THE issue of poverty has been receiving considerable attention in the media for several years, especially since the policy for macroeconomic stabilisation was implemented by the government. While the emphasis on poverty reduction through growth is still the official policy, neither of the two objectives seems to be showing any progress.
On the question of poverty reduction, there is a serious gap between what the officials claim has been accomplished and the perception and experience of the majority of people about it. The recently released provisional poverty estimates, for example, which claim to show a notable reduction in the number of the poor in the country illustrates my point.
Why should this be the case has been examined extensively in recent commentaries on this subject. The issue does not seem to go away and the official position seems to be to stay the course. There is, therefore, scope for further discussion and examination of the question albeit in a broader perspective. This would underline the challenge that the government is faced with concerning poverty reduction.
The global focus on national poverty is really a new phenomenon. Until recently the poor received attention mainly as a problem of disparity among nations. A direct focus was badly needed, therefore, because, as Michael Harrington, the author of “Other America” often observed in the 1960s, there were poor people in rich countries as there were rich people in poor countries.
The UNDP has done pioneering work in highlighting this phenomenon by producing data on the availability of the basic amenities of life to people in the developing countries. The watershed in the fight against poverty was the Millennium Declaration signed by 189 countries in September 2000. It highlighted the reality of absolute poverty with reference to the developing countries, by using a threshold of minimum income of one dollar a day.
In discussions on international disparities, the focus has been necessarily on relative poverty, perhaps because the developed countries are not faced with a serious problem of people living below the poverty line. It is an important issue but does not properly explore the facts about the state of life of people at the lowest rung of the ladder in income distribution, neither in the developed countries nor the developing ones. In the latter countries it has been associated with the pattern of a traditional society. In many developed countries, especially in North America, the emphasis has been placed on the culture of poverty in the urban areas.
Oscar Lewis, the author of “Five Families” could assure, for example, his readers that poverty was not merely a lack of adequate income, but rather a way life handed down from generation to generation.
In contrast to the culture of poverty, the economists, such as Keith Griffin, emphasise, especially with reference to South Asia, that poverty is a product of some social and economic processes which are intrinsic to the social systems in the developing countries. These economists give considerable attention to the historical facts in which the interests of various classes are often in conflict. The issue, therefore, can be resolved only through structural changes in society.
Whether it is a matter of “culture” of poverty or of unequal access to assets, in a society where both kinds of poverties are a reality, a comparative view of both is necessary in order to draw a meaningful picture about them. They are in a symbiotic relationship, like two blades of scissors. Therefore, to define absolute poverty just in terms of calorie count is an insult to the poor as human beings.
Another aspect of poverty that impinges on our discussion of the concepts of relative and absolute poverty and adds an angle to the question of income distribution is the existence of what is called the working poor. Their portrait is more easily available with reference to the developed countries than the developing countries. In the 19th Century, Charles Dickens described their plight in post-Industrial Revolution England. More recently, Barbara Ehrenreich describes their low-wage existence in the United States in her 2001 bestseller “Nickel and Dimed”. For Pulitzer Prize winning US reporter David R. Shipler, poverty is an interlocking problem, as he describes it in his “The Working Poor”.
In a developing country such as Pakistan, there are the ‘chowkidars’, ‘chaprasis’, the chauffeurs and drivers, and the domestic servants, not to speak of the network of clerks churning out red-tape in their endeavours to keep the “bosses” happy — all fitting into tightly-defined social hierarchies.
This demonstrates that poverty is a very complex issue. It is not just about minimum required money income or measurement of subsistence. It is a matter of poverty of opportunity. One wonders, for example, how many of the working poor end up in their present station in life because they never had an opportunity to develop in accordance with their potential talents.
With its many facets, the issue calls for a comprehensive approach for reduction of poverty. Concerning absolute poverty, it is a difficult challenge to define what average level of income would meet the basic needs of an individual or a household. The basket of goods and services for minimum sustenance may be measured by a common denominator of a dollar a day or some other unit adjusted with national or local norms. But other related issues still need to be kept in view for a full understanding of the situation such as purchasing power as determined by the price level of essential goods.
In this regard, the data about inflationary pressures may be received with reservations if their message does not correspond with the general experience. They may also become out of date because of the time lag between their tabulation and publication.
The concept of relative poverty, as I have mentioned above, underlines the gap between the rich and the poor. Generally, information about the various income groups in a country is divided into the quartiles or deciles in a descending order and inequality among people is measured by means of statistical devices such as Gini Coefficient. There may be variation, however, within the income groups which are covered by their averages. In a country such as Pakistan, for example, it should be of interest to have the average income of the top five per cent available in order to measure the true gap between the rich and the poor.
All the above considerations assume their respective places in the formulation of public policy on this matter. As is well known, the focus of this policy in Pakistan is, in the words of the World Bank, “poverty reduction and growth”. The approach to poverty which has now assumed a hegemonic position in development thinking is a variant of neo-classical position promoted by the World Bank. According to this approach, only the market-led development would reduce poverty in a country. As observed by K.T. Silva and K. Athukorala, the “safety nets for the poor” have only a limited role in this process as long as they do not inhibit the market mechanism (Poverty: a Global View, edited by Else Oyen, S.M. Miller and Abdus Samad, Oslo, 1996).
The conventional wisdom shared by policy makers in Pakistan is that growth is necessary for poverty reduction. It is a vague statement and is open to interpretation. When the time element is added to it, for example, then growth becomes the main target of the policy objective, with distribution playing its role only after growth has reached a certain critical minimum level.
In this formulation, the statement becomes a controversial issue. There is a strong body of opinion among economists that challenges the view that growth should be given priority over redistribution. I have dealt with this issue in my “Economic Growth and Social Choice” (Dawn, Encounter, February 11), and do not wish to repeat my argument here except to emphasise one point: it would make eminent sense that a proper development strategy for a developing country such as Pakistan should focus on both ends of the process of growth. Growth with equity should be the main objective of the state.
