Dealing with inequality

I WILL start this week’s column by recapitulating the arguments I have advanced thus far on the subject of economic inequality and its political and social consequences. I have so far made three points.

One, although the rate of growth in GNP has been impressive since 2003, averaging more than six per cent a year, it has not improved income distribution. In all probability, the gap between the incomes of the people I have identified as the very poor (average per capita income of $350) and the not-so-poor (average income per head of $425) on the one hand and that of the well-to-do (income per head of $2,500) and the very rich (average income of $20,000) on the other has widened. While the poor have not necessarily become poorer, the rich have become considerably richer.

In 2006, the very rich were 57 times richer than the very poor and 47 times more prosperous than the not-so-poor. The rich, numbering only 200,000 or 50,000 households, is a small segment of the population. They account for only 0.13 per cent of the citizenry. The not-so-poor, with 50 million people, have 30 per cent of the population in their ranks.

Two, persistent inequality produces resentment on the part of those who have been left behind. The extent of resentment felt depends on the awareness of the differences that exist. Awareness is produced by proximity and by contact. I suggested last week that there was little interaction between the very rich and the very poor. They live in entirely different worlds. That is not the case between the not-so-poor on the one side and the well-to-do and the very rich on the other.

These three socio-economic groups come into contact either in the workplace or in the homes of the well-to-do and the very rich. There is also a fair amount of interaction among these groups since they occupy more or less the same geographic space — the large cities or the farming and commercial sectors in the countryside.

Three, in institutionally weak societies — and Pakistan is one of them — resentment gets expressed in the streets. Sometimes this resentment turns violent and can bring about regime change. This has happened twice in the country’s history, in March 1969 when President Ayub Khan fell from power and then again in July 1977 when Prime Minister Zulfikar Ali Bhutto was removed from office. On both occasions change was brought about by the military.

In the articles to follow, I will make several points. I will suggest that persistent inequality is bad for economics, for politics and for social stability. Without dealing with this problem, a society is creating the circumstances that economists now refer to as “inequality traps”. These traps can persist over generations unless addressed by public policy. They should be removed in order to quicken the pace of development, to create social stability, and thus lay the ground for political progress. Without explicitly addressing these gaps, a society condemns itself to social and political backwardness.

Pakistani society is extraordinarily vulnerable to the appearance of social instability because of inequality. This could take the form of a conflict in which those who are unhappy with their circumstances may be pushed towards the adoption of Islamic fundamentalism as a way of finding some comfort for themselves. Situated in a volatile part of the world, Pakistan cannot treat this threat with indifference. This type of extremism has already won many converts in Pakistani society and in the countries in the immediate neighbourhood.

It is interesting the President Hamid Karzai of Afghanistan warned neighbouring Pakistan of great trouble to itself if the resurgent Taliban were once again able to establish their hold over his country. He made the statement while on a visit to the troubled city of Kandahar. “It’s not going to be like the past, that only we suffer. Those who cause us to suffer will burn in hell with us,” he told a group of journalists.

Foreign policy alone won’t help Pakistan in preventing the spillover into its territory of the social upheaval taking place in the Muslim world. There is chaos in Iraq produced by Americas misguided adventure in that country. It is hard to say how that problem will be resolved. Even the high powered Iraq Study Group that recently released its report does not hold out much hope for the country in the immediate future or even in the next few years. The best way of protecting Pakistan from being adversely affected by these developments in other parts of the Muslim world is to insulate the citizenry by the use of the intelligent public policy directed specifically at reducing income inequality.

What options are available to the policymakers to confront the problem posed by persistent inequality?

The answer to this question must start with finding the reasons to why income inequality increases even when the economy is growing at a fairly rapid rate as is the case in Pakistan today. There are many reasons for this; of these the following three are particularly important.

One, assets that produce current incomes are highly skewed in their distribution with most of them in the possession of the well-to-do and the very rich. The poor have few assets other than their own selves and even then, poor education or no education at all reduces their capacity to earn.

