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Op-ed

Aid and the Unraveling of Pakistan

by Devesh Kapur, University of Pennsylvania
and Arvind Subramanian, Peterson Institute for International Economics

Op-ed in Newsweek
January 21, 2008

© Newsweek


Democracy suffered a string of setbacks in 2007, many thanks to oil. Gushing oil revenues helped Vladimir Putin consolidate authoritarian rule in Russia, Hugo Chávez expand populism in Venezuela, and Mahmoud Ahmadinejad confront the West. All the while, an analogous force was at work in Pakistan. For more than 50 years, Pakistan has reaped its own unearned manna, which has filled its coffers and kept its fragile state afloat. In this case, however, the money didn’t come from the ground, but from massive military and other forms of aid, largely from the United States, China, and Saudi Arabia. Yet while the source may be different, the impact of all this cash on Pakistan has been just as destructive as oil wealth elsewhere: bloating the military and creating a culture of violent instability, in which assassinations like that of Benazir Bhutto are sadly inevitable.

It’s impossible to understand Pakistan’s current woes without examining the massive volume of aid it’s amassed over the past half century—and that aid’s deeply corrosive effects. Since its inception, Pakistan has strived desperately to counterbalance India, cultivating ties with any state willing to help it. This has never been hard: In the 1950s, Washington contributed generously in exchange for Pakistan’s anti-Soviet military stance. Then, beginning in the 1960s, China, which also saw India as an enemy, came calling. Still more money flowed in from rich Middle Eastern governments, especially Saudi Arabia’s.

The 1980s brought the Afghan war against the Soviets, with Pakistan as the main conduit for supplies and support to the mujahedin; the United States alone chipped in $5.3 billion during this period. The US Central Intelligence Agency and Saudi intelligence also poured money and sophisticated technology into Pakistan’s ISI, or Inter-Services Intelligence agency, helping turn it into the most notorious and destabilizing actor in the country. Altogether, Pakistan accumulated a whopping $58 billion in foreign aid between 1950 and 1999, allowing it to become one of the biggest military spenders in the world. After 9/11, Washington’s generosity redoubled; it’s since given Pakistan more than $10 billion in assistance.

The consequences have been devastating, for reasons similar to those at work in the so-called natural resource curse. Extensive research shows that when governments luck into unearned cash (which economists call “rents”) from oil or other resources, the healthy links that bind them to their citizens are often severed. Freed from relying much on taxes, governments spend the money arbitrarily. Citizens, left untaxed, feel less motivation to monitor things carefully. The result is corruption, misrule, and a host of other ills.

Rents paid for natural resources are bad enough. But “strategic rents”—earned by a country for its role in the foreign policies of other states—are even more damaging. Military aid by definition entrenches the militaries that get it, making them less responsive to civilian control. Pakistan’s military has grown enormously powerful over the years, resistant to democratic checks and highly entrenched in every aspect of the country’s commercial, civil, and political life. From banking to insurance, cereals to cinnamon, the military’s presence and influence can be felt everywhere. Strategic rents have also helped radicalize Pakistan, since some of the Saudi aid money for jihad in Afghanistan has gone instead to fund extremist madrassas in Pakistan itself.

Strategic rents are also susceptible to manipulation. General Pervez Musharraf, for example, has consistently avoided foreign criticism and kept the money coming by arguing, essentially, that while he may be imperfect, the alternative—the Islamists—is far worse. To support this case, Pakistan’s leaders have resorted to trickery at times. For example, according to the Pakistani journalist Ahmed Rashid, prior to last year’s confrontation at the Islamabad Red Mosque, the government stood by idly as militants poured into the compound—though it could have easily flushed them out in the early days—in order to highlight the Islamic “threat” Pakistan supposedly faced, and the need for more aid.

Can Pakistan escape this vicious cycle? An obvious solution would be to divert some military aid to civil society and to tie other aid to specific objectives such as counterterrorism. Yet this obviously is very unlikely to work. It would require the Pakistani army to comply, and why should it? After all, the generals know that even if Washington cuts them off, China and Arab states will pick up the slack.

What, then, should Washington do? Given the deadly combination of nuclear weapons and rabid jihadist groups in Pakistan, the United States can’t simply stop supporting Musharraf and his generals. But backing them as the lesser of evils would also be a mistake. Unquestioning military aid has stunted the growth of civic institutions. Pakistan’s mullahs and its military are also more closely linked than is widely appreciated. The West’s top goal must thus be to get the military out of Pakistan’s politics and economy. This won’t be easy, and it won’t solve all the country’s problems. But it’s the best hope in a bad situation and Pakistan’s only shot at real stability.