Technocrats can be immensely inspiring – Meeting with Pedro Aspe

This is the second in a series of four blog posts from my recent study trip to Mexico, with the Stanford GSB. Here’re some facts and tid-bits on the trip which provide a bit of an overall flavor:

§  The people: 35 Stanford GSBers and their partners, hailing from 14 different countries –backgrounds as diverse and unique as Air Force Officers, Social Entrepreneurs, Finance Ministerial Analysts, Film Makers, Start-up Starters, Seismologists, Sports Analysts, Chemistry Teachers, Family Businessmen … and of course … bankers & consultants

§  The places: 3 different cities over 10 days, including Oaxaca, Monterrey and Mexico City – each with a very different and unique character

§  The experiences: Discussing Mexico’s challenges in meetings with business and public sector leaders; watching Mexican soap operas being filmed, including meeting the most charismatic man in the world (not to be confused with the most interesting man in the world, whom we also met); exploring ancient monuments; eating good food and drinking giant margaritas; and of course, shouting and cheering like mariachis.

Pedro Aspe is very “Professor-like” – clearly a technocrat. On the first slide of his presentation, he took great pains to explain and elaborate to us the two axes on his chart, which were otherwise clearly labeled and fairly self-explanatory. It seems that his typical audience might not be as used to this sort of material. But our group of 35 Stanford GSBers was both “getting-it” and mesmerized through-out his talk, as he went on to share very detailed and personal stories from his personal life and professional career – stories which explain some of his life’s work, and his passions, motivations, beliefs and values.

Trained as an Economist at MIT, Pedro Aspe went on to become Mexico’s Secretary of Finance. He has a long list of impressive accomplishments in public service, including “crisis-proofing” Mexico (all the good stuff, including renegotiating foreign debt, restructuring the Central Bank to make monetary policy independent, and pushing a controversial privatization plan) and architecting NAFTA (the North American Free Trade Agreement). At 62, he is now in the private sector, leading a firm which I understand to be doing everything from managing its own principal investments, to providing financial and even non-financial advisory services.

Here's Pedro Aspe, with all his joy and intensity

Even though he has been associated with the PRI (The Institutional Revolutionary Party), the Left leaning party which has governed Mexico for much of Mexico’s modern history, his political views are clearly very centrist. Not only did he state this explicitly, but he also described how political dynamics in the United States have traditionally been very centrist, despite the presence of two different parties, and how the US is in a bit of trouble currently, having moved away from this in recent years, with the advent of movements like the Tea Party. I would say that this position is “the hallmark” of a successful technocrat – willing to associate for pragmatic political reasons, but ultimately understanding that all things will be rational and real, and certainly over and above petty ideologies. It’s easy to get political and feel like you might be “selling out” – Imran Khan from Pakistan, for example, wouldn’t associate with Musharraf, even though there is strong centrist and even populist potential there. Egos come in; personalities clash – ideologies kill the potential for pragmatism. There is so much humility and tangible benefit in being a centrist technocrat. 

Pedro Aspe demonstrates this humility in more than one way. When asked about his role models or leaders that he admires, Pedro Aspe cited the Finance Ministers of Chile, New Zealand and Singapore, as he went on to “sell-us” on the TPP (The Trans-Pacific Partnership), a next generation free-trade agreement which aims to address such complex and thorny issues as how to deal with intellectual property or duplicated regulatory approvals in free-trade regimes. Perhaps this was a very elegant way to sell the TPP to us, and answer the question – and we were all clearly sold and wowed. But what’s amazing about this answer is that he picked his peers – he did not cite any larger than life figures like Gandhi or Mandela. He picked individuals with whom he’s interacted on a personal basis. That’s very special, and goes on to show just how pragmatic and authentic an individual he truly is.

Finally, it was very clear that he took a stand on tough issues and spoke it like he saw it. Catapulting a highly protected economy into a free-trade era is not an easy task. At the time that he made this happen, the vast majority of Mexico opposed him. But today, 70% of Mexicans believe that NAFTA is beneficial for Mexico. It takes not only a man of strong intelligence and vision, but also of courage and character to push through on unpopular policies like NAFTA. When asked how he dealt with self-doubt, it was clear that he constantly questioned his own beliefs. And it was perhaps in the process of questioning his own beliefs that he gained the courage to go ahead and push them. As a “contrarian”, I find this to be particularly inspirational – the need to keep questioning is just so important.

We met many inspiring leaders on our Mexico trip, but for me, and also for most of my fellow participants, Pedro Aspe was far and ahead the most inspirational of them all. Life as a technocrat can be very hard – you have many potential good answers, but very few of the levers to create the political space to put those answers in place. It’s almost sort of a thankless job – if you do well, you only did what was obvious and right, and if you screw up you’re political toast. But leaders like Pedro Aspe reassure me that technocrats and public servants can find immense purpose and meaning while changing the world.

