GSBD

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Reading 1 : The Emergence of Market Society

Tradition, changelessness, orders were the key concepts of economic society in middle Ages.
Reasons for Evolution of Market Society
The Itinerant Merchant
The typical merchant of the middle ages were un-landed peddlers of goods who were ranked very low
in the society. They were either sons of serfs or runaway serfs themselves who by default had the gift
of freedom.
These traveling merchants were able to slowly weave a web of economic inter dependence in a
thousand isolated communities.
Urbanization
A by-product of these traveling merchants was the slow urbanization of the medieval life. Permanent
trading places were formed near the protected sites of castles, burg or church. These places became
the inner core of small towns and existed as independent entities having their own rules and
regulations.
Though the rate of expansion for these towns was slow but their existence weakened the foundations
of the prevailing feudal system.
Why was urbanization slow?
The main reason for slow rate of urbanization was the absence of an efficient network of roads.
Crusades
The crusades were able to bring into contact two very different worlds; European feudalism and
Venetian sophistication.
The crusaders were exposed to a totally different world where money proved to be the basis for
power.
Growth of National Power
The fragmented political and economic entities were a source of continuous chaos and confusion. The
small towns in pretext of this confusion started to support local monarchs which led to the growth of
centralized governments which in turn led to unification of law and money and the development of
commerce and industry.
Exploration
Exploration was encouraged to find routes to the riches of the east. This exploration further developed
trade. Most of these explorations were backed by monarchs and this led to the flow of precious metals
into Europe thus putting a pressure on prices. This proved to be a stimulus for setting in motion a
great wave of speculation and commerce.
Calvinism
Calvinism believed in predestination. It urged a life of diligence, encouraged wealth seeking, savings
and investment and supported material improvement and economic growth.
This led to emergence of the protestant ethic that was in total contrast to the catholic beliefs.
Erosion of Manorial System
With the introduction of market society there was a gradual monetization of feudal obligations. This
was primarily due to the fact that money was required to buy urban goods. However this monetization
did have certain issues;
Fixed sum of money payments were not able to cope with inflation.
Ahmed Aslam, Faisal Iftikhar, Irfan Abbasi, Khizar Khan, Muddassar Nazar, Musfiqur, Naveed Khokar, Qasim Khan,
Rabia Zia, Saad Aziz, Saad Farooq, Sadaf Latafat, Talha Ahmed, Umer Khalid, Usman Ali, Zeeshan Shehzad
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Most payments lagged the growing monetary needs of the nobility.

This led to impoverished nobility.
Rise of Cash Economy
The nobles had fixed incomes while the merchants had incomes that were compatible with inflation.
This led to a richer merchant class as compared to impoverished nobles.
Appearance of Economic Aspect of Life
Concept of land, labor and capital
With the ever widening scope of monetization land, labor and capital were seen as commodities that
could be bought or sold in the market.
Enclosure Movement
The landed aristocracy extremely squeezed for cash started to view their states as potential sources
of cash revenue. In order to raise large large cash crops they began to enclose the pasture. Thorough
these enclosures the land was brought into productive employment but it became difficult for the
tenants to support themselves. This led to the creation of a new kind of labor force that was impelled
to find work for wages.
The concept of Property in Men
A new concept regarding concept of property in man himself emerged. Men could now sell their own
labor. Every human was now free. Employers could buy labor not lives. Responsibilities ended when
an employee left the office or factory.
Rise of Profit Motive
Market transactions were no more viewed as a means of supplementing livelihoods. They were now
being used for profit making.
Invention of Economics
Adam Smiths Growth Model
Smith believed that economic growth was based upon increased productivity and this could only be
achieved by the division of labor.
Similarly, according to him man believes I increased profits and this lead to expansion of business.
Expansion in business demands investment of capital to increase productivity.
Self Regulating system of Market
An increase in productivity will lead to an increased demand of labor which will lead to increased
wages. This increased wages will lower the profits for the producers. But in reality this is not possible.
As wages increase standard of living increase and mortality rate decreases. This leads to increased
supply of labor and competition. This competition will keep a check on wages.
Similarly competition also leads to better quality and prices of goods.
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Reading 2 : Impact of Industrial Technology

Application of science and technology to the productive process was the great change of 19th and 20th
centuries.
The IC engine developed by Dr.Otto proved to be the foundations for a rapidly developing industry of
IC engines.
The US Automobile Industry
The automobile industry led to;
Creation of jobs
Increased dependency on other industries.
Increased patents.
General Impact of Technology
Urbanization
There has been a vast increase in the degree opf urbanisatio.
Inter Dependence
Industrialization requires increase specialization. This increased specialization has led to increased
inter dependence.
Work and its Discontents
Technology has reduced the amount of physical work required to carry out a job.
Alienation
It has led to increases monotony in work processes.
Distribution of Labor Force
The distribution of labor has changed over time. More people are c\bing employed in the managerial
or white collar cadre.
Rise of Unionism
Technology has created a platform for laborers to unite. This has led to an increase in laborers power.
However the process of unionization itself was slow due to;
Conspiracy doctrine and combination laws (1800) in UK.
Individualistic approach to life in US.
Most labor class in US are immigrants.
Formation of National association of manufacturers in US.
It was the formation of Congress for Industrial organization that led to the breakage of barriers set
forth by the corporations.
Mass Production
Operations management and economies of scale has led to increased profits, expansion and growth
of industries.
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Reading 3 : The Industrial Revolution

Prior to the 17th century the term industry was unheard of. People mostly depended upon;
Trading
Usury
Transportation
Industry though was present in Egypt but manufacturing was on a very small scale. Economic activity
was dependent upon commerce and agriculture.
Reasons for retarded technical change
One of the reasons for industry not taking over was the fact that people were not concentrating
enough other industry and not giving valuable input to the industry.
In addition to this the economic base was not sufficient enough to support increased output.
Why England?
Some reasons for industrial revolution taking place in England in1750 are;
Relatively a wealthy nation.
Mass consumer market.
Encouraged innovation in manufacturing.
Transition from feudal to commerce had already taken place.
Locus of unique enthusiasm for science and engineering.
Land lords interested in scientific farming.
Presence of natural resources.
Introduction of patent system.
Rise of new men who were;
o Passionate for innovation.
o Able to get good business partners at the right time.
o Had a humble origin and not from noble lineage.
o They were the beneficiaries of rising demand and technical inquisitiveness of the times.
o Mostly small proprietors who had some ca[ital to invest in manufacturing industry.
The New Rich
These new men emerged as the new rich of the society. They were termed as tyrannical, greedy and
cruel. However they never lost contact with the physical process of production.
Rise of the Factory
After 1850 the manufacturing industry became the main driving force of economic, social and political
life.
However the factories did bring in;
Increased mortality rates.
Poor working conditions.
Child labor.
Abuse of employees.
No safety measures for workers.
Early Capitalism
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Poverty was not the product of capitalism but it was the product of a system initiated by the middle
class based upon self interest. This self interest led to poor social conditions of the working class
Effects of Capital
Goods that enhance productivity constitute capital. Capital enhances human productivity and
therefore output.
In addition to that it facilitates specialization of labor.
Savings promotes capital.
Rate of investment is dependent upon savings.
Market was the main force for capitalization. Production was dependent upon profits, wages
and prices. Profits were maximized by reducing costs and investing in new equipment.
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Reading 4: Economic Development in England The Elements
In early 1760s, England emerged from a period of war abroad and agriculture depression at home
into a time of economic prosperity.
The new about this growth that it became a trend rather than a temporary spurt with no signs of
permanent slowing down.
Modernization of Britain depended on factors maturing for more than two hundred years.
Transformation of Britain depended on many elements besides new techniques and organization
forms in the manufacturing sector.
Agriculture
Men were scarce and land respondingly abundant. Landlord seeking tenants to work their fields
were force to give land on long leases and content themselves to modest rents.
The most notable mark of rationality and change was the enclosure movement. This created free
land owners from any restrictions on farming practice. They could now use their land or sell out,
try new methods or stick to the old. Agriculture in enclosed areas was more responsive to market
conditions.
Landownership still brought important social and political advantages but land structure and social
status loosened up a bit. Land became and asset among others, an investment competing with
commercial or industrial ventures, to be acquired or sold as seemed economically viable.
The result of agriculture progress and increased industrial activity was that a temporary burst of
population increase. Britain population grew from some 7.5 million in 1751 to 16.5 million in 1831
and 21 million in 185
Salient features of Economic Development in England
The industrial revolution in England was favored by brisk growth of demand for the increasing
output of farms and workshops. A rising population contributed to this situation, as did the fastgrowing overseas market
Despite the existence of rich and poor, and even perhaps growing disparity between them, wealth
and income were evenly distributed compared to the structure of other countries.
Average income higher for England than for other economies. The result was the brisk demand for
kind of ordinary everyday goods the British seemed to be good at making.
In addition to agriculture there was heavy industry, mining and metallurgy in particular and also the
huge effort entailed in construction: houses, roads, canals factory building, docks.
In addition to labor economic activity requires capital. The great landowners and merchants had
large share in financing some of the biggest enterprises, especially the canals and docks that
united English market and joined it to the world.
Labor, capital, and raw material provided the ingredient for industrial production but there was an
essential human element; entrepreneurship. It was the entrepreneur's job to organize all these
factors, to assume the risk of committing resources in to hope of selling goods at a profit later, and
to manage business through teething troubles, depressions, and many conditions posed by
changing conditions. England was lucky enough to have such entrepreneurs and they varied lot in
every social and economic dimension.
The industrial revolution is synonymous with new manufacturing techniques, even though we have
seen that the story has many other aspects.
Englands's development as largely due to spate of inventions, particularly in cotton, iron, and the
use of steam.
Iron, coal and steam found their largest applications in transport and textiles, but they were also
necessary to each other.
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Roads were also built and improved but it was the railroad which put its stamp most firmly on the
industrial age
England development was more private and more autonomous than any place else. Although
government intervened at few places.
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Reading 5: The British Economy in the Nineteenth Century
The cotton boom after 1768, interacting with the development of heavy industry and improved
transport, propelled the British economy into a period of steady growth lasting over a century.
There seemed to be no limit to expansion.
Level of economic activity, whether measured in numbers of people employed, power of
machinery, or tons of material used, that seemed staggering compared with the past, quickly
faded into insignificance before new accomplishments.
a) Labor was released by agriculture, even more by inefficient domestic industries as they were
displaced, and by the increase of population.
b) Raw materials came from underground sources that has hardly been tapped before, or from
abroad.
c) Larger markets were provided by increased incomes and new customers at home, and by
prosperous communities blossoming in the empty temperate lands overseas
d) Capital was also plentiful; either because business profits were retained or because the new
techniques saved capital at the same time as they required investment. Capital saving came
from
i.
Efficiencies of transport and mass production
ii.
Division of labor between individuals and industries.
iii.
Progress in one industry provided not only profits in that industry, but also new
opportunities and efficiencies in others
Essential Features of Britain's Industrial Sector
Full commitment to the market as the mechanism for

a) Allocating resources
b) Establishing prices and incomes
c) Determining occupations
Private initiative and private property, which put the full force of self-interest behind the market
mechanism, and which also made individuals bear the brunt of that mechanism's outcome no
matter how lavish or harsh its decisions.
Commitment to the principle of "international specialization" , expressed by theory of comparative

advantage. Full specialization and efficiency, at least in many goods, could be attained only by
uniting the whole world. The result would be to have each nation, like regions or individuals,
produce a small variety of goods while consuming a much larger assortment.
How did the industrialization change the way the Englishmen lived?
There has been the perception that industrialization created misery, when it is clear that most
people went to the factories to escape worse conditions in rural industry or farming.
Despite the continued presence of poverty and its aggravations in certain cases where the winds
of change blew most harshly, the dominant social feature of industrial England was the rise of the
middle classes: in numbers, in wealth, an din power. They were the great beneficiaries of the new
abundance of consumer goods, of higher incomes, and of the many opportunities of the profitable
venture.
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Readings 7 and 8 : Germany

