The redistribution of wealth

Published February 25, 2023
The writer is the author of Thinking with Ghalib (Folio Books 2021) and What We Get Wrong About Education in Pakistan (Folio Books 2022).
The writer is the author of Thinking with Ghalib (Folio Books 2021) and What We Get Wrong About Education in Pakistan (Folio Books 2022).

IT is now impossible to escape the reality that some in Pakistan have too much wealth while many have too little. Families are having to choose between food on the table and children in school. It is hard not to think that this is unfair. We can be callous about it or concerned. How the future unfolds might depend on our choice.

Contrary to the promised trickle-down of capitalist development, wealth has been sucked up. Extrapolating from India, five per cent of Pakistanis now own more than 60pc of the country’s wealth whilst the bottom 50pc share only 3pc of it. This is a huge suppression of demand that stifles growth and fosters despair.

It is unsurprising that redistribution can yield positive results. Almost all prosperous East Asian countries had land reforms, chaotic in some (China) and orderly in others (South Korea). Wealth transfer from those spending on luxuries, mostly imported, to those consuming locally made products boosts manufacturing and creates jobs.

There are other intangible benefits. In South Korea, it is claimed that reduced income inequalities placed everyone “on a more or less equal footing, and individual effort and ability rather than family wealth became the most important determinant for individual success. Many believe that the Koreans’ characteristic diligence and their emphasis on education were motivated by this perception of equal opportunity”.

The wealth-generating model of capitalism we have followed has a major anomaly.

Much has been written of the failure of land reform in Pakistan but it might be futile chasing a bus we missed. While the scope for transfers and the scale of their impact remains huge because of immensely skewed distribution, landlords are now no longer the dominant players and we should adjust our thinking to the phase of development we are in.

The wealth-generating model of capitalism we have followed has a major anomaly: while it has finally accepted the logic of minimum wage, much less attention is paid to top compensation. Discussion of the wage-ratio (ratio of top to bottom salaries) has been subdued although there is nothing sacrosanct about it. It is a policy choice and recommendations vary widely across countries.

No such ratio exists in Pakistan and we need to think of one. The monthly minimum wage is Rs25,000. Imagine a wage-ratio of, say, 30 yielding a maximum monthly compensation of Rs750,000. The market could continue to determine salaries to signal scarcities but everything above the cap could be taxed away with the proceeds earmarked in a fund to benefit the country’s poorest 25 per cent. (How the fund is set up and managed are details for later.)

A positive effect would be immediate: raising the ceiling would be tied to raising the floor making the latter something to fight for rather than against. The income compression would also trigger falling prices of housing and land freeing up resources now locked in unproductive investment.

A parallel measure could limit inheritance to, say, 25pc of household wealth beyond a certain threshold with the rest going to the above-mentioned fund. This too would initiate a positive reallocation as people dispose multiple houses and plots accumulated for passing on. Consumption would rise boosting the economy.

Education can be the most important pathway to equality but the playing field can never be levelled if access remains contingent on household wealth. We could consider eliminating private education. Children could be randomly assigned to a public school within a five-mile (eight kilometres) radius of their homes where they would ideally be bussed.

Public schools are not fated to be bad; they are so because we do not care. Exclusively public school education exists successfully in Switzerland and Finland, for example, and there is no reason it cannot in Pakistan. Once Mahmud and Ayaz have to share the same bench, public schools could improve with surprising speed.

The measures mentioned here would need time to have impact. Something is also required to reshuffle the existing order faster providing opportunities for those at the bottom to move up without recourse to a social revolution.

Consider two relevant ideas: Rawls’ ‘Veil of Ignorance’ where people are asked to design a society without knowing where they might end up in it, in terms of class, location and physical condition; and, reincarnation, in which people know they would be ‘reborn’ in forms unknown to them contingent on their deeds in this world. In the abstract, these should motivate compassionate and just behaviour but in practice they have had little effect because self-interest has become overpowering under capitalism.

Is it possible to operationalise these ideas to give them teeth? Imagine households classified into, say, five categories (from the richest to the poorest) based on the type of house they occupy. When a head of household turns 30, the household is randomly reassigned to one of these categories (within the same jurisdiction thereby enabling them to retain their jobs). A household moving down would be able to upgrade its newly assigned residence with its higher income; one moving up could generate income by subletting a part of its bigger home.

Society could be reshuffled rapidly. Slums would be upgraded and sparsely populated enclaves would densify. The market would adjust to cater to the new effective demand for services like transport.

A well-designed scheme would announce a reasonable transition period before starting implementation on a yearly basis for heads of household turning 30 that year. The expectation of forthcoming change would quite likely lead to pre-emptive adjustments so that most desired effects might be achieved during the transition period itself taking the sting out of the actual reassignments. It would be too risky to allow abject poverty to continue if one might be reincarnated as an impoverished person and slighting the ‘Veil of Ignorance’ could be costly.

Many readers might deem this quixotic if they take it literally. They should consider it more a wake-up call because where things are headed the probability of social upheaval is non-zero. We need to think ahead to craft a soft landing.

Readers can contribute by coming up with their own, more feasible, ideas for a just Pakistan. It is important to take our heads out of the sand before it is too late.

The writer is the author of Thinking with Ghalib (Folio Books 2021) and What We Get Wrong About Education in Pakistan (Folio Books 2022).

Published in Dawn, February 25th, 2023

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