My next post in this series will deal with public perceptions of a country like Mexico … get ready for some criticism of the media, and us gullible consumers of the media.

Adding controversy to small scale microfinance in Oaxaca

This is the first in a series of four blog posts from my recent study trip to Mexico, with the Stanford GSB. Here’re some facts and tid-bits on the trip which provide a bit of an overall flavor:

§  The people: 35 Stanford GSBers and their partners, hailing from 14 different countries –backgrounds as diverse and unique as Air Force Officers, Social Entrepreneurs, Finance Ministerial Analysts, Film Makers, Start-up Starters, Seismologists, Sports Analysts, Chemistry Teachers, Family Businessmen … and of course … bankers & consultants

§  The places: 3 different cities over 10 days, including Oaxaca, Monterrey and Mexico City – each with a very different and unique character

§  The experiences: Discussing Mexico’s challenges in meetings with business and public sector leaders; watching Mexican soap operas being filmed, including meeting the most charismatic man in the world (not to be confused with the most interesting man in the world, whom we also met); exploring ancient monuments; eating good food and drinking giant margaritas; and of course, shouting and cheering like mariachis.

Having spent a year working in microfinance in Kenya, I was very excited to see microfinance in action in Mexico. Banco Compartamos puts Mexico on the global microfinance map – it is extremely successful and highly controversial, both of which make it such an interesting case-in-point. In fact, it was a case study in our Ethics Class – and while I support Banco Compartamos, overall, my class section was quite divided, even after a rich and spirited discussion. 

Unfortunately, due to a last minute scheduling change we couldn’t take this debate to the very founders of Compartamos. But we ended up seeing another microfinance organization in Oaxaca. I will not name names – I wish to protect their name because I wish to generate controversy at the same time – I need my controversy fix. It’s a small organization which takes tourists on guided tours to microfinance borrowers, and solicits tour fees and additional donations as capital to make loans to the same microfinance borrowers. There are two tiers of loans – smaller loans of less than US$ 100 are interest free, and any larger loans of up to US$ 1,000 are priced at 15% APR, which is still rather inexpensive. They currently have 250 active borrowers, across 5 villages around an hour away from Oaxaca, and are staffed by 2 full-timers, and an additional 15 or so part-time volunteers, who serve primarily as tour guides and translators. As you can tell from these facts, their size is pretty small, and such an operationally intensive volunteer staffed organization is probably not very scalable. Their borrowers are engaged in small businesses – cottage manufacturing of everything from traditional rugs, to chocolate; and small scale retail and trade.

A microfinance borrower grinding fresh coco beans or cho quatle, as the Aztecs called them

Overall, I had a very positive impression of the organization, and their borrowers seemed to be doing well. Two in particular were notably inspirational. One had a rug store, which she expanded into a café and snack bar. This is an ordinary, uneducated lady from a very small town but microfinance capital made her dare to dream bigger and bigger – and indeed she had a highly entrepreneurial vision to run a much larger business – a large full service restaurant for tourists who visit the village, by adding an additional floor to her store. The second lady was a widow who lived on top of a hill, away from the tourist town-center. She spent her adult life supporting her entire family including her husband who was an alcoholic. Her husband never had a stable job due to his addiction, and also his alcohol habit was a huge drain on the family budget. He passed away a few months ago. It was clear that microfinance made this incredibly strong lady support her family, not only due to the interest free working capital she used to make traditional rugs and purses, but also due to the influx of customers coming in on tours, who would otherwise not visit her, since her place was tucked away from the main tourist town-center.

Enough of the positives – now let’s get on with the controversies …

i) What are the ethics of “Poverty tours” or perhaps to frame it extremely negatively “Poverty pornography”? On the one hand, I really enjoyed meeting these ladies and getting to see their lives – my fellow trip participants perhaps found this to be an even more unique and enjoyable experience, because for many of them it was their very first such experience. It helped us obtain a real and informed view, which we need to develop as thoughtful and impactful donors and suppliers of charitable money. On the other hand there is something deeply unsettling about the entire set-up – having to do with the dignity of the borrowers; the guilt generated in the lenders; means versus ends sort of considerations; and getting a superficial, highly staged view versus a real and candid one. Staging in this particular instance might not be a huge deal – I get the sense that our experience was fairly authentic and representative, although I cannot make this claim with full certainty. The bigger issue though is in generalizing or universalizing this practice – charities and charitable causes routinely stretch the truth in their marketing practices to attract donors. The entire development sector for the longest time understood the population of Kibera, the largest slum in Nairobi, Kenya, where many “Poverty tours” are on offer, to be four times what it actually is. And because the ends justify the means in the minds of some, or because of the entire “guilt” factor, outcomes in philanthropy are sub-optimal. 

