Fallacy of poverty reduction

WITH the prospects of a new government emerging, an assessment of the economic performance of the Musharraf regime and the lessons learned may be helpful for developing a new policy framework. An evaluation of two official claims may be central in this context.

First, did the relatively high GDP growth during the period 1999-2007 actually lead to a substantial poverty reduction as claimed by the government? Second, did the economic policies of the previous government initiate a process of sustained high economic growth? In this article we will examine the question of poverty reduction in the light of the latest research.

In a subsequent article we will evaluate the second official claim, that of achieving sustained high GDP growth.

The government has claimed that it has reduced the percentage of the population below the poverty line from 34 per cent in the year 2000-01 to 23 per cent in the year 2004-05, that is a reduction by 11 percentage points.

This means that almost one third of Pakistan’s poverty problem has been eliminated within a period of four years.

If true this would be one of the most dramatic economic achievements in the history of developing countries, including the Soviet Union under Stalin and China under Mao. India achieved a 10 percentage point reduction in poverty after 20 years with an average annual GDP growth rate of eight per cent.

We will examine the Musharraf government’s claim of a huge poverty reduction by first analysing the sources of GDP growth during the period and then putting the government’s poverty estimates to scrutiny, on the basis of a recent study done by Dr Haris Gazdar, Dr. Asad Sayeed and me.

An analysis of the sources of growth during the period 2000-01 to 2004-05 shows that the composition of growth during the period was pro-rich rather than pro-poor. It was fuelled mainly by the services sector, (particularly banking and communications) which contributed 60 per cent of GDP growth during the period and the manufacturing sector – primarily manufacture of automobiles, luxury consumer electronics, cement and textiles – which contributed 30.4 per cent of GDP growth during this period.

It is clear that GDP growth during the period was overwhelmingly pro-rich since none of the sectors which mainly constituted the growth were either producing goods for the poor or directly providing employment to them.

In fact the labour force survey data of the government shows that unemployment rates rose sharply from 6.1 per cent in 1999 to 8.3 per cent in 2004. Therefore the nature and composition of GDP growth during this period could not be expected to have substantially reduced poverty.

Let us now scrutinise the poverty estimates of the government. With respect to the estimation procedure it is important to understand that the magnitude of change in the incidence of poverty depends on two factors: (a) the base year used for comparison at two points in time, (b) the inflation rate used as a deflator to estimate changes in the consumption over time at constant prices.

Now, regarding the first factor the government’s estimate of poverty reduction uses the year 2000-01 as the base year which is a year of bad harvest, and compares it to the year 2004-05 which is a good harvest year. Clearly, comparing a drought year with a good harvest year will, ceteris paribus, exaggerate the magnitude of poverty reduction.

It is therefore more appropriate to compare the year 1998-99 with the year 2004-05. With respect to the second factor, the government’s poverty estimate uses an inappropriate inflation rate based on the consumer price index, which only covers 16 urban centres. It does not take account of prices in the rural areas where the majority of the poor reside.

Indeed inflation rate data based on both urban and rural areas was available from the Pakistan Living Standard Measurement (PLSM) survey. The PLSM data of course shows a much higher inflation rate. The government instead chose the CPI index for inflation which would yield an artificially low inflation rate and thereby a much higher magnitude of poverty reduction.

Mr Talat Anwar, in an earlier study, has attempted to correct the biases in the official poverty estimates by using the year 1998-99 as the base year and the inflation rate drawn from the PLSM data.

His estimate shows that during the period 1998-99 to 2004-05 poverty declined by only 1.8 percentage points, from 31.1 per cent in 1998-99 to 29.3 per cent in 2004-05.

Our own poverty estimate also takes account of the inconsistencies in the Sindh sub-sample and yields a poverty reduction estimate of only 0.6 percentage points with poverty declining from 31.3 per cent in 1998-99 to 30.7 per cent in 2004-05.

One can conclude therefore that, there has been no significant poverty reduction during the period 1998-99 to 2004-05. This conclusion is consistent with the sources of growth analysis based on national income data.

In the three years after 2004-05 the demand-supply imbalances in the economy resulting from design errors of the economic policy led to accelerated inflation, particularly food inflation, severe shortages of flour, electricity, gas and fuel. The accelerating inflation rate particularly for items in the poor man’s basket would be expected to have worsened the poverty situation.