The sequential approach to growth was developed in the 1950s with a focus on the role of capital formation in propelling an economy to “unlimited” growth with high mass consumption. For the economy to become self-sustaining, according to the argument, it was necessary to reinvest the surplus in order to expand the potential output. For both capitalists and workers had more to gain by focusing on increase in output, because the latter group would gain from increased material production through the “trickle-down” effect. Kuznet’s analysis of relation between income distribution and growth (the Kuznet’s Curve) provided support for this point of view.
This model was developed against the background of reconstruction of post-Second World War European economy where the challenge was to rebuild with the help of the resources, including entrepreneurship and a large reservoir of skilled labour which were easily accessible within the economy. Such is not the case with a developing country which would need a multifaceted approach to its economy. It takes time to produce educated and skilled manpower and it can only be done by allocating resources simultaneously to this sector, along with other development plans.
The importance of social choice has received further attention as a result of the renewal of interest in the concept of the welfare state. It has a new dimension added to it, that of the relationship between ethics and economics. There is a revival of interest in the contributions of economists such as A.C. Pigou, one of disciples of Alfred Marshall. The starting point of economics, according to this approach, is poverty rather than sophisticated nature of efficiency. The goal of economics should be to relieve human beings from poverty and then to pursue the objective of excellence.
Neither the discipline itself nor the policy makers may be ready to embark upon such a drastic shift in their plans. But the new ideas certainly should encourage us to pause and think about the present state of economic life.
The latest thinking also debunks the assertion that pursuing growth with equitable distribution would unnecessarily slow its pace and might even frustrate both objectives. In light of the above discussion, the following remarks are aimed at the specific situation in Pakistan concerning poverty reduction:
1. In order to devise a meaningful policy, the first important step is to have a system in which an autonomous federal bureau of statistics would make available at regular intervals the results of the household surveys, along with definition of concepts and methodology used. Also, information about income distribution in the country, based on income tax and other related data, would be published regularly.
2. Agriculture, being the largest single sector of the economy, deserves special consideration. In 2002 and 2003, two reports were published which put emphasis on the question of rural poverty in the country. The first report entitled “Pakistan Poverty Assessment: Poverty in Pakistan: Vulnerabilities, Social Gaps and Rural Dynamics” was from the World Bank. The second report was published on behalf of the UNDP and was entitled “Pakistan: National Human Development Report 2003”.
Both reports focus on the important question of poverty reduction, but the differences between the two are striking. Unlike the World Bank report, the UNDP report advocates a deliberate public policy to strengthen the rights of tenants and farmers, to allow them to break out of the nexus of unequal access to assets. In other words, for the market mechanism to work, it is necessary to establish “the safety nets for the poor” through a deliberate public policy.
To the best of my knowledge, the report seems to have assumed the status of an archival material, placed on a shelf along with other such “historical” documents.
3. Taking a broader view of the access to assets for the farmers, a greater recognition of some of the minor crops would present a potential for growth and help the poorer farmers. The Pakistan Poverty Reduction Strategy Paper seems to suggest production of milk as a pro-poor policy, however. There may be good prospects for this kind of endeavour for a prosperous investor but not for the poor whose meagre resources cannot allow them to own enough dairy cattle to become entrepreneurs in milk production.
4. A sound agricultural policy is the backbone of the economy and that includes land reform. It is simply not justified to have more than half of agricultural land owned by less than 5 per cent of the landowners, plus the newly emerging commercial farmers from the military sector. A comprehensive review of agriculture in Pakistan is, therefore, necessary for an agrarian reform in the context of modern time. This point has been emphasised by a vast majority of commentaries on the subject and it can bear repetition. The ruling groups are likely to resist these reforms. What prospects then are there in the near future? Perhaps not very bright.
Sunday, August 15, 2010
Poverty: actions, not words
POVERTY is the buzzword in development economics and policymaking in Third World countries today. The problem with the strategies that are being mooted to eradicate this blight from people’s life is that planners tend to focus on the monetary aspect of poverty.
It is widely — but erroneously — believed that if a person has a comfortable income to enable him to purchase the good things in life he has pulled himself out of poverty. That is why the emphasis is on employment generation and schemes to enable people to earn a livelihood.
What is often overlooked is that a dent can be made in poverty by addressing other factors as well — not necessarily financial — that will create an impact on the poverty level of a society. It is a pity that no empirical study of its kind has been done to determine what effect interventions in the social sectors will have on poverty. A person’s economic income may be given a boost not by directly doling out cash or jobs to him.
Raising his educational level and improving his health status while providing him positive and inspirational leadership could lift him out of poverty by giving him the incentive and motivation to better his living standards. The basic difference between the poor and the rich is that the former have few choices in life while the latter have far too many. Reducing poverty, in effect, is all about creating choices for everybody.
In an excellent background paper titled, “The poverty-health relationship in Pakistan”, prepared for the Asian Development Bank, Akbar Zaidi, a senior economist and consultant, has correctly pointed out the close nexus between poverty and ill- health. “The poverty health relationship in developing countries is often an interlocking relationship, with each round of poverty having an impact on ill health, and the further deterioration of health having a subsequent impact on the level and nature of poverty at the individual and household level,” he writes.
It is strange, as Zaidi points out, that not much notice has been taken of this interrelationship that is so obvious. Thus it is not surprising that the national health survey of Pakistan found 65 per cent of the extremely poor ill at the time of the survey. Moreover, nearly two-thirds of the deaths in Pakistan are caused by communicable diseases (mainly infectious, viral and malarial). These can be easily controlled by better hygiene and sanitation. It is generally the poor who fall victim to typhoid, diarrhoea, tuberculosis, etc because they are affected more profoundly by the government’s apathy, ineptitude, inefficiency and corruption — all of which are the primary cause for the creation of conditions that lead to these illnesses.
But what needs to be noted is that it is not just health and poverty that are so closely interlinked. Education, water supply, housing, sanitation and environment also have a direct impact on one another as well as on health and poverty. Hence the need for a holistic approach to all these sectors of national life.
