Congressional Record

My name is Robert Dorfman. I am Professor of Economics at Harvard University a Member of the Council of the American Economic Association, past president of the Institute of Management Sciences. I have published a number of books and articles and in short have ail the usual academic credentials.

For the past dozen years I have been concerned professionally with the economic problems of the less developed countries particularly Pakistan. My interest in these problems began in 1960 when I had the honor of serving as a member of a panel appointed by President Kennedy to advise the government of Pakistan about the serious problems then confronting the irrigated agriculture of the Indus Basin. I flatter myself that this presidential panel made a substantial contribution to reversing the downward course of agriculture in that region. We proposed a sensible plan for increasing the yields of irrigated agriculture, while arresting the ominous progress of environmental decay, building on much excellent work that the Pakistanis had already done. That plan, together with the introduction of high- yield Mexican wheat a few years later and with some essential economic reforms, laid the foundation for the so-called green revolution, which brought hope to communities where there had been only despair. Subsequent to that work I retained my interest in Pakistan in various capacities, serving as a consultant for the Agency for International Development, the Development Advisory Service of Harvard University and most recently the World Bank.

In order to dispel any suspicion that I am biased in the current conflict between East and West Pakistan I should mention that virtually my entire association with that country has been concentrated on the problems and development of West Pakistan. When I have occasion to criticize the policies that foster the economics of West Pakistan to the neglect to the problems of the East I am criticizing myself among others. I was a party, a small party, to those policies. Throughout the long period of my concern my attitude was typical of many others. I visited East Pakistan only twice in all that time and regarded it as an unfortunate backward province of the country, whose problems were so intractable that I averted my gaze from them. That was hardly a humane attitude to take to the 70 million or more people who live in East Pakistan, but it was my attitude and it was prevalent. That attitude was quite properly resented by the people of East Pakistan, a resentment that led eventually to the tragic events that occasioned this hearing.

As an economist I can speak to you with any authority only about the economic aspects of the current crisis. It has of course many ramifications, political, cultural, religious, ethnic. But the economic aspects are peculiarly important, as is indicated by the fact that three of the six points in the program of the Awami League, which won a ten-to-one majority in the recent elections In East Pakistan-half of their program as I said is devoted to economic and fiscal reforms. The current crisis, then, is largely economic in its genesis, economic in its objectives, and its resolution too Will depend large largely on economic factors. I should like to address my remarks first to the economic circumstances that lie behind the uprising and then to the economic factors that will determine its outcome. These latter factors are of a special concern to this committee because unfortunately, they imply that the attitude and actions of the United States will have a significant and perhaps decisive effect on the struggle. So our country has an inescapable though unwelcome responsibility in the matter. I believe also that our national interests are involved.

I am not going to take your time to review a lot of technical information about the economic problems of Pakistan, East or West, but there are a few crucial facts that I am anxious to put before you, mostly relating to the poverty of East Pakistan and to the problem of income disparity between East and West Pakistan. The poverty of East Pakistan is so appalling that I cannot describe it straight forwardly. From an economic point of view East Pakistan is simply a mistake. There are more than 70 million people trying to wrest a living from about 22 million acres and very little else by way of natural resources. That works out to about an acre-and-a-half per farm family, which is approximately one half of one percent of the average size of an American farm. On top of that they have the cyclones, the floods and the droughts. Last year's cyclone which killed at least 300,000 people and devastated hundreds of thousands of acres was only an especially bad instance of a periodic catastrophe. The floods are not as lethal, but are more crippling economically. In each annual monsoon, approximately one third of the land area of East Pakistan is inundated and its crops lost or severely damaged. Between the monsoons, in much of the land there is not enough rain to grow crops without irrigation, for which facilities are lacking. Farm yields and incomes are as low as this recital of difficulties would lead you to expect, and this is particularly grim in a country where about 60 percent of all income is derived from farming. The result is a per capita income of not much more than $45 a year, Which is a figure so far below our experience that it is meaningless.

