealth. Second, moving from the general policy framework to the fiscal system adopted by both the PPP and PML-N governments, it is obvious that it is designed to explicitly help the rich and hurt the poor. On the expenditure side, presently the largest chunk of spending is devoted to servicing of debt that was created/used in the first place for the benefit of the rich and by now has increased to a dangerously high level with no corresponding build-up of productive capacity or revenue and export base. While the rich have taken their ‘rental’ income and wealth abroad or employed it in the underground economy, the poor are left to bear the burden of servicing and repayment of the debt. Third, whatever resources are set aside for so-called development, the bulk is wasted on prestige projects meant to be used by the rich. The modern airports, multi-lane motorways, the luxurious imported vehicles, and home appliances and gadgets that the markets are flooded with are used by the rich and powerful – not by peasants and labourers who travel on foot or on the backs of semi-starved donkeys on unpaved roads and subsist on a few food items if they can afford them. No government has bothered to give priority to expenditure on education, health, sanitation and supply of clean water to the poor. Any price subsidies meant for the poor never reach the intended recipients and are usually siphoned off by rich intermediaries. Third, defence is another large expenditure item. The illiterate population is emotionally blackmailed by suggestions that territorial integrity needs to be protected at any cost. The benefits of a strong defence accrue more to the rich than the poor because it is the rich minority that is to lose most from any foreign adventure if the defence forces are weak. In summary, the expenditure side of the budget is heavily tilted towards the rich and hardly helpful for the poor. Fourth, and on the revenue side, it is the poor who foot the bill for the rich. While the bulk of government expenditure is for the benefit of the rich, the bulk of tax burden is on the shoulders of the poor. Direct taxes are mostly collected from the middle and lower middle salaried class and small savers, and through withholding taxes that are borne by the poor. The incidence of indirect taxes falls heavily on the poor and the lower middle class. There are effective lobbies of landlords and the business community that block any attempt to reform the tax system to redistribute its burden according to the ability to pay. There is no effective lobby working for the lower middle class and the poor. Fifth, the revenue collected mostly from the lower middle class and the poor is way below the level of government expenditure and residual deficit is being financed by internal and external borrowing. Internal borrowing adds to inflation and its burden is born by the poor who are unable to hedge themselves against the onslaught of inflation. The servicing and repayment of foreign debt also end up becoming the responsibility of the poor. Sixth, the State Bank of Pakistan is forced by the government to pursue a cheap money policy and keep real interest rates in negative territory. While most of the bank deposits belong to small savers the bulk of bank credit is taken by the government and large borrowers. The negative interest rates implicitly tax small savers and subsidise rich borrowers. In addition, the large borrowers get away with loan defaults and loan write-offs. Thus, in several different ways the banking system and the monetary policy have been made to act as vehicles for the transfer of resources from poor savers to rich borrowers. Finally, the import regime and the exchange rate policies are such that they favour the rich and hurt the poor. A constantly depreciating and still mostly overvalued exchange rate creates incentives for the rich to hide their wealth in foreign currency accounts while de facto capital account convertibility allows them to transfer their wealth abroad. The overvalued but depreciating nominal exchange rate provides a subsidy to users of imports who happen to be rich and taxes exports which mainly consist of agricultural products and textiles, both directly affecting the lives of the peasants and factory workers. All this is happening because the political oligopoly is using its power base to help the rich at the cost of the poor. This system has by now taken deep roots and cannot be dislodged without a widespread awakening of the silent and subservient majority in Pakistan. The writer is a former governor of the State Bank of Pakistan.
Posted on: Fri, 05 Sep 2014 07:02:51 +0000
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