November 24, 2004 ☼ Economy ☼ Foreign Affairs

Trade:Kashmir::Cart:Horse ?

Pakistan links trade, like peace, to the resolution of the Kashmir issue

This is an archived blog post from The Acorn.

Indians by large are an optimistic lot. The more naive and the high-minded among them (the distinction between the two is of academic interest only) believe that it is possible to have a sustainable peace with Pakistan, because the Pakistanis after all, are simply ‘people like us’.

The less naive and more business-minded however, believe that people-to-people contacts and free-trade betweent the two countries will create strong constituencies for peace, which will ultimately reduce the emphasis from ugly things like Kashmir and nuclear confrontation. The argument goes that once ordinary Pakistanis, drunk on the success of business and trade, will prevail on their government to stand down on Kashmir. The Pakistanis have their own, similar version of the argument.

So having an investment banker running the PMO in Islamabad and an professor of Economics running the show in India must come as good news for the ‘trade for peace’ lobby. Unfortunately, though, the investment banker has disabused them of their developing fantasy: trade will have to wait until Pakistan resolves the Kashmir dispute to its satisfaction. Shaukat Aziz has been consistent on this, so the Indian dreamers have only themselves to blame.

The ‘trade for peace’ lobby is not wrong — economics can be a persuasive advocate for peace. But in spite of Pakistan’s recent stellar macro-economic performance, its economy mirrors its polity. The military establishment and the feudal elite control the commanding heights of the economy, and have much to fear greater competition in the domestic market, especially when that competition comes from abroad. Hence both the business interests of the business elite and the political interests of the military converge on one point — on keeping the Indian bogey alive.

For this reason at the very least, deeper economic co-operation between India and Pakistan will remain hostage to Pakistan’s political-economic structure. As long as the military establishment in Pakistan remains in power, it will continue to put Kashmir before both peace and trade. Indian optimism rests on the tremendous potential for economic cooperation, and the benefits it will unleash. But from time to time, this optimism needs to be tempered with reality. Shaukat Aziz needs to be thanked for reminding us of that.

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