One doesn’t even need a survey to be told that the majority of the extremely poor are also illiterate and uneducated. Going further, it is the poverty-stricken that are denied access to potable water supply. The rich go and purchase bottled water. Those living in dismally unhygienic conditions are also the poor.
An empirical study on how the deficiency in one area of life affects the other aspects of people’s life would be instructive and also shake policymakers out of their stupor. It is no revelation that a child who is ill cannot attend school and his high rate of absenteeism makes him likely to drop out and thus become a candidate for illiteracy. This in turn would ensure his lack of awareness of how insanitation and impure water affect health. This vicious cycle would serve to perpetuate his poverty.
Hence it is essential to focus on all aspects of life of the poor if poverty has to be eradicated. Unfortunately, this is not being done. Had there even been an iota of awareness of the linkages between the various social sectors and poverty, the government’s blatant thrust towards the private sector would not have existed. The private sector does not cater to the needs of the poor. The shrinking role of the public sector in education, health, population welfare and housing point to a policy of marginalisation of the poor.
It is time our policymakers were more honest in their poverty eradication policy. Their loud talk about doing away with poverty and their concern for the poor are no more than a subterfuge to win support from the aid givers. Only a fraction of the funds that flow in for the purpose of eliminating poverty actually go to the poor.
Thus the government claims that its poverty reduction strategy consists of five elements: accelerating economic growth, investing in human capital, augmenting targeted interventions, expanding social safety nets and improving governance.
But that doesn’t convince one that the policy is sincerely directed against poverty. Thus investment in human capital by itself is not enough. It must be channelled towards the poor. The Pakistan Economic Survey 2005-06 boasts of poverty related expenditures amounting to Rs378 billion in 2005-06 that include community services, human development, rural development, safety nets and governance. But in the absence of any breakup, one cannot be certain how much of this amount helped the rich. The Economic Survey itself admits that consumption inequality in Pakistan has increased with consumption having increased faster for the top 20 per cent of the population as compared to the growth rate of the bottom 20 per cent. The Gini Coefficient went up from 0.2752 in 2001-02 to 0.2976 in 2004-05. (The higher the figure the greater is the inequality.)
Had the government been focusing on poverty reduction, its education policy would also have been oriented towards establishing schools in the public sector to provide high grade education to the children of those living below the poverty line.
Rather than setting up expensive tertiary hospitals, the government would have focused on preventive medicine such as immunisation, sanitation, environmental protection, clean water supply, safe maternal health and population planning. The fact, however, is, as pointed out by Akbar Zaidi, “The market-driven private, for-profit sector, for the most part, is not involved in preventive measures.” It may be added here that the government has not done enough either.
Emphasis on preventive medicine would automatically reduce the need for interventions of a curative nature which mostly benefit the private sector — be it the physician charging Rs1,500 for a visit and a prescription for high cost medicines or the quack who charges Rs50 for dispensing medicines the contents of which he himself doesn’t know.
It is widely — but erroneously — believed that if a person has a comfortable income to enable him to purchase the good things in life he has pulled himself out of poverty. That is why the emphasis is on employment generation and schemes to enable people to earn a livelihood.
What is often overlooked is that a dent can be made in poverty by addressing other factors as well — not necessarily financial — that will create an impact on the poverty level of a society. It is a pity that no empirical study of its kind has been done to determine what effect interventions in the social sectors will have on poverty. A person’s economic income may be given a boost not by directly doling out cash or jobs to him.
Raising his educational level and improving his health status while providing him positive and inspirational leadership could lift him out of poverty by giving him the incentive and motivation to better his living standards. The basic difference between the poor and the rich is that the former have few choices in life while the latter have far too many. Reducing poverty, in effect, is all about creating choices for everybody.
In an excellent background paper titled, “The poverty-health relationship in Pakistan”, prepared for the Asian Development Bank, Akbar Zaidi, a senior economist and consultant, has correctly pointed out the close nexus between poverty and ill- health. “The poverty health relationship in developing countries is often an interlocking relationship, with each round of poverty having an impact on ill health, and the further deterioration of health having a subsequent impact on the level and nature of poverty at the individual and household level,” he writes.
It is strange, as Zaidi points out, that not much notice has been taken of this interrelationship that is so obvious. Thus it is not surprising that the national health survey of Pakistan found 65 per cent of the extremely poor ill at the time of the survey. Moreover, nearly two-thirds of the deaths in Pakistan are caused by communicable diseases (mainly infectious, viral and malarial). These can be easily controlled by better hygiene and sanitation. It is generally the poor who fall victim to typhoid, diarrhoea, tuberculosis, etc because they are affected more profoundly by the government’s apathy, ineptitude, inefficiency and corruption — all of which are the primary cause for the creation of conditions that lead to these illnesses.
But what needs to be noted is that it is not just health and poverty that are so closely interlinked. Education, water supply, housing, sanitation and environment also have a direct impact on one another as well as on health and poverty. Hence the need for a holistic approach to all these sectors of national life.
One doesn’t even need a survey to be told that the majority of the extremely poor are also illiterate and uneducated. Going further, it is the poverty-stricken that are denied access to potable water supply. The rich go and purchase bottled water. Those living in dismally unhygienic conditions are also the poor.
An empirical study on how the deficiency in one area of life affects the other aspects of people’s life would be instructive and also shake policymakers out of their stupor. It is no revelation that a child who is ill cannot attend school and his high rate of absenteeism makes him likely to drop out and thus become a candidate for illiteracy. This in turn would ensure his lack of awareness of how insanitation and impure water affect health. This vicious cycle would serve to perpetuate his poverty.
Hence it is essential to focus on all aspects of life of the poor if poverty has to be eradicated. Unfortunately, this is not being done. Had there even been an iota of awareness of the linkages between the various social sectors and poverty, the government’s blatant thrust towards the private sector would not have existed. The private sector does not cater to the needs of the poor. The shrinking role of the public sector in education, health, population welfare and housing point to a policy of marginalisation of the poor.
It is time our policymakers were more honest in their poverty eradication policy. Their loud talk about doing away with poverty and their concern for the poor are no more than a subterfuge to win support from the aid givers. Only a fraction of the funds that flow in for the purpose of eliminating poverty actually go to the poor.