ii) Why such a big subsidy, and what are the trade-offs? At zero interest, and even at 15% APR, it is clear that these borrowers are benefiting from a substantial subsidy or “transfer of wealth”. Their real market-based alternatives e.g. borrowing from Compartamos, would price the loans at between 50% and 90% APR, which adds a significant amount to their cost of capital, and seriously changes the economics of their underlying businesses. In my view it is worth asking why they need money at such cheaper rates. Would their underlying businesses not be sustainable otherwise? And if so, what needs to change, in order to make them truly sustainable? What if the microfinance organization was to leave or fall-apart tomorrow? Would these women have to go back to square one?

I can of course see the argument on the flip side – the microfinance model seems somewhat sustainable, with the key ingredients, namely tourists and volunteers likely to be in plentiful supply for the indefinite future. And even if it were all to fall apart, giving some subsidies while the subsidies last, might be better than giving none at all. But still – I believe in teaching someone to fish, not giving the fish away. And while this model is not clearly in one camp or the other, there is a strong element of giving fish away which makes me uncomfortable.

Enough on microfinance … next post’s on Pedro Rocha, an inspirational public sector leader in Mexico.

The side-effects of Impact Investing – inevitable market complications!

Here’s a piece where I try to showcase “another side” of impact investing – a controversial and less frequently discussed side, where Impact Investing does a fair bit of harm to markets, in the process of correcting market failure.

After 4 years in management consulting, and before going to business school, I chose to invest a full year of my professional life in the Impact Investing or Social Enterprise space. To be completely honest, I was seeking new adventures. But the most important reason for this was the possibility to pursue a different career direction, with the ultimate aim of finding a better path to reach my longer-term goals (which are “social” in nature). But part of me also wanted to understand whether this space is real. Not real in the sense of whether it exists – clearly this space is huge and here to stay, but rather whether it will actually create the impact it claims to be creating, namely the potential to drag millions if not billions out of poverty – in other words, the potential to “Save the world”. Part of me was always going to be a little skeptical – even if it does to some extent, start to “Save the world”, what are some of the side-effects? I wanted to see for myself, and understand first hand.

This Impact Investing or Social Enterprise space is absolutely humungous now. Between 25% and 50% of my business school classmates are showing some interest in it – many of them will fill the talent gap in this space, and will likely take huge pay cuts for “the greater social good”. There are hundreds of funds now and billions and billions of dollars to invest in this space. At the recent SOCAP Conference in San Francisco this momentum was present in full force. There was much fanfare on display, and plenty of coolade available for those who chose to indulge. At the same time there were also many serious questions raised – Will our small ticket-size fund economics ever be financially sustainable?; Can we ever measure the second bottom line using a standardized methodology that minimizes the potential for manipulation?; Why is there still such a massive talent gap in this space, and what can we do to address it?; Why do we have billions of dollars to invest, but still so many social entrepreneurs complaining about lack of capital? The list of serious fundamental questions is very long, and the dozens of conferences which now take place around the world do not seem to provide sufficient time or space to address them all.

And these are all good questions – but here’s a set of even more fundamental questions which I have been asking, which are almost never raised. In our quest to be market driven, are we doing damage to the very markets we are trying to create? How much of what we are doing is good, and how much is harmful? Can we ever figure out where to draw the line? Do we even have the right structural incentives to draw the lines in the right places, or will we likely get carried away? And why don’t we openly acknowledge these harmful side-effects or distortions? Why can’t there be a healthy debate or discussion on them?

I recently visited a microfinance institution in Kenya, one which has successfully raised and deployed capital from impact investors to reach strong profitability. Now, let’s be very honest and clear here – the capital this institution raised from impact investors is at least 10 percentage points cheaper than the capital it would be able to raise through the markets, either by building a deposit taking capability, or borrowing from local banks. In essence, the impact investors are providing this institution with a 10 percentage point subsidy – presumably, in order to help it get on its feet. Even though it was in the red last year, its most recent financial results show a 4 percent return on assets, a level which many banks would kill to reach (of course no one is willing to subsidize pure commercial banks, even though the likes of Equity Bank have positioned themselves as social enterprises, and received cheap capital in return). So if the impact investors were to leave tomorrow, this institution would be 6 percent of assets in the red.

Clearly philanthropy is supporting this institution – but in this case there’s a tension between philanthropy and market-driven profit which seems to be creating an interesting situation, especially with all the unique objectives and incentives of each of the players involved. So while this institution has reached 4 percent return on assets, the impact investors do not want it to become too profitable. In fact, they have declared an acceptable range of return on assets, which is between 2 percent and 5 percent. In other words, while they do not want to see this institution make a loss, or even a very low profit, they do not want to see their subsidized capital generate what some might deem to be an excessive profit. They have capped profit at 5% return on assets.

