The PM recently launched a poverty alleviation plan, through steps taken that show compassion (or ehsas) to the poor, through provision of micro-level interventions by the state and private-sector entities in a coordinated manner, and facilitates them to protect (or tahaffuz) their interests, in terms of both making available financial assistance and also services, including legal assistance. The main purpose is to assist people in both dealing with their vulnerabilities and getting them out of their poverty in a sustainable way.
These initiatives are all laudable, but they are very limited in allowing the people to sustainably live a life out of poverty and vulnerability. Microfinance, NGO-based interventions, and the work of related government authorities is nothing new. In Musharraf’s initial years at least, these were given a lot of importance, even with the support of multilateral- and bilateral financing.
Yet poverty levels remained quite stubborn over the years, not to mention the inordinate growth in real wages and the rising level of inequality, where the latter, as research-based results show, does not allow sustained economic growth, as has been evidenced in Pakistan quite regularly. IMF (International Monetary Fund) programmes have not helped as such in bringing either efficiency or sustained economic growth, as evidenced by IMF’s own Independent Evaluation Office’s report of 2002, whereby the economic growth and macroeconomic situation was far better before the late 1980s than after that- a time of prolonged use of IMF resources. At the same time, even when outside the IMF programme, similar neoliberal-style IMF programme conditionalities, Washington-Consensus-based policy in general has also worked to similar consequences for economy in the country.
So apart from a broader set of micro-level based interventions, like providing legal aid, livestock, and a ministry to coordinate effort of other government authorities and private sector (but for some reason not the staggered development effort of multilateral and bilateral financing) nothing much has been offered in the current poverty alleviation plan to deal with the three-headed creature of poverty, inequality, and extractive institutions; where the first two are the consequence of the third, and all feeding each other toward deeper perpetuation of this status quo.
The collusion of the political and economic elites in Pakistan have used their respective power bases to complement each other in evolving institutions- through steps, such as, differentiating health and education institutions for the rich and the poor, inordinate access to capital, incorrect pricing of factors of production, disenfranchisement of the electorate from public policy, and inefficient practice of governance and judicial institutions- that are extractive in nature- taking away the rightful opportunity to excel and to earn incomes from the poor and vulnerable, and giving them unjustifiably to the rich- all of which has led to the perpetuation of poverty and vulnerability, in turn by increasing the income inequality gap. In attaining this goal, they took advantage of neoliberal policies, both through public policy and negotiated IMF programmes that worked in favour of the capitalist class in getting richer, and with little welfare, social protection and institutional reform focus.
To deal with poverty and inequality, the government needs to bring in reforms that dismantle this extractive institutional design, which is evident in both the financial and real sector markets, organisations/firms, in both the realm of public and private sectors. More than coordination of ministerial/departmental activity, the institutional design, effort, and focus needs to be corrected through active and radical reform. Yet the government has shown much attention in attacking this root cause. Before people can build on the micro-initiatives of this poverty alleviation plan, the institutional environment needs to improve in parallel, with more focus needed on the latter than the former. Anywhere in world, countries– Scandinavian countries, Asian Tigers, China, among others– could only dent poverty sustainably by first fixing the institutions and then through such measures as have been announced.
Institutional reform will bring both equality of means to attain opportunity, and the availability of a whole spectrum of opportunity to all. At the same time, such reform will fix the prices of means of production– cost of labour, capital, and land, and transaction costs for entrepreneurship– so that the ability of consumption, which is being envisaged to be built up by these micro-level reforms, could match the price of production and factors that lead to it. Into its eighth month, the government has sadly not shown much acumen, focus and resolve to understand enough the sources of poverty and vulnerability, in terms of the role of elites and their institutionally perpetuated extractive designs, the damaging effects of neoliberal policy, the wrong pricing of real and financial sector markets, and the moth-eaten strength and intention of regulators to correct issues in the private sector.
What entails in turn is continuation of the suffering of the majority, at the hands of centres of economic and political power. Will the PM find himself satisfied with the effort to deal with this by the government at the federal and provincial levels? Will it not be naive at best to think that vulnerability could be lowered among the poor and the weak middle-class through this soother-like poverty alleviation reform package; which is sadly being shown little criticism by the print and electronic media. The situation is alarming, at least it should be for the PM, who has an honest desire to be the agent of change. I am afraid he needs better counsel and deliberation to think about the bigger picture.
The routine will not do. If it could it would have by now. Unless institutional quality is improved radically, it may very well not improve at the back of collusion of politico-economic elites, the mainstreaming of the culture of corruption, especially at the back of both wrong pricing of labour, capital, and land, and the ineffective dispensation of governance and justice.
In an environment of inflated prices- and which are only being unsuccessfully controlled mainly by monetary policy, when clearly the market and private sector need better governance intervention from government- and when increasing inequality is neither allowing efficiency gain nor sustained build-up of economic growth, poverty alleviation would require dealing with all these factors through improving institutions in a radical and consistent way. Only then can these micro-levels steps ensure a sustained support out of poverty.
The government needs to take up pre-distribution policies in the shape of bringing needed improvement in the education and health sectors, which will determine the future distribution of incomes, how wealth accumulates across the class spectrum, and how the ability to deal with external and internal economic shocks could be dealt with the people. More than anything else, for the government to leave a lasting legacy to dent poverty, in its different manifestations, it needs to improve institutions to provide the right environment out of this poverty, inequality and extractive institutional trap.
In this regard, the Planning Ministry and the provincial planning departments will have to play an important role, and to come up with plans that allow movement from extractive to inclusive institutional design. For this, extractive and neoliberal policy perspectives will have to purged out of current policy, and evidence-based home-grown incentive and governance institutional structures will have to be evolved, which can correct prices, reduce transaction costs, make available opportunities and enhance abilities to make use of them appropriately. This correction will also help improve the depth of democracy in the country, the relationship between voters’ input into public policy, and the proper accountability of private sector.