Thus the government claims that its poverty reduction strategy consists of five elements: accelerating economic growth, investing in human capital, augmenting targeted interventions, expanding social safety nets and improving governance.
But that doesn’t convince one that the policy is sincerely directed against poverty. Thus investment in human capital by itself is not enough. It must be channelled towards the poor. The Pakistan Economic Survey 2005-06 boasts of poverty related expenditures amounting to Rs378 billion in 2005-06 that include community services, human development, rural development, safety nets and governance. But in the absence of any breakup, one cannot be certain how much of this amount helped the rich. The Economic Survey itself admits that consumption inequality in Pakistan has increased with consumption having increased faster for the top 20 per cent of the population as compared to the growth rate of the bottom 20 per cent. The Gini Coefficient went up from 0.2752 in 2001-02 to 0.2976 in 2004-05. (The higher the figure the greater is the inequality.)
Had the government been focusing on poverty reduction, its education policy would also have been oriented towards establishing schools in the public sector to provide high grade education to the children of those living below the poverty line.
Rather than setting up expensive tertiary hospitals, the government would have focused on preventive medicine such as immunisation, sanitation, environmental protection, clean water supply, safe maternal health and population planning. The fact, however, is, as pointed out by Akbar Zaidi, “The market-driven private, for-profit sector, for the most part, is not involved in preventive measures.” It may be added here that the government has not done enough either.
Emphasis on preventive medicine would automatically reduce the need for interventions of a curative nature which mostly benefit the private sector — be it the physician charging Rs1,500 for a visit and a prescription for high cost medicines or the quack who charges Rs50 for dispensing medicines the contents of which he himself doesn’t know.
__________________
My ALLAH it is enough for my respect that I m "Your" person & it is enough for my pride that "You" are my GOD."You" are exactly the way I desire.Thus please mould me the way "You" desire.
My ALLAH it is enough for my respect that I m "Your" person & it is enough for my pride that "You" are my GOD."You" are exactly the way I desire.Thus please mould me the way "You" desire.
Modern world economics and Pakistan
Modern world economics and Pakistan
All countries have mutual relationship in modern world economics. However developing countries are dependent on modern world economics instead of coexistence whereas developed countries are in a position to dictate world economics. This situation is applicable to Pakistan as well. However, salient features of modern economics are listed below prior to writing about economy of Pakistan.
(a) Capital is the most important aspect of the modern world economics system. Therefore capital formation is the basis of the system. There are many institutions which exist in the world for this purpose like banking or insurance system or stock exchanges etc. Old world economic system had commodity as most important aspect. Therefore its basis was not capital formation inspite of existence of currency.
(b) The need for capital has germinated the necessity of loan. Loan is not only needed by industry or agriculture for its establishment or for labour or for input like raw material etc. it is needed even by individuals for building house or for purchase of house or for purchase of other amenities of life.
(c) Loan has enhanced the concept of interest to such an extent that it has gained importance in economics equivalent to capital itself.
(d) Another important aspect of modern world economics is industrialisation which is dependent upon sale for the sake of its survival as well as for the sake of further development. Therefore export is an important factor for developed as well as developing countries.
(e) The factor of export has granted great importance to the currency which has resulted in establishment of international currency market. This has resulted in two things namely economic disparity in the world indicated by the developed and developing countries or north and south etc. The second thing is trend in extensive circulation of currency both in internal market of a country as well as in international markets. This has ended up in constant price rise of all types of commodities due to easy availability of currency through many means thus price rise has caused economic instability in the world.
(f) Efforts have been made to find solution to this problem like creation of economic blocks e.g. European common market or Asian etc. However, this too has not proved satisfactory despite creation of IMF or World Bank or Euro etc. This fact is evident from recent expression by finance ministers of G8 in Italy that world economy is subject to recession.
(g) The basic reason for recession is:
(1) to increase production constantly in industry to enhance its capital potential in order to meet price rise effect in its production cost due to fact listed in (e) above as well as to increase income of owner to meet the effect of price rise on his personal expenditure.
(2) The internal markets get saturated quickly due to continuous rise in production.
(3) This necessitates increase in export. However, export is restrained due to economic disparity in the world. That is the reason of expression by G8 finance ministers about economic recession.
Pakistan's economy is subject to recession due to its dependence on world economic system. Therefore most important point for economy or Pakistan is to adopt the policy of coexistence instead of dependance. Measures which will be necessary for this purpose are listed in subsequent paragraphs.
Western teachings about economics will have to be amended to the extent that industrialisation is the primary means to reduce unemployment. Industry is the main economic factor in the west because countries there remain covered by snow for six months and hence they cannot cocenterate on agriculture development. This is the reason for such teaching of the west. The fact of existence of unemployment allowance in those countries is a proof that industerialisation cannot eliminate unemployment.
Another point about industerialisation in Pakistan is that this country cannot establish heavy industries due to lack of financial resources. Small industries cannot prosper in the absence of heavy industries because heavy industry is the primary consumer of production of small industries. Medium size industries in Pakistan are faced with tough competition in the world markets. All the developing countries of the world are possessing only medium size industries due to lack of fiscal resources and it causes tough competition.
Economy of Pakistan must be run in accordance with the economic principals to achieve good results. However, Pakistan's economy has been governed by politics and political considerations. The reason is that country inherited poor economy at the termination of colonisation. Therefore, it germinated a desire of development amongst people which gave an opportunity to the politicians to exploit this factor for political support of majority. They utilised many means for this purpose. In fact, bifurcation of Pakistan has been due to this reason. Even now claim about ethnicity or regionalism etc. is cause for obstruction to development of economy according to correct economic principals.
Political parties as well as media, both print and electronic, which is also a form of politics use concept of poverty to pressurise any existing government since many years due to existence of poor economy. They term lack of modern amenities. The real problem in Pakistan is disparity which is due to capital oriented economic system -- not poverty. There is no one in Pakistan who sleeps hungry and trend of suicide or killing of children or family is due to greed -- not hunger.
