The Two Economies thesis: Road to the Six Points Programme
The Two Economies thesis marked the beginning of the thinking of the economics professionals of East Pakistan for securing its economic rights and for reversing its slow economic progress that widened the disparity between East and West Pakistan. This was put forward as the most appropriate and essential analytic and conceptual framework for designing Pakistan's economic strategy
Simultaneously, the political leaders carried out the struggle for political rights which, by 1954, culminated in the virtual demise of the Muslim League in East Pakistan for its failure to obtain the legitimate share of East Pakistan in Pakistan's political and economic power structure, which led to the demand for political and economic autonomy as a consequence.
This article is an attempt to clarify and set the historical record straight on the origin and content of the Two Economies thesis. Over the years much has been said, often inaccurate and misinformed, in the press and on the platform about the parentage, i.e. the source, of this analytical framework for Pakistan's development. But for the fact that the independence struggle founded on the Six Points Programme -- of which this concept was the core economic component -- eventually succeeded, this landmark concept would have probably been lost in the archives of history and not drawn much attention. After all, success has many fathers and failure has none and is an orphan.
The idea that Pakistan consisted of not one but two economies was advanced for the first time in 1956 as the basis for the formulation of development plans for Pakistan at the Special Conference of Economists of East Pakistan on the draft first Five Year Plan of Pakistan (1956-1960). This conference was held at Dhaka at the end of August 1956. The main idea of the concept was elaborated in the Report of the Special Conference of Economists of East Pakistan on the Draft Five Year Plan which was submitted to the Pakistan Planning Commission on September 1, 1956.The entire reported is reprinted in my book entitled Bangladesh –Making of a Nation (published by UPL in 2003).
The following quotations from the report are self-explanatory: “For purposes of development planning, particularly for the creation of employment opportunities, Pakistan should be conceived of as consisting of two economic units.” “The problem of planning in Pakistan is best approached by considering the basic characteristics of the two wings, particularly the heavy pressure of population in East Pakistan , the comparative lack of employment opportunities and the high degree of immobility of labour between the two wings” (underlined section is the critical element in the concept). “The primary requisite of planning in our opinion is a complete zonal breakdown of statistics, namely national income, balance of payments and financial resources -- internal and external.” This was prepared and signed by ten economists and approved by the conference. I was the youngest member of the group having returned from Harvard only a year before in 1955 and having joined as an associate professor in the same year. The authors were M.N. Huda, Mazharul Huq, A. Razzak, Nurul Islam, A. Sadeque, A. Farouk, A.N.M. Mahmood, Md. Safiuallah Muhammad Hossain and Shafiqur Rahman. I say with great sadness that I am the only surviving member among the signatories.
I had an opportunity to test this framework in the course of the preparation of the report of the Prices Commission appointed by the government of Pakistan in February 1960 to investigate the rapid and high rise in prices during 1959-60. I was the only economist member from East Pakistan. The concept of Two Economies essentially postulated that all economic issues such as the rise in prices had to be looked at and analysed separately for East and West Pakistan. The degree of inflation was much higher in the East than in the West; the reasons for inflation and ameliorative measures needed were also different. I met stiff resistance from the West Pakistan members of the Commission. This novel way of looking at the economic issues in Pakistan was anathema to them -- it smelled of separatist tendencies. I was obliged to submit a supplementary and separate note of my own to the Commission's report.
The next step was to raise this concept directly with the highest political authority in Pakistan, President Ayub Khan. In May 1961, a group of economics professors of Dhaka University were invited by him to discuss face-to-face the problems of underdevelopment in East Pakistan and interregional disparity and possible remedial measures. The group consisted of M.N. Huda, A.F.A. Hussain, Abdullah Farouk (in the absence of Mazharul Huq) and Nurul Islam. At the end of a long and surprisingly frank exchange of views we were requested to submit a written memorandum incorporating our analysis and recommendations. The memorandum was submitted to him in June 1961. As the youngest member of the group, the task of drafting the report was given to me. After it was agreed to and approved by the group it was sent to President Ayub Khan's secretary. Since I am the only surviving member of the group, it is my duty to remind the younger generations of the contributions of my departed colleagues.
The most important features of the memorandum (the entire document is reproduced in my book Bangladesh-Making of a Nation) were expansion and detailed elaboration of the suggestions made in the earlier report of East Pakistan economists.
The main analysis and recommendations of the memorandum were as follows:
At the heart of the concept of Two Economies was the immobility of labour between the two wings of Pakistan. Therefore, investment in one wing did not create employment opportunities in the other wing since investment in one wing did not enable labour in the other wing to take advantage of opportunities in the former. This was aggravated by the limited mobility of capital and very high cost of transportation. Moreover, in many cases the cost of goods imported from another wing was higher than the import cost of very similarly priced goods from abroad because of the very high cost of transportation from the other wing.
To select investment projects on the basis of their returns, irrespective of their geographical location, would result in low investment for East Pakistan and widening disparity. This was because economic returns in many cases were high in West Pakistan because of its built-in advantages in respect of physical and social infrastructure which were inherited from pre-independence days, and this was not sought to be balanced or offset by increased investment in East Pakistan in the post-independence years. Worse still, after independence the bulk of the non- development expenditures of the central government as well as overwhelming proportion of large defence expenditures were spent in West Pakistan, which added heavily to the imbalance in infrastructure. The multiplier effects of such expenditures increased income and resources, which in turn fuelled private and public investment in West Pakistan. The latter, in turn, was actively promoted in the West by the discriminatory allocation of foreign exchange earnings and foreign aid to the West as well as by a liberal supply of credit to the private sector in the West.