West Pakistan is poor also. Per capita income there is about $75 a year, but low as that is, it is at least 60 percent higher than per capita income in the East. This great gap between the levels of income in the two parts of the country-or better the degrees of poverty-is one of the main, long-standing economic problems of Pakistan as well as the principal underlying cause of the current crisis. The stated official policy of Pakistan has been to annihilate this gap and to achieve income equality, but absolutely no progress has been made in executing this policy. On the contrary, the discrepancy has been growing: over the last decade total national income in West Pakistan rose by about six percent per year while in East Pakistan income increased by only four percent a year, most of which was eaten up by population growth.

One of the most bitterly contended issues in Pakistan is whether the official policy of eliminating the income disparity has been implemented sincerely. No one contests that the policy has been completely frustrated. There are instances and shreds of evidence on both sides of the debate and I cannot resolve it in the few moments available to me. The best indication in my view is the allocation of investment between East and West Pakistan, because public investment is directly controlled by the government while private investment is indirectly controlled to a very large extent by the systems of industrial licensing and foreign exchange allocation. Public investment in East Pakistan has never been as great as in West Pakistan, though 55 percent of the people live in the East. In the past half-dozen years public investment in East Pakistan has climbed from about half of what it is in West Pakistan to approximately 90 percent of the amount in the West. Private investment is even more disproportionate; It is about three times as great in West Pakistan as in East Pakistan. So ail together more than 60 percent of investment occurs in West Pakistan where only 45 percent of the people live. This distribution of investment appeals to me as a strong indication that the day-today activities and programs of the government have not implemented the announced policy of closing the income gap. There are other indications too, as well as some contrary ones. At any rate, the East Pakistanis find the results disheartening and are convinced that the great preponderance of government programs favors the West at their expense, almost as if they were an economic colony. I have to say that I personally agree with them.

It should be mentioned in extenuation that the bulk of promising investment opportunities, both public and private, are located in West Pakistan. The United States and other donor nations have tended to allocate their funds in accordance with the normally sound principle of supporting the projects which promised to contribute most to economic development. So West Pakistan received a disproportionate share of foreign aid. We rarely asked whose economic development they contributed to. But that is a critical question in a bifurcated country such as Pakistan since projects in one part of the country make virtually no contribution to the advancement of the other part. By following this normally sound principle, we have contributed to the economic deprivation of East Pakistan. We can see now that that policy was a grievous mistake and bears some of the responsibility for the current Crisis.

So much for history. I mentioned in my opening paragraph that we cannot avoid heavy responsibility for the course and outcome of the current struggle. In principle, of course, this is an internal Pakistani affair and the United States ought to try to avoid intervening however we may feel about the rights and wrongs. The problem is that We are so heavily involved already in the economy of Pakistan that whatever we do in our efforts to maintain neutrality will affect the balance of forces to a significant degree. To make this clear, I have to digress from economics for a moment to summarize the current state of military affairs. The pitched battles are now over for awhile, and West Pakistan's tanks, planes, artillery and disciplined soldiers have won all of them. The troops now occupy Dacca, Chittagong and all the principal cities and towns, and all they now have to do is subjugate the rest of the countryside where most of the people live. But we know that that can be quite a task. In fact, it is more of a task than Pakistan can afford to carry out. It requires them to maintain an expeditionary force of upwards of 50,000 troops at the end of a supply line 3,000 miles long and they are already a poor country in deep financial difficulties.

In the past year, their foreign exchange reserves have been drawn down from over $300 million to less than $170 million. Their annual foreign trade deficit, even without the expenses and disruptions of warfare, is over $500 million, so that their current reserves ate less than a third of their annual requirements or scarcely an adequate working balance. In fact, at the moment it appears that Pakistan is desperately seeking a moratorium on its debt installments that fall due this month. This means that if the war is to go on for more than a few months and essential imports are to be procured, outsiders are going to have to provide the resources, and the United States is the principal traditional source of external funds for Pakistan. By and large, American grants and loans have amounted to about $250 million a year, not counting our contributions to IDA and UNDP. This covers about half of Pakistan's adverse balance of trade. Therefore, the continued flow of American grant and loans is the most important immediate objective in West Pakistan's strategy, more important by far than any military operation.

