Development Advocate Pakistan: Volume 3, Issue 2

Development Advocate Pakistan: Volume 3, Issue 2

July 28, 2016

One of the world's great achievements of the past decades is the significant fall in global poverty. Between 1990 and 2012 the proportion of humanity living under USD 1.90 a day fell by more than one billion people, driven in a large part by China's efforts.

Despite this tremendous achievement, income inequality has increased both within and across countries. Today, 16 percent of the global population earns 55 percent of its income, while 72 percent of the world's poor account for just over one percent of wealth. 

Inequality matters for moral reasons but also because of its remarkable implications on growth and development outcomes. Persistent inequality hampers economic growth, impedes poverty reduction, fuels crime, squanders talent and human potential, and stifles social mobility. An unequal society is not only unfair, it is less prosperous and stable.

Escaping this inequality trap is the 21st century's most critical challenge and lies at the heart of the global agenda enshrined in the Sustainable Development Goals (SDGs) which includes two goals – SDG1: ending poverty in all its forms, and SDG 10: leaving no one behind – specifically focused on reducing inequality within and among countries.

In Pakistan, the challenge of inequality is equally daunting. While consumption-based poverty dropped from 57.9 percent to 29.5 percent between 1998/99 and 2013/14, and multidimensional poverty - which includes health, education and living standards - fell from 55.2 percent to 38.8 percent between 2004/05 and 2014/15, inequality has grown. In 1987/88 the Gini coefficient, which measures income inequality, was 0.35; by 2013/14 it had risen to 0.41. Pakistan's richest 20 percent now consume seven times more than the poorest 20 percent.

Regional disparities are stark and slow down growth and development. The Government's Multidimensional Poverty Index released last month found that 54.6 percent of rural Pakistanis experienced poverty compared to 9.3 percent in cities. Multidimensional poverty stands at 31.5 percent in Punjab but rises to 73.7 percent in FATA. While multidimensional poverty in Islamabad, Lahore, Karachi, and Rawalpindi is below 10 percent, it exceeds 90 percent in Killa Abdullah, Harnai, Barkhan, Sherani Kohistan. Hence, some Pakistani districts are as well-off as any developed country while others are on par with the poorest in sub-Saharan Africa.

Inequality's insidious effects pervades families. As women are mostly engaged in unpaid family work, their very real economic contribution is unaccounted for. Women own less than 3 percent of land which impacts on their economic empowerment. Their participation in the labour force is a mere 25 percent compared to 83 percent for men.  This is the lowest in South Asia after Afghanistan. 

Back in 1968, renowned economist Dr. Mahbub Ul Haq identified 22 families which then controlled two-thirds of Pakistan's industrial assets. In a 1973 article in The Times, Dr. Haq called for reforming Pakistan's economic, social and political institutions to help prevent the concentration of such immense wealth amongst the few. 

Although the landscape has changed considerably since then, his recommendations remain painfully valid. Pakistan's institutions, incentives, laws and norms continue to conspire to create rent for the rich and burden for the poor.

These include tax exemptions on select sectors and indirect taxes which disproportionally affect the poor. The richest districts in Pakistan receive, on average, five times more public funds than the poorest, further aggravating inequality. The high cost of running for elections systematically excludes poor Pakistanis from political institutions. Discrimination on the basis of gender, economic status, religion and social identity restricts upward mobility.

To date, Pakistan's response to inequality has been superficial, focusing on symptoms rather than root causes. As a result, inequality has persisted and even grown. To tackle inequality seriously requires a holistic approach, addressing both its structural and distributional dimensions. Key institutions need to be reformed, and fiscal, monetary and other policies made equitable. Regional inequality may be addressed by investing adequate public funds in lagging regions and districts, and particularly in rural areas. Governments should use the Multidimensional Poverty Index to inform allocations, especially under their Provincial Finance Commission awards, which are long overdue. Gender responsive budgeting can help mainstream women's priorities in budgeting processes.

Most important, however, is to bring the debate on inequality back into the public realm. Politicians, bureaucrats, civil society, the media, many development partners and the wider public all continue to ignore the cancer of inequality on Pakistani society and economy. It is time to recognize that this inequality is not inevitable. Today, nearly 50 years after Dr. Haq wrote his seminal diagnosis, it is time to act so Pakistan can escape its inequality trap and create the just, stable and dynamic society envisaged by its founders.

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