Why poverty refuses to fade away
By Izzud-Din Pal
THE issue of poverty has been receiving considerable attention in the media for several years, especially since the policy for macroeconomic stabilisation was implemented by the government. While the emphasis on poverty reduction through growth is still the official policy, neither of the two objectives seems to be showing any progress.
On the question of poverty reduction, there is a serious gap between what the officials claim has been accomplished and the perception and experience of the majority of people about it. The recently released provisional poverty estimates, for example, which claim to show a notable reduction in the number of the poor in the country illustrates my point.
Why should this be the case has been examined extensively in recent commentaries on this subject. The issue does not seem to go away and the official position seems to be to stay the course. There is, therefore, scope for further discussion and examination of the question albeit in a broader perspective. This would underline the challenge that the government is faced with concerning poverty reduction.
The global focus on national poverty is really a new phenomenon. Until recently the poor received attention mainly as a problem of disparity among nations. A direct focus was badly needed, therefore, because, as Michael Harrington, the author of “Other America” often observed in the 1960s, there were poor people in rich countries as there were rich people in poor countries.
The UNDP has done pioneering work in highlighting this phenomenon by producing data on the availability of the basic amenities of life to people in the developing countries. The watershed in the fight against poverty was the Millennium Declaration signed by 189 countries in September 2000. It highlighted the reality of absolute poverty with reference to the developing countries, by using a threshold of minimum income of one dollar a day.
In discussions on international disparities, the focus has been necessarily on relative poverty, perhaps because the developed countries are not faced with a serious problem of people living below the poverty line. It is an important issue but does not properly explore the facts about the state of life of people at the lowest rung of the ladder in income distribution, neither in the developed countries nor the developing ones. In the latter countries it has been associated with the pattern of a traditional society. In many developed countries, especially in North America, the emphasis has been placed on the culture of poverty in the urban areas.
Oscar Lewis, the author of “Five Families” could assure, for example, his readers that poverty was not merely a lack of adequate income, but rather a way life handed down from generation to generation.
In contrast to the culture of poverty, the economists, such as Keith Griffin, emphasise, especially with reference to South Asia, that poverty is a product of some social and economic processes which are intrinsic to the social systems in the developing countries. These economists give considerable attention to the historical facts in which the interests of various classes are often in conflict. The issue, therefore, can be resolved only through structural changes in society.
Whether it is a matter of “culture” of poverty or of unequal access to assets, in a society where both kinds of poverties are a reality, a comparative view of both is necessary in order to draw a meaningful picture about them. They are in a symbiotic relationship, like two blades of scissors. Therefore, to define absolute poverty just in terms of calorie count is an insult to the poor as human beings.
Another aspect of poverty that impinges on our discussion of the concepts of relative and absolute poverty and adds an angle to the question of income distribution is the existence of what is called the working poor. Their portrait is more easily available with reference to the developed countries than the developing countries. In the 19th Century, Charles Dickens described their plight in post-Industrial Revolution England. More recently, Barbara Ehrenreich describes their low-wage existence in the United States in her 2001 bestseller “Nickel and Dimed”. For Pulitzer Prize winning US reporter David R. Shipler, poverty is an interlocking problem, as he describes it in his “The Working Poor”.
In a developing country such as Pakistan, there are the ‘chowkidars’, ‘chaprasis’, the chauffeurs and drivers, and the domestic servants, not to speak of the network of clerks churning out red-tape in their endeavours to keep the “bosses” happy — all fitting into tightly-defined social hierarchies.
This demonstrates that poverty is a very complex issue. It is not just about minimum required money income or measurement of subsistence. It is a matter of poverty of opportunity. One wonders, for example, how many of the working poor end up in their present station in life because they never had an opportunity to develop in accordance with their potential talents.
With its many facets, the issue calls for a comprehensive approach for reduction of poverty. Concerning absolute poverty, it is a difficult challenge to define what average level of income would meet the basic needs of an individual or a household. The basket of goods and services for minimum sustenance may be measured by a common denominator of a dollar a day or some other unit adjusted with national or local norms. But other related issues still need to be kept in view for a full understanding of the situation such as purchasing power as determined by the price level of essential goods.
In this regard, the data about inflationary pressures may be received with reservations if their message does not correspond with the general experience. They may also become out of date because of the time lag between their tabulation and publication.
The concept of relative poverty, as I have mentioned above, underlines the gap between the rich and the poor. Generally, information about the various income groups in a country is divided into the quartiles or deciles in a descending order and inequality among people is measured by means of statistical devices such as Gini Coefficient. There may be variation, however, within the income groups which are covered by their averages. In a country such as Pakistan, for example, it should be of interest to have the average income of the top five per cent available in order to measure the true gap between the rich and the poor.
