January 20, 2003	Monday	Ziqa'ad 16, 1423

It is encouraging to see that poverty is now generally recognized as a key issue to be tackled with on a priority basis. However, the approaches towards poverty alleviation diverge or so it seems. For, if the goal is common and very close to heart, then a common ground should be worked out.

We should be able to rise above rigid adherence to predispositions to passionately pursue a goal as vital as poverty alleviation. No goal can be pursued effectively unless driven by a missionary zeal which, in turn, requires not just intellectual commitment but an emotional bond.

Together, these can eventually change the ground reality. That is, by shedding the archaic concept of separation between “emotionalism and realism” as asserted by one government economist. While the goal should actually and ideally be poverty eradication, we let the so-called ‘realism’ prevail and focus on poverty alleviation as an intermediate target. The danger, however, is that we might then remain bogged down in measuring poverty percentages up to perhaps two decimal places and also in determining the sophistication of the measurement techniques.

While it may be a source of leisure for social scientists to focus on percentage point differences and measurement techniques, this preoccupation may also serve as a tool to shoot down a well-intentioned work in the right direction if the work challenges predispositions and/or hurts egos or ethnic/nationality/gender sensitivities or all of them combined.

One wonders what the factors were behind a critical government view of the World Bank’s (WB) Poverty Assessment Report presented by their Ms. Tara Vishwanath on January 8, 2003 when a critical treatment is least expected from the government functionaries who are used to receiving most of the World Bank/IMF advice and market-led reform prescriptions absolutely uncritically. If wisdom is not the sole preserve of the donors, ala Mr. Shaukat Aziz, why then was market mania ushered in without a second thought as it has further led to misery and deprivation in the form of downsizing, layoffs, joblessness, and job-less growth whenever it occurred?

When absolute levels of poverty and those around it are huge comprising nearly three-fourths of the population, a few percentage points here and there and the techniques used are of little consequence. For, it is a question of a general socio-economic uplift of the bulk of the population. It is a question of how to make such a large section of the population productive and self-reliant. And, it boils down to a question of building a cause-effect chain or network.

In the WB’s Poverty Assessment Report, we see Ms. Tara attempting to link poverty with rural landlessness, illiteracy, poor health-care, poor drinking and sanitation facilities and also with low growth? Very aptly, she calls the poverty issue multidimensional which is a pleasant departure from the single-factor deterministic model of poverty so fondly promoted by Mr. Shaukat Aziz and his cohort.

While none can dispute the significance of the growth model, it is growth generated mainly with the help of foreign financial resources that can, inter alia, lead to the kind of issues we have faced over the decades unless the causes of issues are addressed effectively. Our inability to properly utilize and then service the debt, and/or enable feasible foreign investment, has now driven home the point that distribution of benefits from growth and sustainability of growth itself are, inter alia, functions of many non-economic factors as well that revolve around institutional and attitudinal weaknesses.

Consequently, good governance became the new buzzword. Borrowed money was then poured into the area of improving governance. Resistance in this area continues to be a function of attitudes, mindsets, and disposition which again feeds back into institutional weaknesses which again reinforce poor attitudes. Poverty in governance is also being addressed through some ‘popular’ administrative and/or political measures that are as poor as or poorer in content and execution than the targeted issue of poor governance itself. Incremental approach is being used in a situation that requires a rapid overhaul without allowing time for the forces of resistance to consolidate further.

In many situations, the choice of change strategy itself is disputed that induces more resistance. Since the forces of resistance continue to countervail the forces of change, the issue of governance remains. So do the issues of weak attitudes and institutions. If the underlying conditions show little improvement, can we then bank only on the growth model for poverty alleviation?

Also, with the underlying assumptions pretty much static, will the growth model not continue to redistribute in favour of the owners of means of production thus exacerbating the inequities? Unfortunately, with a learning curve spread over several decades, the lessons have yet to be learnt. That is, the growth approach needs to be combined or preceded by a change strategy that may not just spur further growth but also permit equitable distribution, poverty alleviation, and shared prosperity on a sustainable basis. So, even if reliance on foreign resources is minimal, reliance on growth model alone will not lead to poverty alleviation, no matter how much the country’s finance managers may assert, if asset distribution is skewed disproportionately in favour of a small segment of the population. While this point needs better appreciation at the policy formulation level, the policy elite believe that the poverty issue can be addressed directly through micro-financing and small/medium enterprise (SME) financing. Micro- and SME-financing are, therefore, promoted as poverty alleviation or remedial measures for an issue that has been thrown up on the agenda for all times until poverty is alleviated. Thus the preoccupation with percentage point changes and the techniques used to determine poverty levels as it reflects on both the professional and political images of those at the helm.

While the idea of micro and SME finance was advocated strongly by all those who were disenchanted with the government’s sole reliance on the traditional models, by no means did all of them view this approach to be a substitute either for the traditional approach or for the radical reform approach that seeks distribution (of some assets)-before-growth.

