Undoing Partition: Pakistan’s Military Economy and the Reintegration of South Asia

Wednesday, November 2nd, 2011

By Neil Padukone
Regions Eastern Africa, Southern Asia
Keywords: Afghanistan, India, Pakistan, South Asia, United States

While America’s goals in the AfPak region have focused on eliminating Al Qaeda, organizations like Pakistan-based Lashkar-e-Taiba are ready to step into the breach. Yet Islamist militants will prevail in AfPak so long as America remains dependent on Pakistan for access to Central Asia; Pakistan makes use of this dependence to secure military aid, backing militants whose existence in turn ensures American engagement in the region and continued American dependence on Pakistan. But the main reason that Pakistan has nurtured Islamist militants is Islamabad’s insecurity over its unbalanced relationship with India. This insecurity accounts for the military’s influence over Pakistani decision-making, a role guaranteed by its pervasive control of Pakistan’s economy that began at partition. Instead of aggravating the problem with more military aid, Washington should encourage structural change (1) in the Pakistani economy, by reintegrating the region and economically undoing the partition of the subcontinent; and (2) in its relations with Pakistan by opening the Chabahar-Afghanistan route in eastern Iran, thus reducing its dependence on Pakistan.

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By Neil Padukone

The discovery of Osama bin Laden in Abbottabad, a town known for its Pakistani military institutions, has brought the question of Pakistani state support for militants to center stage. Even as the U.S. edges toward its goal of “disrupting, dismantling and defeating al-Qaida in Pakistan and Afghanistan,"[1] a cocktail of other groups in Pakistan–Harakat-ul-Jihad ul-Islami (HuJI) and Lashkar-e-Taiba (LeT) key among them–are ready to step into any void left by al-Qaida, often with official support.[2] If the United States is to eliminate global Islamist radicals—whether Al Qaeda, the Taliban, Lashkar-e-Taiba or whoever might follow in their wake—and “prevent their return” to either Pakistan or Afghanistan, it should consider why exactly Islamist militant groups are so endemic in the AfPak region.

Why Militancy?

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For decades, Pakistan has been the West’s only transit link between the Arabian Sea and Central Asia. From 1980 to 1990, during the anti-Soviet war in Afghanistan, Washington’s unstinting support for Islamist President Gen. Zia ul-Haq—to the tune of $5 billion in military aid, not considering weaponry, funds from Saudi Arabia and the blind eye turned to Islamabad’s nuclear program—turned Pakistan into the main conduit for western aid to Afghan mujahedeen.[3] This period bolstered Islamists on both sides of the Durand Line, including the generation of the army and Inter-Services Intelligence (ISI) Directorate that was raised on the Nizam-e-Mustafa, Zia’s Islamist system of governance.[4] And today’s groups of extremists in Pakistan are, as many argue, the U.S.-Zia chickens coming home to roost.[5]

After the end of the Soviet campaign, American aid to Islamabad fell to less than $500 million between 1991 and 2000—$429 million and $5.2 million in economic and military assistance, respectively.[6] Of course, aid has skyrocketed once again to nearly $20 billion, primarily in military funds, over the ten years since 9/11.[7]

As a result of this geographic dependence, Pakistan has long been seen as a tool, used by the Americans in their fluctuating quest for security. U.S.-Pakistan ties were strong following the 1955 Baghdad Pact, weak after Pakistan’s 1965 war with India, strong during Pakistan’s 1971 war with India, and neglected thereafter. They were at their peak during the Soviet war in Afghanistan, forgotten in the 1990s, strong again in the post-9/11 period and weak following the war in Iraq. Despite the focus on AfPak these days, Pakistanis have been checking their watches because another cycle is almost up.

Since 2001, more than 70 percent of NATO’s Afghan supplies and 40 percent of its fuel have passed from the port of Karachi, through the mountains of northern Pakistan and onward to Afghanistan.[8] The main reason for this reliance on Pakistan for access to Central Asia is that, rather than encouraging the cheaper, more stable route from Chabahar to Milak-Zaranj in eastern Iran, Washington hopes to isolate Tehran.[9] But even this aim is futile because Tehran continues to extend its reach into Central Asia in spite of the American cold-shoulder.[10]

Meanwhile, various actors in Pakistan manipulate this reliance to their own benefit. The Taliban and other militants frequently attack this precarious supply line as well as International Security Assistance Force (ISAF) troops. Only 60 percent of the goods destined for Afghanistan from Karachi are actually delivered. The rest—from helicopter spare parts to machine guns to American military computers with sensitive information—is either lost or stolen, and much of it is openly sold in the bazaars of Peshawar and Quetta for a fraction of the production price.[11]

It has become increasingly obvious that these and other attacks take place with official sanction from Rawalpindi, Pakistan’s military headquarters. And why not? As long as “terrorist” groups are operating from Pakistan, it seems that American aid money will flow into the military’s coffers, no questions asked. This money is given to help the Pakistani military destroy these groups. But if these groups are gone, many in Pakistan fear that the U.S. will abandon their country financially as it has in the past, repeatedly. There is an economic incentive to not eliminate them.