Even though it has already reached 4 percent, the institution still has plenty of room to further improve its return on assets. As it continues to grow and build scale, fixed overhead or head office costs will be spread over ever larger field operations. Also, there is potential to make field operations more profitable at the unit level by focusing on the operating level drivers of efficiency or the basic nuts and bolts of a loan officers day e.g. optimal geographic zoning, efficient route planning, providing more efficient transportation through motorbikes, etc.

So what will happen next? If the subsidy is withdrawn, i.e. if the impact investors exit, the institution will drop to 6 percent of assets in the red. But I would argue that the Impact Investors do not really want to exit – they certainly don’t want to see this institution fail. In fact, they want to continue to see this institution grow, and would like to showcase it as a successful example of their investments (in whichever way they might measure or demonstrate this). So they will not exit in the foreseeable future.

So, then! What does the management team do?! They could continue to rapidly build scale and become more efficient. But will they want to do this? I hate to be a cynic, but there are easier ways for them to spend their working days, and this highly profitable subsidy cushion will diminish the need for them to focus on accelerating growth or achieving greater efficiency. They could reduce the interest rate at which they lend to clients. This could be a reasonable way to pass on the subsidy from the philanthropists to the end beneficiaries. But the interest rate which the institution charges to end users is already at the lower end of the broader market, so this “distortion” is likely to make the lives of all the other “market” players more difficult. Alternatively or in addition to this, they could invest their excess earnings in buying top quality expensive equipment, deploying top-notch technology, hiring expensive people, etc. or in other words bloating their operating costs in order to keep net returns low. I suspect that they will do a combination of all the things mentioned in this paragraph – none of which should be done in a more perfect world.

In a more perfect world, I would love to step in and take an equity and management stake in this company and make it as efficient as possible. I am one of those people who can be incentivized by financial upside, and would like to use my strategic inclination and managerial ability to create and capture some of the upside potential. I would strongly argue that efficiency ultimately lowers costs at an aggregated societal level, and creates the greatest possible greater good. When companies operate efficiently, their end users benefit through lower prices and lower costs. Efficiency wakes up the competition and forces them to spend their days and nights also worrying about how to be efficient or innovative. Ultimately, everyone wins. But the objectives, incentives and decision levers here are so misaligned, that there could be no real role for me or the current management team to play, other than that of a bureaucratic fat-cat.

In business school, we celebrate disruptive players like Wal-Mart, Capital One, Jet Blue and Amazon by reading about and discussing their success stories in class. Profit in the market driven sense is a great motivator – for one thing it is easy to measure – unambiguous, and not distorted by subsidies. And when these players push out the cost quality frontier, we celebrate them, because they ultimately do us all a great service. The make the economic system more efficient, and increase our collective wealth.

But I have shown you a real example in the Impact Investing space where we hit a dead-end. Whenever there is philanthropy involved, outcomes are likely to be sub-optimal relative to the market. The whole mantra of markets and philanthropy co-existing ignores the fundamental tensions or side-effects this can create. We often like to assume away problems and trade-offs – it is human nature to do so. It shouldn’t be surprising that most of us are currently doing so in the Impact Investing space.

You might turn around and tell me that I have only provided you with one somewhat peculiar example, or for the more statistically inclined, only one data point. It’s a rare company in this space, which is both profitable and pricing at the lower end of the market. Some might turn around and argue that the Impact Investors should have never capped profit at 5%. Another frequent response which I hear is that it all depends on the “people” and how they manage each particular situation – I do believe that good people can make a big difference, but I would also strongly argue that it is more often much more than people. It is the structural dynamics, incentives and broader norms which determine what happens.

So how about another example, which is more simple and begins to show a generalizable trend or pattern across this space? A family run hybrid maize seed company received an investment from an Impact Investor. This institution pitched itself as a social enterprise, because it works with small-holder farmers helping them boost their crop yield, and also operates in a market where the biggest player is a state owned giant, exercising significant market power. So the family run hybrid maize company gets a subsidy from the impact investor to improve farmers’ lives and take on the state owned monopoly. It is a profitable, for-profit business both with and without the subsidy.

A multi-national seed company, with presence in dozens of markets, expertise in hybrid maize seed production, and a very serious understanding of distribution to base of the pyramid considers entering this market. But it decides not to enter. It will never be able to obtain subsidized impact investment capital, because it is highly profitable in virtually every market that it operates in – in fact, many consider its giant market-driven profiteering ways to be the evil force that fleeces farmers. The subsidy or market distortion created by the Impact Investor to support the family run player, makes the long-term ability of the multi-national to compete on a level playing field uncertain, to the detriment of efficiency in the overall market. Real example!

