August 1, 2004

In any society, the middle class has the most stake in the stability of national institutions. It works to create institutions that ensure that opportunities of a better life are available to most in society. This is the link that has gone missing in Pakistan

THE reduction in, or the disappearance of, the middle class should be of concern to all. They, as a class, have the most stake in the stability of a society and its institutions, as they depend on the state and its various organs performing optimally. A reduction in the power or efficacy of the middle class can seriously reduce the pressure on state institutions for delivering quality services, justice, fairness and stable governance.

Pakistan today is a more polarized society than it has ever been. The divide between the poorest and the richest is very pronounced and visible. It is not only that the distance between the poor and the rich has increased, it is also the case that the middle class — the ground that was occupied by the white collar, the upwardly mobile and so on — has been stretched to a point where the phrase middle class seems to have lost all meaning.

We can still think of the upper middle class and the lower middle class, though these words too do not mean much. But middle class, as a word and concept that could give us some insight, is lost to us now. This article is one story of how this happened.

There will be others who will say that the middle class is more powerful in the country than ever before. Look at the numbers going to private schools and universities. Access to the internet, modern communication, travel abroad, and access to knowledge from across the globe, access to goods and services from all over, and the facts of globalization and shrinking distances are making the world open to more and more people. All, or most, of these people form the middle class of the country, people may argue.

Then there are those millions of Pakistanis who are working abroad. They, and their families, are surely middle class as well. From rural areas or urban, educated or otherwise, traditional or modern, these families have access to income and resources that can buy them most comforts of modern living. Clearly they satisfy any definition of middle class that we might have in mind. But wiat a minute. We will come to these points in a while.

If we look at income and wealth distribution patterns across Pakistan, they should give us some warning signs immediately. Income distribution has been becoming more skewed in the last ten years or so. The share of the 20 per cent of the poorest in national income, compared to the 20 per cent of the richest, has been declining, and declining quite rapidly.

The ratio of share of the richest 20 per cent to the poorest 20 per cent in income had already gone from 5.5 in 1986-87 to 8.0 in 1998-99. Over the same period, Gini Coefficient has risen from 0.346 to 0.41, and the share of the middle 60 per cent has declined from 48.5 per cent of the total income to 44.1 per cent.

Not only that, we also see that the share of the middle 60 per cent has also been declining. The Gini Coefficient, a measure of inequality, has been rising in Pakistan. The trends were so hard to hide that the government, in Economic Survey 2003-04, decided to omit the chapter on income distribution completely. It did not want to give the continuing bad news to the people. Couple it with the information that 30-40 per cent of Pakistanis live in poverty, and it becomes even harder to argue that the middle class in Pakistan must be growing.

When we say 30-40 per cent of the people of Pakistan live in poverty or below the poverty line, we should understand what this implies. Poverty lines are drawn at a level where a person earns barely enough to keep body and soul together, and some of his or her dignity intact. If 30 per cent live in poverty, it must imply that around 50 per cent of Pakistanis are either below the poverty line or close enough to the poverty line, and are, thus, definitely not members of the middle class. This accounts for some 75 million people of the population.

Over the last decade and a half, Pakistan has gone through a pretty bad recession. The government, in its efforts to reduce its deficits and control the growth of debt, cut back on expenditure and tried to raise more tax revenues. On the expenditure side, this translated into cutting recurrent expenditure on government services; and on the development side, it led to cutbacks in development expenditure.

From 7.5 per cent of GDP in 1991-92, development expenditure went to a low of 2.2 per cent of GDP in 2002-03. Current expenditure has been brought down from around 20 per cent of GDP to 15 per cent. The cutback in expenditure, especially development expenditure, hurt the poor and the middle class more than the rich. The poor and middle class depend more on state-provided health, education, social welfare and other services. The rich can afford private provision. So reducing quantity and quality of provision makes it difficult for the middle class to sustain its status.

On the taxation side, the inability of the government to levy direct taxes, which tend to be more progressive, showed up in the government resorting to indirect and presumptive taxation, and using withholding as a method of raising more tax revenues. All of these tend to hurt the middle class more.

Sales tax, is regressive since it is levied on usage basis, independent of income. Presumptive taxation and withholding hurt those who are already in the net. The salaried, whether in the private sector or public, fall disproportionately in this category. Today a high-salaried professional pays something like 50-60 per cent of his income in taxes; 30-35 per cent is income tax, 15 per cent is sales tax on most purchases, and then there are all the other levies and taxes. In return, this professional gets almost nothing. He sends his children to private schools and universities, and he uses private providers of health services. He does use municipal services, but he pays for them separately. So taxation changes have hurt the middle class disproportionately.

Over the 1990-91 to 2003-04 period, price indices went up by almost 175 per cent. Over the same period wages, for skilled or semi-skilled work in construction, went up by 100 per cent or a little more than that. We know salaries of government employees have also not kept up with the inflation rates. All of these categories have, therefore, fallen behind. Today, it is hard for a grade 18 or 19 officer, who makes an honest living, to give a decent lifestyle to his/her children. They can no longer claim to be in the middle class.

