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CORPORATE WINDOW: The pitfalls of populist leaders

Does populism have a role in the making of the current economic crisis in Pakistan? The general perception in business circles is that it does.

For many, delays in harsh but necessary policy decisions by the last and the current government are the most blatant expressions of the populist tendencies of rulers in Pakistan.

The initial reluctance of former prime minister Imran Khan’s government to strike the International Monetary Fund (IMF) deal and its decision to disregard the tenets of the agreement with the donor last year just before prime minister Khan lost the majority vote in the parliament are said to be an expression of the populist genesis of his party PTI. It derailed the IMF programme that drove the country to the brink of sovereign default.

Compelled by the twin deficits, the Shahbaz government revived the IMF Programme and former finance minister Miftah Ismail tried to follow through on the deal by hiking fuel and energy rates. However, fearing the public backlash Finance Minister Dar avoided IMF’s dictates that further deepened the crisis before surrendering to the IMF’s wishes: let the rupee readjust more freely to market value and pledged to implement other conditions without delay, only last week. The footdragging by the PDM government in complying with the IMF’s calls is also perceived to be populist.

Experts are trying to dissect ‘populism’, the global phenomenon that reemerged over the past two decades as a very strong trend sparing none. Besides US, Brazil and India, even Germany and Scandinavian nations have not been immune to the current. To these intellectuals’ populism reflects claims of representing ‘popular will’, and populist leaders tend to drive public sentiments against ‘enemies’ of the common interest.

Promises of empowering the poor, redistributing wealth and eradicating poverty still resound with people despite growing scepticism that such political pledges are meant to be broken

Such leaders play on the base public sentiments of hate and distrust to assume political power and prolong it by hook or crook on the strength of street support. The instances of insurrection in the US and Brazil after populist leaders lost elections are cited in this regard.

The right-wing populists typically play on narrow nationalism projecting immigrants and minorities as key culprits responsible for problems such as unemployment and limited public amenities. The left-wing populists turn the public against the financial elite, offering simplistic solutions to complex economic problems.

“It’s political opportunism when governments knowingly opt for popular instead of correct policy decisions for political ends. Populism is a much deeper malice. It messes with social cohesion and the people’s trust in the system and directs the collective energies of mobs towards anarchy.

“Anti-elitism, anti-pluralism, narrow nationalism, authoritarianism, traditionalism and over-simplification of solutions to complex problems are key features of populism,” a local economist, who did not wish to be identified, noted.

“Historically populist leaders in power inflicted lasting blows to their societies economically and politically. Protectionist trade policies, piling unsustainable debts and the erosion of democratic institutions are hallmarks of their rule,” stated another expert leaving verification of his stance to readers.

The emerging literature on the rising global wave of right-wing populism suggests that implications for states being ruled by populists might actually be more adverse than currently assessed. These studies mention the period of former President Donald Trump in the US and former President Jair Bolsonaro in Brazil as textbook examples.

It is said to be a typical characteristic of populists to resent legal restraints on the executive and to dismiss the unfavourable outcome in elections. They tend to undermine democratic institutions — parliament, judiciary and free media.

Sadly, in Pakistan, any credible body of work has yet to surface that scientifically explored, analysed and projected the cost of populism to the economy and the public, which populists claim to represent.

More concerning is the fact that any debate on solutions to problems that breach the established framework or clash with IMF’s views is considered almost blasphemous. Leaders highlighting public hardships that entail complying with IMF’s conditions are viciously demonised and are deemed irrelevant or politically suicidal.

Many leading economists and self-proclaimed wizards in and outside the government were approached to share their views on the cost of populism for the country and the economy, but either they had nothing new to offer or were reluctant to own their opinion. Dr Rashid Amjad, former Vice Chancellor Pakistan Institute of Development Economics, was kind to share his mind.

“To me, political and economic populism, in most cases, feed on and into each other. For example, the slogan of the “22 families” controlling Pakistan’s wealth while the poor get poorer in the 1960s led to the rise of the PPP in West Pakistan on the populist slogan of “roti, kapra aur makan (bread, clothing and housing).

“Times have changed but populist slogans that stir people have not. ‘We will empower the poor, redistribute wealth and eradicate poverty’ still resound with people despite growing scepticism that political promises are meant to be broken.

“Sometimes the terminology is changed to appeal to the educated youth and new urban middle class — the rich are described as the “selected chosen elite”. And their accumulated wealth at home and abroad is projected as accumulated through “corruption” and “illegal” practices.

“It is not important if such charges are accurate, but they do resonate with the public who feel the gains of growth are distributed inequitably. More importantly, they stir a strong resentment against the status quo and a burning desire to overthrow the system. It is important to let people express their anger through a vote in free and fair elections.

“An attempt to rig or manipulate the election process threatens to derail not just the economy but the entire system. We have experienced this outcome in the past — it can happen again — sooner than we imagine!”

Ali Husnain, associated with the Economics Department at Lahore University of Management Sciences, sounding depressed over the evolving situation, found calculating the economic cost of populism difficult also because, in his words, “…each populist cooks up his own recipe”.

A leading private sector analyst, who occupies multiple executive positions in the corporate sector, Nasim Beg digs into reasons for the appeal of populism with the US example.

“Post globalisation, a lot of manufacturing in the US moved out to China, Mexico etc. This caused job losses in the US. For example, people born and raised in Detroit were used to decent jobs and a decent retirement. Within a generation, they lived in the Rust Bowl with no jobs and depleted pensions and voted for Trump, who promised to dismantle the free trade treaties. He gave tax cuts to the rich to help propel the economy. Populist leaders are often low on delivering on the economy.”

“Fast evaporating value of rupee, unsustainable twin deficits, energy disruptions/shortages, hyperinflation and political chaos amidst a strong populist current. The stage seems set for public anger to burst into the streets of Pakistan unless some signs of stability emerge on the strength of apt policy steps,” remarked a noted commentator.

Published in Dawn, The Business and Finance Weekly, January 30th, 2023

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