Therefore, the development policy on the basis of Two Economies concept required that the objective of income generation and employment should be considered separately for East and West Pakistan. Accordingly, the following concrete suggestions were made:
Independent quantitative targets for the growth in income and employment should be articulated for the two regions. Two separate regional plans should be formulated to meet independent targets for each wing.
The estimation of comparative costs in the two regions should be made in the dynamic context and therefore should include or encompass the indirect effects of the future development of social and physical overhead capital. Similarly, the costs of production of commodities in the East that were traded with the West should be compared not with the absolute costs in West but with the landed costs in East of imports from West.
In addition, the cost comparisons between East and West should be modified or adjusted wherever necessary to take into account the pressing need for expanding employment opportunities in East.
Finally, there should be a constitutional provision which should make the equal development of both wings of Pakistan, let us say within a period of 20 years or so, the major responsibility of the central government. To achieve such a goal it was further recommended that the proportion of total investment in East should increase from 30% in 1960-65 to 60% in 1975-80.
The strategy of the report was to take Ayub Khan at his word about his interest in accelerating development in East and reducing interregional disparity, and to suggest to him as the head of the central government the ways in which his government could attain such an objective.
The next step was to suggest that if Ayub Khan decided that the central government should take no such responsibility, a satisfactory solution would be to separate the resources of the two regions and let them develop on the basis of their own resources. For this alternative scenario the following specific suggestions were made:
The centre would have the responsibility of only three functions -- defense, foreign affairs and some aspects of inter-wing communications.
The monetary and credit policies of each region would be conducted by the local board of directors of the State Bank of Pakistan even though the same currency would be there.
All government revenues as well as domestic and foreign exchange resources should accrue to the respective regions in which they originate. The two regions would contribute to the expenses of the central government according to the ability to pay and benefits derived from central expenditures.
The report concluded by saying that if the above suggestions were accepted an expert group could work out the details. It added that “the present group is also studying this problem and might be in a position to submit a paper on the subject as and when required.”
There was no response from Ayub Khan's secretariat to the report, and it transpired that it was sent for examination by his trusted advisers, the planning and finance ministers. The latter branded this group as either misguided dupes of politicians or, worse still, motivated by crass ambitions for political power. They, therefore, advised Ayub Khan to pay no attention to the report.
It should be noted, however, that comparable suggestions, specially about the severely restricted functions of the central government, had been made since mid- fifties. For example, the United Front Party in its Twenty One Point Programme suggested a central government with three subjects only -- defence, foreign affairs and currency.
To refer back to our memorandum to Ayub, it needs to be stressed that it was not considered a secret document even though it was submitted by a small group of economists. The members of the group were left free to share the reports with interested persons of their choice. As a result, a large number of economists of the time came to know of its basic contents and main recommendations, if not all the technical details. Following the above-mentioned East Pakistan economists' report of 1956, which was widely publicised in the press and on the platform, the Two Economies thesis and inter-regional economic disparity were the most dominant themes in discussions about the economic development of East in public forums of all kinds comprising economic journalists, informal economists and public intellectuals. This memorandum with its detailed arguments and recommendations added powerful ammunition to this public discourse on East –West economic relations.
As far as I was concerned, I must record that in the first place not only had I shared the report but had also discussed in detail the full contents of the document -- all the arguments and recommendations -- with my close friend and colleague Rehman Sobhan in the course of writing the report as well as the preparation of the final report. We were both engaged in public discourse on the subject. The main contents were also conveyed by me to various professional colleagues who were engaged in writing or discussing this subject.
Secondly, I distributed copies of the report to the East Pakistan members of the Ayub cabinet to mobilise their support for its recommendations. The two cabinet members from East who were very interested in our memorandum were Justice Ibrahim and A.K. Khan. Justice Ibrahim, who was the vice chancellor when I was professor, was so interested that he sent to Ayub Khan a memo incorporating the suggestions of the report
Thirdly, while the memorandum was submitted in May /June 196I, Ayub appointed a Finance Commission in October of the same year to recommend (a) division of sources of revenue between the centre and the provinces and (b) the allocation of central revenues including taxes, foreign aid and domestic borrowing between the two regions. I was appointed a member of the Commission, and was the only economist as well, as the non-official member of the Commission from East. As it was evident that the contents of the memorandum were germane to this task, I shared the report with the East Pakistan members of the Commission. Mr. D.K. Power, as the additional chief secretary (development) of East Pakistan, was, so to speak, the leader of the East Pakistan contingent of the Finance Commission. He took serious interest in it.
In the meanwhile, the economists of East Pakistan -- many of whom were by then cognisant of the contents of the memorandum to Ayub -- continued to carry on the public discourse about the detailed policy implications of the Two Economies thesis along the same lines. For example, an East Pakistan group known as the National Association for Economic and Social Progress, consisting of, among others, Rehman Sobhan, Kamal Hossain, Mosharraf Hossain, etc. wrote in 1966 -- one year after the submission of the above memorandum -- a pamphlet entitled The Challenge of Disparity. It was drafted by Rehman Sobhan, and contained almost the same central features as the memorandum.
As the struggle for regional autonomy, in which Bangabandhu Sheikh Mujibur Rahman was deeply engaged since the early fifties, gained momentum, he launched his full-blown Six Points Programme in 1966. This included political as well as several economic components, as described above, and thus in fact proposed a very loose confederation of East and West Pakistan with a strong potential for a break up. The rest is history.
The writer was the first Deputy Chairman of the first Planning Commission of Bangladesh.