The free market ideology and adjustment policies of the international institutions such as International Monetary Fund (IMF) and World Bank have negative impact on the poor as they advocate decrease in subsidies, which lead to unemployment and other harmful consequences. Interestingly, the developed countries do not practice what they preach and continue giving agricultural subsidies.
This was stated by Sartaj Aziz Advisor to the Prime Minister on National Security and Foreign Affairs while addressing the inaugural session of the 30th annual general meeting and conference of Pakistan Institute of Development Economics (PIDE). He further said that land holding, lack of equitable distribution of resources, manmade policies, political power structure and urban bias macroeconomic policies are among the major causes of poverty.
Due to the urban bias the terms of trade worsen for agriculture which affects the livelihood of small farmers. Globalisation has also contributed to the increase in global poverty. Aziz said that there is the need to adopt national strategy to fight poverty and ensure more job opportunities in the country. The government had taken a number of steps to provide more opportunities to attract foreign and local investment in various sectors.
Sartaj Aziz said there are social and economic challenges being faced by the country, but there is a need to find solution to these problems. He said it is unfortunate that there is a large population in Pakistan which is still living below the poverty line of one dollar a day. There are many root-causes for the poverty but with effective and comprehensive policies, the government would be able to alleviate poverty.
He said land holding and lack of equitable distribution of resources are one of the major causes of poverty coupled with manmade policies which are not in favour of the poor community. Decentralisation of power could be one of the major solutions to the issue of poverty and improving living conditions of the people, especially in rural areas. Aziz said political power structure was another factor to create the gap between rich and the poor. He emphasised the need to adopt measures to improve growth rate that can be helpful in fighting poverty.
He said new resources and new insights had to be explored to attract investment that will increase growth rate to improve economic conditions of the country. Emphasising the need to invest in human resources, Sartaj Aziz said there is need to invest in human resource, especially skilled labour so that everyone could participate in improving the economic growth.
Aziz said that during the past couple of decades, a lot of attention has been paid to poverty reduction, but despite the attention, the number of poor people has actually increased. Almost half of the planet's population is living in poverty and about 1.2 billion people are living in extreme poverty. Although efforts are being made to reduce poverty but unfortunately the results are not encouraging.
One of the MDGs was to halve the poor population by 2015 and although the number of people living in poverty has indeed declined, the goal itself will not be achieved. Aziz said that the root causes of poverty spring from the power structure of the society in which benefits accrue to those who own land. These causes of poverty are compounded by manmade policies. Macroeconomic policies have an urban bias, in which positive protection is given to the industry and agriculture is put on the backburner. Due to the urban bias the terms of trade worsened for agriculture which affects the livelihood of small farmers. Globalisation has also contributed to the increase in global poverty. Aziz said that we need mutually enforcing solution to end poverty. He highlighted some important factors that need to be looked at to combat poverty, namely land-ownership, land skew ness and land reforms; power structure; decentralisation and the bureaucratic structure in the provincial governments; power sharing among the poor in governance and the presence of institutions for the poor to participate in problem solving; tribal ethnic and religious polarisation in the country; capacity of the administration to implement pro-poor policies; and budgetary resource for the social sector. Not all these can be implemented at the same time in a country but if you are able to take care of a few of these factors, poverty can be reduced. The experience of China shows that with high economic growth and pro-poor structure one can fight poverty. In the case of Pakistan with a reasonable growth rate there is good chance of poverty reduction but unfortunately the growth rate has been low lately.
Aziz said that invariably inequality increases when the growth rate increases. We need to reduce inequality not only for equity but also to increase the growth rate. Dr Kaiser Bengali Former Advisor of Government of Sindh said that regressive tax structure is the main reason behind increasing poverty, inequality and closure of industries. The government collects about 80 percent revenue from indirect taxes by putting more burdens on the poor. He further said that elite class is not ready to reduce the inequality gap as it would challenge their vested interests. No government land is available to be distributed among the poor as it has been illegally occupied by elite including politicians, generals and bureaucrats, he added. He stressed the need for job-creation, economic growth and societal enlightenment to have the right choices to bring about change.
According to experts inequality will be one of the most pressing problems of the era. To increase the growth rate we need to have innovation which is the main driver of economic growth and innovation. We need to develop our human resources. Growth will be at its maximum when each citizen is given a chance to participate in the growth process.
Earlier, President PSDE and Vice Chancellor PIDE, Prof Dr Asad Zaman said that poverty is not inevitable but it is due to wrong choices. Zaman said that initially it was thought that economic growth is synonymous with capital accumulation and takes place through technology and industrialisation. In reality, growth is a multidimensional concept, which builds upon human capabilities. Zaman highlighted the great importance that Planning Commission's Vision 2025 attaches to building human resources as the first pillar of Vision 2025 is "Putting People First". At the end, the President PSDE stressed that poverty is not one big problem but a combination of thousands of small problems and change in social norms is the key. He also emphasised ties with Islamic heritage to bring about change.
According to one estimate of poverty based on the calorific norm, almost 40 percent of the population is below the poverty line. This situation worsens further when we look at the Multi-dimensional Poverty Index, according to which almost 46 percent of the population lives in poverty. A recent estimate by Shahid Javed Burki, in fact, has found that the average income of approximately 18,000 individuals is 70 times the per capita income of the rest of the population. A few thousand live in fabulous luxury while 83 million individuals are deprived and children crawl to their deaths in starvation in some regions of the country.
Looking at GDP growth rates for countries over the past, the difference between developed and developing countries has grown by leaps and bounds despite developing countries on average having a higher growth rate than developed countries.. What sets developed and developing countries apart is the fact that developed countries have managed to sustain a respectable growth rate over the years and have improved their social indicators. Developing countries have been unable to do so and Pakistan is a typical example.
The core factor accounting for the failure to achieve equality or sustained growth is the economy's rent based institutional structure and associated patron client governance. Exclusion of the majority from investment and high wage employment restricts competition and creates rents generated by the institutional structure for an elite coalition. Prof Hussain said that mainstream economics thinking that inequality is inevitable result of high growth needs to be turned on its head. Broadening the base of competition, investment, productivity increase in innovation will result in equitable and sustained high growth.
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