An important dimension of sustaining democracy and indeed state security is to provide a stake in economic citizenship to the large proportion of the population that is currently deprived of it. Even after 64 years of economic growth mass poverty persists. This is because of an institutional structure in which high economic growth has been neither sustainable nor equitable.
The consequence of this elite based growth process is that high GDP growth takes place only in spurts during periods when foreign aid is provided to fill both the savings and foreign exchange gaps. At the same time an extremely unequal distribution of productive assets in both manufacturing and agriculture, has resulted in growing income inequality during the high growth periods, thereby constraining the capacity of growth for poverty reduction.
If growth is to be sustained and poverty is to be overcome quickly, a shift in the paradigm for understanding both the determinants of growth as well as the nature of poverty is required. Recent research on development shows that the most important determinant of sustained growth is the institutional structure within which it occurs. I have argued in a forthcoming book that if Pakistan is to embark on a path of sustained growth it would be necessary to establish an institutional structure for inclusive growth. Such a growth process would provide the economic basis for sustaining democracy. The institutional structure of inclusive growth would enable all of the citizens of Pakistan rather than merely the elite, to participate as subjects of economic growth as well as the recipients of its fruits.
In addressing the structural basis of poverty, it can be proposed that neither handouts to the poor nor the trickle down effects of the conventional unequal growth process can resolve the poverty problem. This is because the poor are locked into a nexus of power within an institutional structure that gives them insufficient access to productive assets and to health, skill development and education through which they could develop their human potential. They also lack access over justice and over governance decisions that affect their immediate social, economic and environmental conditions.
A new approach to inclusive growth could be adopted by establishing an institutional framework for the provision of productive assets to the poor as well as the capacity to utilize these assets efficiently. In this way the poor by engaging in the process of investment, innovation and productivity increase could become the active subjects of economic growth rather than being merely recipients of an uncertain “trickle down” effect: Thus a sustained high growth could be achieved through equity. Inclusive growth so defined can become both the means and the end of GDP growth.
The institutional framework of such an inclusive growth could have four broad dimensions:
(1) A process of localized capital accumulation through Participatory Development. This involves facilitating the emergence of autonomous organizations of the poor at the village and mohallah levels, through which they can get access over credit for investment, training to increase their productivity, and equitable access over markets for their output. This can begin a grassroots process of savings, investment and income growth by the poor which can contribute significantly to overall GDP growth.
(2) A small and medium farmer strategy for accelerated agriculture growth through the provision of ownership rights over state land to the landless peasants. This could be backed up with institutionalized support for improved technology, quality inputs and marketing. This could enable small farmers to acquire both the capacity and the incentive for increasing yields.
(3) Accelerated growth of small and medium scale industrial enterprises through an institutional framework for increasing the production and export of high value added products in the light engineering and automotive sectors, and also agro based industries such as milk, milk products and livestock.
(4) An institutional framework for providing productive assets to the poor through equity stakes in large corporations owned by the poor and managed by professionals.
Such a growth process would be both sustainable and achieve rapid poverty reduction: it would be growth for the people and by the people.