Inflation hurts all groups with fixed incomes. All of them, pensioners, savers and fixed-salary employees, have lost out over the last couple of decades. They have slid back, in relative and absolute terms, and have so relinquished their position in the middle class, or have really struggled to hang on to it.

The structure of the economy has altered in a way that the notion of a middle class has become a little unclear. Agriculture contributes around 23 per cent to the annual GDP, manufacturing another 24 per cent, but more than 50 per cent of the creation of value happens in the service sector. This is not uncommon for developing countries, and as we develop we should expect that agriculture will become smaller, in percentage terms, while industry and service sectors will expand more. But most jobs in the service sector do not require much skill and, therefore, do not command a high salary. If the service sector expands, we should expect job creation, but mostly in low-paying slots. This, of course, does not help in the creation of a middle class. Developed countries like the US and Canada present examples of this problem in its more developed form.

Changes in technology have also not helped the middle class. As communication has developed, as we have developed our means of reaching more and more people, we have turned many areas into ‘winner take all’ competition. With cassettes, radio, television, CDs, and so on, we can listen to the very best all the time, so why would we settle for the local not-so-good band? When we can watch the best sportsmen and women, the best artists, the best theatre, all the local groups in these professions suffer.

The rewards for being the best go up tremendously, but the rewards for the mediocre plummet. Madonna, Micheal Jackson and Nusrat command worldwide audiences, but the also-rans disappear, or struggle to live on. The specialist makes quite a package and the ordinary MBBS barely makes a subsistence living. Such changes have happened in all professions that depend on technology for reaching audiences. This has raised the incomes of the winners to unprecedented levels. Look at the incomes of the top players in any sports, film stars or musicians. Contrast that with the incomes of the second string. The differences tend to be huge: much larger than what the differences in skills would suggest. But this is the benefit or cost of new technology. It has the side-effect of raising inequality and reducing the size of the middle class.

Materialism and monetization of almost all aspects of life has also had an adverse impact on the middle class. Where people valued various ideals at one time, we are passing through a very materialistic phase in our national life right now. There is only one god right now, and that is money. A person’s worth is measured by how much money he has. Middleclass pursuits, or some of them at least, whether it be pursuit of knowledge, excellence in any of the arts, or just a quiet existence, stand denigrated and reduced to a lower level, and usually termed escapist. This just increases the tendency to try out shortcuts and take more risks — an activity not really suited to the middle class. Coupled with the arguments given above, this just further reduces the rewards from being in the middle class.

Now we return to the issues that we mentioned at the start of the article. It is true that globalization and better communication have opened up new and amazing vistas for the inhabitants of developing countries. But these are open to those who have money. Access to electronic gadgetry alone is not a sign of being in the middle class. The middle class is defined by being upwardly mobile, ambitious, able to access good quality health and education services, and able to have an opportunity set in life that allows them to rise to the level of rich in time. This is what is not available to most people in Pakistan. There is a very small percentage that earns enough to have the above. There is even a smaller number who have a hope of being in this category in the next time period.

It is true that a significant number of Pakistanis are working abroad and are earning and sending enough home to put them in the middle class, but these numbers, when we look at the total population, are not very large. Remittance of a few billion dollars a year has been coming to Karachi, Lahore and northern Punjab and the NWFP, but this is not enough to create a national middle class. Southern Punjab, Sindh and Balochistan have not enjoyed the benefits of this inflow anyway. But the real problem with this money in particular and the middle class in general is that they have not been able to create middle class values in Pakistan.

What we call middle class is typified by some values in most societies. This is the class that has the most stake in the stability of the institutions of a country. It depends on these institutions and their functioning well for its success. It depends on stable, entrenched social and moral values of a society for its success. It depends on creating institutions that ensure that opportunities, of a better life are given to most members in the middle class. This is the link that has gone missing in Pakistan in the last 20 years or so.

Whether it be because of repeated martial laws, the deteriorating economic condition, the changing structure of the economy or whether all of the above are the result of the same process, the middle class has lost ground in Pakistan in a big way.

The institutions are not delivering justice and fairness, and they do not provide a level playing field for all. This not only shows the relative lack of power of the middle class, and its efficacy, it also shows how it cannot have expanded in the last couple of decades or it will have gained in power.

With the deterioration of institutions came opening up of immigration markets for the middle class, too. Forty thousand odd Pakistanis, reportedly, immigrate to Canada alone every year. The United States, European countries and Australia are also popular destinations. Most of these Pakistanis, who migrate, are from the educated and relatively well-off groups. This has not only depleted the middle class in Pakistan directly, it has also reduced the efficacy of the middle class as a pressure group in our society. It has made the middle class politically less effective. It cannot put sufficient pressure on the institutions and the political system to deliver stability, and a fair level of quality service delivery. Even with the remittance money coming in, the middle class has been fighting a losing battle.

Structural changes in the economy, globalization and universal trends, changes in technology and markets, and the peculiar political developments of Pakistan have all mitigated against the strengthening of the middle class in Pakistan. Today it stands divided in lower and upper levels, with no political say, and with little hope of capturing power or decision making in the near future. Some in the middle class have taken the exit option. This might make individual sense, but it has hurt the group and the country. And the way things stand, we can but only offer an elegy to the middle class, and can hope for nothing more.

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