Facets of inequality

June 09, 2017


WEALTH and income inequality have risen sharply around the world in the past few decades, with data suggesting an acceleration in the trend over the recent past. This state of affairs has occurred despite massive economic prosperity having been generated over the same period of time, which has lifted millions around the globe out of extreme poverty.

However, economic prosperity has not been shared equitably. According to Oxfam, “since 2015, the richest one per cent has owned more wealth than the rest of the planet”. Earlier this year, Oxfam reported that eight of the richest men in the world now owned the same amount of wealth as the poorest half of the world (3.6 billion people).

Between 1988 and 2011, incomes of the poorest 10pc increased by just $65 per person — or less than $3 annually — compared to the incomes of the richest 1pc which grew by $11,800 per person, or 182 times as much. In the US, the situation with regards to income inequality is even more extreme. According to research by the French economist Thomas Picketty, over the last 30 years the growth in the incomes of the bottom 50pc has been zero, whereas incomes of the top 1pc have grown 300pc.

The situation in Pakistan appears to have followed a similar trend. While the Planning Commission has stopped making public statistics on income inequality for the past few years, evidence suggests that the disparity between the richest and the poorest households has increased. According to the Household Integrated Economic Survey (HIES) 2015-16, the share of the top 20pc of households in overall income is nearly 45pc, while for the bottom 20pc the share is slightly less than 9pc — a multiple of 5 times.

Inequality has broader dimensions beyond wealth or income.

While looking at inequality through the prism of income or wealth distribution is instructive, it tells a less than complete story. For a country like Pakistan, the inequality in society is multidimensional — with deep structural as well as institutional roots. The poor and vulnerable are discriminated against, face exclusion and marginalisation in a structured and institutionalised manner. Hence, for a proper understanding of the issue, one has to map the broad areas and extent of ‘non-inclusion’ of citizens, not just the inequitable distribution of wealth/income.

Some dimensions of ‘non-inclusion’ and the resultant inequality include the following:

Inequitable growth: Since the early 2000s, prima facie it appears that capital has been rewarded much more than labour in terms of distribution of returns generated from growth. With the preferred model of growth even in Pakistan leading invariably to credit-financed expansion in asset values, owners of assets (land, equities) have gained the most since — leaving the others behind. (This also points to the extreme lack of access to finance by a large part of the population).

Unfair taxation and spending: With around 90pc of tax revenue collected via indirect taxes and instruments, and personal income tax accounting for barely 1pc of GDP, the burden of tax collection falls regressively on the less affluent and poor. However, in terms of spending priorities of the government, the beneficiaries appear to be segments of society that contribute less than their share as a cohort (such as the car-owning elite, for example, via construction of flyovers and underpasses in urban centres).

Access to food and nutrition: An estimated 70-80 million people in Pakistan are food-insecure. The most pernicious form of inequality and exclusion arises from the fact that, due to poverty and high food inflation, the poor cannot afford high-protein diets for their children in the latter’s formative years. The resultant malnutrition affects most of these children throughout their life as it impedes the development of their mental faculties to their full potential.

Access to justice: Perhaps the most egregious example of institutional bias against the vast majority of the population is in the application of the rule of law and the denial of justice. Numerous examples abound, with the abysmal number of cases pursued by police and the courts against elite members of society in cases of transgression of the law, on the one hand, and the near-automatic application of the ‘iron hand’ of the state and law against the poor, on the other.

The unequal and unfair structure of society is compounded by the lack of access to even decent healthcare for the vast majority of the population, or to a quality of education that is even a fraction of what children from more advantaged households get.

Given this dismal state of affairs, there is a lot that needs to be done to mitigate the structural and institutional biases against the poor and vulnerable in society. The starting point would be not to exclude them from government statistics and include the issue of poverty and inequality in any narrative of the economy.

The government needs to invest in education and make good on the ‘education for all’ pledge enshrined in Article 25-A of the Constitution. More importantly, it needs to act to end the apartheid in education by improving the quality of education afforded to the non-elite. Upgrading and developing vocational skills of entrants to the labour force to make them more employable or to increase their income-earning potential is another area of intervention.

However, the most potent ‘leveller’ in society would come from strengthening the institutional framework and providing improved governance. By making the government more accountable, it can be made to function for all, especially the poorest and the most vulnerable. And by applying the rule of law more equally and universally, the deep-rooted biases against inclusion and greater equality can be undone.

The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.

Published in Dawn, June 9th, 2017