Weekly Reflections: Flip side of growth and poverty

9

Dr. Abdul Saboor

 

Economic growth has always been considered as a necessary condition for the alleviation of poverty. But in reality, a good level of economic growth could not always trickle down to the poor and resultantly it has sometimes been anti-poor in various parts of the world. A similar kind of growth pattern can be watched in Pakistan’s perspective. In this regard, there is policy significance to understand the illusions and social costs associated to economic growth in the country.

For a long time, policy makers have been struggling hard to chase the goal of economic growth but once that goal is achieved, the intended objective of minimizing the stress of deprived population could not be materialized. The slogan of economic growth in its traditional style has done much ill but little good for the poor. Finally, Mahboo-ul-Had had to admit that we should take care of the poor; it would automatically take care of economic growth.

With the passage of time, we started taking care of the poor through certain social safety nets including micro credit schemes, Rural Support Programs, Poverty Alleviation Programs, Benazir Income Support Program (BISP) and the recent one – Ehsas Program. Unfortunately, none of these programs could stop the speed at which the strength of the poor was increasing across the region and time. The policy makers and development planners need to understand that either there were some flaws in these poverty eradication programs or there was ‘manufacturing fault’ in the conventional processing mechanism of economic growth that remained unnoticed in planning and policy processes.

Given the flaws inherently stitched to the past and current poverty alleviation programs, the major challenge is the core understanding of the hidden philosophies of economic growth and poverty. For that matter we need to look into the underpinnings of growth and poverty from a different angle so that some alternative policy messages could be drawn in the sustainable development discourse.

The fundamental question that comes in mind is that we are generating economic growth from the productive activities of the rich class or the poor class? Growth is taking place with our own accumulation of capital or with the help of foreign aid or through IMF rescue operations as commonly operating in our economic system? Whether unidimensional poverty or multidimensional poverty or both is to be alleviated with the tool of economic growth”? Are we interested in reducing absolute poverty or relativity? Are we to arrange the economic growth for curing the chronic poor or transient poor?

Take a start from consumption side story which is quite typical and troubling. It is not purely growth friendly as a major chunk of our consumption goods is being imported and that too in the form of luxury items. We must note the fact that at the optimal consumption level which was being achieved by some cluster of population a decade ago is still accessible within the ambit of current real income. But, in reality, the so called threshold of optimal consumption level has been expanded, though irrationally, because of substantial increase of “Basket of Goods”. In reality, we have invited poverty ourselves through our socially irrational consumption habits.

Had there not been this irrational increase, there would have been significantly less poverty in the country or the severity of poverty not so high. More number of non-poor in an economy implicitly means that a good strength of active population is available for contributing in some productive activities thereby enhancing economic growth. And very importantly, the import bill that is served on this over-consumption pattern could be saved for further mobilizing the economic growth to the benefit of the poor.

Actually, ‘Demonstration Effect’ has produced some negative externalities in the patterns of economic growth and welfare of masses. A lot of our consumption activities are based on what others are consuming. If one of our fellows or colleague is using a brand new i-phone, we promptly add it in our wish-list and so on. This is how majority of the consumers see their welfare level as compared to others’. The more the others are increasing the size of their basket of goods; it is very likely that we would follow the suit. This lust for having more and more in the name of rationality is neither economically nor socially justified. Resultantly, we have to pay the cost of economic growth in the shape of human deprivations.

Similarly, if a country is going to be poor in terms of macroeconomic indicators and in the debt trap, there is quite likelihood of volatility in economic growth and the subsequent increase in extent of poverty. The benefit of national debt, if any, mostly goes to the rich while the crisis comes in the pockets of the poor. This is thus obvious that rich is going to be richer and the poor poorer which further minimizes the chances of growth to be workable for the poor. In this way, economic growth generated through foreign aid is neither pro-poor nor sustainable. Vicious circle of poverty is left for the economy.

We also need to realize the fact that the black money of hoarders and smugglers when pumped in the formal economy, growth takes an anti-poor twist. So, economic growth to be achieved through purely competitive markets would be more sustainable and inclusive in its nature and character. The Competition Commission of Pakistan should be revamped by establishing its vibrant units at district level. Similarly, the depth of capital and equity markets should also be enhanced for absorbing short term shocks and for attracting the direct and indirect investors.

The policy makers should keep an eye on the economic growth which could not be taken due to weak institutional arrangements and poor governance structure. This is particular with reference to agricultural growth which failed to take a sustained momentum due to policy bias very specifically bias against the poor small farmers. Moreover, there is dire need to check the illegal activities of service providers and thus bringing them in the tax net. The potential of economic growth in non-traditional path is higher than that of the traditional route.

Economic growth may be spatially inclusive and temporally pro-poor if its special kinds are promoted in the economy through specific monetary and fiscal policies. Though the current tight monetary policy may be a workable instrument but if documentation drive and progressive taxation are activated in the economic system. Efforts should be shifted from incentivizing the big business tycoons to protecting the deprived farming community and SMEs from ‘cost price squeeze’. This is the way they could compete with the importers. This is the way to harness inclusive growth.

Through holistic policy measures, we will have to avoid the pumping of economic growth by allowing cartels, mafias and vested interest groups to play in the markets freely. Underground players of markets and intermediaries should be strictly handled through stringent regulations so that the benefit of production of the small businesses should not be drained to the hands of the rich. Besides objective policy narratives like that of monetary and fiscal management, we need to go for subjective alternatives through certain moral filters in the economy.

In the rat race of high standard of living, which would always be growth hampering in its sustainable domain, the over-consumption kind of life style should be transformed to simple life by introducing a good moral value system in the communities and societies. Mere slogan of austerity is not enough; it is to be reflected from the whole life style of the elite class in the country. A nationwide movement may be initiated at schools, colleges and universities for installing the idea of simple and decent life. The launch of morality in the economic system is growth friendly in the sense of being more inclusive, pro-poor and sustainable.

 

Dr Abdul Saboor is Professor of Economics and Dean, Faculty of Social Sciences, PMAS Arid Agriculture University, Rawalpindi. He can be reached at drabdul.saboor@uaar.edu.pk