The murderous military assault on East Bengal by the Pakistani Army was the finale to two decades of economic exploitation and political oppression. The systematic massacre and devastation ordered by Yahya Khan has written its own historical epitaph on the deformed creation of the Partition of British India in 1947. Confessionalism predictably produced a monster, whose life-span was doomed to be a short one. Pakistan emerged as the ‘homeland of Islam in the subcontinent’. Theology was the only rationale for uniting into one sovereign State two territorial units separated not only by geographical distance but by linguistic, cultural, social and ethnic differences which had no mediation other than the reactionary bond of religion. Across this artificial structure, where the centre of ‘national’ power was separated from the majority of the population by over 1,000 miles of hostile Indian territory, the course of capitalist development wove an intricate fabric combining the features of both class and colonial exploitation. Within this complex, Bengal has suffered the compound contradictions of a system which simultaneously channels the production of the poor into the consumption of the wealthy, and the surplus of an agricultural dependency into the industry of the suzerain metropolis. The political economy of Pakistani capitalism, as it has evolved since 1947, is the fundamental explanation of the national and class upsurge which is giving agonized birth to Bangla Desh today. The purpose of this essay will be to show the essential mechanisms of this economy, the reasons why it eventually led to the crisis in Bengal, and the reciprocal impact which this crisis is certain to have on West Pakistan.

A brief sketch of the class structure of Pakistan is a necessary precondition for understanding the pattern of economic development since Partition. Since class relations in Pakistan have recently been discussed in the pages of this review, footnote¹ there will be no need to do more than recapitulate their most salient features. The vast rural expanse of West Pakistan is dominated by large landlords, who form a traditional aristocracy and gentry, owning over 30 per cent of the privately cultivated land. These landlords extract both feudal rents and capitalist profits from their estates, which are tilled by combinations of dependent peasants and wage-labourers. Beneath them, a rich kulak stratum has emerged, concentrated largely in the intensively irrigated region of the Canal Colony in Punjab. Below these two classes, smallholders, microtenants, sharecroppers, landless labourers and rural unemployed vegetate in various gradations of misery. In the towns, a parvenu industrial bourgeoisie has burgeoned from virtually zero since the Second World War. It is important to underline the peculiar composition and character of this class, since much of the configuration of political power in Pakistan has been determined by it. When Partition occurred, there was practically no industry in the provinces of Sind, Baluchistan, Punjab and the North-West Frontier. Throughout the subcontinent, the Muslim bourgeoisie, of whatever ethnic origin, had played a negligible role in the development of a manufacturing capitalism. Some minority communities of Muslims, however, had traditionally specialized in selected commercial and speculative functions (bullion-broking, for example), mainly in Bombay and Calcutta. The most important of these were the Halai Memon, the Dawoodi Bohra and the Ismaili and Isnashari Khoja. footnote² These groups migrated to West Pakistan after Partition with what capital and skills they possessed, and there formed the initial nucleus of the entrepreneurial class in the Western provinces. Later, they were joined by a similar Punjabi trading minority, the Chiniotis, but even today some half of the millionaire élite which dominates the urban sector of the Western economy is composed of Gujarati-speaking immigrants from communities who represent less than 0·3 per cent of the total population. In 1947, these were newcomers to Karachi, with very slender assets. They therefore became overwhelmingly dependent on the patronage of the State bureaucracy for the finance and import licences crucial to business enterprise in the early years.

In the absence of any native capitalist class, the nascent Pakistani government, for its part, had to fall back largely on these trading communities as agents of its industrialization programme. Thereafter, they grew steadily, together with their Punjabi counterparts, in a client relationship to the Pakistani Civil Service, which provided them with the privileges and protection necessary for accumulation in the inhospitable conditions of the North-Western subcontinent. In exchange, of course, corruption seeped ever wider in the ranks of the Pakistani bureaucracy itself, as business repaid the debts to its patrons with bribes, amenities, donations and kick-backs. Thus however wealthy Pakistani businessmen became (enormously so, it will be seen), their direct political power was always truncated: for rather than an independent capitalist class, government patronage produced a bourgeoisie tied to the pre-existent structures of the military brass and bureaucracy. The key personnel of both these latter apparatuses were in their turn recruited from the landed gentry and aristocracy, which had always traditionally provided the indigenous staff of the upper echelons of the British Colonial State in India. The top military officers and the élite functionaries who have wielded effective political power throughout the history of Pakistan formed an increasingly symbiotic union with the new tycoons in the sixties, during which all three groups rapidly enriched themselves. The comparative ‘social’ weakness of the West Pakistani business class has persisted; but today it is compensated by its enormous economic power within the country. In 1968, 22 families controlled 66 per cent of the country’s total industrial capital, 70 per cent of insurance and 80 per cent of banking. footnote³ This concentration of wealth has been wrung out of an industrial working class in Karachi, Lyallpur, Lahore and Rawalpindi which suffers a degree of exploitation uncommon even in the underdeveloped capitalist world today: in 1954, the share of wages in value-added manufactures was 45 per cent (in England it is 75 per cent): in 1967 it had actually dropped to 25 per cent. footnote⁴