All the above considerations assume their respective places in the formulation of public policy on this matter. As is well known, the focus of this policy in Pakistan is, in the words of the World Bank, “poverty reduction and growth”. The approach to poverty which has now assumed a hegemonic position in development thinking is a variant of neo-classical position promoted by the World Bank. According to this approach, only the market-led development would reduce poverty in a country. As observed by K.T. Silva and K. Athukorala, the “safety nets for the poor” have only a limited role in this process as long as they do not inhibit the market mechanism (Poverty: a Global View, edited by Else Oyen, S.M. Miller and Abdus Samad, Oslo, 1996).
The conventional wisdom shared by policy makers in Pakistan is that growth is necessary for poverty reduction. It is a vague statement and is open to interpretation. When the time element is added to it, for example, then growth becomes the main target of the policy objective, with distribution playing its role only after growth has reached a certain critical minimum level.
In this formulation, the statement becomes a controversial issue. There is a strong body of opinion among economists that challenges the view that growth should be given priority over redistribution. I have dealt with this issue in my “Economic Growth and Social Choice” (Dawn, Encounter, February 11), and do not wish to repeat my argument here except to emphasise one point: it would make eminent sense that a proper development strategy for a developing country such as Pakistan should focus on both ends of the process of growth. Growth with equity should be the main objective of the state.
The sequential approach to growth was developed in the 1950s with a focus on the role of capital formation in propelling an economy to “unlimited” growth with high mass consumption. For the economy to become self-sustaining, according to the argument, it was necessary to reinvest the surplus in order to expand the potential output. For both capitalists and workers had more to gain by focusing on increase in output, because the latter group would gain from increased material production through the “trickle-down” effect. Kuznet’s analysis of relation between income distribution and growth (the Kuznet’s Curve) provided support for this point of view.
This model was developed against the background of reconstruction of post-Second World War European economy where the challenge was to rebuild with the help of the resources, including entrepreneurship and a large reservoir of skilled labour which were easily accessible within the economy. Such is not the case with a developing country which would need a multifaceted approach to its economy. It takes time to produce educated and skilled manpower and it can only be done by allocating resources simultaneously to this sector, along with other development plans.
The importance of social choice has received further attention as a result of the renewal of interest in the concept of the welfare state. It has a new dimension added to it, that of the relationship between ethics and economics. There is a revival of interest in the contributions of economists such as A.C. Pigou, one of disciples of Alfred Marshall. The starting point of economics, according to this approach, is poverty rather than sophisticated nature of efficiency. The goal of economics should be to relieve human beings from poverty and then to pursue the objective of excellence.
Neither the discipline itself nor the policy makers may be ready to embark upon such a drastic shift in their plans. But the new ideas certainly should encourage us to pause and think about the present state of economic life.
The latest thinking also debunks the assertion that pursuing growth with equitable distribution would unnecessarily slow its pace and might even frustrate both objectives. In light of the above discussion, the following remarks are aimed at the specific situation in Pakistan concerning poverty reduction:
1. In order to devise a meaningful policy, the first important step is to have a system in which an autonomous federal bureau of statistics would make available at regular intervals the results of the household surveys, along with definition of concepts and methodology used. Also, information about income distribution in the country, based on income tax and other related data, would be published regularly.
2. Agriculture, being the largest single sector of the economy, deserves special consideration. In 2002 and 2003, two reports were published which put emphasis on the question of rural poverty in the country. The first report entitled “Pakistan Poverty Assessment: Poverty in Pakistan: Vulnerabilities, Social Gaps and Rural Dynamics” was from the World Bank. The second report was published on behalf of the UNDP and was entitled “Pakistan: National Human Development Report 2003”.
Both reports focus on the important question of poverty reduction, but the differences between the two are striking. Unlike the World Bank report, the UNDP report advocates a deliberate public policy to strengthen the rights of tenants and farmers, to allow them to break out of the nexus of unequal access to assets. In other words, for the market mechanism to work, it is necessary to establish “the safety nets for the poor” through a deliberate public policy.
To the best of my knowledge, the report seems to have assumed the status of an archival material, placed on a shelf along with other such “historical” documents.
3. Taking a broader view of the access to assets for the farmers, a greater recognition of some of the minor crops would present a potential for growth and help the poorer farmers. The Pakistan Poverty Reduction Strategy Paper seems to suggest production of milk as a pro-poor policy, however. There may be good prospects for this kind of endeavour for a prosperous investor but not for the poor whose meagre resources cannot allow them to own enough dairy cattle to become entrepreneurs in milk production.
4. A sound agricultural policy is the backbone of the economy and that includes land reform. It is simply not justified to have more than half of agricultural land owned by less than 5 per cent of the landowners, plus the newly emerging commercial farmers from the military sector. A comprehensive review of agriculture in
Pakistan is, therefore, necessary for an agrarian reform in the context of modern time. This point has been emphasised by a vast majority of commentaries on the subject and it can bear repetition. The ruling groups are likely to resist these reforms. What prospects then are there in the near future? Perhaps not very bright.
Reference:
13 May, 2006. Encounter, DAWN.