COUNTRIES which have succeeded in reducing incidence of poverty are those that have achieved high economic growth based on efficient use of physical, human and natural resources while the countries that paid little attention to growth and human capital were unable to prevent their people from becoming impoverished.

Economic growth in itself, while necessary, is not sufficient to achieve a sustained and substantial reduction in poverty.

Both for social cohesion and harmony, high growth rates should be achieved, and the benefits fairly distributed. They should be shared equitably through adoption of strategies that ensure: (a) an efficient use of the most abundant asset of the poor – their labour – by eliminating or reducing distortions favouring an excessive use of scarce capital, (b) access of the poor to services such as education, skills and training, health, nutrition and satisfactory supply of safe water to help them enrich their lives, enhance productivity, improve earning capabilities and (c) the apparatus of governance and regulatory frameworks that do not oppress the poor.

Poverty should be viewed as deprivation of basic capabilities rather than merely as low income or consumption levels. Under-empowerment of the poor to seize expanding opportunities generated by economic growth is what should become the focus of our institutional and policy reform.

When formulating and reviewing various economic and social policies, our main concern should be as to “how would these initiatives improve opportunities for employment and how best can the poor make use of those opportunities?”

Income distribution nexus: In the 1950s, it was broadly agreed that income distribution first worsens and then improves, after a time lapse. As growth continues, its benefits are more widely spread.

In recent times, it has been observed that a number of obstacles such as population growth and limited employment militate against the poor man’s capacity to benefit from growth.

Studies in the 1990s showed that generally improved income distribution is clearly compatible with high growth rates as in Malaysia (1970-90), Indonesia (1973-93), Taiwan (1950-80), Korea (1950-80) and Mauritius (1980s and 1990s).

Pakistan is often mentioned as a classical case of a country where economic growth has generally bypassed the masses and benefited a narrow group of actors. The nature of policies created a rentier class in both industry as well as agriculture.

When the growth decelerated in the 1990s, poverty took a sharp upward turn. On average, income distribution has worsened over the last three and a half decades. The worsening income distribution is also observed in the sharp decline in income share of middle 60 per cent of the population from 50 per cent in the early 1970s to 44 per cent towards the end of the 1990s. (Economic Survey, 2002).

Relevant statistics on comparable basis for recent years are not readily available. However, as observed by Dr Parvez Hasan, the real estate and stock market booms in recent years may have deepened income inequalities more than was the case in previous high growth periods.

Also, according to the Medium Term Development Framework (2005-2010), the income share of the lowest 20 per cent declined from 8.8 in 1988 to 7.0 per cent in 2002 and income share of the highest 20 per cent of population increased from 43.5 in 1988 to 47.6 per cent in 2002. The challenge of income inequality remains as daunting as ever.

There are several reasons why greater income equality affects growth favourably. A higher degree of income equality leads to better human development through better health and nutrition, education and skills enhancement, thereby building people’s capacity for change, and improving productivity of the poor.

A higher income equality affords more spending on education, contributes to lower fertility, greater purchasing power of majority and larger domestic markets with greater scope for economies of scale, enlargement of the industrial base and an enhanced overall growth. If the income gaps are big and inequality profound, political instability will loom large, generating uncertainty that lowers investment and economic growth prospects. Several cross-country surveys have suggested that education is directly related to inequality in income shares of the lower and middle groups. Within education, the influence of the primary school enrolment is dominant in explaining the income shares of the lowest 40 per cent.

Population growth is also related to disparity as measured by the income shares of the lowest 40 per cent; one per cent difference in the population growth being associated with 1.6 per cent point differences in the income shares of the lowest 40 per cent. On top of this, if patterns of growth in the economy were not labour-intensive and pro-poor, growth would bypass the deprived, leading to incomes inequality and deeper incidence of poverty. So, it is not only the growth rate, but also the pattern of growth that matters.

In some countries, low inequality of income, defined by Gini coefficient being less than 0.43, a 10 per cent growth appears to have reduced poverty by nine per cent, while for countries with high income inequality, Gini coefficient being more than 0.43, it reduced poverty by only three per cent. This is a significant difference that is to be kept in the perspective when discussing economic growth, income distribution and poverty linkages. Income distribution: (Growth and Employment) Let us now look at the factors impacting on income distribution. For doing this, it is important to ascertain and use the employment elasticity of output. In Pakistan this elasticity is only 0.4. As such, a six per cent growth would lead to only 2.4 per cent growth in employment. In comparison, the employment elasticity of output in Bangladesh is 1.1, suggesting that a six per cent growth would improve employment by 6.6 per cent, more than twice that of Pakistan.

