History Shows Why Power Resists Progress
When railways and factories changed 19th-century Europe, the rulers of the Habsburg Empire understood their economic potential. Yet they resisted industrialisation.
Friedrich von Gentz, an adviser to Metternich, explained why: “We do not desire at all that the great masses shall become well-off and independent.” He asked: “How could we otherwise rule over them?”
The Habsburg rulers were not ignorant of economic benefits. They feared political consequences. A more prosperous society might become more independent, weakening their grip on power.
Economic Gains Versus Political Power
This historical episode helps explain a puzzle in Pakistan. Why do those in power repeatedly choose institutions and policies that constrain economic progress, even when they too benefit from better alternatives?
The answer may lie in the difference between economic and political returns. Elites do not always choose arrangements that maximise national income or their own immediate economic gains. They also consider how a change might affect their ability to retain power and capture future returns.
Technological and institutional changes can expand economic opportunities while creating new centres of political power. Incumbents may resist changes that threaten their hold on power.
A reform may make the economy larger and even increase the income of existing elites. But if it also raises the probability of their political displacement, or reduces the share of future gains they can command, their expected returns may decline. Under these conditions, elites may prefer an inferior arrangement that preserves their political dominance.
In other words, a smaller pie under a secure scenario may be more attractive than a larger pie with uncertain future distribution.
An economically promising change can redistribute political power.
Example One: Local Government
Pakistan’s recent history offers three institutional and technological choices that are especially revealing. The first is local government. The Constitution requires provinces to devolve political, administrative and financial authority to elected local representatives. Yet successive governments have either delayed local elections or weakened the institutions they create.
The largest province, Punjab, last held LG elections a decade ago. Other provinces have also adopted various approaches to limit devolution. KP, for example, recently increased the population threshold for village and neighbourhood councils to reduce the number of councils, potentially weakening representation. In Sindh, transfers to LGs declined from 15.7 per cent of provincial general revenue receipts to just 5.8pc in the 2025-26 budget.
Elected LGs with genuine fiscal and administrative authority can better respond to local needs, improve service delivery, and strengthen accountability. Why, then, resist them?
Because empowered LGs also create political competitors. A mayor controlling development funds and public services can build an independent political constituency. Legislators lose influence over resources that help sustain their electoral networks. Even if improved local governance generates greater prosperity, its political dividends may accrue to someone else.
Example Two: Fiscal Federalism
The second example is fiscal federalism. The seventh NFC award raised provinces’ share of the divisible pool to 57.5pc, with constitutional protection against subsequent reductions. But since then, the federal government has built a parallel fiscal system undermining the very principle of federalism. Petroleum levy collections, which are not shared with provinces, reached Rs1.567 trillion in 2025-26. Provinces were also asked to generate surpluses and, lately, to provide grants to the federal government.
The parallel system may be responding to genuine fiscal pressures, but it preserves fiscal discretion at the centre, despite the constitutional commitment to provincial autonomy. In essence, after the seventh NFC, the provincial share fell without anyone touching the award.
The political economy consideration here is that meaningful fiscal autonomy changes the distribution of power. Provinces with independent revenue sources and predictable resources can pursue their own priorities and strengthen their political standing.
But the provinces are no different. While demanding autonomy from Islamabad, they resist transferring meaningful authority and resources to elected LGs. At each tier, those holding resources resist passing them down.
Example Three: Rooftop Solar
The third example concerns technology: rooftop solar. Faced with high electricity tariffs, the public began investing in their own power generation. Solar offered consumers cheaper electricity, greater reliability, and reduced dependence on the national grid. Yet policy increasingly moved towards discouraging its adoption.
The government not only imposed a 10pc sales tax on solar panels but, in February, it replaced net metering with net billing for new connections, substantially lowering the compensation for surplus electricity supplied to the grid. A more economically sustainable response would have restructured costly contractual obligations, modernised the grid, and established fair charges for network use.
Why has such adjustment proved so difficult? One explanation is that decentralised electricity generation threatens more than power producers’ revenues. It also weakens an established system through which economic resources, contracts, subsidies, and regulatory discretion are concentrated. These instruments carry financial and political value. Reforming them could improve overall economic performance while reducing the influence of those who currently control them.
Conclusion: A Smaller Pie for a Firmer Grip
These three cases are not identical, but they share a key feature: an economically promising change can redistribute political power, creating incentives for incumbents to resist or dilute it. This is what makes the political replacement argument more powerful than the familiar explanation that elites protect their economic rents. Sometimes they may sacrifice economic gains, including their own, to preserve the political position from which future gains can be secured.
The implication is that Pakistan’s development problem cannot be resolved through better policy advice alone. The harder challenge is creating institutions that reduce the ability of those in power to obstruct changes that might eventually displace them. The stakes extend beyond the current examples. AI is creating new opportunities while challenging existing economic and political hierarchies. Whether or not Pakistan embraces those opportunities will depend largely on how it responds to a technology most capable of redistributing power.
Until the existing calculations change, the country may continue choosing a smaller pie for the sake of a firmer grip.
The writer is an associate professor of economics at the Lahore School of Economics.
Published in Dawn, November 8th, 2026.
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Source: dawn