Compared to England and France Germany was a late starter, less prepared for a modernization in
England( Agriculture, Commerce and Social Change). Perhaps for this reason German Development
was more organized, less diffuse in initiatives.
Germans industrialism was a commitment to technological sophistication which proved fruitful in the
last quarter of the century. It involved the development of industries based upon science.
Considerable investment in education and in R&D as well as willingness to make frequent changes in
methods of production.
Germans sellers competed in every market, no market was too small, no language too difficult, no
request too outlandish for the German exporter. Compared with France the main contrast is the rapid
pace of development, especially in regard to the poor initial conditions prevailing in Germany.
Period before Development
German contribution to philosophy, literature and music were of impressive weight and quality but
there was no doubt that Germany was economically retarded compared to its neighbors France and
England.
It was all a result of 30 years War had a major contribution in this along with political divide and the
Peace of Westphalia. In respect to social structure and political divide German states in 18th century
were more like Tsarist Russia. Within these states social relations remained feudal or semi feudal in
nature.
Funkers
Military land owning castes whose estates were cultivated compulsorily by labor of peasant serfs.
Although the services of the serfs were paid for in money or in kind but the legal and social powers of
the lord still remained extensive. Source of lords power was the surplus that he had extracted from
the agrarian population. There were small land holdings on a hereditary basis by middle and small
sized peasants which was a major social advancement compared to the east.
Major part of the peasants surplus was taken by the lord, which prohibited investment in the improved
methods of husbandry and made the production method unproductive. Lords turned to estate farming
to maintain their revenues and sold the surplus crops in the markets, towns to the army or for export.
Lords were fortunate to have a market and a docile labor force. They had no interest in market
development, so they formed an exclusive caste which dominated the state and army and provided
the social basis for the monarchy.
Frederick the Great was also conservative in this approach. In economic policies he followed the
eastiblished mercantilist practices, encouraging those activities which seemed to be more useful to
the state : to supply its needs in times of war, to reduce its dependence of foreign imports.
State did initiate some industrial enterprises and its officials acted as entrepreneurs in default of
private initiative. The bureaucracy did keep on eye on the private business efforts, advancing money
to industries which were thought to be desirable. Even some industries were rescued from disaster for
this. In some felids such as mining, both public and private enterprise existed side by side. However
these policies were not for industrialization primarily rather they were more focused on serving
monarchial interests.
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The bureaucrats did act on times as entrepreneurs. At the same time there attachment with the
monarchy and landed nobility meant that they were conservatively inclined. It was in sprit of
conservatism that the state managed and supported the industrial and mining enterprise. The state
was not really concerned with growth in these sectors.
In all the German states Prussia emerged to be the most strong due to the revolutionary and
Napoleonic wars and its administration intact and able to reassert itself very quickly. Other states
disappeared or reappeared. French occupation brought revolutionary changes. This helped break old
order and business elements were strengthened and a sense of freedom in economic spheres.
Prussia after defeat underwent a controlled agrarian reforms and the beginning of a more liberal
economic policy.
Freedom of serfs helped set up ground for industrialization:
1. Free labor force
2. Integration of peasant farm and lord estate in to the market economy.
3. Personal mobility
4. Division of labor
5. Emphasis on personal achievement
This could have not been possible without agri reform.
In 18th century 2 forms of agrarian feudalism existed in Germany:
1. In West, land was cultivated by peasants, lord merely extracting dues in money or in kind.
Legal forms of serfdom and compulsory labor services had been abolished by rulers interested
in increasing taxable capacity of labors or weakening the powers of lords. French occupation
of these lands almost destroyed the feudal lords but no major redistribution of lands, so the
landlord continued deriving rent.
2. In East, cultivation was done under Lords control who employed the unfree labor of his
tenants producing a surplus for sale in the market.
There were many variations :
1. In Northwest serfdom had been abandoned centuries before and peasants had become the
hereditary tenants
2. In West and South Serfdom Lasted much linger.
3. In the center, peasant farming dominated.
4. In the east, soil was poor, population scattered and the only market far away. Here position of
the peasant detoriated after the 20 years war.
Process of agri reform tended to expose the peasant to the pressures of market forces and this
introduced a new instability into the rural life. German agri was thrown in a crisis of underproduction
and as a result many peasants in the East and West migrated to the cities.
Shock of Napoleonic wars accelerated the agri change process. In the west trends towards agri
dependent on market were increased. In the east, series of new reforms were introduced in order to
modernize the Prussian society. Peasants were allowed to purchase land.
Agri reform that began in 1807 with abolition of serfdom and became more effective in 1810 made it
possible for estates to be broken and sold. Serf families were no more bound to lord. Landowners
worried as they feared that their labor force might evaporate.
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Issue about Peasants Land held by lord in return for dues and services. Provision was made so that
peasants could retain part of their land by giving some of it to the landlord or paying 25 years rent.
This clearly benefited a few big peasants. For landlord this good
Funkers continued to do well. He had more land, cheap labor force available and was able to operate
increasingly as a large scale producer. Serfs now worked on wage labor. Large states continued to
grow. A class of substantial peasants with land holdings was created at the same time. Inheritance
laws stated that only the eldest son inherited.
With food shortages and tightening conditions migration towards cities started.
1848 Revolution
Peasants sought relief from rent, interest and mortgage payments. Peasants were not revolting the
feudalism which had already disappeared but revolt was against legal and contractual burdens which
had taken their place. Most of the revolutionaries were not interested in peasant support so the
conservatives took this chance and the peasants were granted concessions. Mostly these
concessions from Govts. Under pressure of revolts. Thus the liberals lost a chance of alliance with
peasants. Peasants became disillusioned from liberals and took whatever small benefist offered to
them.
With the advent of a better transport system supply of labor was made available to the towns and
population redistributed according to the industrial needs. Despite the pressure from below, gains
from the revolutions to the peasants were strictly controlled.
Even after 1815 there were over 30 different German states with different currencies, weights, system
of laws and customs. Industrialization in that time was based upon coal, iron and cotton. Germany
had coal and iron but her reserves were in few areas in periphery. Cotton and other raw materials
were imported. There were guilds of artisans and craftmen for supply to the rich and elite. Lack of
transport facilitated this arrangement.
French revolution quickened the pace of change. Land became a salable and thus a marketable
commodity. Markets grew, business prospered in a freer environment. Disparities between west and
rest of Germany widened.
There was no national economy in Germany. Political fragmentation, local loyalties.
Small market for artisans and peasants due to lack of transport system. Participation in world markets
was small. The small states were weak and immersed in political quarrels. Scarcity of entrepreneurs
and managers, apart from a few specialty areas. Urban middle class was weak because towns were
few in number and small in size. middle class in these towns had gravity to the professions and
service of the state.Society of this type could produce inly little investment capital.
Availability of labor supply to the industries was also limited due to the poor transport system.
Now the changes in rest of the world, especially France industrialization in England exerted huge
pressures on Germany to change. Changes initiated by Prussian administration in 1815 made the
ground more favourable for enterprise and capital investment These changes were to bring uniformity
of administration including the levying of custom duties. Tariff agreements were made with
neighboring states. From revenue collection point of view these tariffs proved to be mutually
satisfactory. Finally wider trade unions were made enabling goods to circulate freely with in Germany
and levying duty on imported goods.
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Gradually the Zollverein or German Customs Union was formed among the majority of the states of
the German Confederation in 1834 during the Industrial Revolution to remove internal customs
barriers, although upholding a protectionist tariff system with foreign trade partners. However Austria
remained away from this union as this was a Prussian creation and thus Prussia had more control.
This union proved to be a major source for promotion of economic developments by:
1. Widening the size of markets
2. Making possible free movements of goods
3. Strengthening the trade links
4. Removing difference
5. Reinforcing cultural unity
6. Vesting interests in further consolidation
In order for this to be more effective a better internal railways system was needed. Railways was
introduced. This was the beginning of awakening of economic development in German. In early years
only negatives of railways were seen, but gradually state and others started taking more interest and
encourage it. Rails grew rapidly. This bought German economy into contact with foreign countries
from where the capital came in. This capital was coming in due to the presence of huge mineral
reserviors especially iron and coal, which railway had stimulated.
Industrialization was uneven in Germany. Rapid industrialization in some areas increases the gap.
Basic reason was failure of middle class. Prussia under Bismarck conquered Austria. Under Bismarck
Germany was further united and gradually a larger middle class emerged with its balance shifting
towards business. Initially the capital needed for development came from abroad, new stock
companies were made and banks started helping the new firms. The role of banks is very important:
1. Only they had access to large funds to invest in heavy projects.
2. Provide credits to industries
Banks held parts of shares until they could be disposed off to the customers, sat in boards of creditor
companies and kept shares in their portfolios. Investment banks provided long term loans and credits
to industry. This was contrary to Britain where banks played a limited role by providing credit to only
established entrepreneurs. Also in Britain Joint stock company was not used.
Abundant labor force was utilized. Lessons learnt from foreigners were learnt quickly. Germans were
not far behind in education, they just lacked opportunities. Govt. invested more in education.
Secondary and Technical education was boasted and It became second to none in Europe. Science
based industries were emphasized.
Two sections however suffered: Artisans and guild masters.
Investment in coal mining and metal industries grew. Gradually foreign investments became small and
lead was taken from local investments. National Pride and ambition became important. Thus
Zollverein unification had worked out. Gradually economic liberalism was brought in. But heavy
industry now required protection against brits and agriculturalists now required protection against
Cheap Russian Grain. Cartels were formed. Banks helped. Railways helped.
Military and Navy was strengthened. But this might be opposed by France, UK and Russia.
Peasants managed to survive in Germany. They managed to increase productivity by new methods.
Germany remained a net exporter of agri till 1970. This is totally against what Marx and others
derived from English experience.
In some parts artisans survived, it was in fields less dependent on machinery. It was also due to the
survival of peasantry.
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Reading 9 : The Integration of Mass Production and Mass Distribution

Distinctive feature of modern business enterprise = vertical integration. It integrates the process of
mass production with those of mass distribution.
Common Characteristics
(Used continuous, large batch; interchangeable parts processes; produced nationally & globally)
1. Integration By Users Of New Continuous Process
Industries using continuous process:
- Cigarette Industry
- Match industry
- Oatmeal => Cereal company (Quaker Oats)
- Food processing through the new continuous canning and bottling processes (Heinz,
Campbell Soup). Also, canned milk and canned meat companies (Libby)
- Soap (Pears and Ponds, Procter and Gamble0
- Photographic film (Kodak)
Common Characteristics: high volume of production as a result of new technology. The
wholesaler firms which distributed their products to retail could not be relied upon to maintain
the flow of products. Hence these companies created marketing departments and internalized
those transactions.
Cigarette Industry in detail: Duke took advantage of the cigarette-making machine invented by
Bonsack, which could produce 120,000/day. Output soared, selling became a challenge.
Advertising campaign intensified; used his administrative staff to proclaim the virtues of his
brand > built extensive sales and buying organizations. Basically developed his marketing
and distribution networks. At the same time, backwardly integrated with his suppliers. By
combining mass production with mass distribution, Duke was able to maintain low prices and
reap high profits.
Same process could not be used for the Cigar industry. Cigars used in small batches by skilled
workers; had distinctive tastes and flavors; each appealed to a different type of customer;
could not be mass produced or mass distributed, nor their raw materials purchased in bulk.
Basically, economies of scale did not apply. Hence, the industry could not be dominated by a
single (or a few) firms.
Conclusion:
- The massive increase in output made possible by the new continuous-process led the
manufacturers to build large marketing and purchasing networks.
- The national and international network of sales offices took over from the wholesaler the
functions of branding and advertising.
- Their greatest competitive advantage was their distribution networks and branding a
barrier to entry.
2. Integration By The Processors Of Perishable Products
The market for perishable product expanded as railroad and telegraph networks grew.
The rise of the Refrigerator Cars: Previously, meat was shipped to the East in form of live
cattle to local butchers who did the butchering themselves and made deliveries to the retailers.
Result: 60% of the animals were inedible and cattle often lost weight and died on the trip east.
Swift saw the economies in slaughtering in the West and shipping dressed meat to the East,
hence concentrated on improving the refrigerated car. Came up with peddler car routes
which distributed dressed meat in small lots by refrigerator car to small towns and villages.
Initially opposed by railroad operatives, who feared loss in transporting livestock revenue, and
local wholesalers and butchers. However, high quality at low prices soon won out.
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Improved transportation also encouraged several brewers to enter the national market.
3. Integration By Machinery Makers Requiring Specialized Marketing Services

Products: sewing machines (Singer), agriculture equipment, and office machinery.
Common Characteristics: New and relatively complex products requiring
i.
demonstrations before selling,
ii. mechanical expertise and
iii. credit facility (expensive so consumers could often only purchase them on credit),
which could not be provided by wholesalers. Hence, the need to build up extense marketing
networks.
Other type of goods: elevators, pumps, boilers, printing presses, and the producers of
machinery to generate, transmit, and use electricity for power and light Westinghouse,
Thompson-Houston, and Edison General Electric (the last two combined into General Electric
in 1892)
Common Characteristics: Complex, large, standardized machines that required specialized
installation as well as sales and repair and long-term credit.
Few traditional marketers were willing to take the risk of selling on installment. Hence, an
extensive, nation-wide sales force was needed to obtain a constant flow of information on the
changing shifts in demand and customer requirements and develop more effective marketing
techniques.
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Reading 10 : The Invisible Hand

Invisible hand
Term used by Adam Smith to describe the self-regulating nature of the marketplace. In a free market,
participants try to maximize their self-interest to the mutual advantage of all.equilibrium demand and
supply determined by the market.
Visible hand of the Managers replaced the invisible hand of the market forces. The function of
coordinating flow of goods and allocating resources was now determined by the modern business
enterprise and its managers.
The fundamental shift toward managers running large enterprises exerted a far greater influence in
determining size and concentration in American industry than other factors so often cited as critical:
the quality of entrepreneurship, the availability of capital, or public policy.
Modern Business Enterprise Defined
Traditional American Firm
Single-unit business enterprise
Single economic function
Single product line
Operating in one geographic area
Managed by the owners
Modern Business Enterprise

Contains many distinct operating units, each of which
could theoretically operate as an independent business
Different economic activities
Product differentiation/Conglomerate
Operating in different locations
Managed by a hierarchy of salaried executives who might
or might not be owners
Traditional Economic Perspective

Small traditional firm regulated by the invisible hand of the market, hence more competitive => more
efficient allocation of resources.
Modern multi-unit enterprises bring imperfect competition and misallocation of resources; explanation
for their existence desire for monopoly power.
This study attempts to study the rise of managerial capitalism in greater detail. Concentration on years
1840 1920s, when the agrarian, rural economy of US became industrial and urban.
Some General Proposition
1. US modern multiunit business replaced small traditional enterprise, when administrative
coordination permitted better profits than the coordination by market mechanism;
2. Managerial hierarchy have been created for this multiunit business enterprise;
3. Multiunit business enterprise appeared for the first time in history in a time when the volume of
economic activities reached a level that made administrative coordination more efficient than
market coordination;
4. Once a managerial hierarchy has been created and had successfully carried out is functions of
administrative coordination, the hierarchy itself became a source of power, permanence and
continued growth;
5. Careers of the salaried managers became increasingly professional and technical;
6. The multiunit business enterprise grew in size and diversity and as its managers became more
professional, the management of the enterprise became separated from its ownership;
7. Managers preferred policies that favored long term stability and growth of their enterprises to
those that maximized current profits.
8. As the large enterprises grew and dominated major sectors of the economy they altered the basic
structure of these sectors and of the economy as a whole.
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Reading 11 : The Emergence of Market Capitalism

