AMONGST the economic buzzwords gaining increasing popularity are poverty, structural transformation, income and asset inequalities, health and education expenditures, and economic growth, to name a few.
However, there can be nothing more naïve than concluding that poverty reduction is a function of mere economic growth and expenditures not until the latter two set of variables actually bring about a felt decline in the levels of poverty.
To assume that poverty must have declined because the health and education expenditures increased is like a student who argues about his grades on the basis of simply the greater number of hours he puts in for exam prep.
A student may burn lots of midnight oil but cannot score unless he writes a grade-winning exam which is dependent upon a host of other variables whose absence will not allow midnight oil to turn over into a winning exam.
Inputs by themselves do not ensure outputs not until the inputs are made to convert into tangible outputs. Performance is then gauged on the basis of the quality of output and not on the basis of quantity of inputs as the latter may have been utilized inefficiently or ineffectively or both thereby failing to yield the desired output of the desired quality.
A high rate of economic growth may be a necessary but not a sufficient condition for poverty reduction, primarily because the benefits do not trickle down by themselves due to skewed asset distribution that, in turn, reinforces skewed income distribution patterns.
Reinforced skewed income distribution pattern further leads to the rich getting richer and the poor getting poorer. If the poor get poorer, how might poverty reduction be claimed? Further, even if the trickle does trickle down, do all that we need are a few trickles to bring down poverty levels? If yes, then poverty will come down by a mere trickle and not by a sizeable 6.7 per cent even if it is only on the basis of mere caloric intake.
As for the increase in spending on health, education, and infrastructure; again, information on outputs is required. That is, how have these expenditures first translated into a healthier and educated workforce now equipped to get connected through better communication networks? Next, how does this development show up in the form of increased household incomes to determine the dent these expenditures may have made into poverty?
We must know progress on the above this year minus the status in a previous year. Least of all, we should be left guessing only on the basis of input expenditures just like we are compelled to conclude about progress on education only in terms of enrolments instead of the graduates who would account for dropouts. Similarly, if we may conclude about the state of health only in terms of life expectancy and child mortality for instance, this is no assurance that the quality of a longer life is free enough from deprivation.
That is, is it a life made longer to keep living in income poverty? Similarly, decrease in child mortality is not a significant enough indicator of the family size with strong implications for household poverty in the absence of gainful employment opportunities.
So, no matter how high the social sector expenditures and the rate of economic growth, we will conclude poverty reduction only when poverty will have actually reduced as measured by the output and not by the inputs or a variable of economic growth remotely linked to poverty reduction.
And, this output is to be measured by percentage of people below the poverty line and the poverty gap for which purpose the subsistence level of income needs to be known which official information is keenly awaited.
For high economic growth rate to make a difference in terms of poverty levels, ‘sufficient’ conditions need to be created. As above, these ‘sufficient conditions’ comprise not just the social sectors, roads, electricity, and sewage but the entire gamut of institutional, structural, and attitudinal changes that will enable sharing of the fruits of growth.
In the absence of these sufficient conditions, a swell agricultural rate of growth of above 7.5 per cent will not lead to better income distribution and poverty reduction in our countryside known for asset concentration. If the agricultural growth rate is high and assets concentrated, the benefits will accrue to the owners of assets who are already wealthy.
The poor from the rural areas migrate to urban areas in search of a source of living and eke out an existence that they have difficulty doing in their homeland in addition to the oppression they experience at the hands of the farm-lords. Can we call this migration some kind of transformation in the country’s socio-economic life? Far from it.
As the migrants create pressure on meagre urban resources, the urban centres get ruralised instead of getting developed further. Inquitous asset and income distribution in rural areas will only exacerbate ruralisation and will not be a rural-urban transformation, some flyovers/underpasses and well-carpeted roads for the fast-moving 4-wheelers of the urban wealthy elite notwithstanding.
So, if transformation is the ‘sufficient’ condition to be added on to the ‘necessary’ condition of economic growth, how might this transformation be brought about? Can it be brought about by setting up industry in urban areas where the rural-urban influx may be absorbed?
Those who run away from rural areas are the lower skilled workers that the industry may not need. Also, a major determinant of industrial investment is consumer demand that remains lacklustre due to high poverty levels and iniquitous income distribution that, in turn, are a function of lop-sided asset distribution.
So, industry may come up in urban areas in response to whatever consumer demand that exists in line with the consumption patterns that too may be skewed but it will not be able to absorb all the disadvantaged there are in rural areas. Therefore, this industrial development will not be synonymous with economic development as the latter connotes employment, poverty and income inequality reduction significantly that industry, by itself, will not be able to take care of.
This would be similar to all the industrial sites and towns that sprung up in Pakistan in the last over four decades in Sindh, Punjab, and the NWFP to some extent. Despite this industrialisation, we can neither claim economic development nor can we claim structural transformation from agriculture to industry.
Both the agricultural and industrial growth rates increased or fluctuated in Pakistan’s economic history, but the two sectors failed to strike a synchronized harmonious relationship that would have absorbed the country’s huge human resource gainfully. One wheel turns in agriculture giving us the growth rates that we feel gratified about.
The other turns in industry giving us credit-financed manufacturing growth rates that enable us to keep stuffing feathers in our various official caps. What do the two mean for full employment, income distribution, and poverty? Not much unless a real structural transformation is brought about.
For real structural transformation from agriculture to industry, rural labour must be gainfully absorbed in the agricultural sector with only surplus labour migrating to urban areas at a wage rate equal to or slightly higher than the rural wage rate.
And, the rural wage rate must be sufficient to generate savings and a demand for industrial goods in response to which industry would grow and generate a demand for labour.
Unless a surplus is created by the agricultural sector for diversion to the industrial sector, industrialisation will be forced and will fail to generate the positive externalities needed for inclusive development like it has been failing for the last over four decades.
So, setting up or privatizing an industrial unit or two will not enable realization of the dream of structural transformation unless first things are done first. That is, engage the rural labour in rural areas gainfully and not for a pittance that will allow income distribution and poverty reduction.
While this is a recipe for surplus generation in rural-agricultural sector that will then flow into the urban-industrial sector, pre-requisite is land distribution in the countryside to deliver Pakistan’s potentially capable human resource from the chains of servitude that keep both the economy and the society hamstrung.
It will be only then that we will have made headway towards structural transformation without which poverty reduction and equitous income distribution will remain elusive. It is the gap between our cautiously professed ‘politically correct’ poverty-reduction strategies, status-quo agricultural outlook, and forced industrialization that needs to be bridged to bring about both structural transformation and poverty reduction.
AMONGST the economic buzzwords gaining increasing popularity are poverty, structural transformation, income and asset inequalities, health and education expenditures, and economic growth, to name a few.
