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Current Affairs

Focus on Pro-poor Growth Strategy

 

Focus on pro-poor growth strategy

Niaz Murtaza

The PML-N leaders frequently talk about building bullet train networks and regional economic corridors to revitalise the economy. The emphasis on economics is welcome.

However, a document that translates political rhetoric into concrete strategies is still being awaited. Given Pakistan’s poor social indicators, regional inequalities and tensions, the strategies must prioritise poverty and inequality reduction.

Global and Pakistani experiences show that grandiose projects and growth do not necessarily reduce, and often increase, poverty and inequality. Pakistan’s growth was high during the 1960s, but poverty increased from 40 per cent to 46 per cent between 1963 and 1969. Inequality between the country’s two wings became high, resulting in dismemberment.

Growth was lower during the 1970s, but poverty had reduced to 30 per cent by 1979, despite the large floods and a tough international environment caused by twin oil shocks and the ensuing global stagflation. This steep poverty reduction was due to both workers’migration to the Middle East, and redistribution policies, which unfortunately also produced economic stagnation.

Many economists now recommend explicitly pro-poor growth (PPG) strategies. Some define PPG only as growth that reduces poverty. Others define it as growth that also reduces inequality. For countries experiencing ethnic and class inequality and tensions, the second aim seems better.

However, economists caution against past policies that harshly penalised richer groups and caused capital flight and economic stagnation. Successful PPG policies should highlight how reducing poverty and inequality actually ignites win-win growth that also benefits the rich, though proportionately less than the poor.

Pakistan’s internal market is small, despite its large population, given the limited purchasing power of the poor majority. Raising the incomes of the poor can increase the size of the national market and create further economic opportunities for producers, as had happened in Korea, Taiwan and China earlier on. The poor spend more on local goods than the rich; thus benefiting local producers and the external balance of payment status.

In effect, poverty and inequality alleviation, largely seen as moral goals, can actually act as national growth engines.

Pakistan’s poor populate three main categories — the rural landless/near-landless, urban labourers, and urban and rural petty entrepreneurs (e.g. street hawkers). A six-pronged approach can address the economic needs of these groups. First, the government must enhance the poor’s ownership of and access to assets. This must include reversing the country’s skewed agricultural land ownership through land reforms, which had been crucial in propelling East Asian countries forward.

For urban petty entrepreneurs, increased access is as important as increased asset ownership; for example, easy access to profitable market locations. Second, the poor currently either not borrow at all, or do so under highly exploitative conditions. The government should help expand microcredit provision by commercial and non-profit agencies.

Third, public private partnerships must increase the access of the poor to better technology, like improved agricultural methods. Fourth, the government must strengthen the rule of law to protect the poor from economically damaging harassment, e.g. arbitrary evictions in cities and false cases by landlords in villages. Fifth, the state must enhance quality education, health and disaster management services for the poor through public private partnerships.

Finally, the government and NGOs should help establish community-based organisations that would advocate for the poor. In all six dimensions, the poorest areas and groups must be prioritised, e.g., minorities, women, rural Sindh and rural Balochistan.

This approach can enhance the incomes of the poor. This will in turn increase the demand for food, garments and basic electronic goods etc., which will increase market sizes for industrialists and create jobs for the labour classes. And while this approach is technically feasible, its fiscal and political feasibility must be reviewed as well.

Fiscally, the government could transfer the Benazir scheme (BISP) funds to such endeavours. Monthly handouts may somewhat increase consumption by the poor. However, BISP funds could provide more value for the money if they are spent on increasing poor people’s skills, assets, credit and technological access to permanently help increase their income potential and self-reliance.

Additional options exist for increasing government revenues significantly to fund this approach, e.g., increasing agricultural, property and wealth taxes; eliminating public enterprise losses and untargeted subsidies, and increasing the scope of sales taxes.

However, the last two options should not be introduced during the current economic downturn at the IMF’s insistence, as this will hurt growth and the poor. Finally, a well-crafted approach can also attract increased donor grants.

Politically, this approach will undermine landlords the most, as they will lose their land and political power, and face higher taxes, without gaining anything in return. Industrialists will face higher, though still reasonable, taxes, but will be compensated by expanding business opportunities.

This outcome will mirror inevitable historical development trajectories, where governments undermined landlords but supported industrialists and the poor. This strategy also dovetails with the urban leadership and support base of the PML-N, PTI and the National Party — which run the federal and three provincial governments — thus increasing its political feasibility.

Unfortunately, history shows that countries can get away with and benefit from undermining landlords, but not industrialists. An approach that reduces poverty and inequality while benefiting industrialists represents the only actual historical development path, though admittedly one with many problems. The goal must be to reduce those problems by strengthening environmental and democratic safeguards.

Hard redistribution policies, e.g. industrial nationalisation and militant labour activism, have largely failed.

However, a strategy that benefits industrialists without reducing poverty and inequality will exacerbate social tensions. Thus, Pakistan should put bullock carts before bullet trains and village/slum economic corridors before external corridors in its growth strategy. Such a strategy will reflect a new social compact and compromise between industrialists and the poorer classes, which alone can foster durable peace and development in an ethnically divided and conflict-ridden country.

The writer is a political economist at the University of California, Berkeley murtazaniaz@yahoo.com

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