State of inequality

Published May 13, 2012 01:18am

Why do you think the rich-poor divide in Pakistan is growing so rapidly?

If we analyse in a non-emotional way, there is actually little evidence that inequality is increasing in Pakistan. The standard economic measure for measuring inequality—the Gini coefficient—in Pakistan shows that it has increased only marginally in the last two decades. Of course, there are problems with official data and there is reason to believe that distribution may have worsened in the last decade, but the important point to note is that we have been a highly unequal society from the beginning and only in the early 1970s did we see some reduction in inequality. But that was a short interregnum.

What are measures needed to close this gap?

There are two direct ways in which inequality has been reduced over the years. The more direct method has been of redistribution of assets. This is associated with socialist and communist countries and happened in the 20th century. So land reforms, nationalisation of industries and services was one way to create economic equity.

The other way — prevalent in capitalist societies — has been through redistribution of income from the rich to the poor. This is the ‘welfare state’ model and is based on progressive taxation. By taxing the rich more and spending those resources directly on the masses as well as on public good created a system of gradual but sustained reduction in income inequality.

Underpinning efforts at reducing economic inequality in both cases was a recognition that social equality through equal citizenship has to be created. This meant that equal citizenship was created across genders, religions, castes, ethnicities and regions through law. Those countries and societies may not have achieved social equality enshrined in law fully but that is the official benchmark they have established for themselves.

In Pakistan, unfortunately, we have been unable to do that. Tradition, backed up by bigoted interpretations of religion, has kept us from recognising the basic principle of equal citizenship in law and the constitution. Without social equality, there is no possibility of equality of opportunity and that is a structural bottleneck in Pakistan.

Another element that is critical to creating conditions for equality of opportunity is State spending on education and health.

Public expenditure in Pakistan on health and education is half of that of similarly placed developing countries and our defence expenditure is double that of similarly placed countries. That tells us what the priorities of the Pakistani state have been.

Would you agree that economic developments in Pakistan only benefit a small segment of the society leaving behind all the rest?

Economic development in Pakistan over time has benefited certain regions and certain classes a lot more than others. The urban middle classes have benefited a great deal from economic growth in Pakistan. Those working in the public sector and the formal manufacturing and service sectors are also much better off than they were say a generation ago. Informal workers in the rural as well as urban areas and those belonging to regions that have been deprived of infrastructure development have been left behind.

What measures can be taken at the government and private level to ensure even distribution of wealth?

In an age where market economics rules the roost and where political forces are still not strong enough to rationalise the defence budget, reallocation of resources towards targeted social protection programmes is the only instrument through which inequality can be reduced. A proper food subsidy and an employment programme for the poorest should be instituted. These programmes can be achieved with some additional taxation and reallocation of resources away from untargeted subsidies provided to the upper and middle classes.

For a nation that is high in philanthropy and donations, isn’t it ironic that the social divide keeps widening?

It is true that philanthropy is high in Pakistan and that is a positive aspect of our culture and social values. This is across sectors and regions. Without this level of philanthropy, imagine how much more poverty and misery there would have been. So in spite of philanthropy there is economic and social inequality which only goes to show that unless state policy does not address the issue, no amount of private effort is sufficient to substantively reduce inequality.

What is the single most important factor contributing to the extremely high inflation in Pakistan besides rising international fuel prices?

The most important factor in the last three years has been the passing on of electricity and gas subsidies to the consumer. In fact, the level of subsidisation is still very high which, in turn, is a major cause of high budget deficit. Further, inflationary expectations have built up in the economy that create a vicious cycle of price increases even when they are not warranted.—R.K.

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