Poverty: a critical issue in economic development
It is now recognized by the World Bank that sustainable economic growth not institution building is possible without closing the widening social gaps and reducing poverty.
And what is no less significant that the poor need a representative government that is accountable to the electorate rather than a military ruler to exercise their sovereign right and in order to prosper.
A World Bank report on “Poverty in Pakistan, Vulnerabilities, Social Gaps and Rural Dynamics” has a valuable piece of advice for the dictators.
It says: “The key distinguishing feature of non-elected governments is the inability of the citizens to hold them accountable on a regular basis. This leaves such governments freer to pursue policies that were at odds with citizen interests which seems to have been the case of public governance in the 1980s.”
The report also makes an indirect reference to the rotation of military and civilian rule and its implication for economy and poverty levels. It holds the view that “the character of electoral politics in Pakistan undermines the provisions of public services to the poor in the impermanence of elected governments. This shortens the horizon of the decision-makers and reduces the penalty to them of reneging on any electoral promise they do make.”
“Notably, in other countries, where political parties are well developed and constitutional government has been observed over several electoral generations, the cost to political parties of reneging on policy promises are much higher. Hence policy promises of parties are much more important electorally, than they are in Pakistan and the role of the individual relationships in politics is much less.”
The WB report covering the decade of 1990s indicates a grim picture of the growing social gaps. The poor and the rural inhabitants in Pakistan are being left behind. The social gaps and fissures are becoming more pronounced and have become a critical factor in impeding growth.
And it points out that “the emerging crisis surrounding debt is matched by the chronic and more silent crisis of social gap. If the country does not close its social gap, its long term ability to grow economically, alleviate poverty and sustain its debt will be fundamentally compromised, warn WB officials.”
This view is further strengthened by the observation of the WB president James D. Wolfensohn who says that, “empowering the poor people and the defranchised - the people at the fringes- and giving them a real stake in society is the key to building stronger institutions required for long term sustainable development.” His advice is, “pick up signals about needs and problems, specially from the fringes and balance competing interests.” Growth in productivity and incomes must be socially sustainable.
“Pakistan faces challenges and opportunities unprecedented in its history”, says the report which is part of an ongoing project to understand poverty , growth and human development.
In a dialogue on the electronic media, economist Dr Shahida Wizarat said here last week that the country was facing a crisis of growth, a crisis of development and a political crisis linked to it.
Quantifying the cost of poor governance in Pakistan, The International Country Guide Risk, published by Political Risk Services, New York, shows that “if Pakistan had exhibited similar performance with respect with the rule of law , bureaucratic quality and corruption during the 1990s, per capita income would have been $300 higher.”
Similarly, one set of the WB estimates looking at the effect of education on growth , controlling for other factors, finds ten per centage points increase in secondary school enrolment is associated with a 0.5 per centage point yearly per capita growth.
The WB says that neither debt reforms nor the mere availability of donor funds is likely to resolve problems of low growth, sluggish investment, building of infrastructure and adequate advances in social indicators. The country’s current predicament is rooted in structural factors that are often linked to issues of governance.
Pakistan should work to spur economic growth that will mitigate the fiscal crisis. In the past, focus on fiscal policies that de-emphasized social spending were implemented with excess leakage and insufficient attention to efficiency and equity and eventually gave rise to both fiscal and social gaps.
Governance problems were main reason that deficit-funded investments in the 1980s failed to yield long term growth dividends. If these dividends have been realised, the debt incurred would now constitute a small fraction of the GDP.
Investment that provides employment is regarded as the engine of growth. In view of the uncertain governance environment, Pakistan has failed to reap substantial private investment from its significant liberalization efforts. Governance uncertainties have a negative impact on growth.
The key issue of closing the social gap and reducing poverty, according to the WB, is not that the fiscal objectives should be compromised. Rather, it is the weak government that is at the root of the problem. Reforms that reduce waste and leakage in all areas of fiscal policy, especially in development , and that deepen the rule of law have direct effects on the efficiency of spending. Thus fiscal constraints that exacerbates the social gap, are relaxed. Such reforms also increase growth, expanding the size of the pie available for debt reduction. Attention needs to be focused on governance reforms to promote growth.
And to add to what the WB says, the strategy for realizing the full potential of growth has to be focused and driven by poverty alleviation programme.
The emerging market needs prosperous consumers with improved purchasing power to buy goods and services produced by domestic industry, suffering from low capacity utilization.
In textiles, the capacity utilisation is stagnant at 87 per cent in spindles and 45 per cent in rotors.The car industry is operating at 40 per cent of the installed capacity. The sugar industry’s output is about 3.5 million tons against its ability to produce 5.5 million tons. Cement plants are operating at 60-70 per cent of their capacity. All major traditional industries are operating much below their full potential that needs an expanded domestic market, to be realized. In the current global and domestic environment, investments have been made to strengthen existing business. The trend needs to be reinforced.
The World Bank is also rightly focusing on the agenda for land reforms to broadbase prosperity in the rural areas, where two-third of the country’s poor reside. It has identified “inequality in land ownership”, and, the “crop sharing pattern” as factors responsible for “low farm yields” and high levels of poverty. Agriculture provides raw material and market for industries. It is the foundation of the national economy. Land reforms would raise farm productivity and incomes and reduce the level of poverty. The economic growth has to be domestic-driven.