Black Market Activities And Corruption In Pakistan Politics Essay

The relationship of corruption and Governance is integrated from a long time back. In case of Pakistan, the root of the relationship runs back since the Independence Day. Corruption as an attribute in the system in the sub-continent, has affected the level of Governance to the extent of creating extremities of positive and negative. Governance which measures the effectiveness of institutions in a society has only been a theoretical concept in case of Pakistan. Several factors that lead to the level of corruption to reach where it is now are ignored conveniently and the direct effect is on the masses. A number of activities are performed below the radar in Pakistan and are reported to as the “black market activities”. They are referred so as because of their capability to deceive the purposeful boundaries of the system present, which holds them liable to the tax structure of the country. The case is not a new one for the world, let alone for Pakistan, and this is a common practice in the country. All these activities are concealed from the authorities with regard to the tax structure in Pakistan, and are thus reported as the under-ground economy in macro terms. This is a consequence of a complex tax system, frequent cash transactions in terms of construction, smuggling etc. and that of a negative public perception.

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Pakistan has experienced a relatively below par appreciation when it comes to the structure of the taxing system present, and the flexibility in it. Unemployment and recessionary trend also contribute towards a most common phenomenon as part of black activities known as “tax evasion”. This concept has given birth to corruption on a wide scale. Tax evasion is when one skips the underlying rules of the system and is not officially recorded in the tax net. Some sectors of the economy in Pakistan have been exempted from taxes right from the independence till date, and hence they are also recorded as the underground economy. The others, who happen to be the industrialists in some cases, have taken refuge under the same exemption by reporting their income either as under the exempted sectors or by understatement altogether. This has given rise to corruption not only by these means, but also by persistently supporting and influencing the policy making process so that loop holes remain to be exploited.

The theoretical side of this aspect has confirmed that the persistent non-compliance towards tax laws have allowed a major portion of the economy to remain below the radar so that they can skip the measurement as per the economy’s activities. The graph relates to the overall black economy as a percentage of GDP and then tax evasion as part of the GDP

Source: Pakistan Institute of Development Economics, Islamabad

(PIDE Research series)

The increasing trend in the black market activities from as early as year 1974 till the start of the 21st century is in line with the theory and also points out towards the fact that in Pakistan, the complex and flawed policies to account for a major chunk of the economy have decreased on standards year by year. The tax evasion figures also shed light upon the loop holes of the tax policy

Source: Pakistan Institute of Development Economics, Islamabad

(PIDE Research series)

The trend for the tax evasion as part of GDP also depicts an increasing trend which has settled to a somewhat decreasing number, but that is still above in comparison from where it started. The figures above 6% are depressing signs for the economy, as this constitutes a large number in terms of population which has resided towards corruption by not giving taxes at all. Such has been the history of this country in terms of compliance towards law. A major chunk of the revenue is not used for the purposes assigned for due to the fact that it goes down the drain in the form of corruption. According to the figures of Federal Board of Revenue, Rs 800 billion is being evaded in form of taxes in the country. And more than Rs 1000 billion is being utilized under the category of corruption every year.

Incidence of different types of Corruption: Petty, Middling and Grand Corruption

To understand the case for Pakistan with regard to Petty and Grand Corruption, it is important to comprehend the exact concept behind the two very common source of corruption in the country. Petty corruption involves the misuse of financial sums on a small level, which often involves junior representatives in the government and the private sector. But considering the dimensions of the public sector, this phenomenon can be understood in a comprehensive manner taking the case of Pakistan. Contrary to this grand corruption refers to massive financial discrepancy at the highest level, which involves the strongest candidates in the corridors of power. The high sum involved in this form of corruption is the most important aspect to look out for along with the level of officials also a part of this. The case of Pakistan in this regard is not a special one if the developing countries are analyzed at a glance. Along with this political corruption, misuse of power and nepotism are also a source of concern for the country.

