|
In
Pakistan's politically and ideologically polarised society, an apparent
paradox is becoming a subject of heated debates. The paradox is that
while macro-economic indicators are showing stability and growth,
poverty levels are not abating.
Mr. Shaukat Aziz has claimed that per capita income will reach $ 600
this year - up from $ 492 last year - and the economic growth of 5.3
percent will be achieved rising to 6 percent next year, which was
the growth rate that was maintained between 1960 and 1990. The large
inflow of remittances to the tune of $4.24 billion helped GDP per
capita to increase from $420 to $492 last year. The continued momentum
of workers' remittances is expected to positively influence the per
capita level during 2003-04. While this discounts domestic contribution
to growth, the credit due to the Finance Minister and his team for
commendable performance in face of extremely difficult circumstances
does not diminish in any way. Fiscal discipline, structural reforms
and market friendly policies instituted under his leadership are beginning
bear fruits in macro-economic numbers; no one can doubt that.
The opposite view is that these are only paper statistics; at the
micro-level, economic hardships of ordinary people are increasing.
Economic growth has not made a dent in poverty levels. Rising prices
of essential commodities and unemployment are taking a heavy toll
in the streets. Sceptics assert that claims of economic growth are
a hoax. Mr. Shaukat Aziz believes that having achieved stability,
a platform is set for demonstrative economic progress at the micro-level
very soon in the future. He points towards 13.6 percent growth in
large scale industry, 35 percent increase in machinery imports and
a robust stock market (index hovering around 4900 points with market
capitalization of $ 20 billion) as harbingers of good days to come.
Both views are valid in their own right. Actually there is no paradox;
high economic growth and poverty reduction are mutually exclusive
phenomenon. They can co-exist concurrently. Ringing alarm bells over
increasing numbers of poor and unemployed in Pakistan, the State Bank
has said that the level of poverty rose to 33 per cent from 20 per
cent in the last 15 years, even though the economy looked up with
a growth rate of 5.1 per cent. Economic growth performance is no guarantee
for poverty alleviation; neither are larger allocations in social
sector development programs. Traditional thinking blames population
growth, illiteracy and bad policy planning for poverty.
While not questioning those given fundamentals, I wish to present
an 'out of the box' approach to the issue of poverty. There are three
missing links between economic growth and poverty in Pakistan, as
in many other developing countries.
The first is the inability of the country to produce capital. Capital
is the force that raises the productivity of labour and creates the
wealth of nations. With the fall of the Berlin Wall the century old
political competition between capitalism and communism ended. Today
capitalism stands alone as the only viable way to stimulate a modern
economy. Third world countries have embraced its basic tenets with
varying degrees of enthusiasm - balancing their budgets, cutting subsidies,
dropping tariffs and welcoming foreign investments. Like obedient
disciples of the western pharmacopoeia, developing countries have
adopted measures to stabilise currencies, moved towards free trade,
adopted transparent banking practices and privatised state owned industries.
But the results have not lived up to expectations. New York Times,
in an editorial, wrote, "For much of the world, the marketplace
extolled by the West in the afterglow of victory in the Cold War has
been supplanted by the cruelty of markets, wariness toward capitalism,
and dangers of instability."
Now, questions arise whether despite such good advice, why do third
world countries remain poor? Is it that they lack market orientation
and entrepreneurial skills, or they exist on the wrong end of the
Bell Curve? Neither! They have failed to develop those legal and procedural
systems that enable their poor to convert assets into capital. The
poor possess considerable assets to make a success of capitalism but,
in the words of Hernando de Soto, "they hold these resources
in defective forms: houses built on land whose ownership rights are
not adequately recorded, unincorporated businesses with undefined
liability, industries located where financiers and investors cannot
see them. Because the rights to these possessions are not adequately
documented, these assets cannot readily be turned into capital, cannot
be traded outside of narrow local circles where people know and trust
each other, cannot be used as collateral for a loan, and cannot be
used as a share against investment." In short, majority of stake
holders live in the murky shadows of the informal economy.
All the farmers and the SMEs live outside the Bell jar, where the
few hundred elites enjoy the exclusive privileges of capitalising
their assets. The assets of the farmers and the SMEs are disenfranchised
officially for purposes of capital formation. The collective value
of small farmers' assets including livestock and value of small and
micro businesses, if calculated, would exceed 10 trillion Rupees.
But what are these assets worth except for immediate physical use
- they are virtually dead assets.
All the structural reforms in CBR, Financial Institutions, Stock markets,
mutual funds and corporate governance laws are superfluous for the
majority of stake holders in Pakistan. Macro-economic growth is for
the few elite who reside in the Bell jar. The real reforms would begin
when someone talks of bringing the poor into the formal economy. I
will write more about this in my next week's column.
The second missing link is the failure of the judicial system to enforce
validity of contracts and protect the sanctity of titles to property
and goods. Although this falls within the broader failure, mentioned
above, to create a process to represent property and create capital
out of it, this is a special handicap for all; those within the formal
and the informal economy. Contractual enforcement, debt collection
and evacuation of unlawful occupation of property and goods are very
tedious and sometimes impossible to achieve through the legal system.
Invariably successful businesses adopt supra-legal measures to protect
their business claims. Such resources are beyond small and honest
entrepreneurs. New investors, local and foreign shy away from a business
environment where rules of the game are not clearly defined. And those
who learn to survive the system have a monopolistic hold over the
market through a renter class of intermediaries.
The third missing link is inability of educational institutions to
produce productive and marketable skills. The general purpose secondary
and higher secondary education system produces literates without job
market relevance. Except the few elite and specialist institutions
that produce specialists, the rest of the education system is virtually
redundant to contemporary needs. There is such a dearth of industrial
technicians and workers, farm technicians and para-technicians in
the country while MAs and MBAs roam the streets unemployed. The best
of textile units in the country with State of the Art machines depend
upon semi-skilled operators who have come through the traditional
'ustaad-shagird' apprentice system. So is the case with mechanical
engineering workshops. There are no proper schools to produce tractor
operators for the farm sector. There is a disproportionate emphasis
on white collar professions like BBAs, Accountants, Bankers, IT specialists,
Lawyers and bureaucrats, where supply has exceeded demand and unemployment
is rising. The failure to train grass-root level technicians has handicapped
Pakistan in industrialisation. India and China have industrialised
their economies on many decades of investment in training low-level
industrial workers.
To conclude, three mechanisms link economic growth to poverty reduction:
1) Processes to enable people to capitalise their assets. 2) Reliable
legal protection to property and rights. 3) Availability of technically
trained industrial and agricultural workforce. At the end of the day,
it is the poor who have to rise out of the pit themselves; but they
need the opportunity and tools to do it. Governments should plan to
provide those opportunities and tools, not keep throwing bread crumbs
at them.
Next week, we shall look at how the process can begin and how rising
disposal incomes of the poor can further enhance the privileges of
the elites.
Iqbal Mustafa
1360 words
24 April 2004
|
