Rents and state authority

Zulfikar Ali Bhutto's nationalization program remains a frequent point of contention when discussing Pakistan's economic path. A segment of opinion views it as the nation's sole significant state-led effort toward industrialization and wealth redistribution. Conversely, those with differing political and ideological leanings attribute the derailment of private sector-led growth to this very program. Some even label it the "original sin" that crippled the capitalist class and condemned the country to its persistently lackluster economic performance. The intention here is not to re-litigate past policies or offer an unqualified defense of nationalization strategies. However, two aspects warrant attention: the strategy was very much a product of its era, mirroring global trends of nationalizations in the 1960s and 1970s across both developing and developed nations. Furthermore, numerous countries have since achieved higher economic growth rates while maintaining, or even expanding, a large public sector, or following partial or complete privatization. This raises a critical question: why did India's nationalization program, arguably larger in scale and scope than Pakistan's, not similarly damage its domestic capitalist class's psyche, rendering it incapable of accumulating capital at significantly higher rates decades later? By fixating solely on this single action, any narrative of Pakistani capitalism remains fundamentally incomplete. The reasons behind its slowdown in the 1990s, a partial recovery aided by geopolitics in the early 2000s, and broad stagnation from 2005 onward, must be explored elsewhere. The demands of newly empowered groups have been realized due to the fragmentation of state authority. The political economy literature concerning South Asia, and specifically Pakistan's post-1977 trajectory, merits consideration. Pranab Bardhan's 1984 monograph, "The Political Economy of Development in India," is particularly relevant. Its central argument posits that a country, despite possessing reasonable factor endowments, suffers from low average growth rates and persistent high poverty. Bardhan's thesis emphasizes not only the Indian state's substantial footprint in the industrial sector's regulatory and ownership structures but also the distributive claims made on public resources by three dominant propertied classes: the industrial capitalists, large farmers, and public sector bureaucracies. These bureaucracies leverage credential scarcity in a populous nation to bolster their socioeconomic standing. Under electoral competition, different factions of these classes advanced competing claims on state policy to preserve their privileges and distribute benefits in exchange for political support. Consequently, the state neither acted autonomously from competing forces to foster growth nor operated solely on behalf of a single dominant class.