I have so many Social Investor and Entrepreneur friends, who on the one hand benefit from some of the many forms of subsidies easily available across this space. They access them both directly and indirectly – straight grants; below market rate capital; grant funded technical assistance provided by third party service providers; volunteers coming in and supporting the organization; etc. So while they receive all these benefits, they start complaining any time one of their existing or potential competitors receives a subsidy. And most of them claim to be “market driven” – does anyone else see the contradictions? And can you imagine the uncertainty that a real market-driven potential investor has to live with? Are we not inducing real long-term market failure in this space?

I have described what is happening, but ultimately want to understand why it is happening. There are no clear answers, so I will end with a series of open questions:

Why is this problem not acknowledged and openly discussed in any of our many industry conferences? Do we have a blind spot? Is it too complicated, and requires an understanding of the economics on the ground, which only folks like me who have been there and seen it can bring? (There is a serious criticism which has frequently been written about in industry publications like the Stanford Social Innovation Review, that most of those who attend these conferences have not spent any real time on the ground, and thus do not understand what is really happening). Do we lack the right incentives to bring these problems up? Are we afraid to be really critical, especially when matters are really complicated? Do other people in this space see this problem, and become disillusioned by it? Are they not being listened to? Do they exit back into the real for-profit world and never speak up? Do the ends justify the means, so we cover up or choose to ignore many of our issues and even our detractors?

Or is this just too fundamental a critique of this space and thus makes everyone really uncomfortable? After all, who could possibly imagine that players which are correcting market failure are actually the ones perpetuating it, albeit in different ways.

Understanding religious extremism in Pakistan

Believe it or not, yesterday, more than a quarter century after I was brought onto this planet in a space shuttle (or so my Mom tells me) to save it (#MessiahComplex), I finally set foot in the United States for the first time. I am told that it’s a huge country – the flight path screen and the sheer amount of time it took to make it here, seemed to confirm this. But so far what I have seen between Campus Drive East and the Main Quad, is very pretty, and makes me very happy – I can’t help but grin from ear to ear when I pass by that fountain just down the road from Schwab.

Now, I have been urged by loved ones to use my time in the United States, to both obtain a richer understanding of this country (I maintain, in my somewhat signature arrogant style, that I already understand it a lot – I have watched plenty of Family Guy and American Dad), and spread much required understanding of Pakistan. Decent idea!

I start with a very interesting and important policy-ish dilemma that we face in Pakistan – if we educate and urbanize the population, which is the natural next stage of our development, where almost certainly no other path exists, other than industrialization on a massive scale (large scale education and urbanization being key ingredients), we, to a very large extent, risk fueling an Islamic Reformation Movement, the core of which is “opposed to American interests” (at least humor me by thinking in the direction of the Middle-East, and not blaming everything on more complex and local factors) and the extreme fringe of which can use modern technology to turn violent, and make their presence felt, no matter how small it actually is in terms of power, both numbers and proportions – and not to mention how morally convoluted and practically short-sighted the strategy of this group is.

The roots of this reformation movement lie in the Indian Sub-Continent of the 1800s. Sunni Muslims, which today make up roughly 70% of the Muslim population of the Indian Sub-Continent, split into two schools (literally). The Deobandis on the right side of the political ring, came out of Deoband in modern day India, and are a puritan reformist movement – think of the Great Schism in 16^th Century Europe. The Barelvis, on the left, were a reaction to the Deobandis, and sought to preserve the status quo – think of the Catholic Church. Recent numbers, including votes for the Deobandi Islamist Political Parties, Islamic Banking Penetration, and just the numbers which my gut reports regularly to my brain, seem to suggest that today roughly 20% of the 70% of Sunni Muslims are Deobandi, and roughly 50% of the 70% are Barelvi. The field is divided – there is a massive rift or schism. The most fundamental question is how to view or even interpret (especially if you hold very strong faith and will not listen to secular arguments) religion, in the context of its role within the state.

Understanding the status quo and those who seek to preserve it – The Barelvis

It’s been almost 1,300 years since Islam first arrived in the Indian Sub-Continent. Today only 30% of the population is Muslim, even though Muslim rulers have controlled much of the centralized state for much of this period. What this tells me is that while people have clearly tried, spreading Islam has been difficult – the traditional religions of the Sub-Continent, Hinduism, Jainism, Sikhism and Buddhism had to be reconciled with the radical views of this new religion. What emerged from this process was a hodge-podge of beliefs, and rituals, at the core of which is a strong appreciation for secularism and pluralism – love, peace and humanity.