In the late 19th and early 20th centuries, a new type of capitalism emerged. It differed from the
traditional personal capitalism in that basic decisions concerning the production and distribution of
goods and services were made by teams, or hierarchies, of salaried managers who had little or no
equity ownership in the enterprises they operated.
This was brought about by the second industrial revolution and the invention of the railroad and
communication technologies. The first managers arose out of the railroad and telegraph businesses.
The manager ranks grew with the proliferation of mass production.
The Similarities
In all the four countries (USA, UK, Germany & Japan), the industries where more companies
operated, 65%, were food, chemicals, oil, machinery and primary metals.
During all 20th century, in US, the big companies, produced consumer and industrial goods, as in
Britain this segment of enterprises were more turn only into consumption goods. And in Germany &
Japan we can observe more concentration in industrial goods.
Explanation of the Evolutionary Process
Managing the flow of inputs and outputs in large manufacturing firms requires hierarchies. Only when
mass production and economies of scale become important did managerial hierarchies become
prominent. The firms who established economies of scale early tend to be the most dominant and
persistent. The firm's organizations grew as they expanded their size, reach, and extent of vertical and
horizontal integration. They often expanded when their distributors lacked the incentive or technology
to market, sell, and service mass produced goods, and so firms moved into retail, distribution, and raw
material supply.
This did not happen in industries where technology didn't have a high minimum efficient scale, were
coordination was not complex, and where mass distribution didn't require specialized skills and
facilities. There was no incentive to forward integration. In these instances often mass retailers took
over the final role.
The differentials in potential scale economies indicate not only why the large hierarchical firms
appeared in some industries and not in others but also why they appeared suddenly in the last
decades of the 19th century. The explanation concerns to the growth of the modern transportation and
communication networks railroad, telegraph, steamship and cable materials could flow into factory
or processing plant and the finished goods move out at a rate of speed and volume required to
achieve substantial economies of throughput. Another feature was the coordination through
contractual agreements with intermediaries both buyers and sellers.
The Differences
United Kingdom:
- Owners retained control longer in the UK.
- Initially they had less incentive in the smaller country to exploit economies of scale
- Failing to go with this emergence of hierarchies, British industrialists lost not only the
opportunity to expand worldwide, but also British home market itself. Even in the UK, the
American firms overpowered the British competitors. This was striking in the production and
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distribution of machinery. Not only had the Americans overtaken the British. The Germans
were already dominating the synthetic dye business and the electrical machinery industry
(sharing, in this case, the supremacy with USA).
- As a result the British economy failed to reap much of the benefit of the 2nd industrial
revolution due to their family-style capitalism.
- After WWII more firms began to mimic the American style hierarchical structures.
Germany:
The Germans were big into complex machinery and chemicals, and those firms had large
managing hierarchies and overseas marketing groups. They focused on these markets because
early on they didn't have the internal consumer market like the US and UK. Their strength lied in
science-based industries where their educational system had an edge.
Japan:
- The development in Japan was slow. In the beginning of the 20th century, Japans markets
were traditional (could be compared with UK during her early industrialization) and marketing
and distribution networks were created only by a few firms
- A few enterprises had appeared, primarily in industrial machinery and particularly in electrical
machinery, this one especially important because Japan relied on it for its energy until
the1950s.
- Japan's system developed mostly after WWII, with the appearance of comparable
organizations esp. in the automobiles, radios and televisions.
- We could find two types of industrial groups in Japan by 1970: One that was descendant of the
old zaibatsu, whose central office had been closed after the war. Another that was maker of
machinery, vehicles and electrical equipment. These ones after diversifying using the western
firms example, used to spin off their different product divisions, remaining part of the group but
being considered financially independent enterprises.
Conclusion
The Americans and Germans took over world markets by creating international hierarchical
enterprises producing and distributing new products because British failed on the way to achieve
international market lack of development and exploitation of the products.
In Japan the growth of a concentrated domestic urban industrial market provided an increased per
capita income that allowed the creation of a large integrated hierarchical enterprise to exploit the
potentials of scale economies, with technological and organizational techniques used more efficiently
and effectively than Anglo-Saxons did.
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Reading 12 : The Development of Underdevelopment

It is generally believed that the underdevelopment of a region is due to following reasons:
1) Survival of archaic institutions
2) Existence of capital shortage in the regions isolated from stream of world history
Historically the underdeveloped regions were serving as satellite for the developed metro poles. The
satellite resources were drained and it was forced to serve as Staple economies (Growing particular
type of crop needed by the master).
How is it organized?
The satellite-metropolis structure was maintained by
1) Creating classes in the society such as Feudal.
2) Military
3) Bureaucracy
4) National bourgeoisies
5) Education
6) Religion
Examples
Chile and Brazil were enjoying healthy economies before the penetration of mercantile and industrial
capital system
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Reading 13 : Japan Korea Taiwan

Korea
Korea was under Japanese rule as part of the imperialist expansion of Japan during the first half of
the 20th century, until the Japanese defeat in World War II in 1945. Korea was occupied and declared
a Japanese protectorate in 1905 (Eulsa Treaty), and officially annexed in 1910 through an annexation
treaty.
Joining hands with Landlords
Korea had a powerful landed class by the end of 19th century. The Japanese consolidated them to
discipline the peasants and extracting rice for the export market. This landlord class persisted till
1945.
Transportation
During the early period of Japanese rule, the Japanese government created a system of colonial
mercantilism which led to concentrating on building a significant transportation infrastructure on the
Korean peninsula for the purpose of extracting and exploiting resources. Port facilities, an extensive
railway system, including a main truck railway from the southern port city of Pusan through the capital
of Seoul and north to the Chinese border were developed. This transportation infrastructure was
intended not only to facilitate a colonial mercantilist, colonial economy for the extraction of raw
materials (timber), foodstuff (mostly rice and fish), and mineral resources (coal and iron ore), but it
was also viewed as a strategic necessity for the Japanese military to control Korea and to move large
numbers of troops and materials to the China border at a short notice.
Korean industrial growth
Korea experienced an industrial growth from 1935 to 1945 with most of the usual characteristics
a) Uprooting of peasants from the land
b) Emergence of working class
c) Widespread population mobility
d) Urbanization
The industrialization took place in
i)
Steel
ii)
Chemicals
iii)
Heavy industry
Separation of North and South Korea
Korea was divided in 1945. In the North a quick and efficient social and anti colonial revolution
occurred under Soviet auspices, the ultimate societal response to half a century of Japanese
imperialism. The South, underwent major rebellions in 1946 and 1948.
Attack of North Korea
In June 1950 North captured the South Korea. In 3-month time they terminated the land holding elite
of South Korea. Americans helped the South Korean to push back North
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EPB
In the 1960s Koreans set up an Economic Planning Board whose working was similar to that of MITI
in Japan. It used to control the budget and decide the areas in which the industry should be promoted.
Unlike MITI, they invited the foreigners as senior partners for consultation and Planning.
Taiwan
The Japanese colonial period, Japanese rule or the Imperial Japanese occupation, in the context
of Taiwan's history, refers to the period between 1895 and 1945 during which Taiwan was a Japanese
colony. The expansion into Taiwan was a part of Japan's general policy of southward expansion
during the late 19th century.
As Taiwan was Japan's first overseas colony, Japanese intentions were to turn the island into a
showpiece "model colony". As a result, much effort was made to improve the island's economy,
industry, public works and culture.
Railway Network
The Railway Ministry (predecessor of the modern Taiwan Railway Administration) was established on
November 8, 1899, beginning a period of rapid expansion of the island's rail network.
Inflow of China mainlanders
The state emerged stronger after the inflow of Kuomintang (KMT) and the China mainlanders in 194549. Japanese trained many of the newly arrived bureaucracy.
Land Reforms
After taking the control the mainlanders introduced the land reforms because they didnt own any land
in Taiwan.
The land reforms increased the productivity of agriculture because the land went to entrepreneurial,
productive, relatively rich peasants.
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Reading 14 : Japan A Meteoric Rise

Tokugawa regime
They faced the Western Encroachment threat by reducing contact with outside world. Because of the
geographical remoteness of Japan, the policy worked well for quite some time.
The Tokugawa regime accepted some unequal treaties which gave the foreigners a privileged status
in Japan.
Meiji period
1) Emulated foreigners
2) Close gap with west for survival
3) Reorganizing military
4) Basic transport & industry
5) Need for strong economy
Causes of industrialization
1) Early stage and state finance
2) Silk and textile industry
3) Late comers
4) Cheap labor
5) Increase in education
6) Need for raw materials
7) Cultural traits preserved
8) Arms production encouraged
9) Nationalist spirit of rulers & Business men
WW1
1) Exports grew due to vacuum
2) Gain some territory
3) Creditor nation
Post WW1
1) Exports hurt
2) Earthquake
3) Decline in raw silk led to finished good exp
4) Little foreign capital investment
5) Zaibutsu and banks capital
6) Heavy war related industry prominent
Labour Conditions
1) Low wages
2) Advese working cond
3) Male worker to skilled work
4) System hierarchy on seniority
5) Life time employment
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Economic Crisis
1) World depression
2) Export down
3) Financial distress
War and Nationalism
1) Govt wanted to dominate pacific region
2) Growing role of military in state affair
3) Expansion to acquire rm and mkt for goods
WW2
1) Beaten
2) Industry destroyed
Allied Occupation
1) Army dismantled
2) War plants destroyed
3) Econ distress
Zaibutsu Dissolved
1) Threat of US and USSR conflict
2) Zaibutsu need to again industilized because US wanted stronger japan against ussr
Post 1946
1) land reforms
2) many industry less owner
3) business and state closley linked
4) borrowing of technology
5) low wage rate high margin high saving
6) korean war boom and cold war boom
7) japan high quality cheap products
8) international world demand fostered exports
9) focused on innovation
10) US-Japan security treaty
11) trading companies for selling and buying
12) labour intensive outsource to cheap areas
13) avoid dependence on other countries
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Reading 15 : The Soviet Model A Critical View

The planned Soviet industrialization marks an era of transformation, from agrarian to industrial,
because of its rapidity, scale and heavy human costs involved. The industrial revolution in Russia was
a product of state policy instead of the market forces. The late industrial revolution gave the
intellectuals a chance to assess the impact of capitalist development on Russia.
Before the emancipation of 1861, a vast majority of Russian peasantry remained in one or other
category of serfdom serving the upper class landowners, govt, army and the court by either working
as laborers for them or tilling their own lands and making payments. The lack of a mass internal
market, low level of industrialization, small merchant class and weak urban bourgeoisies coupled with
large distances separating raw material and producers from potential markets were the reasons
behind the Russian backwardness and the undermining of the Tsarist regime. The Crimean war of
1854-56 made the govt realize that reforms and fundamental changes need to be made in the
economy by industrialization; and the social structure of Russia by abolishing serfdom and developing
capitalist relations among agrarian sector. To enable Russia to remain a great power, modern
concepts like liberalization, socialism and democracy need to be implemented.
The emancipation of serfdom disappointed both the serfs and their owners. It was carried out in
stages leaving the peasant village (mir) intact. Landlord estates remained, serfs had to purchase their
freedom and redistribution of land was done in such a way so as not to create a viable land-owning
peasantry. Capitalism penetrated the villages and (kulaks) started producing for the market and
became moneylenders, employers of labor etc. Those with no or little land become the rural labor
reserves. Peasants also struggled to make ends meet because of insufficient land and backward
methods. By the end of the nineteenth century, these circumstances made many young people to
leave the mirs. This improved the market relations. The peasant problem was troublesome for the
regime yet Russia began to modernize and Railways help improve export trade and encouraged
private investment. Govt supported this industrial boom of 1890s and most advanced industrial
technology was imported from the leading capitalist countries. Foreign capital was spent on building
big plants in such fields as iron and steel, engineering and armaments. Railway and transport system
was improved. But the boom faltered and the economic slow-down led to an adventurous foreign
policy in Manchuria and Korea, a disastrous clash with Japan in 1904 and failed revolution of 1905.
Agrarian sectors performance suffered due to Russias backwardness and the peasant problem and
the peasant revolt of 1905 made the govt to change its policies and enable peasants to leave mirs
and begin individual farming. Yet these reforms were not effective. As industry expanded, a large
number of workers were recruited but they were still outnumbered by the peasant class yet these
workers helped the Bolshevik party to take power in the revolution of 1917. This revolution had its
roots in the First World War and the breakdown of the socio-economic structure of the country.
Inflation, unemployment, food shortages, badly-equipped and demoralized troops made the people
revolt against the govt. The end of the Tsarist regime marked the beginning of a new era under the
command of leaders like Lenin and Trotsky. At that time, peasants divided the landed estates of the
gentry to create a class of peasant proprietors. Lenin endorsed the peasant actions and got their
support as well.
The leaders of the new regime were optimistic that this idea of the fall of capitalism would spread to
other advanced countries. But they had no illusions about the attitude of the peasants towards
socialism so they decided that important economic factions like the banks, mines, industrial units
should be nationalized. But they soon found themselves fighting a civil war against those who wanted
to restore Tsarism and they also faced hostility from the capitalist states. The conditions of the
economy worsened and food supply became a major problem. Bolshevik party had little influence on
the peasants and because of the land reforms; there were no major landowners and no interest in
Page 24 of 57
collective farming. Due to war, industrial production had declined considerably and there were few
goods available to supply the peasants and to induce them to part with their surplus grain. As a result,
in 1919-20, surplus grain was requisitioned by force and peasants were forced to cultivate crops for
the govt. this caused extreme discontent among the peasants and some of them revolted in 1920.
Industrial policy during the war communism was dictated by the priority needs of the army and the
industry was controlled by a state organ called Supreme Council of national Economy (VSNKh). They
nationalized industries into trusts. Many factories were closed due to shortage of raw material and
many workers joined the newly formed red army. Other workers went back to their villages. Wages
were sometimes given in the form of products and there were cases of workers dismantling the
factories and selling the parts. This industrial decay reduced the total production in 1921 to one third
of its 1913 level.
The New Economic Policy
Due to the need for extreme economic reconstruction, the Party decided to make a compromise with
the peasants and the dynamic of market forces had to be harnessed. This caused rifts between the
party members who were bent on promoting socialism but couldnt do so in the current scenario. The
first task was to restore industry, repair the battered transport system, reestablish exchange between
country and town and win the cooperation of peasants. Only then could there be a resumption of
industrialization or any hopes of a transition to socialism. In Lenins conception if the NEP,
compromises were made with capitalists at home and concessions granted to foreign capitalists. Also,
peasants were once again allowed to produce for the market once they paid their taxes. In the first
years of NEP, there were great fluctuations in the prices of agricultural products and manufactured
goods resulting in a scissor crisis in which peasants withheld their produce from selling into the
market and refused to buy industrial goods. The only way to make the peasants part with their
produce was to make more goods at the prices they were willing to pay.
After the death of Lenin, Joseph Stalin took over but his policy of socialism in one country and the
tendency towards bureaucratic control was opposed to Trotsky and his followers. These struggles
reach their height in 1927. Stalin imposed his idea of collectivization and agriculture was completely
controlled by state. Before the beginning of the five year plan in 1928, the rate of industrialization had
been mainly determined by laws of the market under conditions of private ownership. The first five
year plan bore the unmistakable stamp of Stalins methods. Enormous hardships and forced
collectivization of the food supply and other livestock products were imposed on the people. The focus
was upon quantity rather than quality and consumers had to take what was available. Stalin employed
the policy of repression to cement his place as the head of the bureaucratic stratum. He also built the
illegal police (GPU, NVKD, KGB). Labor camps became an important part of the economy, employing
millions of people on the construction sites.
Nevertheless, the Soviet planning system acquired considerable influence as a model. This was partly
because Soviet propaganda emphasized success, concealed failure and said nothing about the
forced labor camps. World depression and high unemployment led to the models acceptance by
some and also because it showed how industrialization could be achieved by planning. Also, it is
argued that industrialization could never have prospered in Russia if Stalins system was not
implemented.
The Second World War caused the loss of an estimated twenty six million Russian lives and left many
homeless. The 1939 pact with Nazi Germany put it at odds with the rest of the world. Defeat would
have been certain but for the industrial base created in the interior, far from the reach of the invaders.
The country still suffered heavy losses but the Soviet Union emerged from the war as a major world
power, stronger than ever before.
Page 25 of 57
The first post war task was to rebuild the shattered economy by giving priority to the industrial base.
The fourth Five Year Plan for reconstruction and development was then implemented from 1946
followed by another similar five year plan. Growth of heavy industry was prioritized and setting high
targets for iron and steel, coal and petroleum. This required high rate of investment and further
sacrifices on the expense of the population were made. All available hands were used and the country
was again covered by industrial sites. The country was soon in a good shape as far as
industrialization goes but the agrarian sector was still suffering. Also, the Russians were focusing on
only a few areas, neglecting others, and using old-style production technology.
Modern Soviet Industrialization
Brezhnev resumed the customary five year plan and retained the centralized character of the govt. By
the 1960s, the growth rates of Soviet Union fell to a more modest level. So, to maintain these rates,
considerable resources were channeled into investment with consumer remaining behind after military
and heavy industry. But the unlimited supply of labor was no longer available and supplies of basic
materials like coal, steel or oil were costly to obtain.
The need for labor productivity, better mechanization and organizational efficiency has become the
major constraints of the Russian economy. Russia still has to catch up with the capitalist countries in
terms of per capita income. It is still behind others in industries like computers, plastics and oil
technology. The time between 1964 and 1985 saw Russian economy suffer through near stagnation
though the standard of living improved somewhat. Military expenditure absorbed about 12-14 percent
of GNP; money that should have been spent on industrial investment to increase the output of
consumer goods. Other reasons for this faltering economic performance were the use of over
centralized, bureaucratic and irresponsible planning system of the Stalin era.
Mikhail Gorbachev took over in March 1985 and initiated a reform programme to bring changes in the
Soviet life by speeding up economic growth. To satisfy consumers, he legalized certain private and
cooperative business activities under certain limits. The modernization of older sectors of industry, the
use of new technology and venturing into new industrial sectors were some of the tasks faced by
Gorbachev. This required heavy investment and technological support from the capitalist world. So he
had a twofold task: to reform the economy while improving relation with the capitalist world.
Page 26 of 57
Reading 16 : China The Slumbering Giant Awakes