The majority in Pakistan will be in a state of consensus if the scale of petty corruption is analyzed. Access to basic services in the public sector comes with a “cost” on part of the people, and that helps strengthen the corruption base in the country. This is because the official net does not recognize the sort of transaction that ends up in the provision of the service. The citizens of Pakistan have reported to have offered bribery in most cases to the officials of the public sector in order to acquire the relevant service, which otherwise is supposed to be part of the welfare for the people. This certainly has raised many eyebrows in terms of the scale on which this petty bribery and petty corruption is being practiced in Pakistan. The sector wise analysis show more alarming figures in terms of corruption present in Pakistan. Transparency International has been involved in conducting the relevant research with regard to the public sector of Pakistan. The figures regarding the corruption present in the Police sector which have been told to be 64% makes the situation crystal clear. The institution is the most widely interacted one on the level of population, and the petty corruption present in this sector is also the most. They have grabbed the first spot in terms of corruption, which also depicts the compliance by law, and the state of the law enforcement authorities in Pakistan. This has certainly affected the Quality of Institution in the country and the resulting governance is also evident.

Source: Transparency International Pakistan

Grand Corruption is also a commonly practiced phenomenon in Pakistan. The case of “Pakistan Steel Mills”, the forex scandal, the Punjab Bank scandal etc. have dented the reputation of the country massively. This involved the higher officials reported to have accepted a large financial sum, in order to strike deals in all three cases. The case was then taken up by the Supreme Court and in one case, the judgment reverted the original deal. Public procurement is another area where transparency has been a source of concern. By the dimensions that are present in the law, open and competitive bidding should take place. Contrary to this, information is disclosed prior to the process taking place. According to the information provided by the Transparency International, the kickbacks involved in the public procurement process and the discrepancy in awarding contracts on anti-merit basis account for 25% of the budget in Pakistan every year.

Non-financial aspects In Pakistan

The performance is poor if the trends in corruption are witnessed for Pakistan. The time span from 1990 to 2009 show that frequent charges of corruption came along to dent the governments, resulting in the system getting dissolved. If the governance indicators are analyzed over this time period, it is also evident that Pakistan has performed poorly in every way. The rule of law, control of corruption and regulatory quality all illustrate a negative prospect for Pakistan in those years. The changing of governments frequently has also been identified as one of the trends of the time span mentioned above. The dismissal of Benazir government in 1997, then that of Nawaz Sharif in 1999 has dented the accountability efforts as well. Another trend that has been witnessed from the sources (TI and CPI) has shown that the military government had a very shady status with respect to the accountability procedures present to detect the cause of corruption. Contrary to this, democratic setups showed a much more transparent system which was answerable before the court of law. But again, the corruption statistics are not satisfactory enough for both times to rate Pakistan a strong candidate on grounds of transparency. Nepotism and misuse of authority is also another non-financial aspect of corruption in Pakistan. The limitless power rested with the government has given rise to undue favors and appointment of people in public offices with no consideration given to the qualification standards.

1.4 Data vendors and corruption ratings for Pakistan

The World Bank governance indicators also revealed the shambolic performance of the national institutions of Pakistan, with ever decreasing scores. The political stability was the worse of them all, showing a persistent decrease in 2007 to 1.0 from 11.11 in 1998. This has also confirmed for the fact that dictator governments have affected the control of corruption in an adverse manner. The figures for control of corruption also indicate that in democratic times, the control was far more than what was present in Musharraf’s era.

General trend for corruption has shown to be an increasing one, for which some remedy has also been offered by the World Bank and the Asian Development Bank. This is the promotion of e-governance for the purpose to reduce corruption on a national level and especially in the public sector of Pakistan. Police, Judiciary, Customs and the revenue board have shown a persistent increase in corruption over the years, with exception to Judiciary post the chief Justice removal incident. Other than that the overall ratings for governance in Pakistan have also decreased, and the control of corruption has also been dreadfully low to indicate that the position in Pakistan is desperate.