Western dependence on Pakistan for its geopolitical needs harms not only the West, but Pakistan itself, by bolstering its military-economic complex, locking the country into an economy dependent on war and suppressing Pakistani development and political moderation.[12]

Of course, the primary reason that Pakistan has nurtured militants is Islamabad’s insecurity over its unbalanced relationship with India. Islamabad’s fear of annihilation is driven by Pakistan’s smaller population, its geographic size and economy, Pakistan’s military inferiority, the fact that Pakistan is the lower riparian of the Indus River, that New Delhi is increasingly currying favor in Washington, and that the country has an identity crisis over the role of Islam in society.[13] Indeed, the 1971 division of East Pakistan (today’s Bangladesh) from the west at India’s hand seemed to substantiate these fears. Considering these vulnerabilities, Islamabad ramped up its post-independence strategy of enhancing its strategic depth, extending its influence in places like Afghanistan and Kashmir by cultivating efficient strategic assets: sub-national Islamist militants.

Recognizing the central role that India-Pakistan enmity plays in regional dynamics, many suggest that resolving the Kashmir dispute is the precondition for stability in Afghanistan.[14] Kashmir is undoubtedly a cause and a symptom of the Indo-Pakistan conflict, and back-channel bilateral discussions over its future may certainly bear fruit.[15] But, for better or worse, American involvement in this realm has tended to be a non-starter, largely because Kashmir brings back unresolved questions of the Indo-Pakistan partition, about which both countries are extremely sensitive.[16]

Instead, the fundamental problem must be addressed: by undoing partition. This does not mean the political absorption of Pakistan into India—an objectionable outcome to all involved, as Pakistan would lose the autonomy that is its raison d’être, New Delhi would have the undesirable burden of managing an additional 190 million people with a great deal of political baggage and the rest of the world would have to deal with the fallout.

Economic Partition & Pakistan’s Military-Economy[17]

Yet partition was not only political, but also economic, severing the commercial links between what was once a single, integrated economic unit rooted in geographic history. Greater Punjab was one economic entity for centuries before partition bifurcated it between India and Pakistan in 1947. Karachi and the former Bombay were tightly knit sister cities on the sea under the same administrative “Bombay Presidency” unit of the British Raj. Today these regions are all but severed.

Further afield, Central Asia had been South Asia’s door to the outside world for millennia; invaders and traders used the routes along the Afghanistan-Pakistan border to access the Indo-Gangetic Plain that lies across today’s north India and eastern Pakistan, historically one of the world’s most fertile and productive regions. The Bolan, Khyber and Gomal passes, as well as the more fertile Swat, Hunza and Upper Indus valleys in Pakistan’s northern mountains were more accessible than the snowbound Himalayan peaks, and were used so frequently that they became corridors of communication rather than mountain barriers. These days the same corridors, isolated from the broader region, are little more than abysses.

Partition also changed the economic makeup within Pakistani territory. When the bureaucracies, industries, resources and land of British India were divided between the Union of India and the Dominion of Pakistan in 1947, Pakistan—with a fifth of India’s population and a fourth of its size—received nearly half of the British Indian Army, while civilian entitlements were proportionate with Pakistan’s smaller size and population, skewing the civil-military balance from the start.

India quickly instituted land reforms to break up much (but certainly not all) of the hold that feudal landowning systems would have on the new country. Pakistan, on the other hand, resisted such efforts. There, the military and the landed elite—a small number of feudal, land-owning families that dominated the ruling All India Muslim League at the time of partition—made an unofficial alliance to bring about the quick administrative integration of the new state, a powerful nexus that would affect the political and economic development of the country for decades.[18]

Members of the economic elite came to staff the officer corps of the Pakistani army, whose retirees would often go on to head prominent civilian bureaucracies. Meanwhile, the army—starting with the military government of Ayub Khan in 1958—invested its own capital in ventures controlled by industrial and financial elites, often giving retired officers highly subsidized prices on real estate around the country to ensure their economic clout and secure their loyalties even after military service.[19]