Chinese civilization has evolved over a period of four thousand years and its intricate cultural patterns
have immense staying power. China was ahead of Europe initially but it didnt match the rapid growth
of the capitalist system and industrialization of the European countries. Therefore, by the time the
Europeans entered china, they had the advantage of superior technology, military power and
economic organization.
The Old Order
The Chinese economy under the ming and ching dynasty was basically agrarian and the surplus food
extracted from the peasants, along with direct and indirect taxes etc provided the support for the
upper class. Rice was the main highly labor-intensive crop that required complex water control. Land
ownership was unequal and land was divided on the basis of inheritance resulting in average small
size holding for the peasants. Generalizations cant be made about the Chinese agrarian society
because it varies with its proximity to market towns and treaty ports. By the eighteenth century the
population began to grow because of stable political conditions and new crops and improved methods
of cultivation. This population upsurge limited any increase in the per capita income resulting in a
labor surplus economy. With abundance of labor available, no labor-saving technology was ever
needed. Rich merchants aspired to pass into gentry or become govt officials. Markets were large but
fragmented. Trade and industry was highly regulated. Part of the revenue was used for productive
purposes; the rest went to the upkeep of gentry.
In the eighteenth century, the British East India Company drew China into the world market by
supplying them with Indian opium in exchange for tea and silk. When afterwards Chinese resisted this
trade, the British went to war In 1840. Manchu regime was in a state of crisis so peace was reached in
1842 and British imposed an indemnity on China and acquired HongKong as a base for trade. This
was the beginning of the treaty port system in which US and Europe imposed treaties on a weak
China which benefitted them. The second opium war resulted in bringing Chinas economy under
foreign control. The hold on the treaty ports gave foreigners access to the interior and control over
external trade and bargaining counters. But because of this foreign interest, the new financial system,
modern technology and transport infrastructure was also introduced to China. This also exposed
China to world markets and they had to face competition in tea exports from India and in silk industry
from Japan. In the 1860s, Chinese officials attempted to introduce modern industry and developed
mining and shipping on western lines. But without govt backing, they only became a means to feed
corrupt officials. In 1895, the defeat from Japan resulted in legalization of foreign owned industries
that take advantage of the cheap labor and started more industries in the treaty ports. Foreign capital
also flowed into railways, banks and shipping. The whole economy was mobilized at that time but at
the expense of the agriculture sector which was neglected. Still the agrarian system managed to
survive this commercialization. Even though the ability of the peasantry to improve productivity was
limited by lack of knowledge, lack of capital and sticking to traditional ways, still they were highly
productive per acre due to their labor intensive methods as compared to Japan and other economies.
China was drawn into the world market as a result of the opium wars and therefore was unable to find
a strong foothold. The success of the restoration policy enabled Japan to be accepted as an equal
trading partner whereas China was considered an inferior. Manchu China wasnt a modern centralized
state and lacked the organization to turn the technologies of the West to their advantage with a
national programme such as Meiji Japan.
The New Regime
Page 27 of 57
Despite formidable constraints and disruptions, the Chinese economy was never stagnant. Production
grew substantially between 1800 and 1949 and increased fairly rapidly after 1949.After taking power
the Chinese Communists were able to restore production and bring inflation under control in a
relatively short time. Peasants formed the mass of the people so agrarian reforms were a top priority.
Redistribution of land at the expense of landlords and rich peasants was done to create a more
uniform pattern of working peasant proprietors. A tax of 17-19% on the peasant harvest was also
levied.
The new regime took over the already existing state industries and nationalized foreign-owned
businesses. Other private enterprises of nationalists capitalists remained but were subject to state
supervision and increasing taxation. Employing the Stalinist style of planning the Chinese adopted the
policy of socialism in one country which assumed the building of a near enough self sufficient base.
This required large scale investment in industries producing means of production to provide basic
materials for industrialization like steel, coal, chemicals etc. Since the 1950s, the trend away from the
agricultural sector toward industrialization had been dramatic, and was a result of both policy changes
and free market mechanisms.
The Five Year Plan
During the 1950s and 1960s, heavy industry received most attention and consequently grew twice as
rapidly as agriculture. The administration adopted the Soviet economic model, based on state
ownership in the modern sector, large collective units in agriculture, and centralized economic
planning. The Soviet approach to economic development was manifested in the First Five-Year
Plan (1953-57). As in the Soviet economy, the main objective was a high rate of economic growth,
with primary emphasis on industrial development at the expense of agriculture and particular
concentration on heavy industry and capital-intensive technology. Soviet planners helped their
Chinese counterparts formulate the plan. The practice of one-man management and centralized
control generated some opposition within industry as they were simply not workable in many small
factories. It was also blamed for creating powerful, privileged bureaucrats. Due to Sino-Soviet
difference, once Soviet support was cut off, alternative strategies for industrialization had to be
devised. High on the agenda for economic policy was the still unsolved agrarian question. This
problem caused wide rifts among the leadership but in the end it was decided that the peasants were
to be mobilized on cooperative lines and an effort would be made to harness their loyalties towards
their collective farm instead of their family or village. Collectivization was pursued step-by-step, from
lower to higher forms of cooperation and was completed by 1957.
The Great Leap Forward
The central idea behind the Great Leap was that rapid development of China's agricultural and
industrial sectors should take place in parallel. The hope was to industrialize by making use of the
massive supply of cheap labor and avoid having to import heavy machinery. To achieve this, Mao
called for the mobilization of the entire population, starting with the great majority living I the rural
areas. The existing collectives were to be be merged into huge People's communes. Here for the first
time private plots were entirely abolished and communal kitchens were introduced. At the Politburo
meetings in August 1958, it was decided that these people's communes would become the new form
of economic and political organization throughout rural China. Astonishingly for such a dramatic social
change, by the end of the year approximately 740,000 cooperatives were regrouped into some 25,000
communes, with an average of 5,000 households each. The communes were relatively self sufficient
co-operatives where wages and money were replaced by work points. Besides agriculture they
incorporated some light industry and construction projects.
Page 28 of 57
At first, aided by favorable harvests, the new policy seemed to be a success, but in 1959 and 1960
the weather was less favorable, and the situation got considerably worse, with many of China's
provinces experiencing severe famine. Droughts, floods, and general bad weather caught China
completely by surprise. As the great leap forward ran out of steam so the methods behind it tended to
become discredited and made the Communist Party more cautious in their strategies.
The Cultural Revolution
The Cultural Revolution, unlike the Great Leap Forward, was primarily a political upheaval and did not
produce major changes in official economic policies or the basic economic model. Nonetheless, its
influence was felt throughout urban society, and it profoundly affected the modern sector of the
economy. Its aim was to revolutionize the educational system and eradicate all the vestiges of past
from the society which conflicted with the formation of the new man. Mao and his supporters made
accusations that some policies were opening roads for restoration of capitalism in China. A nationwide
propaganda campaign was launched saying that Mao has acted just in time to prevent the capital
roaders headed by Former president Liu Shaochi, from taking power.
Cultural Revolution caused an actual fall of output of up to 20%. Little new capital investment was put
I hand and the supply of consumer goods and chemical fertilizers fell back. In the early 1970s,
expansion began to be resumed on more orthodox lines. A number of new plants were built for
chemical production and steel making and the petroleum industry was developed. Corresponding
improvements were made in commune agriculture.
The New Orthodoxy
The repudiation of Maoism after 1976 meant the substitution of material incentives for revolutionary
fervor.
Page 29 of 57
Reading 17 : Vilyatpur in 1848 A Reconstruction
Snapshot of Jullundur doab in 1848

Kept detailed revenue records_initial survey of village in 1848
Four wagon tracks connected with neighbouring communities over almost flat terrain
The abadi was a compact settlement located on a slight rise in the centre of the villages 500
acres
A wall surrounded the village. Constructed of adobe bricks covered with cow dung, clay and
straw. Outside the wall there were a series of small fenced enclosures for threshing, for
sugarcane presses and for storing cow dung cakes
On each side of path there were adobe walls 8-10 feet high, interrupted by double wooden
doors leading to individual residences (doors were signs of starting of a new house and ending
of previous one)
When the doorways were the furthest apart, it showed the houses of the Sahotas (55 in total)
Sahotas domestic groups were not large (4.5 persons per house on average) and not complex
( 56% were single couples with or without children).Large households were unusual
Joint households(generally considered a norm of Indian Society) accounted for less than half
of the Sahotas domestic groups (44%)
When a domestic group was divided, a new wall was built in between and a new door added.
So usually an individuals immediate neighbours were usually close relatives
Population of the village was 565 in 1848
Sahotas were the wealthier class with bigger houses. They also owned most of the animals
Most khandans had room for expansion
Brahmin shopkeepers had their houses among the Jats (houses not as large as sahotas)
The families providing services the brahmins working as priests, the barbers, and the
water-carriers lived throughout the village
Houses of the artisans were smallest and simplest
The Leather-workers, sweepers, and weavers were clustered together in 25 small houses
The average size of the ghar of the Non-Jats taken as a group (4.8 persons)was practically the
same as that of the Sahotas. But there were significant differences in the composition of the
domestic groups
Almost all economic activity agriculture
All members of a family worked (boys, girls, men and women)
Untouchables had a separate well and they mostly kept their animals in the open
Most payments were in grain rather than cash
Artisans were connected to sahotas and received grain in exchange for their handicrafts
Rabi crop provided households with the bulk of their grain for the year and demanded more
labour than those in summer
Fig. 4 shows individuals working outside their traditional occupation, 45 adult males in all,
23% of the total
Sometimes land was given to brahmins etc. free of cost
Baden Powell classifies Indian land tenures into two types: the zamindari or joint(a strong joint
family usually the descendants from a single head or a single family), and the ryotwari or
severalty(oldest known form of village community in India)
Subclassification of Zamindari villages: i) all land held by a single individual or jointly by a
small group of closely related members; ii) in Pattidari villages, members shares were
determined by the law of inheritance(equal division of land b/w heirs) iii) Bhaiachara villages
were based on an equitable distribution of the lands productive capacity
Sahotas satisfied 3 out of the 4 criteria in Srinivas original definition of a dominant caste: i)
numerical preponderance ii) economic preponderance iii) relatively high caste status
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The artisans and the servants were collectively called as the sepidars (a family of sepidars
attached to a particular Sahota group). Sepidars(17% of the men in the village) did other jobs
too
There were other artisans and suppliers of services too who did NOT fit into the system of
long-term personal ties based on a FIXED % of the years produce
Tenants and agricultural labourers (1/6th of the working men in the society) All were dependent
on the sahotas
Intensive agriculture (heavy usage of 29 permanent wells made with locally fired brick)
Bhaiachara villages focused on an equitable distribution of the lands
Outsiders paid for the right to cultivate land during the pre-British period
All the people needed to accept the judicial code of the Sahotas
British made the village the unit of administration rather than the estate, also made the
bhaiachara collectively responsible for collecting and paying revenue, also made absentee
ownership possible
Caste and kinship played a key role in the organization of the social, political and economic life
of the community
Land individually owned by the kin-based property groups but ultimately controlled by
bhaiachara
Customary relationships guided economic activity in the village
Not all the artisans and servants in the village were part of the system
Many of the sepidars were not much mobile and they stayed in a village for only one
generation
Agriculture was well-developed and fairly intensive. There was no uncultivated waste, a third
of the fields were double cropped, and there was substantial investment in livestock, irrigation
channels, and jointly owned brick wells
The British revenue policy suggested alter nothing and just place on record what exists. But
innovation and change resulted due to a series of decisions that the revenue officials had to
bring about. This had profound consequences. One was the crosscutting of many of the ties
between villages in an ILAQA inhabited by branches of the same clan, like the sahotas in
vilyatpur, Barapind, and the other satellite villages. So the results of the settlements in the
various districts of the Punjab were not uniform simply because they were carried out by
different officials
The notion of placing on record what exists produced changes that weakened the cohesion
of the proprietary body
The record system also created absentee landlords by making it possible for shareholders
living outside the village and newcomers who purchased land in the village to profit from their
possessions
The codification of laws resulting in a fixing of the usage, thereby drpriving it of its flexibility in
different situations
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Reading 18 : Changes in Status and Occupation in

