May 232008

Issues of deepening poverty and widening disparities – already serious challenges to national development – have again hit the headlines. The economic and political costs of the events of the past year have taken a heavy toll on the large number of people who were already on the margins. Harrowing tales of hopeless people committing suicides, and now mob violence by the poor against crimes and perceived injustices of the system, fill newspaper spaces.

Sadly, most people living below the poverty line in Pakistan are going to remain poor – not so much for lack of efforts or abilities but economic and political development keeps them deprived of opportunities. In this “development game” of snakes and ladders, no ladder has been made available to lift these people out of the deep pits of their poverty and disempowerment. Unless rescued by a development model of widening opportunities that incorporates them into the processes of growth, many more may be slipping below that dreadful line.

If “development” does not mean widening the circles of opportunities to incorporate the ever-increasing number of the disadvantaged and disempowered of society, what is it all about, anyway?

Apart from the humanitarian issues involved in the processes of development, the present kind of development has produced an economy that is becoming non-competitive, inefficient and wasteful of national resources, landing the country into serious fiscal, trade and current account deficits. The symptoms of these problems have been visible in the workings of both public and private sector for quite sometime. The large fiscal, trade and current account deficits now plaguing the economy and the increasing poverty of large segments of society are the outcome of factors which lie deeply embedded in this form of development.

But a model of development takes its inspiration and strength from the model of economic and political governance since the poverty of people is less a reflection of the paucity of resources of a country they live in than of the poverty of the governance they live under.

Opening up this closed-circuit model of development into one of equal opportunities and participatory development, should be the first and foremost reform in order to reach out with income earning opportunities for the poor and marginalised. For that, the government will need to reorder priorities and resources and move away from megabuck capital-intensive projects of questionable feasibility and recognise that small can be beautiful for Pakistan too and along with labour-intensive investments – public and private – can hold the key to the removal of the widespread poverty and disempowerment.

It was Jan Tinbergen – the Nobel laureate in economics – who said that basically there are two ways for societies to grow: one, by increasing the number of people holding jobs and earning incomes; and second, by increasing their productivity. Both could materialise when economics of widening opportunities for people is practiced through public policies and their human resources developed.

Congo is among countries which are richest in resources – among the world’s top producers of diamonds and rich in oil and other precious minerals – and yet its people come at the bottom of several indices of human development and per- capita income.

As against this, Singapore, which as former Prime Minister Lee Kwan Yew told this writer in one of my meetings with him, “does not have even its own water to drink and yet we created assets where none existed.” Today, Singapore ranks among any list of top ten countries in the world. It is the governance, as Lee pointed out, that lifted his Third World country without any resources and turned it into a First World nation in little over a generation. And it is governance again that pushes such resource rich countries like Congo into the bottom of development indices.

This closed-circuit model has been weakening the ability of domestic economy to create new wealth and value in the face of global competition. Much of the growth witnessed during the last five years was powered not by the income-generating capabilities of domestic economy but by the generous inflows of external resources in the post-9/11 scenario. Because most of these and domestic funds were not channelled into productive sectors of the real economy, both agriculture and manufacturing have been losing their income generating capabilities in the face of rising competition.

Poverty in Pakistan is largely concentrated in its rural areas and people associated with its agricultural sector. Productivity of the agricultural sector has been enhanced by several developing countries to the extent where their farming community enjoys yields three to four times of those seen in Pakistan. If policy support to channel some of these generous inflows had been given to agriculture in the past few years, Pakistan would not be facing the kind of food inflation its people are suffering and the incidence of poverty would have been effectively reduced. Add to that the windfall profits the domestic economy will now be reaping from the manifold increases in commodity prices around the world.

The history of successful industrialisation also tells us of the progressive relocation of low-value producing industries out of metropolitan cities towards smaller towns where land and other inputs are cheaper, so that low-value products could still be competitive and profitable. These low-techs, low-value industries can only be competitive and profitable in low-cost townships, as in the rest of the world. But that historical process has remained blocked in Pakistan, where large tracts of high value land of big cities are locked up for low value products.

In fair-market practices such industries would either have relocated themselves to low-cost areas to become feasible or been wound up or bankrupted and their spaces taken over by high-value-producing, competitive industries.

But the closed-circuit model has often come to the rescue of non-competitive and loss-making enterprises by picking up their losses through a variety of concessions and loan write-offs – without sometimes seeking the removal of the fundamental causes of their ailments.

These practices dilute the relationship between productivity and profitability. For if profits can be made without improving productivity, there is no incentive to be competitive in the markets – domestic or foreign. Such a model cannot help increase the export potential of Pakistani products and its trade deficit will remain substantial.

Already, even among developing countries, Pakistan is bracketed with the least- competitive countries, along with Myanmar in Asia and Zimbabwe in Africa.

A big part of the fiscal deficit owes its origin to big-ticket items of non-productive expenditure both under civil and military heads and throwing money behind big-ticket but uneconomic and non-feasible “development” projects. Coupled with our notoriously low- tax GDP ratio, this makes it difficult to substantially reduce fiscal deficit.

Put together, this points to a culture of governance where rights and opportunities are unequal but the burdens are spread all around with the weakest ending up carrying the heaviest burdens of everyone else’s follies. Denied the ladder of opportunities, they find it difficult to pull themselves out of their poverty and disempowerment.

The critical issues lie in increasing the capacities of the economy to earn many times more from its existing stock of resources – like it has been successfully done by several other countries in agriculture and industry – and cutting costs prudently where expenditures are concerned.

Our economic imbalances are rooted in our culture of economic and political governance. Without changing this culture it would not be realistic to expect substantial reductions in these imbalances or in incidence of poverty and income disparities.

The writer is former head of the Board of Investment and a federal secretary. Email:

Courtesy: The News, 23/5/2008


 Posted by at 10:59 am

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