This self-reinforcing investment and lack of land reform kept power vested in a handful of families. In 1968, twenty years into Pakistani independence, forty-three families still controlled 46 percent of manufacturing, 75.6 percent of insurance assets, and 74 percent of all assets of private firms.[20] Today, the same military-political elite dominates agriculture, which provides about 23 percent of Pakistan’s GDP and employs about 45 percent of its labor. Tenant farmers are beholden to the elites who own the land, paying nearly 50 percent of their meager output to their proprietors. These ownership structures have led to a centralized and inefficient management of water, technology, credit distribution and production in that land, not to mention similarly ineffective control of its policing, political parties and electoral governance. Consequently, the average per-acre yield in Pakistan is less than 60 percent of that in other South Asian countries—between 20 and 50 percent of its full productivity potential.[21]

Despite populist rhetoric and three attempted land reforms—in 1959, 1972 and 1977, after which just 0.5 percent of landowning families still owned 30 percent of the land—little has changed on the civilian side. Individual landlords evaded ceilings on private land ownership by nominally dividing their property amongst real and fictitious family members, and by declaring to the government only the poorest quality land, for which they nonetheless received high compensation.[22] Meanwhile, the Fauji Foundation alone—an organization run by and for armed forces personnel—has become the largest business conglomeration in Pakistan. Its assets in interests like cement, power generation, financial services, food and security services account for nearly 4 percent of total market capitalization in the Karachi Stock Exchange—not to mention a plethora of additional military business.[23]

This feudal-military economy not only predisposes the country to militarism, but is financially untenable: fewer than two million people in a country of 190 million pay taxes, power shortages cripple businesses and lead to circular debt, where costs of electricity subsidies are constantly displaced onto others, and Pakistan faces a 350 percent increase in energy demand by 2030, but lacks the finances to undertake major energy projects alone. This military-heavy economy only survives on lifelines of American aid, guaranteed by fears of Pakistan’s implosion.

“Undoing Partition”

Today, over six decades after Pakistani independence, there is no viable economic alternative to the army’s management of the country. Looking not only to build themselves up as substitutes, but to simply stay afloat, middle-class businesses seek a sustainable model of economic growth, one that provides reliable sources of energy, opens markets for Pakistani products and economically reconnects Pakistan to the rest of the region.

India—which seeks access to Central Asian markets and energy resources, as well as more efficient production and distribution of vital staples like onions—would also profit from connectivity, as would both Afghans and Kashmiris, whose geographic isolation requires regional integration for their economies to flourish. Even China, which is looking for more efficient ways to produce and import Pakistani agricultural products, could be interested in this sort of arrangement.[24]

While improving India’s energy access and earning Pakistan over $200 million a year in transit fees alone, the two main plans for economic integration—the Iran-Pakistan-India (IPI) and Turkmenistan-Afghanistan-Pakistan-India (TAPI) natural gas pipelines—also have a strategic dimension. These pipelines, as well as other Central Asian trade that would traverse Pakistan and India, would flow from the northwest of the region, putting Pakistan “upstream” of India. This trade would give Islamabad strategic leverage in transnational economic projects, increasing Islamabad’s confidence in its relationship with Delhi; a far less volatile way to do so than increasing Pakistan’s weapons arsenal. Even if the resulting inter-regional trade comes under the control of the armed forces due to the military’s dominant economic role, enhanced commercial ties could reorient Pakistan’s engagement with the region.

Though the 2006 South Asia Free Trade Agreement (SAFTA) is a step in the right direction, truly free trade between India and Pakistan remains theoretical. Bilateral trade remains at a paltry $2.1 billion, most of it through informal avenues, such as smuggling and third country intermediaries. By some economic models, trade potential is as high as fifty times that figure.[25] This meager number is due to tariff and non-tariff barriers in both countries, such as long, politically driven “sensitive lists” that prohibit bilateral imports of thousands of items as harmless as tractor parts and tea.[26] Meanwhile, Pakistan has agreed to (but not yet implemented) a deal allowing Afghan exports to travel through Pakistan into India, but prohibits Indian goods bound for Afghanistan from crossing Pakistan.