Nineteenth-Century Punjab
Use a different framework than Western impact and Indian response

Contribution of British to administration, land-revenue collection, property rights,
communication and civil justice
Agrarian Punjab not homogeneous, composed of different tribes, castes and religions
Kshatriyas caste represented by distinctive land-holding Rajput castes in the East
Muslims also had superior families, Shaikhs etc. through their belief in original association with
religious figures
In Punjab society in general, Govt. employment conferred considerable status
Status depended to a certain extent on the hereditary or present occupation of a particular
social group
In second half of nineteenth century, changes in status and occupation were taking place
among the lowest and most dependent castes. Scavengers took to leather-working which then
became weavers. Artisans and menials granted some land by the British which improved their
lot
Changes in occupation or acquisition of land led to change in social position
British credited with bringing law and order and the definition of consolidation of existing rights
in land
One of the chief means of raising status was the acquisition of land
Market-gardening caste of Hindu malis
Labanas ranked below Jats. Those with capital at their disposal could lend out money on
interest or invest in land. They were driven in an agricultural direction to raise their status.
They previously used cattle but after railways more of their dependence was on agriculture
and land. Labanas usually had small landholdings. Sikh labanas in army. In 50 years labanas
became an agricultural caste from being just CARRIERS
Kalals- distillation and sale of liquor. Muslim Kalals first changed to pathans and then to
kakezais. Also claimed Khatri or Rajput origins
Rajputs, due to their attachment to a superior status, involved customs hostile to cultivation.
Sometimes even refused to touch the plough
Handicrafts were looked down upon
Very large no. of Sikh jats in military service
In different parts of Central Punjab Sikhs were also in the money lending business
Hindu trading castes benefited greatly from the general stimulation of trade under the British
rule. They also had the advantage of better literacy
Development of agricultural enterprises in aroras
An upper class can hardly be identified in the 19th century
Under British rule there was more stability than under Sikh rule
British increased the quantity of surplus that went to the cultivator, hence providing him
incentive
Rajputs had been weakened under Sikhs, in submontane areas they had small holding and
obliged to cultivate to avoid starving
Little transfer of land under Sikhs, British made more of a commodity out of it
Page 32 of 57
Reading 19 : Non Agricultural Production in Mughal India
Views on India before pre industrial times differ widely.

Some view it as at par with any other manufacturing nation of the world.
Lost only after the technological revolution in Europe.
Others say that the volume of exports was negligible in terms of the over all magnitude of the
economy.
The caste system in India further inhibited growth and incentive to produce.
Condition of the Middle and Lower Classes
According to the memoirs of the travelers to India, the demand for ornaments, produced in
incredible quantities were by now means confined to the rich.
Food: Neither the prices nor the social habits of the period suggest that food delicacies were for
the affluent only.
Clothing: the demand for cloth, tailored and other wise and other items of dress was substantial.
Variety rather than quality seemed to differentiate between the rich and the poor.
Saving habits: In general people had the habit to save. (Specifically the baniyas).
People spent well on their houses and therefore created demand for many different products.
The purchasing power of the people was almost five to six times than it was in 1914.
The nobles lifestyle implied a very large demand for domestic goods.
The expenditure incurred by the imperial government created enormous demand for construction
work. Road building , arms ,equipment for elephants and horses and means of transport like carts.
Textiles
The countrys lieading manufacture, cotton textile was produced probably in every part of the
country both for local consumpation and international markets.
The production of the cotton yarn appears to have been always an independent manufacturing
activity and a second occupation in weavers.
Silk: produced in begal and gujrat was exported to both Japan and Europe. Initially the raw
material was brought in from China but even China was eliminated in 17th century.
A significant development in Textile manufacture in india was the emergence of particular
processes as virtually independent manufacturing activities like bleaching, dyeing and printing etc.
Products closely linked to Agriculture
Dye stuff production
Chay and indigo dye.
Whenever there was a decline in demand, the producer of such crops quickly shifted subsistence
agriculture.
Cane sugar in all its three forms. Fine grain, powdered sugar and large crystals.
Others include oil, tobacco, opium and alcoholic drinks.
Mineral Production
Weakest area
Primary reason for technological backwardness.
But India was still self sufficient as the demand for arms and weapons suggest.
Another significant area: means of transport like ships and boats.
Comfort goods: furniture, leather goods, tailored cloth and perfume.
Mughal India had a large aggregate output. Whether it had developed tendencies to lead positive
long term change, however, is a very different question.
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The interaction of technology, the size and the character of the market resulted in a limited variety
of manufacturing orgnizations in India.
Heredity is the chief if not the only derminant of an artsans choice of trade. The family develops
naturally into a work unit and the pater familias as the master craftsman providing necessary
training and skills.
Virtually every operation connected with the production of clth developed into distinct operations.
Reasons for not performing above a certain level

The manufacturer accepted his social and economic condition as an unalterable fact.
Caste also tended to limit the range of social groups involed in manufacture.
No high caste person isknown to have gone in for manufacturing activity directly or indirectly.
Barter, exchange or reciprocal sustem existed in order to pay the manufacturers.
Despite the dominance of the subsistence oriented production in rural manufacturer as in
agriculture, exchange had made deep inroads.
Very few or no accumulation of wealth in the manufacturing sector.
Bulk of the capital came from the artisans meager savings.
Absence of institutions which could channel savings into investments.
Localization of manufacturer
Most of the manufacturer of similar products produced where the raw material was being
produced and this helped them in reducing the prices.
Since their was such a divided amoung the classes that the higher classes never entered into
manufacturing of products. This was in clear contrast from Ming and Ching in China where higher
class merchants owned houses where the lower class people used to work.
Tyranny suffered by the artisan
The whip and cadgel were freely used not only by the nobles minions but by the middle men as
well.
Intrerest charges on advances.
Short changing in matters of currency.
Charging commission up to 12%.
Artisans wage could vary from bare subsistence to reasonable degree of comfort.
Mobility of any sort- beyond the movement of rural producers to the localised center of production
appears to have been strictly limited.
The corporate organizations were not economic in nature , rather which automatically excluded
outsiders.
Technology
In comparison with the advanced civilization of the period India was remarkably backward in terms
of the use of technology in the manufacturing sector, althougth technology was flourishing in even
some of the neighbouring countries like Iran and China.
Fuel resources, metallurgy and chemical industry effectively blocked any development of wide
ranging technology.
While there were institutional as well as economic factors which inhibited increase in the output,
the Indian artisan was atleast not subject to theEuropean type gild restrictions which forced
productioin to move to the country to meet thedemands of an expanding market.
A manufacturing sector the kept a population of some 100 million self sufficient in secondary
products, catered to a cast inland market for luxury goods, furnished the Mughal state with all that
it required for its army and public works and also met the demand of a steadily expanding export
market, cannot be described as weak or backward.
Page 34 of 57
Indias manufacturers experienced no pressure of competition for the bulk of the production was
geared to the reciprocal arrangement of the rural caste and India enjoyed the position of a
monopolist in her export markets.
The remarkable cheapness of labor- be it the result of a genuine over supply or of a highly
oppressive system wherein a tyrannical state and an internalized set of values together kept the
producer in utter subjection- rendered labor saving devices as superfluous.
Page 35 of 57
Reading 20 : The State and The Economy (The Mughal Empire)

The State
The state was created by, and largely existed for, acts of conquest. There was a need in the ruling
class to acquire and consume more and more and there was no containing it until it collapsed under
the weight of its contradictions. The empire was held together by force and as it expanded to endure
adequate supply of resource its needs more than proportion.
Structure of economy and means of revenue (Zabt system)
The economy was predominantly agrarian. The resources were extracted by the sate from this sector,
in the form of land revenue. The amount of revenue varied; from a third, to a half or more of the
output. The state machinery for extraction further aggravated the repressive character of the system.
This job was given to jagirdars, and it was in their interest to extort from the peasantry as much as
possible without the concern of the economic future of the areas temporally under their control.
However there were two benefits of the system for agricultural development. First the differential rate
of assessment was biased in favor of the more highly priced crops and second, the fallow lying lands
were charged lower rates. The former encouraged the cultivation of the commercial crops; the later
provided the extension of cultivation. But the revenue collection system was devised all along the line
to take away from those who had nothing. Some of the influential land owners passed on some of
their burden to the small peasant land owners. The uniform rate of assessment mentioned above
pressed harder on the peasant, which might have caused him to produce non lucrative agri products
which further caused impoverishment of the poorer peasant. As there was no incentive (negligible
gain) for the poor land owner, his legal obligation to produce so that the state was not deprived of its
resources actually had to be enforced.
Good or bad?
However, it would be incorrect to represent the mughal state as a blood sucking machine. In his time,
Aurangzeb recounted the tragic failure of his life of not protecting the raiyat (the people).
Land Rights
Land ownership rights were not fully articulated but as the mughals relied heavily on the zamindars for
the collection of revenue, the zamindars rights were reinforced which derived outside the imperial
system. Some of these were, land holdings as jagirs, non hereditary rights by royal order and
engaging on the behalf of other zamindars.
Regarding the upper strata
Since the revenue settlement was always with the upper strata who acted as intermediaries for
collection, the must have been the primary objects of the expeditions against the riyat-i-zor talab and
riayat from whom the revenue had to be collected. On some points they stood on the same footing as
the poorer peasants: as non payment of revenue was treated as an act of rebellion, punishable with
enslavement, death etc.
Receivers of Revenue
The aimmadars ( the emprors army of parayer) were given 2-5%. The bulk of the revenue estimated
between a third and a half of the gross national product went to the emperor and the mansabdars.
The emperors share, consisting of khalisa plus the tribute from the feudatories varied from time to
time.
Where was the revenue spent?
Page 36 of 57
The revenue was spent on maintaining a large army which included soldiers, stables, the horsemen,
and the cavalry. It was also spent on the lavish spending and the luxurious life style of the emperor
and his nobles. However the army couldnt be termed as a machinery of cercion, something
maintained to exploit resources. Mughal peace and a vast unified empire had a very positive
implication for the economy of the sub-continent. The army was a crucial element in the institutional
framework which sustained this empire. As the cavalry was paid at rates well above the subsistence
level, this meant adding to the market demand.
Maintaining a truly lavish life style also helped the economy in some ways. For example karkhans
were built to manufacture luxury goods. These also acted as training ground for skills. The wages of
the artisans working in these karkhanas were quite high which again added to the market demand. In
short part of the surplus extracted as revenue went to create and maintain a class of skilled servants
which in turn stimulated the demand for commodities.
Infrastructure
A part of the income was spent on the infrastructure by the emperors. The big cities like Agra, Delhi,
Lahore and the short live Fathepur Sikiri were all built by the mughals. These were not built for
economic activity rather theses were built for administrative convenience; however this activity did
help stimulate the economy.
Horticulture
The mughals also invested in other types of economic activity like horticulture. The fact that India
began to grow a variety of fruits adopted from central Asia, Iran and the new world owed much to the
aristocratic enterprise.
Trade
The mughals were also involved in both local and international commerce which helped boost
exports. They invested in vessels, ships going to the sea. However the nobles also used their
authority to corner the market which had negative implications on both trade and manufacturing. They
created monopolies of their own and forced the traders in some instances to buy goods from them, 10
15 % higher than the market. Besides this, high custom duties were also charged from traders. The
trader unlike the peasant, was, however able to exert influence through contacts, bribes etc. Hence
despite ambivalences in official attitudes, the merchant flourished while the peasant was reduced to
bare subsistence.
Fall of the Moghuls
Perhaps the most wasteful economic activity of the moghul ruling class was their practice of hoarding
up immense treasures. In the absence of investment opportunities this was the most obvious way of
amassing wealth to increase power. The resources were drawn from all parts of India and spent on
only a few big cities mentioned above and wealth was seen only in the hands of a few (the ruling
class).
It would not be wrong to say that the decline of the Moghul Empire was accompanied by a general
decline in the economy of India. War was another factor of this decline.
In short, the conclusion that the economy of the sub continent as a whole was on the decline is not
justified. The unification of the country under imperial rule had established a structure of systematic
government and a new level of security which stimulated trade, manufacturing and production of cash
crops.
Page 37 of 57
Reading 21 : On the Political Economy of Backwardness
The capitalist mode of production and social political order provided impetus to expansion in
productivity despite disturbances.
Despite this increased productivity the benefits could not reach the masses whose living standards
remained poor.
However, it connected these nations with the marketable commodities and vagaries of world
market from a self sufficient agro economy.
It took these people from servitude of land lords to tensions of market economy and compounded
exploitation.
Now these people worked for foreign businessmen who owned the capital and machines.
As these people could not assert themselves, they began to opt for values and culture of these
foreigners. What resulted was and economic and political amalgam combining the worst features
of both worlds-feudalism and capitalism- and blocking effectively all possibilities of economic
growth.
Since population is growing consistently, more products were needed to keep up with their needs
and maintain proper living standards.
To meet these needs, a better utilization of resources was needed to produce more. This called
for more investments in the industry as well as better use of human capital.
Since the income was distributed unevenly, there were segments with higher incomes which could
spend lavishly as well as segments which lived from hand to mouth and could meet only their
survival needs.
Continuous development of industry required investment of capital. As far as the rich class of
landlords was concerned, they had to meet extensive expenses of their large estates and
extravagant living. The second class of rich people was the big businessmen who also lived a
lavish life. Consequently, the savings left for investments in industry were up to a limit only.
An industry grows only when there is sufficient market for its goods. Since majority of the people
living in underdeveloped countries were poor, they could not spend on luxury items and were
limited to mainly food items only. This casued agriculture to grow but manufacturing industry could
not because of limited need for luxury items. Those who were rich began to import these luxury
items while agricultural produce was the only exportable item.
Also to make agriculture profitable, its large scale production is needed. The capital requirement
for such a large scale production was beyond the scope of these small capitalists so they were
once again at the loosing end.
Similarly, development in industry requires the presence of a compatible infrastructure including
roads, train, electricity, water, sanitation, telecom and transport. Since such a basic infrastructure
was absent or not up to requirement, the industry could not grow. Even the amount needed to
develop such an infrastructure was beyond the scope of these capitalists so it remained backward.
Governments in these countries can play a significant role in building industries by using their
fiscal and governing policies. Through the use of taxation, uneven distribution of wealth can be
minimized and enough savings can be generated. Similarly, infrastructures can be developed,
industry supporting policies like exchange rate controls and price controls can be implemented to
build better industrial environments. What the combination of these measures would accomplish is
a radical change in the structure of effective demand and reallocation of productive resources to
satisfy societys need for economic development.
Page 38 of 57
Reading 22 : On the Roots of Backwardness

If we study the industrialization of the whole world, we find that there are certain countries which
showed tremendous growth but several were left behind as underdeveloped countries. Each of
them had different reasons for its underdevelopment. However, there are reasons which can be
collectively assigned to all of them. The first thing is that how do we measure the level of growth of
different countries. This is done by measuring the per capita income of them.
High income
Middle income
Low income
World icome
67%
18
15
World pop.
18
15
67
Per capita income

$915
310
54
The question is why is it like that .