East Bengal has presented a very distinct class constellation. Before Independence, the feudal zamindari who wracked the countryside had been Hindus. With Partition, this class fled virtually en bloc to India, taking with it most of the exiguous industrial capital in the province as well. The land they left behind was redistributed among the sharecroppers and poor peasants in units with a 33 acre ceiling. Hindu moneylenders departed with the landlords as well. Thus at one stroke the countryside was purged of two of the chief parasites that drain any rural economy. Partition therefore generated a rural social structure overwhelmingly dominated by a mass of peasant smallholders, the great majority of whom own less than 5 acres of land, producing cash crops for the market: jute footnote⁵ and cotton. It will be seen that State policies later reversed this situation by confiscating the peasant’s surplus and leaving him vulnerable once again to usury. As a result the old forms of exploitation were to return and with them both a decline in absolute living standards and a notable increase in village stratification. Meanwhile, in the urban areas the bulk of what modest industry developed fell into the hands of West Pakistani investors. During the sixties, a handful of local contractors and entrepreneurs emerged, feeble creatures of the State bureaucracy and its agencies, with little specific weight in East Bengali society. The local civil service gradually filled up with Bengali functionaries, but the Central segments of the bureaucracy in the West remained largely impervious to this process, despite some belated tokenism in the last days of Ayub’s regime. The Army has throughout been a wholly West Pakistani preserve. Thus the leading class in East Bengali society has been an amorphous petty bourgeoisie of traders, functionaries, professionals, intellectuals and rural notables, who float uneasily above the swelling peasant sea below them.

The power structure in Pakistan has thus always instrumentalized the subordination of the rural and urban masses of West Pakistan and the whole population of East Bengal to the landlord-bourgeois bloc of the West, and its military-bureaucratic apparatus, which has in practice governed the country without the mediation of a party system since the early fifties. It will now be seen how these classes have manipulated State power at the Centre to direct the surplus of the whole economy, East and West, into their hands. At the time of Partition, Pakistan’s economy had one obvious and main asset: a cash-crop agriculture, predominantly sited in the East, which exported both raw materials and food products. Bengali jute, in particular, enjoyed a world monopoly. These primary exports generated a significant quantum of foreign exchange. This was the economic base upon which the government determined to build import-substitution industries through the ‘free enterprise’ of a small group of immigrant trading communities. Its practical goal was therefore to redirect the wealth generated by agriculture to the benefit of its chosen candidates for entrepreneurship. This involved three tasks: (1) expropriating the agrarian surplus to provide initial ‘risk’ capital for industry; (2) centralizing the foreign exchange earned by agriculture to pay for the necessary imports; (3) reorienting rural commodities to become raw materials for domestic manufactures. Given these objectives, capitalist planning in Pakistan registered some spectacular successes in the late fifties and sixties. Let us see how it was done. The basic trick was turned in a comparatively simple fashion by manipulating two economic powers reserved to the Centre. The first was the power to determine the exchange rate of the domestic currency and the second to control imports into the country. The strategic weapons of accumulation therefore became the overvaluation of the currency and the strict control of imported products. These two work together; however we shall consider manipulation of the exchange rate first. Throughout its history the Pakistani government has artificially held the price of the Pak rupee about 50 per cent above its open market value vis-á-vis all other currencies. In other words, if, as in the late fifties, a pound sterling drew Rs 20 on the open market in Hong Kong, the official price set the pound at about Rs 13. There are two inevitable results when any currency is overvalued. Exports are discouraged, while conversely imports are boosted because the overvalued currency makes the price of domestic products relatively high and that of foreign products relatively low. The structural consequence of overvaluation is thus a rapid drain of foreign exchange as export earnings decline and import payments increase following price incentives. A second effect is that the differential between the official rate and the open market rate (around 50 per cent in Pakistan’s case) is lost to whoever sells the currency at official prices and only gained by whoever buys abroad.

Overvaluation thus leads to value differential, stimulated imports and depressed exports. In other words, of itself, overvaluation would rapidly destroy any economy. However by its manipulation of another set of controls the Pakistani State was able to direct the consequent forces to its advantage. The first of these devices was the State’s monopoly of foreign currencies: all export earnings of foreign exchange had to be surrendered to the governement at the official rate. Thus the value differential between the official and the open market rate was siphoned off the exporter’s surplus by the State. Second, the government imposed an import licensing system to determine who was to import and how much of what products. These licences had a twofold function. First, bureaucratic intervention blocked the foreign exchange drain which market forces would otherwise have caused. Second, the control of import commodities effectively determined who was to gain and who was to lose the value differential between the official and the market price of foreign currency earnings. footnote⁶

A similar use of overvaluation and import control is of course a fairly common device in developing countries. But its impact has probably nowhere been so extreme and dramatic as in Pakistan. Pakistan’s exports were totally agricultural in the early fifties. The largest foreign exchange earner was the jute industry: yet this was not a heavily capitalized plantation sector. Bengali jute was grown by the small proprietor on an average holding of under 3 acres. The foreign exchange he earned from sales abroad was surrendered to the government in return for Pakistani rupees at the official rate. In the transaction the peasant lost approximately 50 per cent of the buying price to the government; an amount which remained as concealed value in the foreign currency itself. Thus at one stroke the State simultaneously confiscated a large proportion of the peasant’s surplus and centralized the most vital economic resource in an underdeveloped country, foreign exchange. The import licensing system then allocated these resources at the government’s discretion. The licences to import, as well as the foreign exchange necessary to pay abroad, were handed over to the business clientele of the bureaucracy, whether Gujarati or Punjabi. These licences were then used to bring in both commercial and industrial imports to meet current consumption needs and industrialize the country. The concealed value lost to the peasant when he surrendered his foreign exchange earnings was therefore recovered by the importing merchant or industrialist when he bought abroad. Thus the importer received a direct and uncompensated subsidy from agricultural producers. A good idea of the differential values received by the exporter and importer is provided by the relative Rupee/Dollar ratios which obtained for manufactures and agriculture respectively. These ratios fluctuated, but on average from 1951 to 1964, the agricultural exporter received approximately Rs 4·25 while the manufacturer received over Rs 8·61 for one dollar of foreign currency. footnote⁷