Private industrial investment in Pakistan in the sixties took place in a peculiar institutional framework which made conditions quite different from those of a market economy of the advanced industrial countries. In this chapter, this institutional setting, termed the ‘corporate environment’, is studied so as to show how the interaction of three sets of institutions influenced the behaviour of private industrial investment. The first was the government, which laid out the main aims and objectives of the industrial strategy to be followed and which, through a combination of different policy measures, tried to achieve the objectives laid out. The second were the monopoly houses, family-controlled conglomerates, which were the principal agents that undertook most of the industrial investment in this period. Finally, there were the financial institutions, which played a mixed role, acting both as intermediaries for the flow of foreign aid, providing loans as well as foreign exchange to the private sector, and also acting as agents of the government in influencing the pattern of investment. These institutions had representatives of foreign shareholders, the monopoly houses and the Pakistan government directly associated in their management and thus can be expected to give expression in their policies to the interests of these parties.

The financial institutions had the power to exert a strong influence on industrial investment for two reasons. In the first place, the lack of a domestic capital goods industry in the country meant that in almost all cases the decision to invest entailed importing machinery from abroad.