There are hundreds of Sufi Saints in Pakistan today. These Saints were primarily missionaries, and almost all of them claim to be descendants of the Prophet Mohammed. After they died, cults formed around them and their exploits – so they are revered, and even worshipped. Their Shrines are quite a sight, one reason being their striking resemblance to the shrines of other religions in the area – instead of idols and deities, you will have a grave covered with colorful cloths and worshippers lined up around it. Instead of Bhajjans (traditional Hindu religious songs) you will have a drum beating (dhammal) and lots of intoxicants, the primary one being Bhang or Cannabis. I urge any potential visitors to Pakistan to visit around the time of these Festivals, which celebrate the Death Anniversary of any one of these Saints. Lal Shahbaz Qalandar, in Interior Sindh, is the most popular one, although a little bit inaccessible. Bulleh Shah, in Kasur near Lahore is another very popular one, and a quite a bit more easily accessible.

Now, these Saints preached what any hippy (or good person) preaches – love, peace and humanity. Some of these Saints, for example, Bulleh Shah and Shah Abdul Latif Bhittai, earned their reputation through their poetry, which is very powerful, and forms the much of bedrock of the very rich and sophisticated spiritual and metaphysical inclinations of the populace to this day.

But the interesting twist here is that these Saints accumulated a lot of wealth, through their power and prestige, and their roles were passed down and on to their descendants. To this day, the people of Pakistan revere and visit these “modern day” Hereditary Saints or Pirs. Even my parents, who are highly educated and part of the upper middle class, have visited some of these folks – they appear just like ordinary mortals, but the services they provide can appear to be extra-ordinary to the less than skeptical eye, ranging from praying on your behalf (often for very sick or otherwise troubled persons, which there is never any shortage of), to fortune telling.

If my parents have engaged and indulged in such superstition, who can really blame a poor uneducated rural farmer? These Saints have a massive strangle-hold over the rural population, and use this power through the modern democratic process, to control the many arms of the State. Today, almost 50% of the seats in Parliament are held by these Hereditary Saints, and it is difficult to unseat them through the electoral process, because there is such a strong cult around each of them.

Traditionally, these Hereditary Saints have also held a monopoly over education, quite openly and staunchly denying it to their constituents (or effectively subjects). There are poetic verses which support this – one of the most beautiful and famous of these verses was authored by Bulleh Shah, which I (and many others) interpret to be a tongue-in-cheek reinforcement of this value system (although holding much deeper and broader meaning). The traditional method of home schooling, with a Master (or older Saint) and an under-study, lingered on in a very prestigious and exclusive fashion for a long time until the advent of the modern private school, from where many of these Hereditary Saints today graduate, in addition to completing their traditional education. This strong-hold on education, and strong culturally embedded impulse against education, particularly for the lower classes, is why improving primary enrollment in Pakistan, and making the public school system work has been such a challenge. As one expert on this topic once stated – “Illiteracy in Pakistan is not a problem that the State is facing or dealing with; it is actually the policy of the State”. Cynicism, you ask? May be to some extent, but also quite rich and telling.

With no education, there was traditionally no middle class in the rural areas. Either wage laborers, sometimes bonded (essentially slave-like) generation after generation to landlords (or essentially their slave owners) through the accumulation of massive amounts of family debt, or very large and powerful landholders, who (essentially) owned (or controlled) these subjects and were also their spiritual (and God-like) leaders as Hereditary Saints. These powerful families, who today control the state (through 50% of the seats in Parliament), in the best case display complete apathy towards performing their responsibilities as functionaries of the state, since their power is very unlikely to be challenged, and in worse cases are incompetent or worse still engage in corruption. The system holds little structural room for merit or accountability.

But, these Hereditary Saints do after-all spread the message of love, peace and humanity – and so they form the deepest rooted barrier against religious extremism in the country. Indeed, many external Actors (think in the direction of America) have been accused of perpetuating these Hereditary Saints’ hold on power – for example, by brokering the deal between Benazir Bhutto and Musharraf in 2007. And so, the other large and emerging powerful group, the Deobandis, which already views the Barelvis with particular disdain, is quite frustrated with these external actors. Hard to balance local complexities in alien political systems, especially without fully understanding them – isn’t it? Doesn’t it make China’s attitude of not meddling anywhere seem like such a good idea? How can a powerful actor hold itself back though? Wouldn’t the likes of Billary Clinton be out of a job? All interesting questions, in my view.

Understanding the reformists and the momentum behind their movement – The Deobandis

When the Sub-Continent became British controlled in the 1800s, the British sought to build structures to support the modern centralized nation state, primarily to support their massive infrastructure projects such as the roads, railways, and the new modern irrigation systems opening up vast canal colonies for agriculture (where my forefathers resettled in what is today Pakistani Punjab, from their previous home in what is today Indian Punjab). They educated a new generation of high potential Indians, within which the Muslims were well represented, because of their strong legacy as previous rulers of India (even though they later persecuted them after the 1857 rebellion).