The concept of greed has been germinated in people due to desire for capital i.e., money which is the prominent feature of economic system of the world as well as of Pakistan. Modern amenities are the basic elements which germinate the desire for capital i.e. money in every mind and hence generate greed. Various measures like winning of prizes through draw and advertisements for this purpose etc. in order to build capital cause generation of greed in public as well as it enhances steps which spoil society e.g., increase in abduction for money or dacoity or cheating etc. The fact of orientation of mind to capital is evident from the fact that even sports are used to accumulate capital. Orientation of human mind towards capital creates desire to seek capital i.e. money and thus germinates greed which ends up in disparity in the society and this is the real problem of economic system of Pakistan.
Another fact which needs attention is that definition of strong and good economy to be prescribed correctly. Developed countries define it as budgeting without deficit. This is so because it helps them to establish superiority of their currency in international currency market and thus earn through high cost of export of their industrial production as well as earn through interest by granting loans. Whereas media and politics of Pakistan define it as elimination of poverty and unemployment.
The correct definition of strong and good economy is the one which progresses in a manner that it ensures its own progress at a pace in consonant with its capability and ensures correct utilisation of its own resources both fiscal generated by itself as well as natural national resources developed by economic itself.
The fundamental economic error committed by leadership of Pakistan has been that economy of the country was and still is agrarian and it was essential to undertake rural development first instead of urban development which has not been done due to political considerations. This is so because rural development could not gain political support due to the fact that rural population is spread in wide area and any type of development project in rural area would have benefitted small numbers at a time causing small political support whereas lack of developmental attention in urban areas due to major attention to rural areas could generate political agitation causing problem to politicians in power and hence great attention was paid to urban areas. This has resulted in shifting of rural population to urban aras resulting in provision of basis for political instability which is the basic cause of still failure to take correct economic decisions to ensure strong and good economy.
The above noted mistakes in economic sphere of Pakistan have been listed to induce thinking in public to suggest measures how to remove the effects of these mistakes. This is one aspect of improvement in economic system of Pakistan. There is another aspect also which is framing new design of economic system which can coexist with world economic system instead of being dependant on it. There can be many suggestions for this. However, some are listed below.
Capital orientation
Present economic system should be redesigned so that its orientation is not dependent on capital only. Its orientation should be based on capital and commodity jointly. This objective can be achieved by following measures:
(a) to introduce trade in internal market on commodity exchange basis or partly capital i.e. money and partly commodity exchange basis. This will be possible by charging tax on capital transaction only.
(b) to introduce partial commodity exchange system by inducing Pakistani importers to make deal on the basis that the exporter will be willing to purchase either some type of commodity produced in Pakistan or import some quantity produced by importers from raw material imported by Pakistani importers on the basis of partial capital and partial commodity prior to import.
(c) to introduce joint venture between agriculture and industry in the country. There can be many ways to achieve this which can not be listed here for the sake of brevity. However, government can encourage it by granting tax exemption to the industry already existing and not to new venture, when existing industry adopts joint venture for its first year. Then impose tax in second year at small scale and enhance it on yearly basis on its income production basis by monitoring it. Also agriculturist may be granted revenue exemption for first year.
Price rise
This is one of the byproduct of present economic system. An increase in sale enables price rise due to rise in demand. Price rise enhances expensiveness which is vicious circle and it is not possible to get out of it. Thus it ends up in economic recession. Major element which leads to price rise is stock exchange because survival of stock exchange is dependant upon price rise only. This institution has been introduced by the west in order to achieve capital formation for industrial development which is main source of survival of their economy. However, economy of Pakistan is agrarian and its development will depend upon system operating upon joint capital and commodity. The stock exchange in fact is an institution for betting and sale of shares is possible only on the hope or earning by the purchaser and this hope fulfills often which ends up in price rise of commodity. Stock exchange is an institution of capital formation which lures every government to encourage it in order to achieve rise in investment and thus enable government to achieve an increase in its financial income through tax apart from political support of traders. However, it harms economy, instead of benefit, through recession after a period. The claim by stock exchange operators that price rise or increase in sale of shares is an indicator of economic development is wrong. Therefore, stock exchanges should be closed. This will help to introduce an economic system based on commodity and capital jointly which is prominent feature of new economic system as proposed above.
Loan
This is a most prominent mean of capital formation through interest by financial institutions. Agriculture of Pakistan carries heavy burden of loan. Therefore, its progress suffers from this impediment. Measures should be adopted to relieve the agrarian economy from this burden so that it achieves self-reliance and progresses at good pace. An agriculturist of Pakistan depended on loan even prior to end of colonisation and he obtained loan from 'hindu bania' where as he has been replaced by banks. Every government supported this to ensure political support instead of adopting measures to eliminate burden of loan on agrarian economy by pleading that progress is sought in agrarian economy which is not the fact as evident from past history of more than fifty years. The progress in agrarian economy is possible only through rural development e.g., increase in water supply or roads from field to market etc. as well as relief of this economy from burden of loan. Rural development policy has been adopted but it should be augmented by this decision also. There can be many measures to achieve it but are not listed in view of brevity.
Investment
This is dependent upon capital formation to a great extent. However, it is possible only on assurance of earning which is dependent upon price rise which can cause recession occassionaly. Therefore, correct policy for Pakistan will be to lay equal emphasis on local investment in transit trade in addition to agriculture. Foreign investment will be possible only on its chance to earn more than its earning in own country. Therefore, they will prefer decrease in value of Pakistan currency in international currency market. It is pointed out that transit trade was only mean of economy of state of Madina during period of holy Prophet and its adoption will be Sunnah.
Interest
It has importance equal to capital in modern economic system. However, Supreme Court appellant bench has termed it as riba which is forbidden by Allah. Holy Quran terms riba as a battle with Allah. Battle with Allah does not mean that Allah comes out with sword or gun etc. against human beings. Allah has stated in Holy Quran that one form of punishment by Him is that He induces difference of opinion and thus cause conflict in human beings to kill each other. Presence of terrorism in Pakistan is a proof of this. Therefore, interest should be eliminated from economic system. Privatisation of banks will not make it possible. Joint system of capital and commodity in economics will make it possible. Details of methods to do it are not listed for the sake of brevity.