Therefore in the Musharraf period as a whole (1999-2007), while high GDP growth rates were generated, they failed to significantly reduce poverty. It is important to draw the scientifically correct lessons in order to redesign the economic policy to address the central economic policy challenge that still remains: Initiating a process of sustained high economic growth that is restructured in favour of the poor to achieve rapid poverty reduction.

The writer is Distinguished Professor, Beacon house National University and Senior Fellow, Pakistan Institute of Development Economics.

A perfect election

IT is a perfect verdict for everyone except for those who had become a liability for people above and below them. The cake was cut in a manner to please generally. The eating part will come later.

First take the president of the country. He has been absolved of charges of rigging the vote in favour of his Pakistan Muslim League-Q. He had sent shivers down the spine of all those who considered a free election vital for Pakistan’s stability when he said that he expected his allies to obtain a majority on Feb 18. It may have cost Chaudhry Shujaat Hussain his seat in the National Assembly, but at least he can boast now that aspersions cast on President Pervez Musharraf’s role during the polls have turned out to be false.

Next is the Pakistan Election Commission, which had been until Feb 18 dubbed as the executer of the rigging plan. Its early estimates say the voter turnout could be as high as 45 per cent. This should make foreign analysts happy and the observers from abroad will soon be giving us a clean bill of democratic health, and they will not have to worry about their conscience. Only a couple of days before the polls, some of them were heard criticising all parties for violating the election code.

The results closely reflect a popular desire for change, a breaking away from the Musharrafian tradition of the last eight years or so. At the same time, manifest in the verdict is the Pakistanis’ rejection of the extremists who stand directly opposed to the president.

In the Frontier, as expected, the people have voted wholeheartedly for a change that they believe the Awami National Party and Pakistan People’s Party Parliamentarian are capable of bringing in a life besieged by the bombers. The two factions of the Pakistan Muslim League may have won a few more seats than expected, but by all indications of realpolitik and ideology the ANP-PPPP combine should be able to form a coalition government in Peshawar. They have something to learn from the Muttahida Majlis-i-Amal’s success in keeping its coalition intact until the very last, pronouncements of its early demise notwithstanding.

Simply put, the ANP and PPP should realise that they need to be in power in the Frontier to secure the province for themselves for at least a few years. With no heavyweights such as Aftab Sherpao nursing high ambitions in the PPPP’s camp this time around, a coalition may prove to be more durable than similar arrangements of the past.

The same holds true for Sindh, where, in the wake of the election results, analysts have once again been found advising the PPP and the Muttahida Qaumi Movement to rise above their differences for some kind of a working relationship. A PPP-MQM coalition in the province may have its problems and its challenges, yet, so many years down the road, it is perhaps a possibility not as distant as it was in the year 1988.

The two sides have made some friendly overtures towards each other in the recent past and the media, that has been in the forefront of the save-Pakistan campaign, is persistent in keeping Altaf Hussain’s post-poll reconciliatory message pasted on the television screen to ensure that the PPP registers it. The public, which has received a voice in the media, is desperate for stability. The PPP and MQM, like all other parties in the country, would do well to keep this in mind as they chart out their post-poll strategies for Sindh.

The PPP has done reasonably well in Balochistan, even if the PML-Q has emerged on top. The PPP may lead the anti-PML-Q group’s claim to power in this seriously isolated and long smouldering province in the federation. Given the rather low turnout – locally blamed on the sense of insecurity rather than the poll boycott by the All Pakistan Democratic Alliance — any coalition that takes charge in Quetta would be up against a challenge from the word go.

The solution for Balochistan lies as much in Balochistan as it lies in other provinces of Pakistan, especially in Punjab. True to its wont, during the election campaign the biggest province was too embroiled in its own problems to deal with the issues the smaller provinces have with it.

Punjab continues to treat Balochistan as a remote place ruled by tribal chiefs. Enough is enough. We can trust the people of Balochistan to look after themselves in their territory. Sitting in Lahore our concern should be to make their stay in Pakistan as comfortable as we can.

