Inequality in society

Published Jan 28, 2013 12:15am

WITH elections approaching, the usual claims from incumbent political parties of being pro-poor and even ‘revolutionary’ have increased in both frequency and amplitude.

Notwithstanding their magnificent promises of ending corruption, giving the poor their due and taxing the rich, the economic policies espoused by most parties hold little or no promise of change. If anything they are poised to exacerbate the social and economic problems faced by the vast majority of Pakistanis.

The mantra most often repeated is that of market-led economic growth. Unfortunately, in the presence of massive inequalities, growth does not benefit everyone. Inequality not only impedes growth but also dampens its effect on poverty reduction. Indeed, we have plenty of cases where inequality and poverty both increased despite economic growth.

Inequality is like a cancer that eats up a nation. Unfortunately, in Pakistan, the non-inclusive economic growth engendered by the policies of successive governments has meant a rapid increase in inequality. Consistent with evidence from all over the world, rising inequality has in turn led to serious economic, social and political problems.

It is staggering then to find hardly anything in manifestoes that promises to close the ever-increasing gap between the rich and poor in Pakistan.

What one finds instead as policy directions are the very causes of inequality: unrestricted integration with the global economy, unfettered markets and deregulation. Combine that with rent-seeking opportunities that are made available to cronies and we are assured of a perpetuation of inequality. Let me elaborate:

Perhaps no policy is as fundamental as education. Apart from the creation of human capital, educational policies are designed to create social mobility, social capital and equality — in other words, build a nation.

Unfortunately, the privatisation of basic schooling in Pakistan is achieving the opposite. In a country which is already bitterly divided, privatisation of education is further segregating society.

Markets serve to segment societies by price points — to each according to what he can pay. We pay through our noses to put our children in elite schools because we are convinced they offer a better future than cheaper schools. This dynamic may be great in the cellphone market but education is not a commodity that should be treated the same way.

Education is a vital process through which a society takes shape. Segmenting a market creates difference not equality. It destroys social capital rather than building it. It ensures, indeed guarantees, an uneven playing field for the majority.

The present schooling system is specifically designed to maintain unequal distribution of opportunities in society. While guaranteeing prosperity for a few it effectively robs the vast majority of all confidence and self-esteem.

Henry Ford said this about his Model-T car: you can have it in any colour as long as it is black. To reduce inequality, we might want to consider a schooling system in which parents could choose any school except they would all be the same. But this is not on anyone’s agenda.

Trade policies are similarly geared to increase inequality by creating unemployment. While free(er) trade can undoubtedly make a lot of things cheaper for the population, given our poorly developed human capital, it is turning Pakistan into a shop rather than a factory. People are losing jobs and becoming uprooted from their lands. Such policies benefit a few at the expense of many. Call them what you will, they are not pro-poor.

Nor is there anything pro-poor or ‘nationalist’ about the rampant rent-seeking that Pakistan’s main political parties thrive on. Rent-seeking is simply returns obtained by virtue of ownership, and not because of anything one actually does or produces.

It is done through influencing policymakers and legislators. It creates an illusion of competition while ensuring lucrative returns for the powerful. There are many ways of ensuring profits without commensurate effort: colluding with regulators to acquire state assets at bargain basement prices in privatisation processes, or getting other cushy deals in cahoots with legislators.

As the Nobel Laureate Joseph Stiglitz points out, rent-seeking is a powerful engine for the creation of inequality. It concentrates wealth and depresses demand (wealth possessed by a millionaire has far less probability of being spent in the economy than it would were it to be distributed amongst the less well-off).

Stiglitz suggests that the concentration of wealth creates another vicious problem: The wealthy become increasingly reluctant to spare resources for social investments or common needs. Institutions whose job is to ensure social mobility are weakened and taken over by private ones which serve to further perpetuate the divisions.

Stiglitz further points out another perverse effect of rent-seeking. Top talent stops going into engineering or science, and gets diverted to rent-seeking sectors. During the real estate boom between 2001 and 2007, who in his right mind would have advised his/her children to study chemistry, physics or history? There were millions to be made by buying and selling land.

Rent-seeking is essentially getting a licence to print money. Whether this involves getting a favourable SRO (statutory regulation order), an exemption from tariffs, or buying a privatised bank at bargain basement price, the end result is the same: misalignment of private and social returns.

A market-based system can only function if it is managed carefully, and if concentration of wealth and consequently of power does not exist. Left to the whims of global capital, an unequal society will become more unequal not less.

Are there any plans to reverse inequality? Neither of the two largest parties offers any hope in this regard. Their policies are poised to take us further down this road to the point that even the elite will find it difficult to live in this country.

It does not matter how many ‘revolutionary’ gimmicks they announce. It doesn’t matter how much they invest in policing, education or healthcare.

Until they address the fundamental mechanisms promoting and sustaining inequality in the country, they will all amount to nothing. Reversing inequality requires taking on the privileged elite. As things stand, no party has the inclination or the stomach for it.

The writer teaches Strategy & Policy at University of Cambridge.


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Comments (3) Closed




Maarij Syed
Jan 28, 2013 09:42pm
Good article; well reasoned. I especially agree with the notion of the education system as an instrument of perpetuating inequality. Clearly, there will always be a spectrum of schools but the public schools should not be so marginal that they can not even impart basic literacy skills. Not to mention what the unavailabity of a viable and affordable education system is doing to millions of rural and urban poor pakistani children, in terms of their desperation regarding their future prospects.
Azmat
Jan 29, 2013 01:28am
One way to dull the impact of rent-seeking is to significantly INCREASE the tax on such income; this of course goes counter to the usual preferential (ie lower rates) on capital gains.
SM
Jan 28, 2013 08:42am
There is no reason to differ with the author. The rent-seeking activities, which he has touched upon are closely related with Income Inequality. When concentration of wealth would remain in a handful of families or political elite then these activities even further because of exploitative activities. Our political parties' manifestos do not undertake such measures into account, perhaps they are too inefficient (or dumb) to realize the negative implications of such market activities. Or more appropriately, they are stakeholders and beneficiaries in such practices.