Yet even SAFTA lacks ambition. The treaty says little about services, which account for a majority of all South Asian Association for Regional Cooperation (SAARC) economies, or about the subcontinent’s geographic unity, which is uniquely suited for the inter-country infrastructure that would lower transaction costs and pave the way for deeper integration. This would include cross-border rail and highways, like those that facilitated trade between Kabul and Dhaka even before the British period, direct trade and coordinated production of commodities like textiles and produce, a regional power grid that transfers surplus energy from Central to South Asia, water management projects that factor in longer-term shifts like climate change and, of course, the pipelines.[27] Among other roadblocks, India and Pakistan’s overblown security concerns have kept both countries from making the investments and political decisions necessary to finance these types of projects.[28] With infrastructural links severed at the time of partition, the subcontinent’s full economic potential is consigned to the history books.

Conclusion

To move forward, Washington must make regional economic integration its highest priority in South Asia. Instead of aggravating problems with a fickle aid-based relationship, the U.S. should make a long-term commitment to Pakistan—long-term being more than ten years—that encourages structural change in Pakistan’s economy by reintegrating the region and economically undoing the partition of the subcontinent.

To do so, Washington should urge both Pakistan, which has resisted on paranoid political grounds, and India, which, as the region’s largest country, will have to accept disproportionately greater responsibilities in the integration process, to act on these goals.[29] This would initially involve the reduction or elimination of obstructive tariffs and “sensitive lists,” requirements that ships touch a third country before importing goods, restrictions on transit trade to third countries, obstacles to foreign direct investment and other barriers to intraregional infrastructure. Washington should also expand its own free trade with Pakistan, for which finance ministers of even Pakistan’s military regimes have lobbied but which has been impeded by U.S. protectionism.[30]

Finally, Washington can reduce its destructive dependence on Pakistan by abandoning futile attempts to weaken Tehran, and bringing Iran into the regional process. Opening the Chabahar-Afghanistan route in eastern Iran would provide a secure alternative to the Karachi port, giving the west a freer hand vis-à-vis Pakistan, as well as an important transit point to western Afghanistan in the region’s wider network of connectivity. Individual NATO countries have begun bilateral discussions with Iran on employing this route; these discussions must be made a priority. Washington ought to reverse its opposition to the IPI pipeline and permit the development of regional infrastructures that include Iran.

Political and financial support for the transnational trade corridors that cross South Asia are the best, most sustainable way for Washington to reconcile its “Islamabad or Delhi” policy, in which relations with India or Pakistan are seen by the other as a zero-sum game. More importantly, changing the terms of Washington’s engagement with Islamabad would wean Pakistan off its aid-based military economy while addressing the structural problems that underlie America’s decades-long concerns in the region.

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* Neil Padukone is a strategic affairs analyst and author of Security in a Complex Era. He is currently writing a book on the future of conflict in South Asia.

NOTES

1. President Barack Obama, “Remarks by the President on a New Strategy for Afghanistan and Pakistan,” The White House, 27 March 2009.

2. See, for example, Neil Padukone, “The Next Al Qaeda? Lashkar-e-Taiba and the Future of Terrorism in South Asia,” World Affairs Journal, November/December 2011 (forthcoming).

3. Lawrence J. Korb, “Reassessing Foreign Assistance to Pakistan: Recommendations for US Engagement,” Center for American Progress, 2 April 2009, http://www.americanprogress.org/issues/2009/04/pakistan_korb.html.

4. See, for example, Charles Kennedy, “Islamization and Legal Reform in Pakistan, 1979–1989,” Pacific Affairs 63, no. 1 (Spring 1990); Mumtaz Ahmed, “The Crescent and the Sword: Islam, the Military, and Political Legitimacy in Pakistan, 1977–1985,” Middle East Journal 50, no. 3 (Summer 1996).

5. See, for example, Hassan Abbas, Pakistan’s Drift Into Extremism: Allah, the Army, and America’s War on Terror (London: M.E. Sharpe, 2004); Hussain Haqqani, Pakistan: Between Mosque and Military (Washington, DC: Carnegie Endowment for International Peace, 2005).

6. Korb, “Reassessing Foreign Assistance.”

7. Alan Kronstadt, “Major U.S. Arms Sales and Grants to Pakistan since 2001,” Congressional Research Service, 4 January 2011; Ian Livingston and Michael O’Hanlon, “Pakistan Index: Tracking Variables of Reconstruction and Security,” Brookings Institute, 30 March 2011.

8. See, for example, Bill Roggio, “Taliban sever NATO supply line through Pakistan’s Northwest,” Long War Journal, 3 February 2009.

9. Neil Padukone, “Afghanistan’s Roads to Stability,” Open Democracy, 4 October 2010.

10. See, for example, Dario Cristiani, "Irans’s Growing Interests and Influence in Central Asia," World Politics Review, 10 September 2010; Suzanne Maloney, Iran’s Long Reach: Iran as a Pivotal State in the Mulsim World, (Washington, DC: United States Institute of Peace Press, 2008).

