At the heart of any development strategy of governments or institutions like the World Bank is the reduction in levels of poverty. But underlying such attempts is the need to think carefully about what the constituents of poverty are and what its causes are. It is not obvious that these are always the same thing. For instance, it makes sense to think that happiness or freedoms are important dimensions of how well any society is doing. A country in which the lives of the majority of the people are unhappy or unfree must in some sense be “impoverished”. And it’s probably a good idea to draw up a list of other values we think are worth pursuing, even if they’re hard to measure. We might then be able to score how well individuals are doing in all these dimensions and then aggregate across individuals to get an overall picture of how well society is doing. The Human Development Index is one such overall measure.
On the other hand, though, there’s the idea that what we need to look at are variables like the lack of income, savings, low levels of physical and human assets because these are the causes of poverty. Of course, complications arise precisely because some things are both determinants and constituents, means and ends. Take education, health or political and civil liberties, for example. It is quite reasonable to say that we value education, say, as an ‘end’ in itself but also because low levels of ‘human capital’ can lead to poverty (low incomes).
If we take a snapshot of just the rural poor in Pakistan we get an idea of how difficult it is for them to break out of the poverty cycle and the scale of the challenges any development strategy must address. Only about 10 per cent have access to tap water and about half to electricity. The poor spend about 70 per cent of their income on food, leaving little for anything else. Only 30 per cent of the poor own any land (of varying size and quality) and few have any assets otherwise. Very few have access to loans from the formal sector with roughly 40 per cent of their loans, mostly for personal consumption, coming from friends. Nearly one third of the girls between the ages of seven and 12 were at school but this figure drops drastically to nine per cent for 13-18 year-olds.
Summarising, the picture that emerges of the lives of poor is typically one of short-term migrations, low skill-accumulation, low levels of assets, little job specialisation and limited credit and savings opportunities. It is easy to understand these patterns of behavior as a response to economic vulnerability but they are also, perhaps, a result of weak institutions. To take just one example of this last point. It seems that one the most glaring failures is that our institutions (markets and the state) are not doing a good job in allocating talent and skills. Instead, it seems that opportunities to be adequately rewarded for our skills and efforts and the possibility to develop them, is limited to a few.
One of the questions to emerge from this, then, is that if good institutions like good government usually lead to growth and the reduction of poverty why haven’t we had good governments in Pakistan, especially when everyone can potentially benefit? Recent evidence from analysis over 150 countries suggests that cultural factors such as a poor work ethic and the lack of trust and tolerance may play a role. But it seems equally likely that countries which have a weak democracy, low levels of political rights, and high levels of ethno-linguistic diversity tend to have poorer quality of government with corrupt bureaucracies, a poor level of public goods provision, and weak enforcement of property rights.
The flipside to the idea that means and ends, and different ends themselves, are interconnected is that an effective strategy might produce a “virtuous cycle” of development. Simply improving health and educational outcomes can have all sorts of positive ramifications for both current and future generations.
The writer is a professor of economics at Lahore University of Management Sciences. The views expressed here are his own