Moreover, the condition of the civil bureaucracy has also been way below par, with the junior officials engaging in petty corrupt practices more than the senior officials.

1.5 Corruption in Civil Bureaucracy and Quality of Bureaucracy

The bureaucratic circle has always gained strength in this country and right from the word go has tried to keep resources under a constant surveillance. This has concentrated the resources of this country into the hands of only a few, who continue to use it for personal gains. This has only brought the corrupt practices into play and the concept of citizen centric governance has fell flat.

The bureaucratic administration has kept the Anti-corruption laws with full effectiveness in theory, but the execution has always been there weak point. The Global Integrity report gives the Civil services and Administration a score of 68 out of 100, showing a weak sign. This is because the quality of bureaucracy in Pakistan is way below par and they have also been keen to keep the power intact. This has resulted in malpractices, namely corruption both financially and in a non-financial manner. Nepotism has been a constant attribute of the civil bureaucratic culture of Pakistan, which has given rise to the non-financial aspect of the corruption as well. Furthermore, in the financial relation, the bureaucracy has also been the face of all the powerful politicians keen to strike a deal in terms of receiving kickbacks on a national deal wherever possible. The nepotism factor has been analyzed to be more in place when the democratic governments have ruled Pakistan.

1.6 Corruption in Military establishments and Institutional quality

. In August 2000, the kickbacks involved in the famous arms deal naming Admiral Mansoor-Ul-Haq of the Pakistan Navy brought about a wide-scale problem for the country on the national level. The deal was worth $2.7 billion which involved submarines, fighter jets and other arms to be purchased from the French authorities. Perhaps, this remained to be the worst scandal for the military government at a time, when the democratic setup had been removed on the basis of corruption itself.

In Pakistan, the continuity of the process has not been an option often exercised. Five dismissed governments on charges for corruption over the span of just 22 years have raised question marks on the interpretation of corruption for the government. Political vendettas have been justified whereas institutional effectiveness has been side-lined. Many have raised doubts on the national accountability ordinance that allows detention for 90 days without trial. This also exempts the military and the judges from this law, which further points out towards lack of equality before the law. Initiatives such as the paying off debts scheme by Nawaz Sharif and National Reconciliation Ordinance by Musharraf for Asif Zardari and company has also given rise to corrupt practices without any checks and balances. Again, what lacks is the will to execute the laws properly. Rather, the laws have been manipulated to pardon those who are powerful, and punish the resource less. Hence corrupt practices have flourished, and petty corruption has picked up strength immensely.

1.6 Corruption in law and order institutions and Judiciary

Another concern with regard to corruption over the years has been the performance of the Judiciary. The long and impending cases have allowed for manipulation of the system, and the Judiciary has been compromised a number of times. The result is that several corruption based deals have been executed and the process has lost its competence and transparency. However, in the recent years, with the strengthening of the media and the overall civil society, corruption has been exposed on the national level. Whether that pertains to Judiciary or that of Public institutions, the exposure at a large scale has affected the status quo.

1.7 Nature and types of Corruption in the corporate sector

Tax evasion has also shown to be a consistent problem. That has been possible because of the tax and public finance administration being involved with the taxpayers at some point, and allowing for fewer taxes to be collected. This has dried up the national revenue source and hence bribery at a small level has translated into a corruption at the most massive scale. The financial accountability assessment by the World Bank in 2003 has commented on the accountability in Pakistan to be improving with time, but the gaps in between the chain of command are still exploitative. They also pointed out to the fact that this is a result of low competence in the national institutions and the lack of evenly implemented reforms throughout the country. The financial reporting in the country is weak, which is giving rise to corruption massively, and hence the economy suffers at the hand of this and above all, the good governance concept remains to be in theory.

The problem of corruption is across the board with the Federal and the provinces in the same context. This is hampering the growth pattern of Pakistan, as this corruption is leading towards more poverty levels in the country, and a gap between the rich and the poor.