Lahore is abuzz with people who have come out in the open giving the Sharifs a position to make such a huge impact on future developments. The PML-N leaders say they are committed to their pre-election pledge of restoring the judiciary to its pre-Nov 3 status and they promise stability and law and order to the people. The party needs to grow in its role as an entity which cares for and respects the smaller provinces. The propensity for reconciliation it had shown in its ties with Ms Benazir Bhutto must continue and the process must embrace smaller parties and provinces – if for nothing else, for the security that its voters in Punjab demand from it.

The huge PML-N gains in Punjab and its reasonably good showing in parts of the Frontier are intrinsically tied to the party leaders’ reputation of being moderates. The Sharifs’ win surprised not only the PML-Q but also the PPP which had to be content with a second place in many of the constituencies it thought it had in its pocket. The feeling is that while the PPP has obtained a large number of seats in the national and provincial assembly in Punjab and has made advances in all other provinces and at the centre, its showing in the major cities of Punjab such as Rawalpindi, Faisalabad and Gujranwala did not quite match public expectations.

The sympathy vote that so many said the PPP would get in Punjab did not quite materialise. Many in the province don’t consider the PPP safe enough, given its ‘enlightened’ label and the heavy baggage of a past ‘tainted’ with corruption. This in spite of the fact that the party is considered to be a voice for the underprivileged by others. It suffers on account of the leadership vacuum left by the death of Ms Bhutto and is being advised to try and ensure that the parliament now elected should complete its term. This will enable the PPP to repair past damages. It could start by formulating it stance on crucial questions such as the restoration of the judiciary and identifying its leaders in all the five assemblies.

On this count – being prominently represented in all five assemblies -- the PPP never had it so good. The allies the PPP and the second largest party, the PML-N, choose for themselves from now on would to a great extent determine how reconciliatory the politics in the country will turn out to be in the near future. They have been all calling for a consensus government for some time. Now is the time.

The difficult part is how these parties maintain a balance between the people’s anti-status quo aspirations that have found such a strong expression in their vote and the need to strike a compromise with the establishment. Things would have been much easier had the patron of the PML-Q until the eve of the election were to accept the verdict for what it is – a rejection of his policies – and bow out gracefully. His continued presence leaves parties eager to have a hold on power vulnerable to deals with the establishment. It remains to be seen who bites first. With so many groups to contend with and contain each other, the choice really lies with the establishment.

Resigning on principles

PEOPLE old enough to have seen the march of events in this country since independence will remember that the only important Pakistani who ever resigned on principle was Chaudhry Mohammed Ali, who was prime minister in the fifties.

He did not have to resign though, because the point at dispute was a minor one, but since Chaudhry Sahib was both upright and sensitive, he thought it would be a weight on his conscience to continue, although he commanded a clear majority in the National Assembly. Pakistan has been unfortunate in never having a man like him since then.

Some years ago, Pakistan’s railway minister, instead of following the pointless example of railway ministers in other countries who hasten to resign when a major railway accident takes place, suspended the General Manager instead, because it was not he (the minister) who was responsible for the terrible accident which resulted in a large number of deaths. The GM could also have turned around and said that he too was nowhere near the place, so why should he be made the scapegoat? But being just an officer and not a minister he could only fret and fume.

When a calamitous accident occurred near Sangi railway station in Sindh during Ms Benazir Bhutto’s second term as Prime Minister, the then minister-in-charge offered to resign during a cabinet meeting, but since BB was talking to someone else at that moment the offer was not taken up. It was not even included in the minutes of the meeting.

In the aftermath of Sangi accident, a well-known newspaper columnist was recalling with nostalgic admiration the resignation of Mr Lal Bahadur Shastri as railway minister of India after a particularly bad train crash. Mr Shastri was rewarded for his public spirit by the Fates and ended up as his country’s prime minister. I had to remind the columnist that Mr Shastri’s resignation had its effect in Pakistan too, though not in the way anyone would imagine.

It was like this. Shortly after the Indian train accident a similar disaster took place in Pakistan, and politicians began calling upon Mian Jafar Shah of Mardan, the then railway minister, to take a lesson from Mr Shastri’s example. Of course no one seriously expected Mian Sahib to do that since such finer points of democratic behaviour are unknown in Pakistan. They just wanted to tease him and see what he would say.

