A frontier region, then cramped between Safavids of Persia and Mughals of India, majority of the future Pakistan, along with present-day Afghanistan was often considered as an ideal buffer. Except for the trading centres of Punjab consisting of Lahore, Sheikhupura, and Multan, much of the Southern and Western parts of the region were de-facto governed by tribesmen, who roamed the rugged mountainous terrain autonomously, resisting any foreign force vying to control the area, thus, leaving little incentive for either the Shahs of Iran or the Timurid Rulers of India to cross into other’s domain. The economic structure was nomadic, and few permanent settlements existed. The status quo continued until the formal annexation of Indian Subcontinent by the British in 1857. The British too, however, viewed the region as a buffer between India and the burgeoning Russian Empire. The geostrategic importance of the region led to the flow of British capital to develop the necessary infrastructure such as roads, railroads and military cantonments in the region. Quetta, being the largest Royal Cantonment overlooked Afghanistan and acted as a forward base in case of activity by Afghan tribesmen or in the long haul, Tsarist soldiers.
Within years of British rule, Quetta quickly became the centre of trade and commerce in the previously disconnected and remote region of British India. With road and rail access to the nearest strategic port of Karachi and being located on the trade route to Central Asia, coupled with capital inflows, the city was poised to experience an economic boom which it indeed did. By 1935, the city had come to be known as “Little London” due to modern residential and commercial buildings. It was the first settlement in present-day Baluchistan to have gained the status of an “economic hub” and thus became the leading city, paving the way for the Frontier Economy.
According to International Finance Corporation, World Bank, Frontier Economy is more developed than the least developing economy but is smaller in size, as measured by Gross Domestic Product and carries a high risk as measured by investors’ confidence. Within the context of this article, the definition is somewhat similar. I ascribe the term Frontier Economy to the regions which traded with core trading settlements such as Delhi but were small in magnitude, were not connected by paved roads yet conducted seasonal trade with the rest of India, were highly dependent on the core cities, produced small-scale primary and cottage products such as leather and handicrafts carried the high financial risk measured by limited or no access to capital yet were able to establish community-based informal financial channels. I attribute such characteristics to the areas consisting of present-day Baluchistan and Khyber Pakhtunkhwa.
Moving to the South of Quetta, another town was undergoing a similar economic boom. Occupied by the British in 1839, Karachi too was viewed as a geostrategic settlement, prompting the colonial rulers to establish a naval port in 1854. By 1878, Karachi was connected to the Indian railroad network. The railway connection put Karachi on the radar of Indian traders. Dan Bogart and Latika Chaudhary have mentioned that the constructions of railways in colonial India led to rapid market integration and paved the way for labour mobility, especially in larger cities. Karachi was no different. Economic migrants poured in and it became a thriving multicultural metropolis. The population increased from 56,000 in 1872 to 105,199 in 1891. Parsis, Marathis, Goans, and Gujratis amongst others not only brought in their skillsets such as medicine, accounting, and craftsmanship but also their networks. By the late 1890s, Karachi was home to the largest concentration of factories specialising in glass, wood, rubber, jewellery, and ceramics. The city also became home to “Empress Market”, the largest market in North-western India. This was made possible due to the dissemination of know-how that for the Economist Ricardo Haussmann “resides in brains.” describes knowhow as follow:
By 1935, the rapid growth of Karachi was expected to quadruple the growth prospects of Quetta. Due to railroad connection, it was expected to import Knowhow from Karachi, which could have diversified Quetta’s economy. However, an external shock, from which Quetta would not recover for the next 40 years, struck on 31st May 1935. An earthquake of magnitude 7.7 wiped out nearly 35,000(60%) inhabitants of the city. The rail and road lines along with nearby towns between Quetta and Kalat were all destroyed, cutting the area off from Karachi all together. The city ceased to be the centre of Frontier Economy; instead, it became the epicentre of rubble.
With the destruction of the only commerce centre in modern-day Baluchistan, the process of economic transformation came to a halt. Instead of receiving the high-skilled labour from other parts of the sub-continent, the region began to suffer a massive brain drain. It can be expected that most of the high skilled survivors immigrated back to Karachi. As the data shows, Karachi’s population unusually spiked between June and August 1935. Quetta was reconstructed by the British in 1937, but owing to the political climate prevailing in India and increased calls for independence and the rise of Nazi Germany in Europe, the incentive to make productive investments declined and the city was only viewed in terms of its geostrategic and military significance. Railroads were reconstructed, only to make troops transfer mobile. Residential complexes were rebuilt, only for the Royal Forces’ stay. Communication lines were re-established, only to serve military cantonments to maintain the status quo between Britain and the Soviet Union. The hub of Frontier Economy had formally become a hub of Frontier Military.
Today, Baluchistan is going through a similar economic transition. Instead of Quetta, Gwadar is emerging as an economic hub. Instead of railroads being constructed from South to North (Karachi to Quetta), motorways are being erected from North to South (Ratodero to Gwadar). Instead of skilled labour migrating from South to North, Gwadar is emerging as a hotspot for high and semi-skilled migrants from North. In some sense, objectively, CPEC or China Pakistan Economic Corridor pertaining to its Western Route can be termed as the 21st century equivalent of British investment in the early 1900s in Baluchistan. The direct objectives of both initiatives remain similar e.g. securing land and sea communication lines. The indirect objectives can also be deemed similar e.g. promotion of labour mobility, facilitating economic transformation, transferring of knowhow and enabling new industries to develop. Speaking of the potential equivalent of the 1935 earthquake in the context of CPEC, there can be multiple analogies. The primary concerns determining the success of such economic transformation are security situation, the resistance of indigenous population owing to lack of participation in CPEC related projects and perceived changes in the demographics due to immigration and environmental degradation.
Apart from safety and security, the historical argument for hiring from other provinces such as Punjab and Sindh is based on the premise that the locals lack the required skills, which leads to firms paying higher wage premiums to the non-locals and as a result, over time, is expected to change the demographics of the area against the local population. Such a practice does not only produce income inequality but also incites resentment, motivating the local young unemployed youth to join separatists. Consequently, the state clamps down on such movements by brute force, adding fuel to the resentment and the vicious cycle continues.
According to Ricardo Haussmann’s theory of economic complexity, policymakers need to identify the binding constraint i.e. the root cause of slow growth and address it. The hypothesised constraint can be tested via several metrics. One such metric is to check the shadow price of the constraint. In the case of Baluchistan, the non-locals are being highly compensated for the skills they bring into the region. Another test that can be performed is to look at the contribution of the hypothesised constraint to the growth function. In 2013, at the announcement of CPEC, the contribution of non-local labour to Baluchistan’s growth approximately stood at a mere 5%. In 2018, high skilled human capital (primarily from other provinces) contributed nearly 1/3rd (33.33%) to the provincial GDP growth. Thus, to make CPEC sustainable in the long run, the State must address the primary binding constraint in the region i.e. inadequate human capital. It must equip the local populace with the relevant skillset, only then the people of Baluchistan will be able to benefit directly from CPEC-related projects and truly transform The Frontier Economy into a developed one.
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