Mosharraf Zaidi

http://thenews.com.pk/daily_detail.asp?id=147364

The Death of Common Sense

Tuesday, November 18, 2008
by Mosharraf Zaidi

Common sense must have died and gone to heaven. If it has indeed died, we can be sure it rests peacefully in heaven because anything that is violated as frequently as common sense has been deserves nothing but five-star treatment from the Lord. Unbridled corporate greed and public policy for lunatics may partially explain the global financial markets mess, and its national subtexts in countries far, wide and diverse, from Hungary to the United States, from Iceland to Pakistan. The real story, however, is the globalisation of an unmitigated culture of direct and obvious violations of the rule of common sense. 

The common sense rule has always been pretty simple. If something doesn’t make sense, it is not worth doing. It is the ruthless insistence on doing things that don’t make sense that has got global and local markets where they are today. When economic and cultural gurus continue to peddle this bankrupt ideology of senselessness, it is incumbent on all the simple people to ask for a timeout, and insist on common sense for a change. 

Let us leave aside the comedy. To watch bankers and television anchors try to sell the idea that the IMF has endorsed government “policy” as an achievement of the government is hilarious. To watch them try to imply that an IMF endorsement is a stamp of some sort of highly sought-after approval, even more so. But let us leave aside the comedy. 

Countries go to the IMF because if they don’t they would default. Not wanting to default is understandable, but the real question is how countries end up in a situation where the choice is between the IMF and default. This is not complicated. When countries spend more than they have, they need to borrow money. When they don’t look like they can pay off that money, the usual lenders stop lending money. That’s when countries are faced with the choice of going to the IMF–which is a lender of last resort–or defaulting. 

Solving a problem requires knowing what the problem is. The problem is not that no one but the IMF will lend Pakistan any money. The problem is that Pakistan spends more money than it has. 

In the last month, Pakistan is not the only bankrupt country that has needed the assistance of the IMF. Much smaller countries have in fact managed to get much more money out of the IMF–including Hungary and Ukraine. Forget measuring size by population, where Pakistan (at 172 million) is a monstrously larger country than most. Even by the IMF’s Special Drawing Rights (SDR) measure, Pakistan’s brilliant IMF cheerleaders have managed a paltry $7.6 billion loan against a quota of 1,033.7 SDRs. How does this compare with Hungary (population 10 million) or Ukraine (population 46 million)? Well, with a marginally higher quota of 1,372 SDRs Ukraine has managed to score a dramatically bigger loan of $16.4 billion–more than double Pakistan’s. And Hungary, with almost the exact same quota of 1,038.4 SDRs, has scored a $15.7 billion loan; again, nearly double what Pakistan’s IMF cheerleaders managed. 

Before Pakistan’s fringe rightwing gets all excited, it’s important to note the real reasons why Ukraine and Hungary (and even Iceland, in terms of its quota) did dramatically better in securing a serious loan than Pakistan. It has got nothing to do with race, religion, or the clash of civilisations that rightwingers would love to blame. 

The real reason Pakistan got a second-rate deal from the IMF is that Pakistan has second-rate perception management and third-rate economic management. If I were desperate for a loan, I wouldn’t go around the neighbourhood with a begging bowl and a loudspeaker. I would hire a lawyer, an accountant and an image consultant. What did Pakistan do? It cheated the lawyers by not restoring the judiciary, it let the accountant (Ishaq Dar) walk away, and it put its best image consultant (Hussain Haqqani) in the most unwinnable job in Pakistani politics (ambassador to the US). 

The only thing that Pakistan, Hungary and Ukraine have in common, other than a culinary obsession with red meat, is a lack of common sense. Common sense is universal, whether you were raised as an Orthodox Christian in Kiev, a Jew in Budapest, or a Muslim in Karachi. If you were fortunate enough to have a mother and father when you were growing up, then one value you were taught, irrespective of faith, geography or race, was to live within your means. Countries that are running to the IMF are countries that live beyond their means. But even in this list of budgetary infamy, Pakistan is animatedly larger-than-life. While Ukraine has a budget deficit of 1.7 percent, Pakistan’s budget deficit is over 7 percent. Next year, the IMF expects Ukraine to balance its budget, but it only expects Pakistan to reduce its deficit to around 4 percent. 

Pakistanis should not be celebrating the IMF loan. They should be asking their representatives in Parliament why Pakistan needs all this money. This too is no mystery. It needs the money to pay off previous loans, and to pay for its security. Again, common sense suggests that once you are in a hole, you need to stop digging. Instead, by getting the IMF loan, Shaukat Tareen has just provided Pakistanis more shovels to dig with. So, more loans to pay off earlier loans. Common sense this is not. 

For all the ridiculous and comedic scenes Pakistan-watchers get to indulge in, the truth is that the grandest violation of common sense is being engineered in a post-modern America that, as David Brooks rightly noted a couple of weeks ago, is unable to deal with scarcity. Almost a quarter century after Lee Iacocca managed to massage massive loan guarantees out of the Reagan Administration, Congress is now examining the umpteenth bailout for the hopeless Big Three pygmies of the US automobile industry. President-elect Obama could hardly have inherited a worse economic situation. Moscow, Mirpur or Michigan, more of the same just won’t do. Of course, we know common sense has died and gone to heaven when Thomas Friedman, the otherwise hugely reasonable globalisation guru, decides to dedicate a Sunday column and an appearance on “Meet the Press,” to the passionate advocacy of more spending as a solution to too much spending. 

The solution to spending too much is to spend less. That’s what Shaukat Tareen, Thomas Friedman, and every IMF cheerleader alive was taught as a child. Pakistani and global financial markets don’t need more hot money to fill the gaping hole that a generation of greed and excess has left behind. Common sense dictates that the markets need a righteous spanking. But common sense has died, and gone to heaven. Inna lillahay…