If we study the history of all these countries, we see that there was a transition from feudal system
to capital system. However, all these feudal systems were not similar in nature like the feudal
system in China was different from the tribal society of India. The decline of the feudal systems
was however, similar in many senses. First, there was a slow but appreciably increase in
agricultural output accompanied by intensified feudal pressure upon the underlying agricultural
population as well as ever more massive displacement and rebellion of peasants and
consequently emergence of a potential industrial labor-force. Secondly, there was a more or less
far reaching and more or less general propagation of division of labor and with it the evolution of
the class of merchants and artisans accompanied by the growth of towns. And thirdly there was a
more or less spectacular accumulation of capital in the hands of the more or less steadily
expanding and rising class of merchants and wealthy peasants.
As western Europe developed more, there was a search for reaching what they did not posses.
Their geography gave them an edge. They searched for other parts of the world. They built
weapons to protect themselves, ship building industry grew, found gold and developed their
human resource. This settled a foundation for their development.
The case of India is of immense importance. India before the arrival of British was under the
hegemonic rule of Mughals. However, despite all of this it was one of the most prosperous zones
in the world. The methods used in agriculture were among the best in the world and its produce
was more than average. As British reached India, it was used totally for the benefit of Britain and
was robbed of its wealth. After the establishment of East India Company, in between plassy
(1757) and Waterloo (1815) almost 500,000,000 pounds to 100,000,000 pounds of wealth had
been transferred from India to Britain. India was a source of raw material for Britain and also
served as a market for their finished goods. Britishers discouraged the manufacturing industry in
India so as to make it serve for their marketing needs. This left agriculture as the only economic
sector left. However, through the implementation of Land Revenue system and unfair taxation,
they also destroyed the agricultural fabric of India as well.
The consolidation of landlord system was a tool used by Britain to strengthen its hold. As written
by several historians, British era for Indian economy was a major obstacle in Indias development
as they totally destroyed its National production. Had there been no foreign rule, India would had
been much better and prosperous than it is right now.
Nehru, in his book blames Britishers for all the poverty and backwardness in India and considers
them responsible for all the economic ills as the road to progress in India was basically disturbed
by them.
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Reading 25 : Businessman and the Partition of India

This reading basically talks about the role of business in partition of India.
Traders and merchants could identify themselves with various casts and was not necessary that
division along religious lines was a very solid division. A Muslims could support a non Muslim and vice
versa.
Muslims representation in business was visible on all India basis but not in the territories of India
which is now Pakistan. The main area where Muslims lacked was that of Finance.
Prior to 1930s Muslims did not feel a need for a separate business representative organization.
However, in Calcutta due to reforms brought about, which allowed representation of one Muslim from
commercial association, led to establishment of Muslim chambers of commerce. Another reason
presented by the author for the establishment of Muslim associations in Bengal is the domination of
Birla brothers in Indian chamber of commerce and as a reaction Ishphani and Adamji promoted
Muslim business associations.
A perception existed in the minds of Muslim business men that Hindu business are not letting them
enter the arena of Industrialization.
In Punjab, due to reforms of 1919, rural landowners came to power. In the urban areas most of the
businessmen were Hindus and were loyal to Arya Samaj(Hindu fundamentalist organization). They
felt that policies being adopted are purely rural biased; this resulted in urban politics of Punjab being
totally based on communal lines.
G.D. Birla represented Calcutta Marwaris and was opposed to Muslim majority representation in the
province. He had close links with congress party.
On the Muslim front M.A.M Ispahani represented Muslim interests and provided funding to Muslim
League.
In Punjab and Bengal, Muslim business men favored greater provincial autonomy, so that there
interests can be protected by the provincial governments, where they are in majority. Hindu
businessmen, on the other hand wanted a strong central government where they would be in majority
and there interests can be protected by the central government.
In rest of the India communal divide among business communities wasnt as sharp as compared to
Punjab and Bengal.
The performance of League in 1937 election indicates that league was more popular among the urban
Muslim merchants who were not averse to strong central government and who were not so divided
along the communal lines.
Big businesses were divided regarding the partition of India. Economically speaking, partition made
little sense to big businesses, who would loose market share. Also, some of the raw material came
from the territories which are now Pakistan. For Hindu business, looses would be minimized if
Calcutta remained with India, since the western part of India had a very small industry.
After 1945, we see that businessmen became in favour of partition, because big business wanted
strong centre to give them tariff protections. League had started to advocate for strong provincial
governments, which left businesses with the only option of partition with India having a strong central
government. Industrial policy statement, which transferred responsibility to centre also made
businessmen to go for partition option.
Page 40 of 57
In April 1947, it was decided that Calcutta will be in Indian territory, this resulted in flight of capital to
India from Sindh and Punjab. Under these circumstances, Birla argued that affect of partition will be
minimal to Hindu businesses and thus favored partition.
Patel was influential in changing the policy of congress and he wanted a strong central government
which he can control.
Big business also were afraid that in a coalition government league and congress may turn out to
have anti business policies.
Businesses were influential in deciding the fate of Calcutta but this wasnt the case when it came to
Punjab.
Muslims businessmen who came to Pakistan benefitted more than there counterparts who left
Pakistan. Indian textile faced problem because of loss of market share and the jute factories had
problem of getting enough raw material.
The problems that were faced by business after partition were due to unequal development of industry
during the colonial period.
Page 41 of 57
Reading 26 : Relation between the Muslim League and the

Punjab National Unionist Party 1935-1947
The issue
No all Indian Muslim party

1037 election and the defeat of AIML
INC could not secure the Muslim seats
AIMLs power structure in the provinces were dictated by the social and the political condition
AIML made coalition with the party who had a non communal stance
In Punjab they made coalition with the PUNP which a was the strongest part in Punjab and had
the support of British rule for their non communal stances
In the end the coalition failed before the 1946 election
1937 election: the league excluded
1936 Jinnah, fazl failed negotiation for combined election

Jinnah proposed the unionist to run under their ticket and even let them to corporate with non
Muslim in the assembly
Husain believed that strong provincial parties can tackle the provincial problem better and wanted
same for the other provinces. He was backed by British who wanted Punjab free of
communicalism for their military and economic stake
Unionist landed class
Husain found that without coalition they could not make majority in Punjab hence opted for inter
communal linkage rather than following AIML.
Noon Tiwana and Doualtana factions fought over the ministerial positions
Skindar Hyatt took over PUP
PML was formed with Iqbal as president but with no political structure and no time for building one
Sikandar-Jinnah pact
Jinnah tried for coalitional and Skindar hyat and Fazl-ul-haq gave Jinnah support in Punjab and
Bengal.
Skindar supposedly criticized congress not due to its stance but rather to get the support of British
Unionist stated that the pact has no effect on the current status of parties in assembly but although
Muslim unionist will be asked to obtain the league membership but in future elections league will
have to join the unionist in the assembly
Iqbal was not happy with situation and asked removal of 28 unionist party member from the
league for their activities. This added friction b/w PML and PNUP
The league beleaguered 1937-1942
Skindar tried to get the control of the PML to stop AIML from spreading in the Punjab. Skindar
tried to remove PML sectary Ghulam Rasul and replace him with Nawabzada Khurshid but Iqbal
refused
Iqbal got ill and died and Nawabzada Khurshid got control of PML. He started using PNUP cause.
Cancelation of Lahore as a venue of 1938 AIML session was one evidence.
By March 1938 AIML PML had to submit a full account of their branches and office bearers for
affiliation with AIML. Skindar get threatened when there was no PNUP member in the 90 members
suggested. Liaquat Ali khan supported him as his brother was land lord and unionist MLA.
Page 42 of 57
Jinnah resolved this by reconstituting the PML 35 member committee which represents both sides
of the groups but it had 35 PNUP members. Jinnah gave full control to Skindar of AIML.
This has its implications league message was popular in urban areas but Unionist party stopped
its spread in rural areas.
Skindar Federal scheme of 1939 of provincial autonomy was in contradiction to Jinnahs stand and
he publically criticized it.
The league unionist clash of 1944
Landed elite joined AIML due to strong support it was getting with the idea of Pakistan.
PUNP leadership under khizar hyat was not strong enough he was a land lord which represented
British interest and infighting in PNUP also effected these defections.
Jinnah wanted to form coalition with non Muslim under umbrella of AIML not under Unionist part
and Khizar rejected that and pact broke.
When 1946 came many PNUP members were now AIML members and thus now PML is
dominated by landed elite.
The complete break 1945-47
PML used student federation with good effect

League used religion Ulema mosques and also Muslim bureaucracy for there cause while unionist
used the administrative resources and grants and war front funds
Despite being the largest party in assembly PML has to sit in opposition due to congress Akali and
unionist coalition.
Khizar became head of collation
Government used power to curb the RSS and National Guard movement.
PML abstained from non corporation movement
Due to opposition Khizar ministry was brought down in February 1946
Page 43 of 57
Reading 27 : Political Legacies of Pre-1947 Sindh
Political Landscape before partition

Involvement of religious leaders Pirs
Awareness of distinct identity Sindhi
Pirs and Politics:

Active participation in Sindhi Politics
From local taluqa to national assembly
Reasons:
Strong power acquired over centuries
General strengthening of landlords of which pirs were one category
Spiritual guides with social and economic resources

British used them to get control of the haris/serfs and provided them with power.
Authority was concentrated with them and haris looked for security and protection.
British based their control on distribution of honor through privileges (chairs at darbars, lunghis,
afrinamas, swords and guns) and used these mirs, pirs, sardars, jagirdars and waderas.
British protected and promoted their self interest in return for cooperation with administration.
Pirs took these previleges either through representatives or by being present themselves at
the darbars.
Took part in politics first through local boards and then direct representative politics. They played
influential roles in elections to legislative bodies.
Ghulam M bhurgi dominant political figure exploited the ties of Piri Muridi to remain in power.
Separation from Bombay presidency in 1936: New legislative assembly.
1937 elections: increased influence of aristocracy in politics. Party played no role in the elections,
basically the alliances with waderas and jagirdars determined the results. This intensified the
support of Pirs for the candidates.
Until 1930 Muslim league didnt emerge as a leading force. Lessons: closely involve in the local
politics.
1938 League organization activity: earned the support of pirs and sajjada nashins and syeds.
40 branches of league were formed and 15000 members enrolled. Joined by Hidayatullah and GM
Syed who had close influence among Pirs and syeds.
Muslims didnt take the anti British stance since they had to earn the support of establishment
Pirs
highlighted the Masjid Manzilgarh incident to promote its support for pirs
ML had some ups and downs due to clashing self interest of its members over ministry seats
ML session in Khi 1943 fight for power b/w pirs and mirs continued.
Roots of Sindhi Nationalism
Against Punjabis settled in sindh and sindhi hindus. They had the feeling that they were
dominated by the outsiders.
Trader and merchant community largely consisted of Hindus
Role of Hindu Bania: Rural indebtedness
Bureaucracy was initially dominated by Hindus.