And he did say and that too on the floor of the National Assembly. In a statement he gave details of the accident and the casualties and finally added: “There is some irresponsible talk about resigning just because there has been a bad train crash. I was neither the station master nor the pointsman nor the engine driver. So there is no reason for me to lay down my office. As for following the example of the Indian minister, I am proud to say that I am a Muslim and do not have to walk in the footsteps of kafirs.”

There was a muted and half-hearted thumping of desks from the treasury benches, but the entire house marvelled at the manner in which Mian Sahib had wriggled out of the embarrassment thrust upon him.But every minister does not have a justification or excuse or a scapegoat when he is confronted with a failing on his own part. Usually, they either express indignation or hurl counter charges at their critics, in both cases making fools of themselves. There are few who really know what to do and say on such occasions – as the Gilani Syed from Multan did. (If you can take another anecdote).

Incensed by the charge in the provincial assembly that his relations were receiving greater attention in Multan’s hospitals than members of the public, the provincial health minister of One Unit days, Syed Alamdar Hussain Gilani, tall and weighing 250 pounds, rose up from his seat with great dignity and said, “Look at my health and physique. I may tell you that I do not recall ever having fallen sick.”

He then asked his brother, also an MPA, to get up. “Uthh Rehmat Shah te House noo apni sehat wakha.” (Get up Rehmat Shah and show the House your health). Rehmat Shah Gilani stood up with some difficulty; he was short and rotund and some 300 pounds in weight. “My other near relations too are of the same size and model,” said Minister Gilani triumphantly. “Let the House judge whether we as a family need treatment in hospitals.” With these words he took his seat. There was thunderous applause at this performance.

Ministers are personally culpable in very few cases. And cases in which they really are guilty of misdemeanour never get known till they are gone, and then it is too late for any action to be taken. Notionally they are responsible for everything big and small that takes place under their charge, which means that in cases of failure of administration they would be resigning half a dozen times every day.

In the matter which is the subject of this piece, no one seriously asked PM Benazir Bhutto’s railway minister to resign, and even the opposition’s demand was half-hearted and put forward as a routine. But then, where is the Pakistani tradition of resigning that members of the cabinet are supposed to follow?

Sindh: no change can mean a change

THE post-election result in Sindh resonates with the People’s Party election cry: Tum kitne Bhutto maro ge? Har ghar se Bhutto nikle ga (How many Bhuttos will you kill? A Bhutto shall emerge from every home).

The party has managed the highest number of seats in the National Assembly and not thanks to Sindh alone. Its enviable comeback is owed to a strong showing in all four provinces. Pity that Benazir did not live to see the day.

The PPP was expected to win a comfortable majority in the Sindh Assembly in a fairer election, and it did. The PPP-Shaheed Bhutto continued to bite the dust even though it tried to ride the sympathy wave in the aftermath of Benazir’s murder, reaching out, in turns, to the estranged, aggrieved family and laying claim to the Bhutto kinship – but to no avail.

As expected, there has been a rude awakening for the last ruling coalition partner, the PML-Q, which has shown an abysmal tally. On the other hand, the MQM, the other former ruling coalition partner, has retained all of its seats; again, as expected.

Nonetheless, the MQM’s gesture of reconciliation on Monday night, as poll results were still coming in, offering cooperation to the People’s Party and the PML-N augur well for the province. The MQM holds considerable stakes in urban Sindh, and thus any offer to be a partner with the bigger national parties in the interest of the province should be taken up in right earnest. As far as Sindh is concerned it will depend wholly on how soon and effectively both the PPP and the MQM are able to put their troubled past behind them.

At the Centre, too, the MQM will have to strike a balance between adopting a similar forgive-and-forget strategy vis-à-vis the PML-N, without making the PPP jittery. While there exists some newfound common ground between the country’s two largest parties, as they have emerged in this election, there remains much else to divide them.

The PPP’s stance on the judiciary is similar to the MQM’s; and the same can also be said for the PML-N and MQM stance on Dr Qadeer Khan. Given the Muttahida’s pretence at national politics but holding the Sindh card while flashing it at the same time, it is a tough call to strike a balance between supporting the PML-N and the PPP.

