We are all East India Company

Some perceptions are sticky. That the CPEC is a reincarnation of East India Company (EIC) is one such perception, often articulated with brooding expressions by people who want to look cool. Responding to this column’s piece titled “Is CPEC a modern East India Co?” (Published May 19, 2017), some critics quipped that CPEC’s comparisons with the EIC is in the context of extraction of resources that followed once the company paved way for the British colonization of India.

This column will not dispute the risks of extraction. In fact, BR Research highlighted those risks long before anyone else or even realized the CPEC-agri nexus. In the article titled “Sino-isation of farming sector” (Published January 2, 2017), we recognized the possible benefits of Chinese FDI in agriculture sector, but we also called for “caution and thoughtful planning”.

Contracts under contract farming have often been found to be inequitable because of power and information asymmetry between the foreign investors and local farmer, leaving the latter with bad deals. Then there are concerns of food security, which in part stems from the fact that investors in farming sector are persuaded to grow cash crops rather than food crops, the January 2 column said.

The presence of these risks, however, does not mean that the CPEC can be equated with the EIC. Because if that it is the case, then we are all East India Company.

In his recent interview with BR Research, former central bank governor, Dr Ishrat Hussain, said that Pakistan’s “institutions are extractive which protect the political and economic power of only small elite that takes income from everyone else.”

Ishrat’s views echo the findings of the book “Why Nations Fail”, whose authors make a distinction between “extractive” and “inclusive” economic institutions. The latter ensures that everyone is allowed to engage in the economy with equal opportunities; these include market economies where the law is above everyone else. The former ensures the prosperity of a few at the cost of many; slavery and feudalism are extractive economic institutions. Does this mean that these extractive institutions in Pakistan or elsewhere are also the East India Company?

Or take the case of markets in Pakistan where intricate handicrafts from local villages and exotic fruits from the mountain people, are sold at exorbitant prices in posh areas of the country. In such deals, the retailer and the middleman enjoy phenomenal profits whereas the ill informed village artisan or the fruit farmer gets a pittance. As bad as this value extraction may seem on the part of retailer or middleman, can it be equated to the East India Company?

Should the local corporate sector and the MNCs present in the country be also likened to the East India Company? Rent seeking, often by influencing government policies, is also a form of extraction. (Read BR Research column: Rent seeking needs to go dated April 7 2017). Is it not extraction when MNCs make a bulk of profits via undisclosed transfer pricing. Is not extraction, when corporations in Pakistan buy a plant or machinery at five times the actual price via their sister concern in Dubai leading to higher allowable deprecation and lower taxes? Should these companies be also likened to East India Company?

It is also common knowledge that the Bretton Woods Sisters have forced countries to open up economies without being prepared for it. As a result, primary goods were extracted out from developing economies at cheap prices, whereas a cobweb of legal and pricing structures, and IPR regimes were applied on the import needs of the developing economies leading to yawning deficits.

Economic literature abounds on how the regulatory and legal frameworks for resource extraction in the global south are often designed to maximize benefits for privately owned foreign companies rather than to provide broad-based benefits to the local economy. Should these too be also called East India Companies?

If CPEC-East India analogies were being made by those on the left plank, it might have still made some sense as an over stretched metaphor. That’s because at least the left has been consistent in its interpretation of extraction, including that under the neoliberal order; the order which has been gladly accepted by the Ivy League educated heads of banks and leading local/multinational corporations.

But when those who have been happily making hay under all other forms of extraction start calling CPEC a reincarnation of East India Company, then it sounds like a cry of a person who is threatened by the rise of the Middle Kingdom that is challenging the west in its own game called capitalism.

Metaphors often help simplify complex realities. But it has its limitations. By misguiding and riling up sentiments against the CPEC by likening it to something as morally repulsive as the East India Company, the critics are drifting away from objectivity and constructive appraisal of the ‘game changing’ project.