(a) Capital is the most important aspect of the modern world economics system. Therefore capital formation is the basis of the system. There are many institutions which exist in the world for this purpose like banking or insurance system or stock exchanges etc. Old world economic system had commodity as most important aspect. Therefore its basis was not capital formation inspite of existence of currency.
(b) The need for capital has germinated the necessity of loan. Loan is not only needed by industry or agriculture for its establishment or for labour or for input like raw material etc. it is needed even by individuals for building house or for purchase of house or for purchase of other amenities of life.
(c) Loan has enhanced the concept of interest to such an extent that it has gained importance in economics equivalent to capital itself.
(d) Another important aspect of modern world economics is industrialisation which is dependent upon sale for the sake of its survival as well as for the sake of further development. Therefore export is an important factor for developed as well as developing countries.
(e) The factor of export has granted great importance to the currency which has resulted in establishment of international currency market. This has resulted in two things namely economic disparity in the world indicated by the developed and developing countries or north and south etc. The second thing is trend in extensive circulation of currency both in internal market of a country as well as in international markets. This has ended up in constant price rise of all types of commodities due to easy availability of currency through many means thus price rise has caused economic instability in the world.
(f) Efforts have been made to find solution to this problem like creation of economic blocks e.g. European common market or Asian etc. However, this too has not proved satisfactory despite creation of IMF or World Bank or Euro etc. This fact is evident from recent expression by finance ministers of G8 in Italy that world economy is subject to recession.
(g) The basic reason for recession is:
(1) to increase production constantly in industry to enhance its capital potential in order to meet price rise effect in its production cost due to fact listed in (e) above as well as to increase income of owner to meet the effect of price rise on his personal expenditure.
(2) The internal markets get saturated quickly due to continuous rise in production.
(3) This necessitates increase in export. However, export is restrained due to economic disparity in the world. That is the reason of expression by G8 finance ministers about economic recession.
Pakistan's economy is subject to recession due to its dependence on world economic system. Therefore most important point for economy or Pakistan is to adopt the policy of coexistence instead of dependance. Measures which will be necessary for this purpose are listed in subsequent paragraphs.
Western teachings about economics will have to be amended to the extent that industrialisation is the primary means to reduce unemployment. Industry is the main economic factor in the west because countries there remain covered by snow for six months and hence they cannot cocenterate on agriculture development. This is the reason for such teaching of the west. The fact of existence of unemployment allowance in those countries is a proof that industerialisation cannot eliminate unemployment.
Another point about industerialisation in Pakistan is that this country cannot establish heavy industries due to lack of financial resources. Small industries cannot prosper in the absence of heavy industries because heavy industry is the primary consumer of production of small industries. Medium size industries in Pakistan are faced with tough competition in the world markets. All the developing countries of the world are possessing only medium size industries due to lack of fiscal resources and it causes tough competition.
Economy of Pakistan must be run in accordance with the economic principals to achieve good results. However, Pakistan's economy has been governed by politics and political considerations. The reason is that country inherited poor economy at the termination of colonisation. Therefore, it germinated a desire of development amongst people which gave an opportunity to the politicians to exploit this factor for political support of majority. They utilised many means for this purpose. In fact, bifurcation of Pakistan has been due to this reason. Even now claim about ethnicity or regionalism etc. is cause for obstruction to development of economy according to correct economic principals.
Political parties as well as media, both print and electronic, which is also a form of politics use concept of poverty to pressurise any existing government since many years due to existence of poor economy. They term lack of modern amenities. The real problem in Pakistan is disparity which is due to capital oriented economic system -- not poverty. There is no one in Pakistan who sleeps hungry and trend of suicide or killing of children or family is due to greed -- not hunger.
The concept of greed has been germinated in people due to desire for capital i.e., money which is the prominent feature of economic system of the world as well as of Pakistan. Modern amenities are the basic elements which germinate the desire for capital i.e. money in every mind and hence generate greed. Various measures like winning of prizes through draw and advertisements for this purpose etc. in order to build capital cause generation of greed in public as well as it enhances steps which spoil society e.g., increase in abduction for money or dacoity or cheating etc. The fact of orientation of mind to capital is evident from the fact that even sports are used to accumulate capital. Orientation of human mind towards capital creates desire to seek capital i.e. money and thus germinates greed which ends up in disparity in the society and this is the real problem of economic system of Pakistan.
Another fact which needs attention is that definition of strong and good economy to be prescribed correctly. Developed countries define it as budgeting without deficit. This is so because it helps them to establish superiority of their currency in international currency market and thus earn through high cost of export of their industrial production as well as earn through interest by granting loans. Whereas media and politics of Pakistan define it as elimination of poverty and unemployment.
The correct definition of strong and good economy is the one which progresses in a manner that it ensures its own progress at a pace in consonant with its capability and ensures correct utilisation of its own resources both fiscal generated by itself as well as natural national resources developed by economic itself.
The fundamental economic error committed by leadership of Pakistan has been that economy of the country was and still is agrarian and it was essential to undertake rural development first instead of urban development which has not been done due to political considerations. This is so because rural development could not gain political support due to the fact that rural population is spread in wide area and any type of development project in rural area would have benefitted small numbers at a time causing small political support whereas lack of developmental attention in urban areas due to major attention to rural areas could generate political agitation causing problem to politicians in power and hence great attention was paid to urban areas. This has resulted in shifting of rural population to urban aras resulting in provision of basis for political instability which is the basic cause of still failure to take correct economic decisions to ensure strong and good economy.
The above noted mistakes in economic sphere of Pakistan have been listed to induce thinking in public to suggest measures how to remove the effects of these mistakes. This is one aspect of improvement in economic system of Pakistan. There is another aspect also which is framing new design of economic system which can coexist with world economic system instead of being dependant on it. There can be many suggestions for this. However, some are listed below.