While results in urban Sindh were pretty much as expected, it is the voice of rural Sindh which is now being heard in the results polled in the interior. The sympathy factor is only one of the explanations that can be cited for the PPP sweep in Sindh; objective analysts will also point to the fairer and freer aspect of these elections, which was not the case in 2002. The People’s Party was the single largest party back then, despite the rigging, but an uneasy coalition was put in place by outside forces through manipulation of election results and politicians bent on keeping the PPP out of government.

What followed under the stewardship of the former chief minister Arbab Ghulam Rahim, and his likeminded partners in northern Sindh, namely the Pir Pagara-led PML-F, the Soomros and the Jatois, for instance, was a vicious five-year-long campaign to castigate the PPP. This was done in the most shameful manner and was an ungainly move to register loyalties with the civil-military establishment at the centre. This time round, under a fairer election, such bad politics came in for the beating, which the proponents worked hard for and earned.

The anti-PPP vote in the interior of Sindh has still helped the People’s Party’s opponents to retain some of their seats. Among these are nine for the Q League, seven for the Functional League and three for National People’s Party.

On the other hand, the ANP has also secured two seats in the Sindh Assembly, indicating to a degree a demographic change in the province’s urban population rather than a shift in the loyalties of Sindh-based voters.

But the Karachi Pakhtoon, like its MQM counterpart, votes more along ethnic lines rather than on a shared ideology. The ANP win can be seen more in response to the May 12 show of strength in Karachi by the MQM and less in terms of a foreseeable steady rise as counter-ethnic vote in the multi-ethnic metropolis. Many Pakhtoons residing in Sindh are still not registered as voters in the province.

Sindh’s popular vote cast on Monday’s election, split as it is mainly between the urban-based MQM and the rural-based PPP, holds much promise for furthering the cause of this emotionally and politically troubled province, and healing its many wounds. But the task ahead requires political acumen and astute handling by the PPP and the MQM for Sindh to remain an influencing factor in national politics.

While there’s little change in voting patterns in Sindh, good change can be brought to the people of Sindh if the result of this election is geared towards affecting such a change.

Fixing the facts

YEARS have passed since Tony Blair first suggested that the people in Britain wanted to “move on” from Iraq. Fortunately for anyone concerned with avoiding a rerun of the disastrous conflict, some people refuse stubbornly to do so.

Foremost among them is Chris Ames, a freelance researcher from Surrey who runs a website dedicated to the dossier that publicised Saddam Hussein’s –– as it turned out non-existent –– weapons of mass destruction. On Monday his four-year campaign to secure release of an early draft of the document paid off.

Appeals and ministerial vetoes have been deployed at every stage to postpone the release of this document, written by the former Foreign Office press man, John Williams. Its publication is a heartening sign of the difference that freedom of information legislation can make.

Before the Iraq war, Tony Blair was advised that in America the “facts were being fixed around the policy”. The Williams draft contains new evidence that something similar may have been going on in the UK. Where the intelligence in a previously released earlier draft had suggested that Iraq was seeking to obtain materials with a nuclear application, in the Williams draft the same materials were being obtained for use in nuclear weapons. Language about mobile weapons laboratories was also toughened up. The earlier draft had said that Iraq was seeking to acquire them, but Mr Williams asserted that Iraq had developed them.

These changes survived into the draft that Mr Blair published. Despite protestations that the intelligence services had been in the driving seat, Monday’s document provides the latest evidence that the demands of communication were allowed to compromise the content.

But that is hardly news: it is already public knowledge, after all, that the chief of staff at No 10 made even more important changes. Suggestions that the document would prove that Mr Williams was the author of the infamous claim that Saddam could launch weapons within 45 minutes were not fulfilled. The damage has been limited further because some of Mr Williams’ more excitable prose did not make it into the published version.

The Williams draft, then, does not prove that one communications man was responsible for the dodginess of the dossier. That, however, was never likely –– the mixing up of evidence and spin was a process, not an event. What it does provide is one more sign of how that mixing worked. Press officers should not be involved in manufacturing a prospectus for war. Even if many of his words were not in the end used, Mr Williams has been shown to have done just that. With that revelation, the case for an inquiry only grows.

––The Guardian, London