So part of America's dilemma in this tragic conjuncture is how to follow a neutral course, when continuing the flow of aid disbursements will provide indispensable support to the suppressive efforts of the government of Pakistan, while discontinuing the flow will interrupt a traditional relationship on which the government of Pakistan has come to rely. Since either policy is consequential we are involved inexorably no matter how earnestly we wish we could stand apart. Besides, our own national interests are engaged. East Pakistan is in the corner of the Indian subcontinent and what goes on there is of vital concern to Pakistan, India, mainland China, and Burma at least. It affects political alignments and the balance of power throughout South Asia. Our national interest in South Asia is principally to maintain peace and tranquillity. I don't say that out of high-minded or of humanitarian motives, but for two entirely selfish reasons. A protracted struggle in East Pakistan will engage the attentions of both India and Pakistan, will weaken both of them, will inflame their animosities to a dangerous degree, and will divert their energies from the peacetime solution of their political and economic problems. It will, in short, endanger the stability of the whole subcontinent with consequences that cannot be foretold. Second, the longer the struggle goes on the more likely it is that it will take a sinister as well as a tragic turn. At the moment, the movement toward autonomy in East Pakistan is led by a Western-educated, Western-oriented middle-class. It is confined to a sectional struggle with only slight ideological overtones. But experience teaches that it is very hard for moderates with democratic aspirations to keep control of an inflammatory, violent, hate-breeding struggle. In such struggles, the leadership tends to gravitate into the hands of extremist factions who feel no constraints against exploiting the hatreds that the struggle engenders. Such factions are already present in East Pakistan, notably certain elements of the National Awami Party and the "Naxalites," an illegal West Bengali party with Maoist connections. The danger that these elements will take control of the rebellion if it continues unresolved for very long is much more than fifty-fifty. You can picture for yourself the implications of a Maoist-led rebellion in East Pakistan.

So America's overwhelming concern must be to restore peace in East Pakistan as promptly as possible. We cannot intervene nor should we even want to. But we have already seen that we are in a position in which we cannot avoid influencing the course of events, We should use our influence to work toward a compromise rather than an attempt at military suppression. We can do this by refusing to finance the military operations. I do not believe that neutrality obliges us to make our funds and resources available for prosecuting an internal war, funds and resources that can be used properly only for fostering economic development and defending the country against external aggressors. We ought to make it perfectly clear that our policy is that no American funds should be diverted from development purposes to military purposes. To this end we should attach effective safeguards to all future American disbursements in order to assure that they will not be used directly or indirectly to further the war effort. In addition, of course, we should discontinue military assistance forthwith. of course we should nonetheless stand ready to provide food and medical relief to East Pakistan, where the disruption is virtually certain to cause a famine of serious proportions. Such relief also should be safeguarded against diversion to military purposes.

These are the objectives that I strongly recommend that we pursue, I have not thought through the ways and means for attaining them. They probably entail a virtual cessation of commodity and program aid to Pakistan and a substantial restriction of project aid. The crucial difficulty is that almost any commodities or funds that we might provide to Pakistan for development purposes can be used to meet requirements for military support that otherwise would have to be met by foreign exchange purchases. So, in effect, giving development aid in such forms is an indirect way to finance the war effort. Any substantial reduction in development support would have unfortunate consequences, but continued development aid would be largely fruitless anyhow until a political settlement is reached and attention can once more-be concentrated on economic development.

I believe that if this policy is followed the Government of Pakistan will be under irresistible pressure to seek a political settlement, and one that will assure to East Pakistan genuine equity in the pursuit of democracy and economic development. It would contribute to the stability of the entire continent, and be in everyone's interest.

I want to thank you for the opportunity to express my views.