Feb 8, 2011

Growth of poverty and inequality

There is a need to focus on the agenda of growth with equity and poverty-reduction programmes

By Zubair Faisal Abbasi

The latest variant of the manifesto of Pakistan People’s Party was issued in 2008. The party, after winning the election, is leading the ruling coalition. So, the items on the menu should provide central framework for what is being cooked in policy and planning kitchen of Pakistan. The manifesto promises growth with equity, meeting basic needs, targeted poverty programmes, and good governance.

Interestingly, the theme of growth with equity is something which should be very important component of the new growth strategy being developed in the Planning Commission of Pakistan. While growth is a necessary condition for equitable development, economic growth in itself does not guarantee social and economic well-being or human development. Experiences of some countries show that a few countries showed good performance in growth but lagged behind on the scale of human development.

Such a skewed growth could not adequately fuel the next rounds of expansion in economic opportunities, let alone sharing in an equitable manner with society. Human development in terms of increase in sustainability, empowerment, equity, and productivity remained a distant dream despite economic growth spurts.

Some countries even lost economic growth momentum without entering into the stage of sustainable human development. Pakistan is an example of such countries which had respectable growth till the late 1960s but later experienced low levels of economic growth (with equity) because of faltering on human development. Much like some countries of Sub-Saharan Africa and Latin America, a sizable proportion of the citizens of Pakistan has not been able to live a full-life pursuing cultural, economic, political, and social well-being.

It can be said that despite having economic growth, the group of countries which share Pakistan-like fortunes, languished in low levels of human functioning and capabilities to enjoy freedoms which modern economy could generate.

An often forgotten lesson, which emerges from these experiences, is that increasing the size of economic pie and making rich people richer does not make everyone better off later. In fact, it requires a vigilant developmental state which can administer ‘growth with equity’ as this sort of mention is found in Taiwan’s constitution -- the country showing a good example in this direction of growth outcome.

One possible outcome of growth with equity is reduction in poverty and inequality in society. Conversely, inequality and poverty as persistent phenomena in economy means that a ‘differential diagnosis’ as Jeffery Sachs calls it, has to be made lest the patient dies an avoidable death. The diagnosis should not only be to identify the fever but also deep-rooted problems which irk infrastructure, institutional arrangements, culture and behaviours, power relations, and environment.

Pakistan needs a serious effort to undergo differential diagnosis exercise; otherwise it will keep languishing in low-human development perching on poverty and inequality. At best, it will be able to achieve boom and bust type of economic growth without really sharing the story of boom with the 40 percent of population while subjecting them to shoulder 99.9 percent burden of economic downturns.

Such a trend of poverty and inequality, if it persists, will perpetuate the loss of well-being for a sizable majority of people who will not be playing a role in expanding the market. In fact, poverty and inequality feeds onto itself with depriving a large segment of population from accessing opportunities of wealth creation and income generation.

The disparities so entrenched are further cemented with a gap between the rich and poor classes, thereby making the rich powerful political elites able to become rent-seekers. The policies developed by rent-seeking society do not create space for spending on public education and health.

As a result, the growth which is shown on macro-economic curves is the growth of a small but powerful class of people and not of the whole country. The figures become deceptive to the extent that 7-9 percent growth rate (2004-05) fades away in the next two years (2006-07) and tapers off to 3 percent later, such as the case in Pakistan. Without having coherence towards improving the distribution of wealth scenario, the quality of life will not improve for a large segment of society.

The case being made for New Development Approach (NDA) at the Planning Commission will become a bundle of profound promises showing rosy pictures of creative cities. To makes things well-meaning for the poor segments of society there is a need to focus on the agenda of growth with equity and targeted poverty programmes so that inequality does not feed disgruntled portions of society.

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