So Sindhi Muslims started feeling disadvantaged.
1920 Sind Azad Conference
Page 44 of 57
Landed Aristocracy
Emergent Middle Class
Sukkur Barrage Deficit province

Friction between sindhi muslims and sindhi hindus
Questions were raised about the recruitment of non sindhi vs sindhi
British brought Punjabis and allotted them land in Sindh
Effect:
Distinction between Sindhi Hindu and Muslim Community sharpened at the time when
communal issues were becoming more important.
Due to the migration of Hindus vaccum was created in trade and commerce.
Mohajir came from other Indian areas to fill the gap

Initially sindhis had soft corner for them but slowly they detested them as they were taking there
jobs
Sindhis thought they spoke different language and had different culture so they should not be
allowed in sindh
Sindhis have also asked for separate desh or country
But when Punjabis try to come in there way both mohajir and sindhis join up to work against them
Page 45 of 57
Reading 28 : The Frontier Province Khudai Khidmatgars

and Muslim League
No political party in the NWFP. AIML never came to establish itself and Khudai Khidmatgar
party of congress was ruthlessly suppressed.
Till 1901 NWFP was part of Punjab but it was separated for control issues at Afghanistan
border
NWFP remained poor and underdeveloped. 90% Muslims mostly in rural areas with Hindus and
Sikhs mostly merchant class and urbanized and educated
Mostly Pashtuns with tribal society. Based on clans and tribes with no central authority but
leaders like khans and maliks. They had influence rather then power. Decisions were made in
jirgas. No stratification on the bases of wealth, status and power
Under British most areas remained unchanged due to inaccessibly. accessible areas became
feudal system based
Khans and maliks represent government now rather then the people to collect revenue. They
were given land for their service to the government. British dint tried to change the social
structure of khans so that they may remain loyal to the government.
Khans gained power with the links with government and land which were awarded for the
services by the government.
Tribal areas remained unchanged. Tribal areas were immune to changes as there were no
reforms for those areas.
Religion played a great rule in the society and mullahs were inactive but very sensitive to any
treat against Islam
Pirs were also land owners and hereditary symbols of power and had large influence over
people.
Hindus which were educated and were either retired form he civil services were active the
urban politics
Congress didnt had much support until Abdul ghaffar joined in. his Khudai Khidmatgar had
objective of complete independence from British Hindus and Muslims. Khudai Khidmatgar were
also called red shirts which they used as uniform
Khudai Khidmatgar was a Pashtuns nationalist movement closely related to INC with Ghaffar
close ties with Gandhi
Khudai Khidmatgar strong in rural areas but weak in urban , north and south of the province
Khudai Khidmatgar has strong following with small khans
I like the way the you sing along , I like the way you always get along I like the way you clap
your hands, I like the way you shake your hair, but most of all yeah I like the way you move..
tattatattttttahahantttthaann (enjoy) so to hell with all.
Khudai Khidmatgar and INC have same anti British agenda or else they were very different.
In 1937 INC won 19/50 seats with 21 independent Muslim candidates. AIML had no seats
Big khans were deserted by the INC so they came to AIML.
1942 quit India movement didnt get any importance in NWFP. Many of the INC leaders were
arrested and Inc found itself leaderless.
AIML made ministry with e help of governor which it kept till 1945 (INC ministry resigned after
WW2 started)
In 1946 INC shoed that it is still strong as it won 30 seats and AIML only 17 seats.
AIML was strong in non Phaethon areas, INC vice versa
Pakistan issue after 1946 became important and people started switching parties. They shifted
due to religious reasons as well as opportunities that see once Hindus and British leaves
Pir manik Sharif was a counterbalance for Abdul Ghaffar as he has many followers in Peshawar
areas who were Pashtuns and also in the tribal areas that persuaded them to vote for Pakistan.
Page 46 of 57
Nehru on his visit to province received hostile reception. AIML was blamed for this.
Referendum was held to see if people wanted to join Pakistan or India
51% total people voted and 99% of them voted for Pakistan
Abdul Ghaffar wanted to add one more option of independence but no one agreed and NWFP
came to Pakistan (hurray)
Reading
Page 47 of 57
29 : Early
Growth of Business Enterprise in Pakistan
Page 48 of 57
Reading 30 : Pakistan's Industrial Development and Business Enterprise in 1960s
Page 49 of 57
Reading 31 : Bhuttos Social Democracy

ZAB and PPP
Studied in University of California, Berkeley and got motivated by socialist ideas.

Became a minister (Fuel and Energy) in Ayubs cabinet in 1958 and later in 1963 became Foreign
Minster.
Established good relations with USSR during his stint in the ministries.
Sacked by Ayub in 1966
PPP formed in 1967, bringing in the leftist groups.
Reached out to the masses in villages and small towns; appeal created to the poor with the
promise of equity.
Socio Political Unrest and the Aftermath
Both rural and urban poor discontent with the distribution of resources in the 60s.
Displacement of labor forces from agriculture and lack of employment generation by the industrial
sectors adds more trouble.
The notion was that the industrialist grew at the cost of industrial labor and rural poor. Along with
them the professional class and the small business class also agitated against the Ayub regime.
Economic deprivation in East Pakistan results in massive movement and separation seems
eminent.
1970 elections Mujib wins majority but assembly was not formed and military option pursued. Dec
1971 East Pakistan get separated.
ZAB becomes chief Martial Law Administrator and then thru 1973 sontitution becomes PM.
Nationalization and Other Industrial Policies
Public sector to come ahead in the industries

Iron and Steel, non ferrous Metal
Heavy Engineering, machine tools
Ship building, car assembly
Arms, ammunition, cement, chemicals, paper, etc
BIM established in 1972 to manage the nationalized firms.
31 mfg firms taken over by Govt in Jan 1972, agency system abolished and insurance
nationalized in the same year.
1973: Vegetable Ghee>> raw cotton.
1974: Banks >> Petroleum >> Shipping
1976: Several thousand Cotton grinning, Flour and Rice Mills, this was a massive blow for the
SME sector (Overdoing Nationalization).
Labor Policies
Employment security, Strengthened Unions, bigger contribution by the employers to social

security, health, schooling and other fringe benefits.
Fiscal and Monetary Policies
Rupee devalued in 1972

Import duties lowered and free list enhanced. Voucher system abolished.
Oil crisis in 1973 leads to commodity boom but Pakistan fails to capitalize on it.
Page 50 of 57
Big Export Incentives were provided in 75-76 in the form of tax concession.
Impact
Public Administration and defense grows rapidly.
Large Industries grow at 2% compared to 12% in the 60s.
Private sector in Large Industries down to 22% in 77 from 95% in 71.
Businessmen relocated their firms in middle east and Europe.
Financial market becomes shallow.
Aid commitments declined drastically.
Agriculture
Policies of Ayub begins to give results thru green rev. BUT

It slowed down due to adverse weather conditions during 1972-73
PPP promised land reforms but could not deliver.
Nationalization hits agri sector as well.
Impact
Food shortage and high price of food items.
Import bill for food items rises.
Subsidies on Agri input increased by 5 fold.
Cotton export suspended for some time.
Textiles
Cotton production grows up except during 72-73 due to bad weather.

Export duty on raw cotton re-imposed (lifted initially in 1967).
Cotton Export Corporation Established in 1973
1976: 600 grinning factories nationalized.
71-73 Pakistan earned a lot of forex thru cotton export, thanks to the commodity boom.
Other Reforms
Bureaucracy
Bhutto tried to cut down the power of Admin, He sacked 1300 officials on charges of corruption.
Employment rules were changed through the constitution in 1973 giving more power to Govt.
Recruitment policies were also changed to break the closely knit Admin.
Education - Institutes were nationalized, reduction of salaries of academicians, student politics and
unions.
Health - There were good plans to improve rural healthcare systems and research hospitals but it
wasnt implemented. Generic medicine scheme was introduced, banning the medicine brands.
Cabinet - Leftist cabinet who helped PPP in the 1970 manifesto were replaced.
Others Nuclear Power plants
Lowari tunnel
Indus river highway
Page 51 of 57
Reading 32 : The Zia Years
Zia took over after agitation against bhutto government.

1979, Soviet invasion of Afghanistan.
There was anti American regime in Iran and Americans wanted an ally in the region to fight
Russians.
Pakistan got $4.02 billion dollars aid.
Oil rich Arab countries also provided aid to Pakistan.
This helped Zia a lot in terms of economic stability.
In 1985 a civil government was formed.
Zia brought 2 people from the private sector to manage industrial affairs. People were reluctant to
invest in Pakistan as per their experiences with previous governments.
Agri-processing industry returned to its actual owners.
Zia allowed private investors to invest in industries which were in public sector domain. Cement,
fertilizer, tractors and automobiles are few.
BMR (Balancing, Modernization and Replacement) program to improve efficiency of public sector.
Fiscal incentives were given according to specific objectives, like development of a particular area
or industry. Main incentives were tax holidays, exemption on import duties etc.
For backward areas tax holidays were given.
15% tax credit was allowed along with accelerated depreciation of up to 40% according to BMR
program.
These incentives had a positive impact and private sector investments bounced back.
Concessions for exporters: export rebates, import facilities for exporters, income tax concessions.
1982, Pakistan devalued currency and it helped exports
More liberalized import policy.
Rebound of private investment was not that much helpful as it was mainly going into real estate
and property prices were rising.
Weak judiciary and arbitrary laws made by military government reduced the governments
credibility.
Zakat and ushr was introduced. Interest free banking was introduced.
Fifth five year plan (1978-83). Sixth five year plan (1983-1988).
Objectives were achieve growth rate of 6%, move to export of wheat, increased oilseed
production, enhance productivity of sugarcane and cotton.
Under fifith 5 year plan agriculture grew by 4.4% instead of the 6% of the target.
Shortfall was due to increased fertilizer prices because of world energy crisis.
Yield of cotton and rice dropped because of it.
Objectives of 6th 5 year plan improve seeds, water management, mechanization, develop rice and
cotton as export industries
Progress in Zias period was better than Bhuttos and Ayubs in agriculture sector.
Wages of skilled workers increased
Shortage of electric power.
Failed to build even a single dam
Power shortage started affecting the industry and agricultural output.
Plans of nuclear plants were abandoned which were initiated by bhutto.
In late 80s Pakistan saw a revival in cotton textile sector.
There were value added products. Pakistan moved into Yarn production.
Remittances declined
Page 52 of 57
Reading 33 : Pakistan During Democracy: 1988 1999

Two terms of Benazir Bhutto : 1988 1990 and 1993 1996
Two terms of Nawaz Sharif : 1990 1993 and 1996 1999
PPP: Pakistan Peoples Party, PML: Pakistan Muslim League, ANP: Awami National Party, NA:
National Assembly, PA: Provincial Assembly, COAS: Chief of Army Staff, SC: Supreme Court
1988 1990
President : Ghulam Ishaque Khan; COAS : Gen. Mirza Aslam Beg
PPP won 92 out of the 207 seats in National Assembly (NA);
Won majority in Sindh while Islamic Jamhouri Ittehad (of Nawaz Sharif) formed government in
Punjab (Nawaz became Chief Minister) and Balochistan;
Pledge to remove the Eighth Amendment. The Eighth Amendment to the Constitution of Pakistan
was passed in 1985. It changed Pakistan's government from a Parliamentary system to a Semipresidential system by giving the President a number of additional powers. These powers included
the right to dissolve the National Assembly (but not the Senate).
Conflicts : Retirement of Chief of Joint Services Committee, Extension of Lahore Corps
Commander, Appointment of Chief Justice of Supreme Court, Violence in Karachi.
Charged with corruption, civil disturbance, confrontation with federal government and provinces.
1990 1993
President : Ghulam Ishaque Khan; COAS : Gen. Mirza Aslam, Gen. Asif Nawaz Janjua
IJI won two-thirds majority in NA, formed governments in all four provinces;
Tried to regain ground against army and bureaucracy;
Conflicts : Operation clean-up in Karachi, Jamaat-e-Islami drifted out of coalition, Benazirs
success as opposition leader, Appointment of COAS, Eighth Amendment
Nawaz sacked by Ishaque, but Supreme Court responded by restoring NA;
Army stepped in to force Nawaz and Ishaque to resign
1993 1996
President : Farooq Leghari; COAS : Gen. Abdul Waheed Kakar, Gen. Jehangir Karamat
PPP was largest party in NA, majority in Sindh PA, formed coalition govt. in other PAs with PML-J;
Conflicts : With judiciary by appointing ad-hoc judges, Toppled PML-ANP govt. in NWFP,
Violence in Karachi, Blame on her husband for murder of her brother Murtaza.
1996 1999
President : Farooq Leghari, Rafiq Tarar; COAS : Gen. Karamat, Gen. Pervez Musharraf
PML won 137 out of 207 seats in NA, formed govt. in all four provinces;
Legislated the thirteenth amendment. The Thirteenth Amendment to the Constitution of Pakistan
was passed in 1997 by the government of Prime Minister Nawaz Sharif. It stripped the President
of Pakistan of his reserve power to dissolve the National Assembly, and thereby triggering new
elections and dismissing the Prime Minister. The Constitutional Amendment was supported by
both the government and the opposition, and was thus passed unanimously.
Conflicts : Regarding appointment of five SC judges, Attacks on SC by PML workers, ANP & MQM
drop out of govt., Revival of Kalabagh Dam, Introduction of Sharia, Forced pull-out from Kargil.
Macroeconomy
GDP growth decreased from 6.6% per annum to 4.1%;
Population growth at 2.2%, Real GDP growth at 1.6%
Slow Economic growth attributed to : Low savings and investments, politicised decision-making in
public resources, structural problems in large-scale manufacturing, financial turmoil.
Page 53 of 57
Total investment decreased from 17% to 14%;

Private Sector capital increased from 48% to 57%, with over 90% in large-scale manufacturing;
Private investment increased fourfold, while domestic savings rate remained at 14%
Fiscal deficits varied between 6.5% to 8%, tax revenues declined from 14% of GDP to 13%
Remittances decreased from $2.3b to $1.3b.
External debt increased from $20b to $30.2b, Pakistan came very close to default due to
sanctions
Rupee depreciated 144% and, hence, foreign currency accounts became very attractive.
Industries
Agriculture
Agri share of GDP decreased from 31% to 26%, share of exports declined from 33% to 20%;
Expenditure declines from 20% to 8% of total government expenditure.
Textile
Cotton textile accounted for 60% of exports;
Cotton yarn production grew at 7% annually, cloth production grew at 3%
Raw cotton production decreased by 33% due to crop virus;
Utilisation rates dropped from 86% to 72% for spindles and 53% to 36% for looms;
Inability to move into higher-value added textile, lack of integrated approach between growers,
spinners, weavers, manufacturers.
Sugar
Increase in number of mills from 45 (with a capacity of 1.26m Tons) to 78 (capacity 5m tons);
Utilisation rate decreased from 100+ to 45%
Pakistan is the 4th largest grower of sugarcane, though the climate is not suited for the crop
Credit channeled towards this sector because of Nawazs family business
Domestic sugar expensive than international sugar
Economy
Deregulation
Banking Number of financial institutions doubled, but massive corruption and defaults
Open Sky Policy Allowed six new airlines to enter but only 2 remained
Telecom Mobile operators entered, PTCL started with its cellular and ISP service
Power Generation, Construction, Shipping Investors allowed to hold 100% equity
Foreign Accounts
Foreign currency deposits jumped from $3b to $7b
Loan Defaulters
Increase in default amount from Rs.80b to Rs.300b
Worst-hit lending institutions were national banks and development financial institutions (DFIs)
Bad loans as percent of total loans were 23% at DFIs, 28% at national banks, 13% at private.
Severely hampered privatisation of banking sector.
Stock Market
Removal of restrictions on foreign investment of Pakistani shares and repatriation of gains and
dividends.
Market capitalisation increased five-fold
Stock index crashed due to growing fiscal deficits and foreign exchange crisis
Page 54 of 57
Privatisation
Benazir Bhutto
Nawaz Sharif
Plans
14 units
115 units
Major
Plans
MCB, HBL, PIA, SSGC, PakSaudi Fertiliser,UBL, OGDC,

