“Underdevelopment occurs not because of lack of capital: capital can easily be raised; it occurs not because of lack of skilled people: people can be trained; it occurs because of the failure of a society to organise itself for development…” Albert O. Hirschman (The Strategy of Economic Development, 1958).
ON Pakistan’s 78th independence anniversary, we have to ask ourselves a sobering question — why is the country that was born on the wings of hope, between promise and peril, and seemingly prospered for decades, in its current dismal state? Why are its human, social and economic development indicators competing with Afghanistan and sub-Saharan Africa? Why have numerous promised ‘game changers’ over the decades, from CENTO and SEATO membership to CPEC and SIFC, failed to deliver for the people?
The answer is simple as much as it is uncomfortable. Pakistan is not organised as a polity for development, let alone inclusive development. It is organised for elite extraction, appropriation, expropriation and enrichment. And the two models are not just incompatible, they are mutually exclusive.
A society is organised for development when its laws, institutions, cultural norms and incentives are deliberately structured to expand opportunity, raise productivity and channel resources towards the most optimal use for the widest common good. Economies that have successfully climbed the ladder of development, at least over the past five decades, display common characteristics. These include an emphasis on human capital development, high savings and investment rates, an equitable and non-discriminatory tax regime, responsible governance, high levels of transparency and accountability, institutional checks and balances against executive overreach as well as policy and regulatory capture.
Pakistan’s current organising principle as a polity is incompatible with development.
This is in sharp contrast to how Pakistan has been configured as a polity. To adapt Lant Pritchett et al’s quote, countries such as Pakistan “look like a state” but do not exhibit the foundational characteristics.
Pakistan has a Constitution but one that fails to restrain, to provide checks and balances; it has ‘law of the land’ without rule of law; governments without governance; buildings without institutions; projects without purpose; spending without impact; civil service without service; security agencies without security. Like many other Third World countries, Pakistan has been organised as a neocolonial project with local elites installed on behalf of former colonial powers. Two natural corollaries of elite capture are weakened institutional checks and balances, and extraction.
The wages of extraction are evident in how the two broad groups of society — the elites versus the non-elites — have done over the course of Pakistan’s existence. The current state of these two broad segments are in stark contrast. The lived experience of ordinary Pakistanis is one of grinding poverty, unemployment, unpayable bills and taxes, state repression and waiting in endless queues to leave the country.
On the other hand, the general elite as a broad cohort has never had it better. With over $17 billion of privileges accumulating to the elites each year via tax exemptions, concessions, land grants, budgetary allocations, etc, and an estimated siphoning off of around 30-40 per cent from public procurement and development budgets, an estimated annual capital flight of well over $10bn takes place. This has allowed ruling elites to accumulate vast offshore assets, as revealed in the various investigative leaks such as the Panama and Pandora Papers.
Neither of the two realities and daily lived experiences is an ‘accident’. It is by design and a result of deliberate policy choices. The process of marginalisation, income and wealth redistribution and extraction via public policy has accelerated from 2008 onwards. Powerful social, economic and political groups such as political families, the military, landed and business elites and bureaucrats have begun to monopolise public resources, and shape policy to favour themselves, away from ordinary citizens at large.
This widening divergence between ordinary, disconnected Pakistanis and the wealth accumulation of the connected elite coincides with the use of public policy as a tool for extraction and redistribution from the bottom to the top. Two areas where public policy has made possible the largest transfer of resources in Pakistan’s history, and mortally damaged the economy, are IPPs and sugar. (Land allocation is a third area).
The scale of the wealth transfer is staggering. As a crude indication, around 33 IPPs received contractual capacity payments of Rs8.3 trillion between 2014 and 2024, according to disclosure by the Power Division. According to the 2020 GoP inquiry report, the return on equity of a majority of the IPPs set up under the various power policies ranged from 40pc to 87pc in rupee terms. Against an initial investment of Rs110bn, IPPs set up under the 1994 and 2002 power policies alone earned net profits of Rs618bn. Investment payback periods of projects reviewed by the committee ranged from one to six years.
In the case of sugar, manipulation of data as well as government policy has regularly handed 90 millers, across the political spectrum, hundreds of billions of rupees in unearned rents. The rentier economy around sugar has destroyed Pakistan’s cotton economy, the mainstay of the country’s exports. And yet it continues unchecked.
Vested interests have begun employing the same template in wheat to earn enormous rents at the expense of the country’s 11.7 million farmers. More is in the pipeline, from rare earths and minerals extraction in KP, canals in Cholistan, and a crypto misadventure. Fire sales of state assets such as ports, airports and other vital infrastructure are also on the cards. This is institutionalised extraction. Institutions, budgets, laws, policies, markets and regulations have been increasingly structured around securing perpetual rents and privileges for the elites.
In short, Pakistan is not organised for development. A self-interested ruling elite lacking ‘skin in the game’ with little or no incentives to develop the country has rigged the system for extraction. In its current configuration, Pakistan is set up as a system of spoils for this elite. Without a fundamental rethink and reformation of the state, no amount of copper and gold or rare earth mineral finds will secure Pakistan’s future.
The writer has been a member of several past economic advisory councils under different prime ministers.
Published in Dawn, August 16th, 2025