My forefathers also went through this process, which is why I am a real boy sitting in Palo Alto today, and not some Japanese Spitz canine, whose ancestors did not bother to lay a good foundation for their progeny. My Great Grand Father was the village administrator. He maintained the land records and collected taxes, a position which has been passed down through the family to the eldest son, and is today formally held by my father (even though his father’s first cousin executes this responsibility on the ground today, being the closest member of the family still living in the village). My Grand Father joined the professional civil service, and became part of a new class of educated and progressive people – also known as the (upper) “middle-class”. He also sported an Islamic beard towards the end of his life.

With education came empowerment, and people began to question, and even cringe at the (Barelvi) status quo. They turned against everything associated with it – the deity like Saint worship, the intoxication in the religious festivals, etc. In order to make this movement take ideological root, they had to turn towards a very strict and puritan version of Islam. The Wahabis in the not so distant Najd, what is part of modern day Saudi Arabia, provided ample ideas and inspiration.

The Deobandis started out small, but are today both sizable and fast growing. Urbanization and education have provided momentum to their growth, as people arriving to the cities lose touch with their traditional roots and seek new ways to find meaning, purpose and engage themselves ideologically. This group as a whole is aligned in their core beliefs – they seek a radically different political and social system, grounded and guided by Islam, which delivers the basics of justice and economic development – and in more fanciful and ambitious cases, restores the pan-Islamic caliphate, which existed only for a very few number of years after the prophet’s death (because non-religious political complexities, which these folks fail to properly acknowledge and understand, have made such a state impossible). Thus, this group could be accused of being largely “opposed to American interests” (again, please humor me by thinking in the direction of the Middle East – some of the causes are local but it’s hard to argue that there isn’t a broader external theme of justice, or lack thereof). But while these groups agree on their core beliefs, they are in fact very heterogeneous in their strategies and their road-maps to achieving their ends. This is where things become complicated.

On the nice-ish one end are the progressives – these are highly educated Deobandi Muslims, who belong solidly to the middle-class. They are represented by a small but highly organized political party called the Jamaat-e-Islami. When this party appears on television, it almost always sends a woman spokesperson, fully covered from head to toe, expect for the eyes, to represent it. This, it claims very openly and honestly, is in order to promote gender equality – in fact, their strategy is brilliant, and much of their support comes from middle-class women who feel empowered by their approach and agenda. They are a non-violent bunch, and preach engagement through mainstream democratic channels. They have a strong student arm which is particularly well organized, and recruits from the top public universities of the country. One sub-segment within these progressives is the Tableeghi Jammat, or literally the “Missionary Movement”. They go door to door, and preach a lot – in fact I remember them showing up outside my house back in 2003. They couldn’t convince me to come with them to the mosque, but they did try very hard and were very respectful in their approach.

At the end of the day, they employ reason and argument – and while they do so to preach adherence towards some very strict rules (such as covering everything except for your eyes if you’re a lady), they also believe to a large extent in individual rights and freedoms, and strongly preach non-violence. They run quite a few of the madrassas in Pakistan, commonly misunderstood and homogenously viewed as hotbeds of hatred. If you take strong (and possibly unjust) measures against them, some of them will very well start to become angry and move towards the other more extreme fringe of the spectrum – why does this surprise anyone?

Somewhere in the middle of this spectrum or perhaps not even within this spectrum, but claiming to be part of it, are the cronies – they also advocate non-violence and engagement through the political system. My strong personal sense is that these folks are a little less educated and well-off than the progressives, and are composed of the lowest rungs of the urban service class – it is literally truck driver mullah turned political leader resonating with fellow truck driver voter and mosque attendee of the same ethnicity. My somewhat strong judgment and conclusion is that they are largely using religion as a farce to extract patronage from the state. They are represented primarily by the Jamiat-e-Ulema-e-Islam, more specifically the party led by Maulana Fazal-ur-Rehman (abbreviated by JUI-F). JUI-F on the one hand opposes US drone strikes in the Pakistani tribal areas, but on the other hand has been part of every coalition government which has allowed these drone strikes to take place – both the Musharraf and the existing Zardari administrations. Fazl-ur-Rehman has been targeted by suicide bombers, which lends weight to his peaceful credentials. But Fazl-ur-Rehman, according to the Wikileaks dossiers, has also asked the American Ambassador at the time to support him in becoming Prime Minister (presumably by exerting American influence on the other power actors in the country).