PPL, PTCL, Kot Addu Power
Plant
MCB, PTCL, UBL, KESC,

National Fibre, Pak-China
Fertiliser, Millat Tractors, AlGhazi Tractors, Shikarpur
Rice
51% MCB, Allied Bank, PakChina

Fertiliser,
National
Issuance of 10% stock of PIA, Fibre, Metropolitan Steel,
Issuance of 12% PTCL stock, Zeal Pak Cement, Millat
issuance of 36% stock of Kot Tractors, Al-Ghazi, Shikarpur
Rice, etc
Completed Addu Power
Remarks
Management of PTCL with Three main families: Mian

GoP, while Management of Mansha, Schon Group and
Kot Addu with Investor
Sikander Jatoi.
Pet Projects
Nawaz Sharif
1. Motorway
Vision of all-Pakistan North-South motorway from Karachi to Torkham
Contract with South Korean Daewoo for Lahore-Islamabad M2 Motorway
Contract with Turkish Bayinder for Islamabad-Peshawar M1 Motorway
Caretaker govt. abandoned M1 project and scaled down M2 to 4-lanes instead of 6-lanes.
M2 project completed 3years after deadline, with a 50% loan from Daewoo
2. Yellow Cab
Aimed at reducing unemployment by providing soft loans to import duty-free vehicles for taxis.
Banks will provide 90% of vehicle costs while 10% will be paid by borrower
Programme was abused with over Rs.35b in loans and over 50% as default
Luxury cars, coaches, heavy vehicles were imported under the programme.
Benazir Bhutto
1. Power Policy
High rates of economic growth, rapid urbanisation, increased mechanisation of agri forced
electricity consumption to quadruple.
Private sector power generation were invited, 19 IPPs were awarded to produce 3.4GW
As economy slowed down, critics felt she had overcommitted investment in power sector
Incentives to private power generation included exemptions from tax, customs duties and
guaranteed prices, payments on unused capacity.
Tariffs tripled for usage of 1000kWh, WAPDA and KESC found it difficult to pass costs on.
Nawaz asked IPPs to reduce tariffs and issued letters of termination, HUBCO went to Intl
Court of Arbitration for help.
IPPs accused structural problems at WAPDA for high tariffs, like overstaffing, high line losses.
2. Social Action
Designed by World Bank in 1992
Aimed at improving primary education, healthcare, family planning, water supply, sanitation
Aimed at recruiting, training, educating and assigning more women in rural areas
Assistance from World Bank, ADB and other multinational agencies.
Page 55 of 57
Reading 35 : Business & Power in Pakistan
Business role in economic development: internal development a necessary prerequisite.

Pre-partition history: (British & Mughal Era). Pakistan important political & economic region.
Lahore 1 of 3 capitals (population - half a million) and one of the largest preindustrial civilizations.
Regional towns like Multan (trade, manufacturing & administrative function).
Artisanal group manually produced diversified manufacturing goods.
Other key strengths: - Agrarian surpluses - strong trade established trade routes - huge volume
- sophisticated transport & mercantile enterprise - established banking/credit systems.
Weaknesses in Mughal Era: Relatively weaker than Europe due to
1) military administration
2) Feudal bias (appointed as civil, administrative functionaries)
3) Lack of innovation in production systems and social structure of business.
4) Inability adapt to new products, material & methods due to
a) traditions and
b) caste system determining (hereditary) occupations.
5) Strong but highly fragmented secondary sector output.
6) Limited state owned large scale production (only metallurgy).
7) Cities (only as depository of agro surplus).
8) Violence of post Mughal era, hitting urban economy, (Punjab: militarized Sikh & rebellious
Hindu & Muslim), disrupting artisanal & trading network, led to contraction of business.
Colonial Period: Weaknesses
a) factory system neglected, making this region predominantly small scale & artisanal based,
focusing only on domestic consumption needs.
b) Heavy imports from UK. blocking large scale industry.
c) Decline in urban population (Lahore: 85000 in 1849). Strengths: Centaury of political stabilitybasis for enhancement of business. Major developments: largest canal network, agricultural
colonization, land settlement schemes, rise of market towns led by agro surplus in cotton, wheat
& rice. Political role and authority of business: Substantial affluent trading families. Power shared
between royal court & large-medium zamidars. Merchants & financial creditors enjoyed individual
influence, collectively weak. Authority with one who has the produce, rent & revenue 4m land.
Constrains:
1) Non industrial development
2) Buildup of landholding groups through land distribution and canal colonies.
3) Punjab Alienation of Land Act of 1901 (forbade non agriculturists from acquiring land owned by
agricultural castes).
4) Bureaucracy (controlled land settlement and operations of canal network; corrupt water supply
system) and military (authority through agro colonization, causing hindrance in industrialization.
5) Large areas leased to British Cotton Growing Association for cotton production.
Partition issues:
1) Rollback of urban society due to immigration of non-Muslim business to India.
2) Global depression- fall in agro prices and rents
3) Religious and economic chauvinism.
4) WWII
5) Disorder at boarders at independence
6) lack or political structure and stability.
7) Poor land reforms.
8) Landed hierarchy controlled provincial Leagues in Punjab, Sind & Frontier; gave less access of
business to politics.
Post Pakistan: Immigration of commercial groups to India led to
i) Karachi based business group (Gujrati west Indianan Khojas, Bohras, Memons, Ismails) with
background in services & professions.
Page 56 of 57
ii) Punjab based artisanal and service castes (Chinioti Shaikh, Kakezai & Malik) involved in
leather trade/tanning (due to Hindu aversion), which later became the backbone of countrys
business especially in cotton and textile value chain.
Other sources of entry in business
i) through agrarian hierarchy - peasantry & smaller landlords
ii) Large landlords - agro processing primarily for subsidized loans/incentives. (made exit by
selling business or by using political connection to reschedule/write-off non-performing loans and
hence failed to play a major role in business.
iii) Through careers in state service, both civil and military, which became corrupt over time due
to lack of effective measures and resulted in outflow of black money abroad ($30billion) &
partially in business. Increased foreign aid & loans (1980s) made them evident in politics.
Business groups & their roles: Since 1947, certain business groups given incentives through
state policy to promote industrialization, but due to lack of resources, specially foreign exchange,
and the decision of not to follow India in devaluation of currency did not help exports, made
imports cheaper to encourage inflow of capital goods. Import of consumer goods was curtailed
though higher tariffs. Korean War boom in addition to subsidized project finance, protective
tariffs, market monopolies and price controls over raw materials (especially raw cotton) resulted
in transition from mercantile to industrial capitalism. Major investments were in cotton textile &
consumer goods due to short lead time & less capital requirements. By 1960s famous twentytwo families emerged (as a result of wealth concentration thru incentive based investment policy).
Strength in cotton textile, with diversification in banks, insurance companies, etc. Public sector
disinvestment in industrial projects led to industrial concentration. hardly incentivized SMEs.
Ayub & PPP: Bazaar sector emerged; Labor unions were suppressed, little progress in real
wages. Business elites connivance with military rule to gain major economic advantages, but
failed to form alliance with agrarian order, SME sector & working class. Agro-growth stagnated
since 1950s. PPP: Fall of Ayubs Regime after demonstration, election, and break-up of country.
Bhutto (PPP) takes over based on elections.
Highlights: Use of foreign exchange from East Pakistan (jute) to finance Pakistans
industrialization resulted in Bengali nationalism. Loss of control over cotton prices (favored
industrialists, resentment in agro sector. Green revolution (benefits to large/medium farmers by
access to farm mechanization, input subsidies & softer credit terms). Weaker tenant rights &
ineffectiveness of land reforms created resentments in cultivators, middle and upper peasantry.
Large landowners threatened by growth of emergent business families. Bhutto, as a result
nationalized large scale private sector in 1970s (banks, insurance companies & industries
(engineering, auto, chemical, cement and oil) leaving only cotton textile. Plants placed under
state corporations, weakening big business groups and deterring investment in private sector in
1970s till 1980s. Investment made primarily in public sector. Tycoons sought business abroad.
Beneficiaries of this downturn in private sector: Board of Industrial Management created, to keep
a distance between bureaucracy & managerial technocrats. Dissolution of board (by Zia) led to
transfer of power to bureaucracy (thru ministries), increasing corruption & declining private
business.
The states intervention policies went beyond the takeover of large scale industry & financial
sector; even nationalized major parts of agro processing sector (Rice, flour, and edible oil) to
appease large landlords, destroying rural agro trade & business). Public managers dominated
agrarian trade & exports & largely malpractice. As a result the trading community withheld its
support for PPP, and actively opposed in 1977 agitation, resulting in denationalization of agro
processing units in Zias era. Larger business completely ceased to develop into corporations
with diversified portfolios & deep managerial hierarchies. Most of them relapsed to med sized
family operations, (No growth in capital intensive & technologically base (electronics, computer&
IT, till 1980s). In 1980s, Zia made effort to attract investment (legalize black money), but failed.
1985: investments pickup (older business groups & public position holders) but only in agro
processing (yarn & sugar). Some business groups gained access to loans from nationalized
Page 57 of 57
banks, able to accumulate industrial assets rapidly and even enter politics (in Punjab). The
Karachi based business groups refrained from politics, due to lack of business confidence,
Muhajir movement (MQM) & serious law and order problems.
1990s: Privatization, (small industrial units - not extensive industries and utilities), was
undertaken in 1990s. Investment climate weaken in second half of 1990s, due to rise of price of
local raw cotton, (cotton textile industry became uncompetitive), an economic crisis among
Pakistans East Asian trading partners (major buyer of yarn), 1998 nuclear explosions (freezing of
foreign currency & erosion of business confidence), fears of religious prejudice, poor law
enforcement, continuous Indian hostility in Kashmir, inept public management & financial
malpractice, rise of foreign debt (beyond $30 billion), severe local taxation, and finally economy in
deep depression by the end of 1990s. Business investments: Overly leveraged and
underfinanced projects (Low equity and Disproportionate interest rates) resulted in accumulation
of non-performing loans and large number of sick units. Kickbacks, overly invoiced foreign
machinery, rescheduling of loans, instigation of numerous legal actions, led to flight of capital
abroad. The effective resistance of defaulter to any accountability process reflects the weakness
of legal and judicial system and the strength of politico rental mechanism. Deinstitutionalized
environment suits due (SME) but make it difficult to transit to corporate structure.
Reasons for setbacks: tax evasion, black economy, insufficient supply of quality managers (low
compensation), separate projects rather than divisionalized entities, nature of manufacturing
process in Pakistan (Cotton textile, fragmented & lacks in economies of scale), family based
equity hindered horizontal integration. Public limited Co. primarily for subsidized loans. Individual
business/groups benefit through access to state functionaries. Bazaar or informal sector collude
for tax evasion. Weak efforts by business to develop political institutions/effective institutional
reforms. 1990s recession, and links between business & bureaucracy seriously depleted states
revenue generating capacity leading to fiscal deficits, diluting contribution of public finance to
national development. Fiscal stability (by curtailing state expense) not seriously attempted;
indicating states unwillingness & incapacity to control crises.
Unequal resource distribution had been enjoyed by the business & state functionaries. In short
term, lack of systems facilitates the elite in Pakistan.
In long term, it could deprive country of a gaining a favorable economic positioning.

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Page 1 of 57

Reading 1 : The Emergence of Market Society

Most payments lagged the growing monetary needs of the nobility.

Reading 2 : Impact of Industrial Technology

Reading 3 : The Industrial Revolution

Reading 4: Economic Development in England The Elements

Salient features of Economic Development in England

Reading 5: The British Economy in the Nineteenth Century

Essential Features of Britain's Industrial Sector

Full commitment to the market as the mechanism for

Commitment to the principle of "international specialization" , expressed by theory of comparative

Readings 7 and 8 : Germany

Reading 9 : The Integration of Mass Production and Mass Distribution

3. Integration By Machinery Makers Requiring Specialized Marketing Services

Reading 10 : The Invisible Hand

Modern Business Enterprise

Traditional Economic Perspective

Reading 11 : The Emergence of Market Capitalism

Reading 12 : The Development of Underdevelopment

Reading 13 : Japan Korea Taiwan

Reading 14 : Japan A Meteoric Rise

Reading 15 : The Soviet Model A Critical View

Reading 16 : China The Slumbering Giant Awakes

Reading 17 : Vilyatpur in 1848 A Reconstruction

Snapshot of Jullundur doab in 1848

Reading 18 : Changes in Status and Occupation in

Use a different framework than Western impact and Indian response

Reading 19 : Non Agricultural Production in Mughal India

Views on India before pre industrial times differ widely.

Condition of the Middle and Lower Classes

Reasons for not performing above a certain level

Reading 20 : The State and The Economy (The Mughal Empire)

Reading 21 : On the Political Economy of Backwardness

Reading 22 : On the Roots of Backwardness

Per capita income

The question is why is it like that .

Reading 25 : Businessman and the Partition of India

Reading 26 : Relation between the Muslim League and the

No all Indian Muslim party

1937 election: the league excluded

1936 Jinnah, fazl failed negotiation for combined election

The league beleaguered 1937-1942

The league unionist clash of 1944

The complete break 1945-47

PML used student federation with good effect

Reading 27 : Political Legacies of Pre-1947 Sindh

Political Landscape before partition

Pirs and Politics:

Spiritual guides with social and economic resources

Roots of Sindhi Nationalism

Bureaucracy was initially dominated by Hindus.

Sukkur Barrage Deficit province

Mohajir came from other Indian areas to fill the gap

Reading 28 : The Frontier Province Khudai Khidmatgars

Growth of Business Enterprise in Pakistan

Reading 30 : Pakistan's Industrial Development and Business Enterprise in 1960s

Reading 31 : Bhuttos Social Democracy

Studied in University of California, Berkeley and got motivated by socialist ideas.

Socio Political Unrest and the Aftermath

Nationalization and Other Industrial Policies

Public sector to come ahead in the industries

Employment security, Strengthened Unions, bigger contribution by the employers to social

Fiscal and Monetary Policies

Rupee devalued in 1972