11. See, for example, Roggio, “Taliban sever NATO supply line”; Shahan Mufti, “In the Wrong Hands,” Global Post, 30 May 2010.

12. Ayesha Siddiqa, “Pakistan’s Permanent Crisis,” Open Democracy, 15 May 2007.

13. For a Pakistani view of Islamabad’s strategic threat perceptions, see Feroz Hassan Khan, “Pakistan’s Evolving Strategic Doctrine,” in Pakistan: The Struggle Within, ed. Wilson John (New Delhi: Pearson Education India, 2009). For a discussion of Pakistan’s national-religious identity crisis see Farzana Shaikh, Making Sense of Pakistan (New York: Columbia University Press, 2009).

14. See for example Pankaj Mishra, “Afghanistan: The India & Kashmir Connection,” New York Review of Books, 14 January 2010; Mohsin Raza, “Kashmir is the key to peace in Afghanistan,” Newsweek, 7 February 2010; “Solve Kashmir First: Rethinking South Asia’s Longest War,” Open Society Foundation, 30 June 2010.

15. Steve Coll, “The Back Channel: India and Pakistan’s secret Kashmir talks,” New Yorker, 2 March 2009; Manu Pubby, “Reached back-channel Kashmir deal with Musharraf, PM said,” Indian Express, September 3^rd, 2011; Praveen Swami, “PMO in secret talks with secessionists,” The Hindu, 25 January 2006.

16. For a historical analysis of America’s involvement in Kashmir, see Howard Schaffer, The Limits of Influence: America’s Role in Kashmir (Washington, DC: Brookings University Press, 2009). For an analysis of the identity issues at the core of the Kashmir conflict, see Stephen Philip Cohen, “India, Pakistan and Kashmir,” Journal of Strategic Studies 25, no. 4 (December 2002).

17. The following sections contain ideas from a briefing originally published as Neil Padukone, “To Aid Pakistan, Undo South Asia’s Economic Partition,” World Politics Review, 27 June 2011.

18. Ayesha Jalal, The State of Martial Rule: The Origins of Pakistan’s Political Economy of Defense (Cambridge, UK: Cambridge University Press, 1990).

19. Akmal Hussain, “Institutions, Economic Structures, and Poverty,” South Asia Economic Journal, June 2004.

20. Lawrence J. White, Industrial Concentration and Economic Power in Pakistan (Princeton: Princeton University Press, 1975), 63.

21. Muhammad Iqbal and Munir Ahmad, “Science and Technology-Based Agriculture Vision of Pakistan and Prospects of Growth,” Pakistan Institute of Development Economics, Proceedings of Pakistan Society of Development Economics 20th Annual General Meeting in Islamabad, 10–12 January 2005; “Pakistan Far Behind the World in Per Acre Yield,” The Nation, 18 March 2011.

22. Akmal Hussain, “The Land Reforms of Pakistan: A Reconsideration,” Bulletin of Concerned Asian Scholars 16, no.1 (January-March 1984).

23. Ayesha Siddiqa, Military Inc: Inside Pakistan’s Military Economy, (London: Pluto Press, 2007).

24. For an exploration of shared Chinese-U.S. interests in reforming Pakistan’s economy, see Patrick C. Doherty, “Dear China: Help Us Fix Pakistan,” Foreign Policy, 9 May 2011.

25. Mohsin Khan, “Improving India-Pakistan Relations Through Trade,” Peterson Institute, 19 April 2010.

26. Nisha Taneja, “India-Pakistan Trade Possibilities and Non-tariff Barriers,” Indian Council for Research on International Economics Relations (ICRIER), Working Paper No. 200, October 2007.

27. Tsunehiro Otsuki and John Sullivan Wilson, “Regional Integration in South Asia: What Role for Trade Facilitation?,” World Bank, Policy Research Working Paper, 1 December 2007.

28. Muchkund Dubey, “SAARC and South Asian Economic Integration,” Economic and Political Weekly 42, no. 14, 7 April 2007.

29. Rajiv Kumar and Manjeeta Singh, “India’s Role in South Asia Trade and Investment Integration,” Working Papers on Regional Economic Integration, Asian Development Bank, July 2009.

30. Gary Clyde Hufbauer and Shahid Javed Burki, Sustaining Reform with a US-Pakistan Free Trade Agreement, Peterson Institute for International Economics, October 2006.

Undoing Partition: Pakistan’s Military Economy and the Reintegration of South Asia

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