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Nationalization in Bhutto's Era

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Tashféen Bangash

on 25 April 2014

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Transcript of Nationalization in Bhutto's Era

events took place which halted the economic growth
Process of economic change for the advancement of the common man and social justice introduced though nationalization of basic industries and land reforms was irreversible
PAKISTAN GDP
However After 1965
1965 Indo-Pak war.

Lack of support by the United States.

Separation of Bangladesh in 1971.

Zulfiqar Ali Bhutto sworn in on 14th August 1973
Initiated economic reforms based on the policy of nationalization
Economic reforms order 1072 was passed in which the management control of 31 industrial units under 10 categories of basic industries was taken over
Fiscal and monetary policies included:
Increased expenditure on defence and administration.
Budget deficit increased to 8% by 1977.
Monetary policies instigated inflationary pressures.



Friday 25th, 2014
Principles of Macroeconomics
BEFORE BHUTTO CAME INTO POWER
Introduction
EFFECTS OF THE NATIONALIZATION POLICY
The Golden Sixties, as the Pakistani economy boomed with an increasing GDP of 6.8%


Primary and secondary industries both were expanding, aided by then economic policies of Ayub Khan’s regime.



Effects on Labor and Employment:
Improved labor-management relations.
More facilities and amenities provided to labor
Celebration of Labor Week for the first time in Pakistan.
Introduction of Old Age Pension Scheme.

Effects on Output and Productivity:
The level of productivity increased drastically. The shortage of goods in the market was no more.
The sales of all the nationalized industries increased from Rs. 1,428 million in 1972-73 to Rs. 2,349 million in 1973-74.

Nationalization in Bhutto's Era
Effects On Consumption
The government put forward co-operatives and corporations in various branches of production, distribution and consumption, which regulated prices.

Middle men were kept from earning unjustified profits.

The Nationalization of the major manufacturing industries, banks, educational institutions disrupted the private investor confidence.

Government corruption in industries grew.

Bhutto founded the National Development Finance Corporation in 1973.

NDFC was formed to finance public industrial enterprises and also restore private investors’ confidence by financing them too.
Effects On Savings And Investments

EFFECTS OF THE NATIONALIZATION POLICY
Effects on Labor and Employment:
Improved labor-management relations.
More facilities and amenities provided to labor
Celebration of Labor Week for the first time in Pakistan.
Introduction of Old Age Pension Scheme.

Effects on Output and Productivity:
The level of productivity increased drastically. The shortage of goods in the market was no more.
The sales of all the nationalized industries increased from Rs. 1,428 million in 1972-73 to Rs. 2,349 million in 1973-74.

Effects on Inflation

Due to the intervention of government in economic affairs, economic growth was poor and inflation touched high records.

The average growth rate during the Bhutto regime was 4.6% with an average price increase of 18%.

The large fiscal deficit and heavy bank borrowing, quantum jump in the unit cost of imports contributed to inflation as a cost-push factor.

FISCAL DEFICITS DURING BHUTTO’S ERA

The consequent growing losses of nationalized units laid basis of the subsequent fiscal deficits during the Bhutto’s Era and even after it.

Budget Deficit as a percentage of GDP from 1972 to 1977 was 8%.

Bhutto’s attempt to make a personalized domain of power led to huge expenditures which led to huge budget deficits.

Government non-development spending was not covered by government revenues.

Defense expenditures in fiscal years 1976 and 1977, the last two years of the Bhutto regime, were one-third higher in real terms than in 1969-70 even though the size of the country had shrunk.


CURRENT ACCOUNT DEFICITS
The current account balance was in deficit of 5.2% of GDP on average.

The deficit resulted from huge imports; even the boost in the exports as a result of massive devaluation of 131% in 1972 could not nullify the impact

The workers remittances enhanced during the decade that helped in improving the balance of payments position.
Conclusion

Mismanagement and restricted knowledge caused inefficiencies which offset any increase in sales from better labor-management relations.

Nationalization of small industries substantially decreased public confidence and reduced investments.

Measures taken such as ‘National Development Finance Corporation’ to increase investments coupled with losses of nationalized industries caused Government deficit which added to national debt.

Devaluation of currency although boosted exports, but also created imported inflation. Ultimately Pakistan still experienced current account deficit.

All in all, the benefits of nationalization crumbled the economy due to the formation of extensive debt.

AN ALTERNATE SOLUTION: Should’ve regulated, not operated.
Questions? Fire away!
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