Having said this, there is a school that does view micro-finance as the only effective measure to alleviate poverty. This is the school that advocates community self-help and development as a substitute for government’s inadequacies. While community self-help and micro-financing are commendable initiatives, can these be relied upon to turn around the macro situation of deprivation and poverty meaningfully during an acceptable time span?

Despite over two decades of some experience with the “self-help” idea, to what extent has it caught on? Since progress is less than appreciable, this concept can only supplement and complement some major initiatives that have yet to gain visibility in the policy arena. Further, this approach can at best raise below-poverty levels to subsistence but cannot break the vicious circle of deprivation and exclusion in a manner that would facilitate their economic integration into the society. As survival skills are acquired through micro-finance, the informal economy grows around islands of affluence. Their inclusion in the formal economy remains a remote possibility as they eke out an existence on the fringes of the formal economy. The problem of dualism remains. So does the issue of socio-economic integration of the people into the mainstream.

Until such time that the root cause of poverty is addressed, micro-finance provides a survival avenue and that too for only some. Growth of micro-financing would, therefore, indicate a continued existence of the poverty issue or its exacerbation or greater emphasis on the symptoms of the poverty issue when the need is to stem its root cause. Micro-financing emphasis is, therefore, not a true gauge of government’s poverty alleviation efforts for as long as they look the other way from stemming it or if they combine this effort with measures that will either not get the desired rates of growth or will exacerbate inequities if desired growth rates are achieved.

While micro-finance can be relied upon to focus on pockets of poverty to facilitate their transition into a thriving formal economy in developed countries, it is not a means for less developed countries to graduate from their poor low-income status to that of a high-income, high-growth one. So, even if there are pockets of success in helping people subsist or get by around it, it is like being satisfied with a local maximum to the neglect of global optimum. This brings us to the question of the inter-linkage between growth and poverty.

Are growth and poverty two separate issues to be dealt with differently? Or, can there be a strategy that will eventually lead to both growth and substantial poverty reduction? Traditionalists believe in growth now, trickle later, and poverty alleviation as a consequence some time in the future. Since this awaited ‘future’ never arrived despite repeated emphases of this kind, growth emphasis is combined with micro-financing to keep pain and suffering contained as though poverty and growth are two separate issues necessitating two separate strategies.

Or, it is done to compensate for a growth strategy which has negative fallout in the form of either continued or more or only marginally decreasing inequities and poverty. Aiming only for growth and installing its anti-fall-out mechanism can only be a short-term proposition which is likely to perpetuate the issues of both poverty and growth. For, growth prospects will remain bleak in a socio-economic background that fails to generate the requisite demand due to low incomes, inequities, and poverty. Traditionalists then want to fall back on export-led growth whose prospects we are all too familiar with knowing not only the vagaries of the international politico-economic environment but also our own inadequacies. As has been demonstrated in the case of India that it is not exports that lead to growth but it is growth that leads to exports.

So, how do we have growth that would address the issues of income generation, inequities, poverty, as well as trade balance all together? As said time and again, it is not ‘forced’ but ‘natural’ industrialization that is needed. In forced industrialization, industry is set up first and demand is then hoped for to utilize industrial capacity, to achieve economies of scale, to go through the learning curve, to be cost-effective and to deliver quality which products should not only sell locally but internationally as well getting us the much dreamt about exports and earned foreign exchange. Forced industrialization is economic management ‘by hope’ relying on the push-effect.

Hope may not materialize as we know from recent history of the past few decades. On the other hand, ‘natural’ industrialization would be in response to demand. Driven by the pull-effect, we would then be able to realize all the ends of industrialization stated above. Where is the demand if bulk of the population is poor or have low-income? Poverty and growth are, therefore, inextricably intertwined. Concentration of the poor and the low-income population is in the countryside-in the agricultural sector. So, that is where a beginning should be made. Not by corporate farming though that will impoverish much more than it will enrich. Not by encouraging rural-urban migration either as it swells up the urban informal sector due to an absence of urban jobs too.

So, if jobs are to be generated as desired by Prime Minister Jamali, they should be generated where the people are. The bulk is in agriculture. That is where they need to be engaged. And, the bulk is landless but suited for farming. So, they can be best engaged if they own a piece of land. They do not own land because agricultural land ownership is highly skewed in Pakistan. Land reforms remain at the heart of Pakistan’s economic turnaround strategy. Peasant farming can then graduate to mixed and commercial farming eventually as a structural transformation takes place too. En route, a demand for manufactured goods will be generated. We will then be engaging people, generating demand, setting up industry in response, spurring growth, creating urban employment, distributing from growth because ‘distribution before growth’ will have taken place.

A more equitous order will then be in the offing that will be reducing poverty and deprivation with growth. It will also be integrating the excluded into the mainstream. Micro-finance and SME financing will then come in handy to provide launch pads into the formal economy. Easier said than done, some might say! But “take the first step”-the Chinese would say. Or, remain bogged down in trying to generate growth without adequate demand and “garnish” it with micro-financing that will only exacerbate the dualism we experience currently.