Written By: Osman Asghar Khan
Government policies have a major role to play in promoting economic growth, while reducing income inequality and concentration of wealth in the country. Article 38 of the Constitution requires the state to promote the social and economic well-being of the people. This includes removing disparities in the earning and income of individuals. Unfortunately, the state has broadly failed in this constitutional duty. The economic managers of the country have often claimed for macro-economic stabilization, increase in foreign exchange reserves and improved tax-to-GDP ratio. But the people are always more concerned with employment, with access to high quality healthcare, education and, speedy and inexpensive justice. Whether it is 4% or 5% per capita growth in GDP, it is largely a jobless growth. It is a fact that inequality in all its manifestations is increasing in Pakistan. There is inequality of income, assets, education, health, public services, and inequality between the different regions and provinces of Pakistan. This inequality in turn retards economic growth opportunities, which means that millions of Pakistanis cannot earn a decent livelihood, and an entire generation of our youth is condemned to lead wasted lives. This inequality also breeds resentment and hate. These feelings of hate and resentment very often end up manifesting themselves in vicious acts of terror and extremism that have cost thousands of Pakistani lives. It has, therefore, become essential that we take notice of the threat growing inequality poses to our national security and that the state take steps to reduce inequality and promote economic growth.
Inequality is often looked at in two ways:one is inequality of outcomes, and the other is inequality of opportunities. Equality of outcomes is somewhat unnatural because all of us have different talent and abilities. But the state must at least strive to ensure equality of opportunity, and this is where we have been failing. Ensuring equality of opportunity requires at a minimum that all citizens, particularly the children of the poor, are given access to quality education and healthcare, that they can compete for any job for which they have the necessary skills and abilities, and that all citizens have equal access to justice and an equal stake in the political process.
In today’s Pakistan, we see inequality of both outcomes and of opportunities. We see inequality in earning; while we argue whether the per capita income has increased by 4% or 5%, the earning of the average investor in the stock market has increased by close to 40%. We see inequality in access to capital, with 7% of borrowers getting 93% of the loans, while small and medium sized businesses are starved of funding and citizens cannot get mortgage finance to buy their own homes. Many poor people are unable to afford their own homes – the HBFC loses billions of rupees every year but gives out only something like 2,000 loans. On the other hand, some real estate companies are highly profitable and the beneficiaries of multiple tax amnesties. The cement prices are among the highest in the world. We see many corporate sectors making huge profits, with rates of returns above 30% in sectors such as the power sector, the banking sector, the automobile and the cement sector, but with no benefit to consumers or the workers employed in those industries. While our agriculture sector is dying, the fertilizer companies continue to be highly profitable.
While our top private schools send students to some of the best universities in the world, millions of other children are out of school, and the standard of public schooling is mostly poor. There are great disparities in the standard of healthcare offered by most public hospitals and the best private hospitals. There is a disparity between the different regions of the country; for instance, the infrastructure, the economy, the education systems and the employment opportunities in different parts of the country.
Pakistan is not alone in seeing growing inequality, it is a phenomenon seen in many different parts of the world. The divide between the haves and have-nots continues to grow deeper and wider. The shocking election results in the United States is partly a reaction against this phenomenon.
As Nobel Prize winning economist Joseph Stiglitz has said, “Inequality is a choice” that we make because of the policies that a government promotes. The state policies must therefore address the causes of inequality. There is a need for radical reforms in our government education system. There is a need to focus on the quality of primary school education and the quantity and quality of secondary school education. There is a need to help the children of the poor. There is likewise a need for radical change in our public healthcare system, not only in the large cities of the country, but particularly in the rural districts of Pakistan.
Agriculture policy needs to be focused on increasing the productivity of our farmers.
Industrial policy must favour those sectors that create jobs. Pakistan has South Asia’s lowest rates of participation of women in the workforce. We must encourage our women to play their due role in the development of our economy.
There is inequality of income, assets, education, health, public services, and inequality between the different regions and provinces of Pakistan. This inequality in turn retards economic growth opportunities, which means that millions of Pakistanis cannot earn a decent livelihood, and an entire generation of our youth is condemned to lead wasted lives. This inequality also breeds resentment and hate. These feelings of hate and resentment very often end up manifesting themselves in vicious acts of terror and extremism that have cost thousands of Pakistani lives.
While we want to encourage our business community, regulation must deal with market failures, particularly monopolies and cartels, and ensure increased competition in markets where companies are highly profitable. The interests of consumers and the need to promote investment for job creation must be kept paramount. Over the last few years the corporate tax rate has been progressively lowered and yet the corporate sector has not invested more nor created the jobs needed to employ the millions that enter the labour force every year.
Trade unions must be strengthened; not to paralyze and destroy good businesses but rather to ensure a more equal distribution of power between management and labour. The minimum wage must be set at an appropriate level and enforced throughout the country.
Financial inclusion, particularly ensuring that all citizens have access to credit as well as the means to build up and get a positive return on their savings should be another focus of government policy. This means that banking policy must ensure that private banks extend their branch networks and bring down the fees that they charge for use of banking services. The state must also ensure that banking policy promotes home-ownership in the country. Regressive indirect taxes must be reduced. Greater reliance must be placed on income tax, property tax and wealth tax.
Inequality has always been a fact of human life. It would be naïve to think we can live in a perfectly equal world. There is no simple solution to reducing inequality. What is clear is that the state must take the lead in addressing this issue and must do so urgently.
The writer is the Honarary Consul for Ireland in Pakistan.