For almost three centuries economists had thought that inequality was the inevitable result of economic growth in at least the early stages of the economic development of a country. This was simply because of the belief that only the rich save and invest and so if growth was to be maximized the rich should be allowed to become richer. Of course the poor had to settle for the “trickle-down” effect of such growth. In Pakistan’s policy making this postulate of mainstream economics was assiduously adopted ever since economic planning began in the mid 1950s. During the decade of the 1960s (during the Ayub regime), economic planners more systematically introduced policies designed to transfer real incomes from the poor to the rich in accordance with the orthodox view that economic growth could be maximized only through inequality. Let the size of the cake become bigger they argued before talking about income distribution.
It was not surprising that by the end of the 1960s, the rich became very rich with 43 families in West Pakistan producing 46 percent of value added in large scale manufacturing industry, controlling 84.4 percent of earning assets in banking and 75.6 percent in insurance. Over the same period the per capita consumption of food grain by the poorest 60 percent of Pakistan’s population declined in absolute terms. Just as inter personal inequality increased sharply so did the economic disparity between regions. The former resulted in a mass movement in West Pakistan that overthrew the Ayub government and the latter phenomenon fuelled a sub nationalist movement in East Pakistan that resulted in the emergence of independent Bangladesh where the majority of Pakistan’s population had earlier resided.
Inspite of the explosive consequences of economic policy in the 1960s Pakistan’s economic planners failed to grasp the fact that inequality can place unmanageable stresses on the political fabric as well as the state structure. Except for a brief period in the regime of Prime Minister Z.A. Bhutto, inter-personal and inter-regional economic inequality persisted. Today even after 68 years of independence mass poverty exists alongside fabulous affluence. According to the latest estimate by the International Food Policy Research Institute (IFPRI) 39.7 percent of the population (in terms of the calorific norm) is living below the poverty line. This lack of access over adequate food is impacting the most vulnerable members of poor families: children. Thus 43 percent of Pakistan’s children are suffering from malnutrition. The UNDP estimate of Multidimensional Poverty Index (MPI) shows that 45.6 percent of the population is living below the poverty line. If we take account of services such as safe drinking water, decent transport, adequate housing, quality health care, quality education, low cost access over justice, then we can say that the majority of the people of Pakistan are today deprived of the minimum material conditions of dignified human existence.
Amidst mass poverty the elite are living in luxury. The inequality is acute: If we take USD 2 per day as the poverty line then over 60 percent of Pakistan’s population is living in poverty. This means that the average annual income of the richest (over USD 200 per day) is about 100 times more than the average annual income of the poorest 60 percent of Pakistan’s population. These stark numbers are palpable at a visceral level for those with a heart: the rich drive in their Mercedes limousines to grand banquets in Islamabad while children in Tharparkar crawl to their deaths in starvation.
In contrast to the poverty and inequality that characterize Pakistan today, equality is a founding principle of Pakistan. For example, Quaid-e-Azam Muhammad Ali Jinnah in his address at the public meeting in Chittagong on 26 March 1948 affirmed that,
“The great ideals of human progress, of social justice, of equality and of fraternity constitute the basic causes of the birth of Pakistan….”
The Constitution of Pakistan articulates this vision of Jinnah in Article 38 (a), as follows:
“The State shall secure the well being of the people irrespective of sex, caste, creed or race by raising their standard of living, by preventing the concentration of wealth and means of production and distribution in the hands of a few to the detriment of the general interest….”
The time has come to examine the causes and the cure for this incongruence between the very idea of Pakistan and the economic reality that has been shaped by post independence policies. As a first step in charting a course of equitable development in Pakistan as envisaged by its founding father as also the Constitution, it is necessary to turn on its head the conventional economic wisdom that high growth requires inequality. I have argued in my published work that it is possible for Pakistan to achieve high and sustained growth through equity. What is required is a change in the institutional structure of the economy so as to provide access to the middle classes and the poor over investible resources, education and skill training for high wage employment and quality health care. This could initiate a new process of inclusive economic growth in which the middle classes and the poor can engage as drivers of growth rather than merely the recipients of an uncertain “trickle down” effect. Such an economy that is powered by the investment and innovation of the many rather than the few would generate a higher growth precisely because it is equitable.
This proposition is borne out by empirical work done with my graduate student, Nazeef Ishtiaq. Our analysis based on data from 90 developing countries over a 16 year period (1995 to 2012), shows that equity has a strong positive effect on long term economic growth. Such a growth process also imparts greater resilience to an economy. For example our econometric analysis shows that those developing countries which had greater inequality suffered a sharper growth slowdown in the face of the recent exogenous shock of global recession compared to those which had a lower income inequality.
After the contractionary economic program of the IMF followed over the last 5 years, it is now necessary to break out of the mould of orthodoxy and devise a new development strategy for Pakistan. When all of the people rather than only a few have opportunities for developing their talents for enterprise, innovation and creativity, then human progress could be achieved for a stronger Pakistan. By providing access over investment, education, training and health facilities to all of the people of Pakistan rather than just the elite, we could achieve growth that is for the people and by the people. Such an economic democracy would strengthen both political democracy and the state. In so doing Pakistan could move towards fulfilling the vision of Jinnah for equality, social justice and fraternity.