Literature Review

2.1 An overview of competing definitions of corruption and corruption by type in developing and developed countries

The usual case for defining corruption has not been a complex phenomenon and consensus is present over its various definitional forms. According to the Transparency International source book, named as “Confronting Corruption” written by Jeremy Pope (2000), Corruption is defined as “the misuse of entrusted power for benefit”. This can be related in terms of individual’s actions or that of a group, but the overall definition encompasses the aspects in a broader sense. Another definition that comes from an authentic source to define this menace of the society is from the Commonwealth Working group. In a published book named, “Fighting Corruption-promoting good Governance” written by the Commonwealth Secretariat (2000) describes corruption as abuse of public office for private gain. This if analyzed comes out to be an even more authentic representation of the word corruption, as it states that the offices which are liable for the benefit of the people in general are also a part of this dilemma if misused. This means that any form of corruption which is motivated either by normative personal interests or by political affiliations for political ventures are both covered within the parameters of this definition.

Another author who defines corruption goes along same lines to explain this concept so that all definitions that have been previously outlined are in cohesion with the new ones in essence. Joseph Nye (1967) in the article “Corruption and Political development”, explained corruption as the behavior which deviates from normal duties of a public role because of a private one. This includes the incidence of bribery, and status related discrepancies. Hence what is notable in this definition is the fact that misappropriation is accounted for a massive scale. The definition looks general at a glance but in practicality holds the different possible aspects of corruption in its widest context. The common ingredient of the above given definitions is the fact that all mention about the discrepancies, misuse of public entities and mismanagement for personal gains. Hence one thing is evident that there is no radical differentiation in the above stated definitions of corruption and all refer to the same understanding level. Another definition will strengthen this furthermore. Raul.A.Barretto (2000) explains public corruption as “illegal profiteering by a public agent from a position of a representative of government at any level”. This has given rise to a possibility that in governmental institutions corruption is a phenomenon which is practiced at a massive scale.

Pakistan is a case nothing new when it comes to the competing definitions of corruption. Kamran Shafi (2008) and Hassan Askari Rizvi (2008) have mentioned about the corrupt practices in the country in a comprehensive manner, writing in particular about the different forms of corruption that are present in Pakistan. With special attention to Petty corruption, it has been talked about in great detail that how the instances in the public sector with this type have only sought an increase with connection to time. The 1990’s era witnessed a far greater accountability measures with regard to corrupt practices while the latter years devolved the process and the position worsened.

The types of corruption when it comes to the developing and the developed countries are in the sharing zone. All guns have been blazing towards the developing countries when it comes to the types of corruption invented or being practiced, but the fact of matter indicates that the same is the case in the developed countries but in a different manner. The World Bank report on Good Governance formulates the different types of corruption starting off with “Bribery”, which is defined as an offer in financial terms or any request for a favor in order to influence a public official. The second type of corruption refers to as “Nepotism” which is explained by the level of favoritism on part of the public representatives to move out of line to assist and favor their relatives and known ones. This is an extremely common phenomenon if the developing countries are read with regard to their political and social setup. The lack of proper accountability system affects the judgment criterion here and hence this sort of corruption is common in the countries where administrative control is weak. This also represents the non-financial aspect of corruption, and again allows for more seepage in a system with many loopholes in its implementation.

