The 9/11 Commission Report identified three countries as the top concerns in the war on terror: Afghanistan, Saudi Arabia, and Pakistan. In theory, nuclear-armed Pakistan has been a US ally for decades. What’s the matter with Pakistan?

“It is hard to overstate the importance of Pakistan in the struggle against Islamic terrorism.” – Report of the 9/11 Commission on Terrorist Attacks upon the United States.

When the 9/11 Commission consulted counter-terrorism experts on where they most feared terrorists would today establish bases, “western Pakistan” topped the list. The Commission also raised the alarm about Pakistan’s madrassahs, Islamic schools where many of Al Qaeda’s footsoldiers were indoctrinated. And decried the fact that a leading Pakistani nuclear scientist had run a nuclear smuggling ring, selling atomic secrets to Iran and North Korea, among others.

As to why Pakistan – the recipient of close to $50 billion in foreign aid, and for decades a US ally – should be such a threat, the Commission had this to say: “poverty, widespread corruption, and an often ineffective government.” But surely there is more to it than that. Those labels fit many countries, few of which are distributing nuclear secrets or educating terrorists.

To understand what makes Pakistan the hardest of the hard cases, recall an obscure tragedy that took place in the province of Punjab many decades ago. There, well-meaning politicians, noting the huge numbers of impoverished peasants, decided it would be a good idea to redistribute some of the unused landholdings of the province’s wealthiest landlords to peasant families. The landlords did not think much of the idea. The politicians insisted. The landlords simultaneously withdrew their produce from the region’s markets, creating a man-made famine. The politicians backed down.

This story is important because Pakistan does not have any of the usual problems of so-called “failing states.” No civil wars, no communism, no Islamic regime, and even – for about half the country’s history – a genuine democracy. Pakistan is in a class by itself.

The root of the country’s problems is special interest politics, elevated to the level at which it causes political dysfunction.

Much of the blame for this falls, oddly enough, on the British. It was not their intention to foment a long-running disaster. But the British had a problem in their colonial domains: a huge and uninteresting region of northern India that would require immense military and administrative investment just to keep the peace. So the British decided to shake up local politics. They granted the region’s nobles vast landholdings and absolute power over their lands, as long as they maintained order among the peasants who lived there.

From the colonial point of view, a great success. Empire on the cheap. But the assets of a successful colony are the liabilities of an independent country. India gained independence from Britain; and then Pakistan from India. And the new country was utterly dominated by this landlord class. (The Pakistanis call them “feudals.”) To this day, the feudals – five percent of agricultural households – between them own 64 percent of Pakistan’s farmland. In 1997, the top 800,000 families alone owned 11 million acres.

But what is really sinister about this not the inequity, it is the politics. The landlords have nearly absolute economic power over the peasants who work their land. The landlords allow sharecroppers, called haris, to till the soil. On top of this, the landlords usually provide the loans for seeds and equipment that keep the haris in operation. (But also prevent the haris from ever improving their lot – the loans are at punitive rates, and the haris are usually forced to pay half their income as tribute.) So the ever-impoverished haris live at their landlord’s mercy. At any moment, they could be thrown from the land with little hope of survival.

This gives the feudals, in essence, a cadre of political supporters who dare not disobey orders. During elections, that means the feudals can deliver the votes. From 1947 to 1970, a full 75 percent of the members of Pakistan’s parliament were feudal landlords. In the National Assembly dissolved by General Pervez Musharraf’s 1999 military coup, feudals and tribal leaders held the majority of the seats.

When democracy falters, the feudals are just as powerful. They have the money to buy influence and reward support. Indeed at least two of Pakistan’s military coups were undertaken with strong backing by the feudals. In 1953 Khawaja Nazimuddin was deposed after he attempted to break up feudal estates. In the 1970s Zulfiqar Ali Bhutto was overthrown and hung after he passed one too many land reform laws. (The military dictatorship then reversed his reforms.)

That the feudals have such great political influence seems unjust. But it is far worse than that. Consider, for a moment, the self-interest of a medieval landlord. The feudals’ wealth and power is based, in the first instance, on the exploitation of landless peasants. So what is the worst-case scenario, from a feudal’s point of view? Anything that improves the peasants’ lot – education, land reform, economic opportunity, legal protections.

And that is Pakistan’s dysfunctional formula: a powerful political elite actively opposed to development.

Education, security, rule of law – these are the services of government. And with no desire for these services, the feudals see little need to pay for them. In heavily feudal Punjab in recent years, the government has raked in some $40 million in agricultural taxes – but lost an estimated $1 billion to tax evasion. Unsurprisingly, Pakistan ranks among the worst in the world on development indicators such as child malnutrition and infant mortality. Pakistan’s literacy rate is 43 percent. Even Rwanda, torn apart by civil war, tops 60 percent.

What has filled the space left by the absence of the Pakistani state? Extremist Islam. Terror groups – perhaps even Bin Laden, the 9/11 Commission speculates – base themselves in the security vacuum of western Pakistan. Madrassahs, religious schools, have sprung up to fill a genuine void in the educational system – but some have indoctrinated Taliban and Al Qaeda members in an intolerant version of Islam.

In response, the 9/11 Commission recommends the US “make the difficult long-term commitment to the future of Pakistan.” That makes sense. Past US policies have been decidedly short-sighted. For instance, the US supported the military coup that ousted determined land reformer Khawaja Nazimuddin. (At the time, “land reform” sounded a bit too socialist for US tastes.) In retrospect, this was a grave mistake.

But the Commission’s recommendations – “military aid,” as “Musharaf’s government represents the best hope for stability” – overlook the true source of Pakistan’s troubles. Fundamentally, it’s the politics. What Pakistan needs is not a stronger military regime. (The inevitable result of a lot of military aid.) It needs development – particularly for the feudal areas, and the urban slums to which many peasants have fled. That will not happen without a different politics.

It is as Mumtaz Bhutto, scion of a great landlord family, once said: “This is a country of landlords. I come from a feudal family and make no apologies for that. Unless they can do away with agriculture and industrialize Pakistan completely, people here are stuck with me.”

This article was originally published on, before I sold the website to Roubini Global Economics.