Two, the government is not using fiscal policy to tax the rich and help the poor. The budget is usually the most effective way of transferring incomes from the rich to the poor but in countries such as Pakistan where it has proved very difficult to tax the rich, fiscal policies for affecting income distribution don’t work.

Three, the government is not doing enough to build the asset base that is vital for the poor to make progress. Human capital development is an important part of such a strategy and Pakistan’s failure to bring this about is well known.

From the perspective of equity, the distribution of opportunities matters more than the distribution of incomes. Not making this distinction is a mistake often committed by states that are interested in improving income distribution. This is what happened in the 1970s in Pakistan when the government of Zulfikar Ali Bhutto attempted to help the poor by expanding the role of the state at the expense of private ownership of productive assets. It is useful to refer to this part of the country’s history to emphasise how difficult redistributive policies can be if they are not crafted with care, with knowledge of intended consequences, and with reflection on the possibility of the occurrence of unintended consequences.

In undertaking his programme of extensive nationalisation of the assets of the rich, the Bhutto administration drew inspiration from a speech given in 1968 by Mahbubul Haq who was largely responsible for the economic success of the government headed by President Ayub Khan. Before the intervention of the army under the command of General Ayub Khan, the economy’s growth had languished at a rate close to the rate of increase in population. Consequently, the incidence of poverty had increased in 1947-58 and income distribution had worsened.

Under Ayub Khan’s management, the economy picked up with the rate of growth increasing to 6.7 per cent a year from the indifferent 3.1 per cent in the first post-independence decade. Income per head of the population increased by a decent 3.8 per cent per annum. The government believed that its policies had resulted in a significant reduction in the incidence of poverty. This remarkable achievement was in large part the result of the five-year development plan put together by the Planning Commission. Mahbubul Haq was the chief economist of the commission.

Haq surprised the government he had served by issuing a statement very critical of its policies. He did this while the government was celebrating what it had termed the “development decade”. He maintained that much of the reward from rapid growth went into the pockets of the very rich while the poor gained little, if anything at all.

In a speech delivered in Karachi, the former chief economist identified 22 families that had gained the most from the model of development pursued by the government headed by President Ayub Khan. Haq told his audience in Karachi that just 22 families owned 66 per cent of the country’s industrial assets and 87 per cent of the assets of the banking and insurance industries. The economy was structured in a way that the stranglehold of the rich could not be eased unless draconian measures were adopted. The “22 families” soon became a political slogan and was used by Zulfikar Ali Bhutto to galvanise support for himself and his new party, the Peoples Party of Pakistan.

Once Bhutto and the PPP gained power, they launched a programme of bringing about a profound structural change in the economy. The aim was to bring under government control the assets that were considered to be responsible for skewing the distribution of income. The assumption was that once industries and financial houses owned by the rich — Haq’s 22 families — were put under the ownership and management of the government, the incomes generated by them would somehow become available for the society’s poorer segments.

How that would be done was not carefully worked out in terms of public policy. The result was an economic disaster. The rate of economic growth declined precipitously since what remained of the private sector became reluctant to make new investments while the public sector poorly managed the assets that were brought under the control of the government.

The government sought to increase employment by forcing the entities now under its direct control to hire new workers. That, in turn, resulted in further deterioration in the performance of public sector enterprises. Public policy had put the economy in a vicious cycle where bureaucratic controls over productive assets slowed down the rate of growth, produced unemployment, reduced income flowing to the poorer segments of the population, which resulted in greater intervention by the government in economic matters restarting the cycle once again. The cumulative impact of these policies was growing public discontent which led ultimately to intervention by the military. The militarys arrival was received with considerable relief by sections of the people and most political groups.

There are lessons to be learned from this experience. Two of them are particularly important. The first one is that persistent equity can be politically and socially destabilising. This is especially the case when institutional weaknesses don’t allow regime change as a part of a sanctioned political process. The second one is that distributive policies, no matter how good the intention behind them, can cause damage to precisely those they are meant to help. They have to be devised so that they don’t hurt the economy while ensuring that the intended beneficiaries reap the rewards.