Another form of corruption is “Fraud”, which is explained as the deceit that allows for the government to be cheated upon and misguided. This is mentioned in the context of public offices and hence has its parameters set according to the described context. This is a financial discrepancy, which allows for personal gains to set in so as to destroy the public entity, originally meant to serve for the welfare cause. The World Bank report further signifies the importance of “Embezzlement”, a form of corrupt practice that encompasses the stealth of public money and government owned fixed assets including property. This is another corruption form which is has a persistent presence in the developing countries due to lack in the law and order existence in the region. This does not rule out the concept’s existence in the developed countries but the scale is at an entirely different level. The report moves a step further in determining the forms of corruption and discussed the difference between “Administrative Corruption” and “Political Corruption”, with the former one referring to as the corruption that alters the implementation of any policy or policies in getting a favor which stands unqualified in the first place and the latter one pointing out to corruption involving devolving or prompting any devising of laws and regulations such as rescinding all licenses. Moreover, Petty Corruption and Grand Corruption are also mentioned as distinct branches of corruption present in the developed and the developing countries. Petty Corruption refers to the financial discrepancy at a junior level and it involves smaller sums, whereas the opposite case is true when mentioning Grand Corruption. In that a relatively large sums of financial aspect is involved and the possibility is only in place when the chain of corruption leads up to high offices in the government and with high officials involved directly. This again depends on the elite and the bureaucratic class of any country to determine whether grand or petty corruption exists. If the political class is clean and free from any type of corruption, then grand corruption is unlikely to exist, whereas the other form is then also a relatively less prevalent phenomenon and vice versa.

2.2 Brief overview of theories of corruption and corruption initiatives

A number of theories that have surrounded corruption and its concerns are popular enough and explain the reality of this concept in a relative manner. These have been conflicting theories as each are taken to analyze an indigenous behavior with at least one other variable other than corruption. Furthermore, the possibility of the theories to be implemented in the developed and the developing region is also relative when it comes to the understanding and the implementation process. This is because the ground realities of both the regions is entirely different when studying corruption and these conditions shape the policies and theories in their own respective manner. Hunginton, Leff mentioned about a theory concerning corruption explaining that better governments which are often on the wrong direction in terms of focus allow for implementation of rules that are stiff in nature in the first place and corruption condenses red tape and rallies allocative efficiency. This theory again might not be able to survive in its curriculum when talking about certain developing states e.g. Pakistan, but the theory was put forward as a result of research in different other countries. Laffont-Tirole came up with an almost same theory but ought to differ with the resulting consequence of the reduction in red tape overall. The author of this theory also argued that the governments that are involved in imposing rules and regulations which are firm in the first place are the ones comprising of smart and clever individuals and that allocative efficiency is not a result of the reduced red tape in the country.

Shielfer-Veshny emphasize over the argument that governments that make the rules slack are more or less covetous and canny in attributes which allows the bureaucratic candidates a whole lot amount of power at their discretion; hence allowing no red tape to flourish and the no corruption to persist. This in consequence causes the allocative efficiency to be undermined massively and to be eliminated in certain cases as well. This at a glance remains to be a utopic idea when the essence of the theory is revised. Conclusion based on this idea cannot be substantiated as proof of this is not present in many cases be it developed or the developing societies. Another theory that depicts some sort of practicality in it explains that canny governments allow loopholes in the rules to let the bureaucrats play around it and amend it to their discretion. This is done so as to create the red tape and then frame it to their liking which also protects them at the same time. Hence the conclusion rests upon the fact that corruption and red tape are two allied concepts that will run in partnership in most cases.

Anti-corruption initiatives have been taken in order to reduce the incidence of corruption in any country under consideration. The world has sought answers in the form of allocative efficiency to be attained while looking at the corrupt measures being practiced in the country and resulting red tape culture being promoted. The case is similar for Pakistan as well in terms of introducing initiatives at the national and the provincial level. National Anti-Corruption strategy (NACS) has been in place from 2002, originated by the National Accountability Bureau in the country. The report talks about the strategy that is in place to reduce the culture of corruption in Pakistan. The paper mentions about the “enforcement” approach being adopted which has allowed some hyper actions to reduce corruption in the country on an extensive scale. It further is in place to set a broad horizon in terms of vision and install a strategic frame-work involving higher level power authorities and understanding in a comprehensive manner to account for corruption. Not only this but to extend this parameter to monitor and fight the effects of corruption so that Quality of Institutions is made effective, resulting in good governance. But for this an implementable plan is required to be in place so that the theory is also justified in practicality. For this purpose a consultative and consensus based approach is used to fulfill the strategy in terms of methodology. Mushtaq.H.Khan (2000) mentions about the initiatives which are to reduce the corruption in the developing countries and how that is interconnected with the issue of Governance. He points towards a “greed plus discretion” theory of corruption and how there is a need for anti-corruption reforms other than the conventional ones, so that the result orientation depicts a different analogy altogether.

