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Differences in perception

January 22, 2013

WHY do perceptions vary over the outcomes of government policies and actions? In this writer’s view this is because interpretations and some of the official data may not be consistent with the people’s own experience.

Disagreements between the viewpoints of the government and the governed need to be understood in terms of the different perspectives from which each side defines an issue (eg what constitutes poverty), analyses policies and examines outcomes. And that combined results when disaggregated into smaller components more clearly reflecting people’s individual experiences may help explain the passionate manner in which differences in points of view are expressed and argued.

The poor, NGOs or groups dealing with less fortunate households believe that poverty has increased in terms of larger numbers (as opposed to percentages of the population) of the poor. This is seemingly confirmed by the growing number of beggars they encounter at traffic lights in the main cities. To them the claim of a decline in the incidence of poverty is not held out by daily experience, especially when they learn from the government that poverty now afflicts only 12.4 per cent of households.

This is compounded by their own experience of a widening gap between individual incomes and private goods and services that can be purchased from this income, e.g., clothing, education, health and housing, and goods and services like drinking water, sanitation, health etc., provided by the government.

Averages tend to be deceptive and whereas the income- and expenditure-based measurement of poverty may be failing, the distribution of this “average” may not be capturing how some members of the household, especially women and children, may be facing malnutrition as a result of the rising share of family spending on food.

Also, this poverty measure may not fully reflect the changing consumption basket, which would render people’s experience of being worse off at variance with official statistics (on inflation and the proportion of households below the poverty line), appearing to suggest a decline in the incidence of poverty and the rate of inflation.

In view of changing consumer preferences (say, resulting in a switch from cereal to other food items combined with an overall switch from food to non-food items), weaker household members being worse off and adjustments in utility tariffs absorbing a greater share of household spending, the official poverty line may well be underestimating the true cost of attaining caloric requirements. This is so especially given the accusations of commentators about deliberate government manipulation of price data for estimating inflation.

But then, there has undoubtedly been some reduction in the incidence of poverty (although the extent of the decline demands more analysis), based on a poverty line determined in terms of income or expenditure required to be able to consume a minimum number of calories a month. This is also partially evidenced by the increase in the size and proportion of a more visible middle class. This increase has come from those graduating from the ranks of less privileged households and not affluent segments falling into middle-class status. In other words, it is the proportion of the poor in the population that must have declined.

However, this may have happened while households cut expenditure on education and health to meet caloric requirements, and the quantity and quality of services provided by the government worsened (reflected only partially in the lowered spending on education and health as a ratio of GDP), without this deterioration showing up in the poverty measure. Income- and expenditure-based measurements of poverty are not designed to capture the ‘quality’ aspect of services.

There may be a lack of schoolteachers of decent quality (either they are not recruited or are generally absent) or health services may be poor (because of staff not performing its duty, lack of provision or pilferage of medicines). In the case of health, the rise in cardiovascular disease and diabetes, which are more expensive to manage, make greater demands on scarce government health services. With a stagnant, if not weakening, ratio of health spending to GDP, not surprisingly, the public perceives that there has been a weakening in the quality of health services provided by government.

There has also been a slow and steady decline in the quality and efficiency of civil servants and government institutions and, resultantly, in the coverage and quality of public services available to the citizenry. The deterioration in the quality of utility services (particularly electricity and gas) has accentuated negative experiences. As explained, none of this is picked up by income- and expenditure-based poverty indicators.

Furthermore, contrary to official claims about improvements in the functioning of domestic markets, the individual and collective experience is that ‘markets’ in Pakistan are characterised by pockets of monopolistic or oligopolistic power structures. And official economic policy is being implemented through structures which do not allow markets to function freely in the classical sense that underlies government claims. The losers are consumers with little voice.

Examples that are highlighted in support of this argument are the money lenders and arthis in rural areas, cement and sugar cartels that regularly and freely manipulate prices, the field day that motor car assemblers — Toyota, Honda, Suzuki — are having with little exposure to competition and the Water and Power Development Authority for its high tariffs partly because of corruption and inefficient operations.

Examples also include cellphone operators with consumers that are charged for a busy network and the large gap between lending rates of banks and what they pay to depositors, even after privatisation of most of the banking system.

The economic policies of governments are influenced by these agents, who have market power and operate in a structure that is not competitive and does not function freely. Hence, the theory and rhetoric underlying government policy appear to be flawed and out of line with practices and reality.

In a system in which most state actors appear to be personally prospering, and the lifestyles of public representatives and civil and military bureaucrats financed from the public purse becoming more lavish, it becomes difficult for the public at large to accept it as necessary that their belts be tightened to lower the level of the government’s budget deficit.

The writer is a former governor of the State Bank of Pakistan.