Capital orientation
Present economic system should be redesigned so that its orientation is not dependent on capital only. Its orientation should be based on capital and commodity jointly. This objective can be achieved by following measures:
(a) to introduce trade in internal market on commodity exchange basis or partly capital i.e. money and partly commodity exchange basis. This will be possible by charging tax on capital transaction only.
(b) to introduce partial commodity exchange system by inducing Pakistani importers to make deal on the basis that the exporter will be willing to purchase either some type of commodity produced in Pakistan or import some quantity produced by importers from raw material imported by Pakistani importers on the basis of partial capital and partial commodity prior to import.
(c) to introduce joint venture between agriculture and industry in the country. There can be many ways to achieve this which can not be listed here for the sake of brevity. However, government can encourage it by granting tax exemption to the industry already existing and not to new venture, when existing industry adopts joint venture for its first year. Then impose tax in second year at small scale and enhance it on yearly basis on its income production basis by monitoring it. Also agriculturist may be granted revenue exemption for first year.
Price rise
This is one of the byproduct of present economic system. An increase in sale enables price rise due to rise in demand. Price rise enhances expensiveness which is vicious circle and it is not possible to get out of it. Thus it ends up in economic recession. Major element which leads to price rise is stock exchange because survival of stock exchange is dependant upon price rise only. This institution has been introduced by the west in order to achieve capital formation for industrial development which is main source of survival of their economy. However, economy of Pakistan is agrarian and its development will depend upon system operating upon joint capital and commodity. The stock exchange in fact is an institution for betting and sale of shares is possible only on the hope or earning by the purchaser and this hope fulfills often which ends up in price rise of commodity. Stock exchange is an institution of capital formation which lures every government to encourage it in order to achieve rise in investment and thus enable government to achieve an increase in its financial income through tax apart from political support of traders. However, it harms economy, instead of benefit, through recession after a period. The claim by stock exchange operators that price rise or increase in sale of shares is an indicator of economic development is wrong. Therefore, stock exchanges should be closed. This will help to introduce an economic system based on commodity and capital jointly which is prominent feature of new economic system as proposed above.
Loan
This is a most prominent mean of capital formation through interest by financial institutions. Agriculture of Pakistan carries heavy burden of loan. Therefore, its progress suffers from this impediment. Measures should be adopted to relieve the agrarian economy from this burden so that it achieves self-reliance and progresses at good pace. An agriculturist of Pakistan depended on loan even prior to end of colonisation and he obtained loan from 'hindu bania' where as he has been replaced by banks. Every government supported this to ensure political support instead of adopting measures to eliminate burden of loan on agrarian economy by pleading that progress is sought in agrarian economy which is not the fact as evident from past history of more than fifty years. The progress in agrarian economy is possible only through rural development e.g., increase in water supply or roads from field to market etc. as well as relief of this economy from burden of loan. Rural development policy has been adopted but it should be augmented by this decision also. There can be many measures to achieve it but are not listed in view of brevity.
Investment
This is dependent upon capital formation to a great extent. However, it is possible only on assurance of earning which is dependent upon price rise which can cause recession occassionaly. Therefore, correct policy for Pakistan will be to lay equal emphasis on local investment in transit trade in addition to agriculture. Foreign investment will be possible only on its chance to earn more than its earning in own country. Therefore, they will prefer decrease in value of Pakistan currency in international currency market. It is pointed out that transit trade was only mean of economy of state of Madina during period of holy Prophet and its adoption will be Sunnah.
Interest
It has importance equal to capital in modern economic system. However, Supreme Court appellant bench has termed it as riba which is forbidden by Allah. Holy Quran terms riba as a battle with Allah. Battle with Allah does not mean that Allah comes out with sword or gun etc. against human beings. Allah has stated in Holy Quran that one form of punishment by Him is that He induces difference of opinion and thus cause conflict in human beings to kill each other. Presence of terrorism in Pakistan is a proof of this. Therefore, interest should be eliminated from economic system. Privatisation of banks will not make it possible. Joint system of capital and commodity in economics will make it possible. Details of methods to do it are not listed for the sake of brevity.
Global Economic Prospects
Global Economic Prospects
According to Global Economic Prospects (GEP), an annual publication of the World Bank, GDP growth in South Asia was estimated at 6.9 percent in 2005, up from 6.8 percent in 2004. In 2006, it is expected to slow down to 6.4 percent.
The recent strong performance of the developing countries suggests that the reforms undertaken over the past decades have had a positive impact on growth trends. "Long-term growth in South Asia is forecasted to average around 5.5 percent during 2007-2015, reflecting a rising contribution to growth from the private sector. Trade reforms, banking sector liberalisation, privatisation and infrastructure development are all expected to improve the investment climate, productivity growth, and ultimately incomes."
Discussing the situation in Pakistan, the World Bank report says that while the October 2005 earthquake had catastrophic human consequences, its overall impact was expected to be smaller.
The GDP growth during FY06 was now expected to be 6.6 percent as against the earlier projections of 7.0 percent. In India, growth rate was recorded at 7.0 percent. Healthy growth rates in both the countries were attributed to increased consumption, investment, exports and industrial production.
The GEP's main theme this year was migration and remittances. It concludes that migration "offers potentially huge economic gains" and presents evidence that an increase in migrants that would raise the work force in high-income countries by three percent by 2025 could increase global real income by 0.6 percent, or $356 billion.
Such an increase in migrant stock would be in line with the trend observed during the past three decades. Besides, the relative gains are much higher for developing-country households than rich-country households. Out of $356 billion, $162 billion will be going to new migrants, $143 billion to people living in developing countries, and $51 billion to people living in high-income countries.
The steady stream of foreign exchange that remittances deliver can improve developing countries' balance of payments and creditworthiness. The World Bank has also strongly favoured easy and cheaper access by poor migrants and their families to formal financial services for sending and receiving remittances.
This could be done by encouraging the expansion of banking networks, allowing domestic banks in origin countries to operate overseas and providing recognised identification cards to migrants. The report cites experiences of reduction in remittance transfer fees in India, the Philippines and the US-Mexico corridor, as examples for others to follow.
