La La Land: Elite capture, regulatory capture and institutional capture | Pakistan Today

La La Land: Elite capture, regulatory capture and institutional capture

  • The sugar crisis showed us the flaws in the system

By: Sheraz Zaka

Pakistan is a country which has become an elitist state where the interests of the elite class are considered to be of paramount significance. The entire elite has fettered the country in the shackles of its vested interests. The recent sugar crisis is an example which clearly demonstrates why people with commercial corporate interests enter the field of politics, not to serve the nation but to accumulate assets and increase their wealth manifold.

In this pursuit, irrespective of their party affiliation, they all are in the same boat to look after their vested interests at the expense of the public welfare. The sugar inquiry commission was constituted by the federal government to inquire into the increase in the sugar prices. Recently the inquire commission completed its task and submitted its report to the sugA Minister and immediately the report has been made public. The report is an eye-opener and lifted the veil on the concerted practices of the sugar cartel. It was further disclosed that Rs 29 billion subsidy of the taxpayer’s money was given to the sugar mill owners in the past five years. Under a law giving subsidy is not an infringement of law; however the sugar mill owners manipulated their accounting records and misrepresented to the sugar advisory board as well as the economic coordination committee of the Cabinet that the sugar stock was in excess and therefore the mill owners must be permitted to export. The export led to the increase in the sugar price in the domestic market which led to the unjust enrichment of the sugar barons. The price spike was also the result of the connivance of the mill owners and the brokers, which ultimately led to dramatic increase in their profitability.

It seems that the elite class of our country knows the system very well. It knows how to grind it to a halt to protect its vested interest. This is called elite capture; whereas the regulatory authorities engaged in malpractices to serve the elite interest are under a regulatory capture; and last but not least institutions such as judiciary issuing stay orders and giving relief to lawyers on the basis of their face value or connections or the executive making policy to cater to the vested interest of elite shows that the entire country is under institutional capture.

Another important fact which has been disclosed by the inquiry commission report is that the mill owners are involved in under-invoicing, overstatement of cost of production and double book-keeping. and such malpractices constituted corporate fraud.

These sugar barons overstate the cost of production and understate their profits to save taxes and thus they must be held accountable for tax evasion under the Income Tax Ordinance 2001. Moreover the chartered accountants who audited their accounts over the past so many years must also be taken to the task for false reporting. It reminds us of the corporate scandal of Enron which was engaged in false reporting and by manipulating its accounting records and financial statements the management was overstating its profit to keep the value of stocks high. Ultimately it was all exposed and the entire top management of Enron had to face prosecution.

Similar action must be taken against this sugar cartel, but unfortunately our state agencies and instrumentalities lack the capacity to prosecute these people of high influence. The track record of the National Accountability Bureau (NAB) is not at all impressive when it comes to the conviction of such influentials and such is that of the Federal Board of Revenue (FBR) which lets people alleged to have been involved in tax evasion, go scot free.

In Pakistan, it is the Competition Commission of Pakistan, under the Competition Act 2010, which was supposed to clamp down upon the anti-competitive activities which include cartelization, hoarding practices, abuse of dominant position to eradicate competition from the relevant market. Unfortunately the Competition Commission has not been as effective hitherto. It is primarily due to the fact that whenever the Competition Commission took action against the cartels or businesses involved in any kind of anti-competitive activity, such business owners would pay hefty fees to their lawyers who on account of their face value or connections would obtain stay order from the honorable Lahore High Court against the proceedings/order of the Competition Commission. At present there are a number of cases in LHC filed by the undertakings belonging to different sectors, including the sugar industry, telecommunications and others, which have obtained stay orders for the past ten years against the Competition Commission and yet the cases are still pending and have not been decided.

As a result the performance of the Competition Commission has been severely affected and also been compromised. Had these cases been decided on time by the LHC, the performance of the Competition Commission would have been improved manifold. It is very tragic that the snail-paced judicial system favours the culprits, who manage to get stay orders through their lawyers.

As law students, in books of the Civil Procedure Code lawyers had been studying, it is taught that stay orders are granted if the balance of convenience lies in favour of the aggrieved party, but actually in practice we see in courts that stay orders are being granted and continued for many years on the basis of the face value of a lawyer.

It seems that the elite class of our country knows the system very well. It knows how to grind it to a halt to protect its vested interest. This is called elite capture; whereas the regulatory authorities engaged in malpractices to serve the elite interest are under a regulatory capture; and last but not least institutions such as judiciary issuing stay orders and giving relief to lawyers on the basis of their face value or connections or the executive making policy to cater to the vested interest of elite shows that the entire country is under institutional capture. Albeit, we are living in La La Land!

The writer can be contacted at [email protected]



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