It’s no secret that Pakistan’s ongoing socio-economic malaise is to a great extent the result of its peoples’ poverty that continues to be fuelled by the increasingly inequitable distribution of wealth and income.

To discharge religious obligation and social responsibility and “to avert a revolution” are the most popular reasons cited on why the rich should be proactive in alleviating poverty and levelling the playing field between themselves and the non-rich. However what is less obvious and equally true is that it makes sense to do so purely from an economic point of view as well, since sustainable growth for all is only possible if the nation makes pointed efforts to lower income disparities - i.e. the difference between the rich and the non-rich.

In spite of recognising the obvious need for minimizing wealth concentration, Pakistan has thus far been unable to weave poverty alleviation into the fabric of its economic and social reforms. Instead of phasing in targeted and systematic initiatives there have been small scale, half-hearted attempts, mostly abandoned on the plea that poverty will take care of itself if the country simply targets economic growth and trade.

This neo-liberal trickle-down economic logic was encouraged, and indeed perpetrated all over the developing world by donor agencies in the 80s and 90s on the back of which numerous Structural Adjustment Programmes (SAP) were initiated when nations ran into problems of making repayments. SAPs required countries to devalue their currencies, lift trade restrictions, balance budgets by reducing government spending and remove price controls / state subsidies.

The result: marginal, unsustained economic growth, with even a larger proportion of populations under the poverty line.

A question frequently asked is whether the onus for this failure lies with the World Bank policies or incompetence or lack of commitment on the part of governments to bring about lasting economic reform?

The answer lies in Latin America. Stable growth was achieved in the 90s and was not accompanied with focused poverty alleviation programmes. According to the World Bank paradigm economic growth should have automatically decreased income dispersion and pulled out people from under the poverty line. However only 3 per cent of income from incremental economic growth trickled down to the poorest 20 per cent of the population while the bulk of the fruit of growth went to the non-poor, forcing 5 million people below the poverty line. Brazil has recognized that an absence of specific measures to address and rectify wealth disparity was one of the major reasons that economic growth was untenable. In addition the World Bank had prescribed concentration on production of commodities like cocoa which lay open the already vulnerable economies to vast price fluctuations of the commodity markets. Mexico has similarly recognized that in the face of lower trade barriers, without creating an enabling environment to compete locally, trade does increase but only in one direction - inwards.

In contrast East Asian countries together with economic growth - which was fuelled by value added goods - specifically addressed income dispersion and lifted 174 million people out of poverty. Countries like Taiwan - where poverty alleviation programmes were the strongest - weathered the worst of economic downturns and financial crisis that the late 90s had to offer. The same was true for Malaysia with Mahathir firmly committed to the task of raising standards for the urban and rural poor.

Such evidence makes it difficult to deny that the World Bank policies over the last 20 years have been more often than not ineffective and regressive. However the World Bank is not easy to dissuade. In the closing years of the last millennium it has been busy readying up a new paradigm in the same vein, featuring privatization, deregulation and globalisation as central themes. There are undoubtedly very strong reasons for selling off state- owned enterprises but again this does not necessarily reduce the widening wealth gap unless accompanied by pointed efforts to ensure that resultant structures have a wide enough ownership base. The same is the case with globalisation, which is being actively pursued. This is alarming as it has not as yet been fully established whether an opening up of trade restrictions would actually yield economic growth for all and even less certain as to how much of the growth will cascade down to the poor of the developing world.

What is further disconcerting is that the ranks of the World Bank are not in agreement on these issues either. The World Bank study, Growth is Good for the Poor, by economists David Dollar and Aart Kray claims that trade liberalisation contributes to increasing a country’s per capita growth rate and alleviating its poverty; whereas the World Bank study, Equity Growth in Developing Countries, by Bruno & Squire shows that “greater openness to trade is negatively correlated with income growth amongst the poorest 40 per cent of the population” which is 2 billion people. What are we to believe? And how can the World Bank be so insistent upon policies on which it is itself unclear. Furthermore it is to be noted that since 1950, world exports have grown from 8 per cent to 27 per cent of the world GDP. According to the World Bank theorists this rapid globalization should have increased the real world GDP to unprecedented heights. However this hasn’t happened. In fact, there is no statistically significant relationship between growth in world trade and the world GDP. To support this further the UNCTAD’s review of the evidence in the World Investment Report 1999 found no systematic link between liberalisation and the quantity of inward investment flows.

The World Bank’s search for a singular development programme, which would serve as a panacea for the ills of developing countries and be equally effective in Peru, Poland and Pakistan, makes its ideologies simplistic and unsuitable. Its repeated failure to recognize that there is no single template for development makes the UN target of halving world poverty by 2015 seem quite unachievable.

Whether the World Bank is wilfully villainous or not and whether its economic scientists using ‘live nations’ to experiment with are fulfilling the original IBRD mandate is another topic. What is relevant here is that we in Pakistan should recognize that the World Bank has both good and bad on offer; its policies/ideologies, might not always produce the intended results but its experience in implementation, governance and its power to absolve (or at least reschedule) debt make it critical to Pakistan’s progress. If Pakistan can differentiate and choose sound World Bank advice and add on strategies based on home truths it can have itself a successful, well-aligned development strategy. However if it leaves itself to the mercies of the bank it will undoubtedly be used as a crucible for the World Bank’s next experiment, which may or may not result in development.