2.3 Corruption Optimality and Corruption Deterrence

Corruption Optimality and Deterrence has been dealt with in defining how different conflicts and hurdles from other bits and pieces of the society have played their role in determining that misuse of power and financial discrepancy does not take place without any checks and balances. Samarth Vaidya (2005) mentions about the concept of corruption deterrence in detail and points out towards the competitive structure of today’s world that has allowed for more corruption deterrence to set in and hence play its relevant role. The author then draws out an interesting comparison between two scenarios. She mentions about the role of media in Corruption deterrence in the modern world of today and with special regard to the developing countries. One model depicts the media’s role in exposing corruption in a competitive setting where there are no restrictions and the percentage of truth regarding corruption is supposed to be reported. The other setting is that of a monopolized one where there is incentive to either report the corruption activities in a truthful manner or for that matter in a false manner as well. The result that the author comes out with indicates that corruption deterrence is more in the one where competition exists and monopolized one is still not able to allow for optimal level to be reached, beyond which the corruption is unacceptable. But that does not mean that this is true for all situations and will hold equally well in all competitive situations. Here what is important to note is that corruption deterrence in an effective manner is only possible once the institution of media steps into the equation. Another important aspect to note is that the institution of government and that of media do not always run in coherence when it comes to the corruption exposure and corruption deterrence.

Besley and Pratt (2002) explain the fact the two institutions mentioned above are in serious conflict at most of the times when the issue of corruption deterrence is being discussed. Especially the countries that are in the developmental phase of their national age are likely to suffer the bruises when it comes to corruption deterrence. But it is important to note here that the scenario is different when the monopoly media firm does not subjugate towards any cooperation with the government. In that case corruption optimality is witnessed and it continues to exist in the environment without any hindrance. This is because even if that very firm does not cooperate, it is difficult to establish credibility in front of the government propaganda. The government machinery is then in a much convincing phase and that takes over any chances of even truthful reporting of corruption practices and even if the reporting is wrong. Moreover, this no competition state allows the false accusation premise to fall quickly as opposed to the denial by the government and then the publicity stunt consequently causes the corruption deterrence aspect to get weak as the time progresses.

Francis.T.Lui (1986) has also mentioned about corruption deterrence and its model in great detail. He has introduced the idea of over-lapping generations model into corruption deterrence with making assumptions like when the corruption involves an uncheck high financial summary, then auditing official or officials becomes a daunting task but this assumption can then lead to several stable equilibrium and optimal levels of corruption in an economy. This also assists in explaining the rationale behind government’s implementation of severe corruption deterrence policy for temporary period and then that leads on to actually different level of corruption overall in the economy.

2.4 Indicators and instruments for assessing Corruption by data vendors

Efforts at a massive scale have been in action in order to assess the corruption stats and trends overall by different techniques and through different data vendors. In that regard Transparency International reports have been made and with special research strategy invested by Reinikka and Svennson (2006). World Bank has also invested much effort in terms of formulating data on the measurement of corruption and so World Development Indicators (WDI) have been published in which a separate ranking on Transparency and corruption is given rated from 1 to 5.

The UNDP and Global Integrity (2008) is another attempt by the UNDP and the Global Integrity organization in the world to compile all the different measurement techniques and publications used in terms of assessing the scale of corruption country wise. They are further divided in rankings to give the administrative process, the overall risk assessment and other departments a separate numerical figure to assess the transparency in the relevant sector. Most measurement meth