In other words these cronies are opportunistic hypocrites, who have abused religious ideology and the continuity of the apathy, incompetence and corruption within the Barelvi-dominated political system, to extract a few gains here and there. The population has become highly vary of them, and the latest polls in some of their strongest areas of traditional support, such as the Pashtun Province of Khyber Pakhtunkhwa and the mega-city of Karachi, show that their popularity is now negligible.

And on the very extreme other end you have none other than, what I will call – the extremists. They form a small fringe of this overall spectrum, but their actions are such, that they get a disproportionate amount of attention. I do not understand their strategy, and neither do the progressives and the cronies, even though they do sympathize with their core ends – I just do not see a path through which they can use this strategy to achieve their ultimate goals.

Some of what they do can be explained by delusion – either the short-term incentives of paradise, virgins and the like, or some long-term can-do attitude which makes them believe that anarchy is on the pathway to power and a strong Islamic State. Socio-economic underdevelopment and injustice creates anger, a fertile environment for these delusions to take hold. But delusions are delusions – some of the most destructive ones often exist in the best of environments. We all have folks in our societies, who at least from our own perspectives are deluded – sometimes they believe in some ancient fairy tale which justifies their strong positions held in almost unquestionable place by very sophisticated modern approaches (e.g. heavy and very effective lobbying, etc.). Many others view these same positions and methods as incorrect and unjust.  It is important at least to understand where everyone is coming from, and the sad truth is that some groups are so powerless that all they can use are crude means, which have become wide spread and easy to deploy due to modern technology.

What I try to explain to everyone (particularly those in the direction of America) is that traditional 19^th and 20^th century power structures (largely built around strong Nation States – think International Relations) have to a large extent broken down in today’s world, with so many ideologies, so many non-state actors and so much technology which both spreads ideas fast and makes violence easy to carry out. One can no longer undertake any actions or support old positions which cannot be justified under basic and universal principles of justice, fair-play and humanity. The band within which we can exercise our traditional power, and hold our societies (nuclear armed one’s even) from becoming anarchic, has become so small, that if we do not realize this soon enough, we might all be in a lot of trouble.

The policy-ish dilemma

There is strong evidence that the lines between the progressives, cronies and extremists are sometimes crossed – even intuitively one can imagine that it requires a lot of wisdom and a very strong temperament to hold yourself back from constantly changing your personal view of what the overall strategy should be.

Given that the situation lends itself to easy crossing, the question is as follows – if you take a development pathway as a country (through industrialization and by implication education and urbanization), which will almost certainly increase the momentum behind this movement, how do you control it? Do you go down the Turkish route and try to embed within the educational system and the national ideological reinforcement process, a requirement to brainwash the population towards secularism? Will a fringe always be out of line, perhaps quite simply, just by rebelling for the sake of rebelling, and more complexly through all the crazy things in the world which cannot be solved all at once, and many of which will never be solved? And does this Turkish approach become a non-starter for most Pakistanis who at the end of the day are somewhat conservative and would have to endorse such a plan to reform themselves through the ballot box?

Or do you make an honest but ideologically religion-agnostic attempt to cook the recipe of strong economic development, and wait for the situation to play out, such as what is currently happening in Egypt with the Muslim Brotherhood (which the US seems to be very afraid of)?

Indeed much of the momentum behind this movement lies in the failure of the state and the justice system. There’s very simple day-to-day tactical justice delivered through courts; there’s more structural social justice delivered through policy and the arms of the state; and there’s even justice in the context of major international conflicts delivered through sovereign states holding strong universally principled positions. The population will obviously demand these things, as it becomes empowered both through education and the right to exercise their vote. So delivering on these basics, while making many of us uncomfortable, is almost certainly the solution to this problem.

The one political party which explicitly makes these promises, and has the will, and the political and intellectual resources to deliver on them is the Pakistan Tehreek-e-Insaaf (PTI) led by Imran Khan. Unfortunately, Imran Khan makes the US as nervous as the Muslim Brotherhood does in Egypt, due to his strong position against US drone strikes in the Pakistani tribal areas, and his background as a born-again Deobandi-ish Muslim (even though he was a bit of a Playboy in his earlier years).

What is very interesting is that this is a very complex problem, especially in the global context and any sort of complexity will create massive confusion in Washington – everyone wants simplistic solutions like bombing a less than trivial percentage of the population out of existence, or shutting down all the madrassas which provide more than just a trivial share of the literacy in the country

It’s complex but nobody who makes an effort to understand the world wants an unstable and underdeveloped Pakistan anymore – a good argument is that it is home to 180 million people or 3% of the world’s humanity which deserves its fair share of justice, dignity and self-esteem. The argument which often resonates though (grounded in very outdated 19^th and 20^th century nation state politics) is that it is nuclear armed and an indirect threat to certain national interests. Whatever the argument, the need for Americans to really understand Pakistan is extremely important – I hope this post has at least been somewhat useful.