It must be added here that local planning and economic institutions are responsible for adding on home truths, a task poorly done so far. One of the examples is the SPDC report on poverty alleviation in 2001 — a fantastic compilation of numbers and correlations, however no-hand-on-heart assessment of what is possible and what the priority should be. Where the World Bank / IMF can be somewhat forgiven for not knowing ground realities, local institutions cannot.

Then what should Pakistan’s development programme look like?

1. For starters wealth gap reduction has to be embraced as the most important agenda item, against the backdrop of which all other reforms must be unfolded. The vision that Pakistan must set itself is to halve the current poverty level within 10 years. That would mean giving sustainable income to 25-35 million people.

2. Establish a yardstick for evaluating whether things are getting better or worse. This is critical to evaluate on an ongoing basis whether projects are producing results or not and whether to tweak, abort or continue the specific line of reform. The yardstick is to be transparent and easy to calculate. This would make sure that funds are being put to the best use.

3. To establish firmly the principle role of the government as provider of access to productive resources, marketing infrastructures, capital, literacy and health care. To create an enabling environment within which poor people can work their way out of poverty and be a real and sustained part of Pakistan’s economic growth.

4. Given the scope of reform needed there is obviously inadequate funding. Clearly prioritise and see what is possible, laying out funds till the completion of that project. Get private sponsorships for projects that cannot be accommodated by the central government. Zakat and Ushr should be routed straight into the poverty alleviation fund cutting out the Zakat/Ushr committee completely from the equation.

5. It is important to set the parameters and rules of engagement in this enabling environment. Roles of all involved must be clearly spelt out and information / fund flow must be quick and efficient. There have been many cases of delays in the past where the Planning Commission has spent a lot of time haggling with local governments deciding who spends the money on what and this takes the focus off the task. This is not the fault of the planning commission or the local governments rather a weakness in the system. A proper structure to be laid out for decision-making and dissemination of funds. Also spot audits to be conducted to ensure funds don’t ‘leak’.

6. Privatisation and deregulation as prescribed by the World Bank are absolutely the right steps to take but should be done in a way that disperses ownership widely — any privatizations that results in a small group of people or families owning previously nationalized assets would concentrate wealth and add to the disparity. Manpower laid off must be given the option of being retrained by the state so that alternative employment can be sought.

Regulatory authorities to make sure that the poor are not marginalized and have access to infrastructure. This is especially true of the utility sector where private companies might not venture out to serve the peripheries. Similarly if PIA is privatized the less profitable routes (Turbat and Pasni) are not to be compromised. Standard setting (without interrupting business) is also a critical mandate of the regulatory authority. For example, in downstream petroleum — which is one on the verge of being deregulated — the regulatory authority is the industry watchdog for setting and enforcing standards in receiving, storing and distributing petroleum products. In these industries customer education is low and if not regulated properly can lead to wide spread illegalities and unsafe practices.

7. Rural and urban poverty to be addressed separately as the two have very different economic and social drivers. However the effects of policies in one on the other must be simulated to pre-empt undesirable fallout. For example rural education would result in greater migration to cities, which are already over crowded and civic infrastructure is overloaded, resulting in rising crime, leading to a discouragement of people going to schools and so on and so forth.

In rural areas education has to be of a sound primary level from where vocational training institutes take over, targeting local opportunities and not to industries where talent would have to necessarily go to urban areas. To take on from here there are to be infrastructure investment based on a series of tax breaks and incentives. This firstly provides employment locally to people pulling away from the call of the urban localities and secondly improves the living standards in rural areas.

In urban areas the need of the hour is efficient infrastructure. Water distribution facilities — 40 per cent of water is lost during distribution and storage, transport systems — Karachi Circular Railways not motorways, de-bottle-necking and investing in port facilities to increase capacities. This is where privatized capital comes in.

8. Pakistan’s progress lies in telecommunications and software production. As in East Asia this should be the vehicle for progress for all. There has already been a 15-year tax holiday for software companies; there should be additional incentives for expanding infrastructure to accommodate more users and for putting up quality training institutes. There needs to be a greater focus on gender equality and bringing women to the forefront of economic development by targeting and upgrading the skills of women. Again IT can work very well as work can be done from home; encouragement for programmes that give lower fee structures for women and keep a certain percentage of seats reserved.

9. Balance the existing labour laws. These seemingly protect labour but actually undermine their long term interest by making employers opt for contract labour.

The present regime has taken a number of very encouraging initiatives including an increase in the poverty alleviation budget from Rs25 billion, micro credit facilities through Kushahli Bank targeting 500,000 households in 5 years, and steps in the field of IT. Hence poverty alleviation has finally started gathering momentum. However as mentioned earlier, the scope of the task is such that it actually has to be woven into the fabric of Pakistan’s economic reforms with participation coming from all corners of society, without which meaningful change cannot be brought about.

To reiterate the critical points, Pakistan must

* Choose a development strategy which fits its environment and not an off the shelf development paradigm;

* Develop a vision with poverty alleviation at the very core, without which economic growth is untenable. In doing so economic growth will come itself as a result of an enabling environment for all, (and not the other way round as donor agencies have had us convinced for so long.)

* Add on advice from donor agencies that feed into this vision; disregard — with good reason — the advised ‘ strategies that are not in alignment with the vision;

* Develop measuring systems to see effectiveness of economic reforms and

* Develop a clear structure for responsibility and flow of funds.