Elements of capitalism being questioned

By M. Osman Ghani

The pillars of modern capitalism appear to be shaking after its longest domination of the world economy. The framework of a capitalist system contains six essential features namely; (i) private property, (ii) freedom of choice and enterprises, (iii) self-interest as the dominating motive, (iv) competition, (v) price mechanism and; (vi) very limited role for government. Based on these six pillars, western capitalism flourished by leaps and bounds in the last two centuries. The capitalist system mainly thrived on multiplying the resources of the few privileged western nations through the mechanism of interest-based business transaction and their exploitation of the God-gifted resources of the third world countries. Now this interest-based economic system is biting even its creator. Even the most powerful country on earth, the USA, is caught in the quagmire and in the tentacles of this monster. The USA is now indebted by an unprecedented figure of national debt, about the size of its GDP. For countries like Pakistan mounting debt burden has become a matter of growing concern. Under capitalism very few are getting richer and richer, while the vast majority is being pushed below the poverty line. Number of poor is rapidly rising in the third world countries.

The history of lending and borrowing is as old as antiquity. Both co-existed like fish and water. But unlike cordial relation between fish and water relationship between the lender and the borrower has never been sincere. Under the unbridled capitalism the lender is always the privileged one and the real beneficiary while borrower is always the looser and sufferer. Lender makes all the conditionality which the borrower is bound to accept them whether he likes them or not. A lender can only flourish by grabbing the lion’s share from the borrower’s income, be it in cash or kind. The lender always wants to expand his wealth and fortune in as shortest time as possible, without undertaking any work or risk by using the techniques of price mechanism. The lender always wants the increasing number of borrowers around him; he wants complete control of all the means of prosperity by keeping his clients below the subsistence level so that no challenger dares to raise his head. Lender has the liberty to set new terms and conditions of loan unilaterally only to expand his asset. In the rural areas of the sub-continent, old lending system was very harsh and imposed. The rate of interest was solely determined by the village-lenders. The old rural lending system prevalent in the Bengal based on incremental interest rates, which was created by the rich financiers. It was the most cruel and exploitative system. The simple and illiterate peasants of Bengal were exploited up to the brim. Under this exploitative form of usury most of the victims were poor Muslim peasants, they were ultimately deprived of their small land holdings to barter their generation-old accumulated debt.

The century old usury based exploitative system is now growing and engulfing the entire globe, even its creators and promoters are not immune from the bite of its poisonous tentacles. Pakistan is no exception. From the beginning of 1990s we have been hearing the slogan of emancipation from the clutches and claws of the donors but no sign of freedom is visible in the never ending dark tuned. On the other hand Pakistan’s predicament appears to be increasing. It now requires more borrowings to repay its old debt.

By the end of 2007-08, Pakistan’s external debt and liabilities surged to $46.3 billion, as compared to $40.5 billion in the previous year thereby showing an increase of $5.8 billion or 14 per cent, in just one year. Pakistan’s external debt and liabilities has risen to 28 as a percentage of GDP. From FY02 onwards, Pakistan’s external debt experienced a few years of stability, maintaining a level of around $33 billion. FY05 witnessed larger amounts of external debt mostly due to the funds required after the devastating earthquake suffered in that year. The increasing trend continued in the following years, with external debt reaching $46.3 billion in FY08.

Total public debt of Pakistan increased by Rs.1087 billion in the fiscal year 2007-08 alone, reaching a total outstanding amount of Rs5901 billion; an increase of 22 per cent in nominal terms. As a percentage of GDP, total public debt has increased from 55.2 per cent in 2006-07 to 56.3 per cent in 2007-08. The value of the rupee has depreciated from 60.63 at the end of FY07 to 66.10 by end-June 2008. The rupee has been witnessing steady depreciation since the beginning of current fiscal year and on August 5 it stood at 81 against dollar. Increase in the fiscal deficit has caused a massive surge in domestic debt for the year 2007-08. Total domestic debt has increased from Rs2610 billion in 2006-07 to Rs3263 billion in 2007-08 and further to Rs3450 billion in August, 2008. Increasing amount of funds are now required to finance a growing fiscal deficit.

Pakistan’s current expenditures are rapidly rising as compared to its revenues. As per cent of GDP its total expenditure has increased from 18.4 per cent in 2005-06 to 21.3 per cent in 2007-08 while its tax revenues have declined from 10.5 per cent of GDP to 10.1 per cent during the same period. To meet her growing budgetary needs Pakistan is looking for some bigger dozes of financial supports from the lenders and donor agencies that will certainly put tough conditionality for such loans. More debt will only increase our national debt burden. Getting more and more loans is not the ultimate solution of an ailing economy. It could be a temporary solution for an ailing economy to borrow on high interest rate and under tough conditionality. If Pakistan wants to stand on her own feet it must prepare a strategy to become a debt-free country in the next 15-20 years, Pakistan must exploit tangible means of her survival within its own resources under the theory of ‘Cut your coat according to your cloth’. This could be possible only by optimal utilisation of its vast human and natural resources. Only a vigorous national effort will enable us to become self sufficient for which all the resources are available in various crude forms within the country.