The modern-day slavery

NEHAD has the hunched look of a man who has lived with fear for years. It was to escape fear that he fled Iraq for Europe in 2003, hoping to start a new life beyond the reach of the torture and prisons of Saddam Hussein’s regime in northern Iraq. But after four years of failed asylum applications in the UK, he is still living in fear.

He’s too nervous to tell his story inside the cafe where we meet for fear of eavesdroppers, so we sit outside. He flinches as a policewoman passes. He says he never answers a knock on his front door at home in Birmingham; friends know to call first to tell him they are coming.

He knows — as the Home Office officials remind him on his monthly required visits to sign in — that he could be deported at any time and sent back to Iraq. He could be snatched from the streets or from his bed in the middle of the night. But, as he is well aware, there is nothing unusual about his plight — he is just one individual out of an army of irregular migrants, which the Home Office estimates at more than half a million strong. They precariously exist in a kind of bureaucracy-made limbo in this country.

Deportation is not the only fear he lives with. He needs urgent kidney treatment, but an operation would require several months’ convalescence. If he can’t work, who will pay his rent or food? He knows his kidney malfunction is slowly getting worse. “I came here to survive, not to die slowly.” He rubs tears from his cheeks.

He works in a kitchen - and he apologises for it. He knows that he’s not allowed to work but explains that after his asylum appeal was refused two years ago and he was ejected from the hostel and his vouchers were stopped, he had no alternative. He got himself false papers and his employer doesn’t press him for his national insurance number. The arrangement suits them both. Nehad gets 182 pounds net for a 40-hour week, and the employer gets cheap hard labour with no sick or holiday pay. Nehad will be working through Christmas.

Nehad counts himself as one of the lucky ones. He knows someone who bought an old car for 50 pounds just to sleep in it. Nehad rents for 100 pounds a week, which leaves enough to pay the bills, and feed and clothe himself. He sometimes helps out other irregulars who are worse off. “There is another, terrible life underground in this country. The government calls us illegals, but how can a human being be illegal? We are here, and we are human beings. People ask me what my hope for the future is; I don’t have a right to hope, but what I would like is to hold my head up high and tell people, this is who I am.”

That’s what had driven Nehad to run the risk of talking to me. He needed recognition — it was the denial of dignity that had eaten into his soul, the way a whole society had decided to avert its eyes from his plight. The sheer indifference to the zombie category of “illegal” human beings our asylum bureaucracy has created.

Some irregulars have been here for years, and many will be here for years to come. They might live in your street or be sitting on the bus or train next to you and you won’t know because budget clothing shops ensure that poverty and desperation is now well hidden.

The current rate of deportations is 20,000 a year. The public accounts committee has acknowledged it would take 18 years to deport all irregular migrants. That means Nehad could die of kidney disease long before his deportation order comes up, or, to put it another way, Nehad and those like him will have washed up many more of the dishes you eat off in restaurants.

And then there’s the cost: 11,000 pounds per deportation. Deporting half a million people will push the bill towards 4.7 billion pounds, according to the Institute of Public Policy Research. No one is planning to stump up that kind of money, so this is make-believe policy land: it’s never going to happen.

Yet no politician is prepared to admit that, given the fevered anxieties about immigration in this country. These half a million have become a political no-go area: everyone has a vested interest in pretending they don’t exist. They’ve provided labour for Britain’s booming economy, filling the increasing personal-service job sectors of domestic work, cleaning, catering, food processing and hospitality.

In this zombie category of irregulars, you are vulnerable to every thug, every kind of criminality - and yet you can never turn to the police. You get turned away from doctor’s surgeries. Your employer can deduct money from your wages, increase your hours, withhold pay and you can do nothing or he will make threatening requests for a national insurance number. Likewise, your landlord can up the rent and ignore complaints about repairs.