But as discussed above, even though jobs may be available, the poor cannot get them unless they are educated and skilled. Some studies have shown that those without any schooling have a 56 per cent probability of being amongst the poorest one-fifth, while those with university education have a four per cent chance of being in the poverty trap.

Distribution of physical assets: No country has progressed without a satisfactory land policy (land redistribution, tenancy security etc.). A more equal land distribution with emphasis on peasant proprietorship tends to stimulate productivity, higher rural non-agricultural linkages and increased incomes.

As a first step, the need is to tax land holdings progressively and recycle those resources into the rural areas for the development of economic and social infrastructure, improving income equality and growth prospects. In Bangladesh, villages served with greater provision of social and economic infrastructure enjoyed 33 per cent more income compared with those having less of it.

Let us now turn to the question as to how the incomes are linked to the characteristics of the poor, since the effectiveness of public investment and policy depends critically on characteristics of the target (poor) groups to be assisted.

Poverty in Pakistan is more of a rural phenomenon. Most of the poorest groups comprise land-less labourers and small farmers working with family labour, inadequate knowledge, crude instruments and deficient infrastructure.

Their incomes are constrained by the meagre land holdings and inadequate complementary inputs such as institutionally provided credit, irrigation water, quality seeds, appropriate fertilizers, extension and technical quality services. One must mention here the extortionist impact of the middleman and factory owners. These income constraining factors need to be effectively tackled.

Reshaping policies: A strategic re-thinking on development and poverty related issues is needed because the strategies adopted in the past have not achieved even the core objectives of reducing the proportion but also the numbers of the poor. And, that is the litmus test we must perform.

Even assuming that the recently announced government estimates of reduced poverty are correct, there would be more than 40 million persons in the poverty trap. This number is 20 per cent more than the total population of West Pakistan in 1947. Indeed, poverty alleviation is going to be a tough fight over a prolonged period and would require a major shift in the strategy.

Growth is a means to an end- the end being, alleviation of poverty, illiteracy, and deadly diseases and expanding the range of choices for the poor. Growth reduces infant mortality and provides freedom from nature’s menaces such as famine. It gives women freedom from drudgery and distressing household chores. The poor must figure prominently in the development strategy.

The poor are not the part of the problem. They are potential assets. Unless the working poor are made more productive and respectable, cohesion in the society would be severely threatened. A bad law and order situation militate against investment and growth in the economy as do the lack of human capital and political stability.

Similarly, when corruption and the cost of doing business are high, they discourage investment and growth. Non-performing loans, low number of taxpayers, losses in the transmission and distribution of electricity, etc. can be taken as first indicators of corruption in the society. Implications of all this for the development strategy are obvious. For example: a) improving human development (b) making institutions capable of delivering public services based on well-defined performance criteria that are effective, (c) allocating more resources to science and technology and increased funds to research and development and promoting labour absorbing technologies, (d) reducing and simplifying labour regulations to promote employment, and a disciplined labour force imbibed with the spirit of pride in their work and commitment to quality in its performance, (e) promoting labour- intensive small and medium enterprises and employment through community development schemes, (f) sharply focusing on macro-economic stability through higher savings and investment— both in the public and private sectors, and lowering of inflation as well as the spreading of social services helpful to the poor, (g) promoting foreign direct investment in joint ventures more than portfolio flows and short-term capital that often create financial disruptions and balance of payment crises and, (h) giving special attention to the promotion of labour-intensive exports with increasingly higher value-added characteristics. Since poverty in Pakistan is predominantly a rural phenomenon, a well-studied strategy could bring a change and make the poor more productive by:(a) reducing macro-economic biases against agriculture (e.g. those imbedded in exchange rate, protection of industry or the new WTO regime ), (b) introducing meaningful land reforms, (c) investing in the socio-economic rural infrastructure, (d) transmitting improved technologies and critical inputs, (e) providing adequate credit to small and middle-class farmers, (f) introducing crop insurance policies and (g) improving marketing of agricultural produce cost-effectively.

To sum up, a brief statement on the strategic re-thinking in the agricultural and rural development given above is meant to illustrate the key point that “more of the same” as in the past would not be consistent with the government focus on poverty alleviation.

Similar approaches in other sphere of economic and social development that bring human beings to centre stage and make a difference in their lives through monitored outcomes should be the guiding principles underpinning the revised strategic options.

The writer is a former Advisor to the World Bank