The World Bank's projection that South Asia would continue to experience a strong growth rate is a good news for Pakistan and the region as a whole. Trapped in poverty for a long time, South Asia now looks set to usher in a new era of rising incomes and better standards of living for majority of its population.
Since growth rates of developed countries are expected to be lower than that of South Asia, the wide disparity of incomes and wealth between the haves and have-nots would now gradually be narrowed over time.
A relatively richer South Asia can provide Pakistan the opportunity to expand its exports within the region and accelerate its growth rate. In our view, the World Bank has done a service by reminding the Pakistani policy planners that the recent earthquake, contrary to their public pronouncements, would have a negative effect on the country's economy.
At the macro-economic level, the most significant impact of the earthquake is expected to be on the fiscal deficit. In the absence of any offsetting revenue increases and expenditure reductions, the earthquake may increase the budget deficit by about 0.6 percent of GDP.
The earthquake may also cause an increase, albeit limited, in imports of fuel, food and construction materials and this could aggravate pressures on the balance of payments.
We would advise the policy makers to come to terms with the new environment as early as possible and not continue to insist that the impact on the economy will be very insignificant, if any. Such a stance would help the country to adjust to the new situation in a shorter period of time.
The World Bank's observations about the benefits of migration to both the developed and developing countries and the advice about facilitating remittances should prove to be very timely and beneficial.
The report clearly demonstrates, in quantitative terms, the gains of migration to various countries and suggests indirectly that encouragement of migration would be in the interest of all the countries of the world.
The advice by the World Bank to increase the flow of remittances through official channels by adopting suitable measures is particularly welcome for our country. Our banking system still remains bureaucratic in character and takes much larger time to deliver the money to the recipients than the informal channels with the result that Pakistani expatriates prefer to send their remittances through hundi or other means.
Of course, there is no harm in learning from the experiences of other countries in this regard. It is true that the menace of money laundering and financing of terrorism needs to be checked but expatriates sending genuine remittances should not be harassed or put to unnecessary inconvenience.
According to Global Economic Prospects (GEP), an annual publication of the World Bank, GDP growth in South Asia was estimated at 6.9 percent in 2005, up from 6.8 percent in 2004. In 2006, it is expected to slow down to 6.4 percent.
The recent strong performance of the developing countries suggests that the reforms undertaken over the past decades have had a positive impact on growth trends. "Long-term growth in South Asia is forecasted to average around 5.5 percent during 2007-2015, reflecting a rising contribution to growth from the private sector. Trade reforms, banking sector liberalisation, privatisation and infrastructure development are all expected to improve the investment climate, productivity growth, and ultimately incomes."
Discussing the situation in Pakistan, the World Bank report says that while the October 2005 earthquake had catastrophic human consequences, its overall impact was expected to be smaller.
The GDP growth during FY06 was now expected to be 6.6 percent as against the earlier projections of 7.0 percent. In India, growth rate was recorded at 7.0 percent. Healthy growth rates in both the countries were attributed to increased consumption, investment, exports and industrial production.
The GEP's main theme this year was migration and remittances. It concludes that migration "offers potentially huge economic gains" and presents evidence that an increase in migrants that would raise the work force in high-income countries by three percent by 2025 could increase global real income by 0.6 percent, or $356 billion.
Such an increase in migrant stock would be in line with the trend observed during the past three decades. Besides, the relative gains are much higher for developing-country households than rich-country households. Out of $356 billion, $162 billion will be going to new migrants, $143 billion to people living in developing countries, and $51 billion to people living in high-income countries.
The steady stream of foreign exchange that remittances deliver can improve developing countries' balance of payments and creditworthiness. The World Bank has also strongly favoured easy and cheaper access by poor migrants and their families to formal financial services for sending and receiving remittances.
This could be done by encouraging the expansion of banking networks, allowing domestic banks in origin countries to operate overseas and providing recognised identification cards to migrants. The report cites experiences of reduction in remittance transfer fees in India, the Philippines and the US-Mexico corridor, as examples for others to follow.
The World Bank's projection that South Asia would continue to experience a strong growth rate is a good news for Pakistan and the region as a whole. Trapped in poverty for a long time, South Asia now looks set to usher in a new era of rising incomes and better standards of living for majority of its population.
Since growth rates of developed countries are expected to be lower than that of South Asia, the wide disparity of incomes and wealth between the haves and have-nots would now gradually be narrowed over time.
A relatively richer South Asia can provide Pakistan the opportunity to expand its exports within the region and accelerate its growth rate. In our view, the World Bank has done a service by reminding the Pakistani policy planners that the recent earthquake, contrary to their public pronouncements, would have a negative effect on the country's economy.
At the macro-economic level, the most significant impact of the earthquake is expected to be on the fiscal deficit. In the absence of any offsetting revenue increases and expenditure reductions, the earthquake may increase the budget deficit by about 0.6 percent of GDP.
The earthquake may also cause an increase, albeit limited, in imports of fuel, food and construction materials and this could aggravate pressures on the balance of payments.
We would advise the policy makers to come to terms with the new environment as early as possible and not continue to insist that the impact on the economy will be very insignificant, if any. Such a stance would help the country to adjust to the new situation in a shorter period of time.
The World Bank's observations about the benefits of migration to both the developed and developing countries and the advice about facilitating remittances should prove to be very timely and beneficial.
The report clearly demonstrates, in quantitative terms, the gains of migration to various countries and suggests indirectly that encouragement of migration would be in the interest of all the countries of the world.
The advice by the World Bank to increase the flow of remittances through official channels by adopting suitable measures is particularly welcome for our country. Our banking system still remains bureaucratic in character and takes much larger time to deliver the money to the recipients than the informal channels with the result that Pakistani expatriates prefer to send their remittances through hundi or other means.
Of course, there is no harm in learning from the experiences of other countries in this regard. It is true that the menace of money laundering and financing of terrorism needs to be checked but expatriates sending genuine remittances should not be harassed or put to unnecessary inconvenience.
Subscribe to:
Posts (Atom)