No one has wanted to broach the debate. Refugee organisations are too busy fighting for a fair asylum system, and trade unions, while aware of how employers can exploit irregular migrants and how that has a knock-on effect on other low-paid workers, have held back from an unpopular issue. Into this gap has stepped the Citizens Organising Foundation — representing community and faith groups in London and Birmingham — with plans to launch a campaign, Strangers into Citizens, in the new year, which will aim to open up a space to discuss this subject sensibly. It’s the COF that is hunting out the rare characters like Nehad who have the courage to speak out, and have learned good enough English to tell a story that booming Britain doesn’t want to hear.

There is an obvious policy option. Spain and Germany have both recently introduced regularisation schemes for long-term irregular migrants. It pays big dividends in terms of increased tax receipts as migrants start to pay tax — a billion euros in Spain in the first year and rising — which might tempt Gordon Brown. There are other advantages; any plan to successfully restrict the flow of new migrants depends on regularising irregulars. Regularisation would squeeze out those spaces in the economy that so quickly absorb and attract new migrants. But to date, advocacy of any regularisation scheme in the UK has been regarded as political suicide.

The sheer extent of this institutionalised dehumanisation makes a mockery of any pretensions to decency. While politicians fret and pontificate about policies on social cohesion and integration, this is the real question at the heart of those issues: the army of cheap labour on which our comfortable lifestyles depend.

Next year marks the second centenary of the abolition of slavery in the British empire. What makes the Strangers into Citizens campaign so challenging is that it is forcing us to acknowledge that its modern-day version is flourishing. People like Nehad may have some freedom of movement, but in reality, every detail of their daily lives is sharply circumscribed by fear. He bitterly knows that though he is 34, he has no chance of marriage, children, a home, a decent job, or a life worth living. He is just waiting - without any hope that the wait will end. —Dawn/Guardian Service

It’s more a war for terror

WE have been told that America is fighting a “war on terror”. However, sometimes one gets the feeling that it is more of a “war for terror” — one that will increase terror in the world and terrorise more people than have ever been terrorised before. And why does one say that? Well, here goes:

America was born out of a democratic struggle for independence against colonial Britain and is one of the signatories of the Universal Declaration of Human Rights, Article 9 of which says that a person cannot be “subjected to arbitrary arrest, detention or exile”. Article 10 adds that if one is blamed for having done something against the law, he is entitled to a “fair and public trial” in a fair court. One can also go to court if any rights or duties are disputed.

These articles — indeed the whole concept of human rights — was wrested from reluctant ruling elites after decades of struggle. Before these were won, people could be picked up at the will of their feudal superiors. Prisons were full of people who had done nothing wrong and who were not tried. These prisons were in people’s homes, in castles, palaces, havelis and chateaus. So when such laws were passed the perpetual terror of insecurity, arbitrariness and plain bad luck passed out of existence. The centuries-long reign of terror ended.

Come 9/11 and the terror is back. There are nightmarish stories of the CIA supporting secret prisons, of underhand deals transferring suspects to unknown destinations, of dreaded delays at airports, of all kinds of violations of universal human rights. And, what is most alarming for Pakistanis is that they too are a part of this sinister drama. Amnesty International issued a report last September which makes one sit up in alarm. Pakistani government sources, says the report, state that 700 people have been arrested in the “war on terror”.

Recently, the Human Rights Commission of Pakistan, the families of those who have disappeared and even the superior judiciary protested against these disappearances.

The press, especially the English-language press, has devoted columns and editorials to the issue. These “disappearances” go against the Constitution which declares that all citizens have the right “to enjoy the protection of law and to be treated in accordance with the law is the inalienable right of every citizen, wherever he may be, and of every other person for the time being in Pakistan”.

It is also against common human decency which is the essence of human rights and the Constitution. The “disappeared” allegedly belong to Al Qaeda — the organisation purportedly behind the 9/11 mayhem. If they did belong to Al Qaeda and contributed to killing innocent people then they should be punished according to the law. But it should be noted that the mere fact of belonging to an organisation does not prove one’s guilt.

One could be a nurse, a driver, a cook or merely the spouse of a member of the organisation. Guilt should be proven in a court of law and under Pakistani law if they are citizens of this country residing here, without inflicting torture or coercion in any form. Those are rights, civilised rights, which humanity won after thousands of years of oppression.

The report quotes figures from sources as varied as Interior Minister Aftab Ahmed Sherpao, the security agencies and NGOs. The figures range from between scores to the thousands. The actual number is not important. Some names, which are given in the report, are important for the families of the disappeared. What is of concern to the rest of us is that this should be happening in this century in our country. After all, for all its reputation for being a dictatorship, Pakistan has never seen so many disappearances.

True, Pakistan has been ruled by the military for the most part and elected civilian governments have not been too democratic either. But people didn’t disappear the way they are now. Previously, only a few of them did and mostly for political reasons. They did not disappear in such large numbers nor were they whisked off to unknown destinations or kept incommunicado for such long periods except for during the military action in former East Pakistan.

This was a point Pakistanis were proud of and rightly so. I remember my friend Tariq Ahsan, an academic at Quaid-i-Azam University and a man who had spent years in Ziaul Haq’s jail for supporting democracy, proudly praising Pakistan before foreigners on the grounds that the country did not possess a savage dictatorship like Iran, Iraq or Argentina. He could have added Stalinist Russia and North Korea and a very large number of banana republics to that number.

However, the Bengalis had a far worse experience — as did the Baloch and Sindhi nationalists — than the rest of us. Still, Pakistan has never had the atmosphere of fear which is evident in police states and dictatorships. Is this changing now? And if so, is it because of the fallout of the “war on terror”? Do our intelligence agencies act on their own or in partnership with foreigners to arrest would-be suspects? These are questions which all concerned citizens are asking.

Actually it is not in the interest of either Pakistan or the United States to deviate from the law. Pakistan needs a good image in the world. This is only possible if the reality is good, otherwise neither all the ambassadors in the world nor the millions spent on lobbying in world capitals can produce a positive image. A positive reality will follow if we settle the Kashmir dispute — and this Gen Musharraf is certainly trying to do — and maintain the rule of law. America might not initially appreciate our independence, but principles, if sincerely held, tend to be respected in the end. One day the madness of the “war on terror” will end and at that time, if Pakistan has acted in a principled manner, the US government would trust the state more than it would have had it been transformed into a banana republic.

The US also needs to change its image. The Baker report hints at the possibility of change. If this change includes the abolition of the whole paraphernalia of terror — the secret prisons, the use of torture and humiliation, anxiety-inducing airports, the disregard for the process of law and human rights — America will realise its true potential in the world. Americans are a friendly people. They deserve to have a better foreign policy than the one Washington inflicts upon the rest of the world in their name.

If the US government is perceived to have behaved decently, much of the hostility against it will come to an end. The terrorists will no longer attack the US and this insane, invisible, impossible war will wither away. But this needs withdrawal from Iraq, settlement of the Israel-Palestinian conflict and a benign image all over the world.

Our hard-won rights and constitutional guarantees are our only hope for living without fear and without humiliation and pain. It is better that a few terrorists should escape the net rather than one innocent person being made to suffer.

The ends do not justify the means if those means include disappearances, the suspension of habeas corpus, kangaroo trials or torture. It is as Sir Thomas More says in Robert Bolt’s play A Man for All Seasons in response to his son-in-law William Roper’s passionate declaration that he would break every law in England to get hold of the devil: “...And when the last law was down, and the Devil turned ‘round on you — where would you hide, Roper, the laws all being flat?”

We need the laws. They are our only passport to some kind of heaven upon earth. Otherwise, read the accounts of the unkindness of human beings to fellow human beings in history — more recently Robert Fisk’s horror stories about the Middle East — and understand that we are very frail beings in a world we can turn into hell or something moderately tolerable. And what do we want for our children? Something tolerable.