Rising poverty and inequality in Pakistan

BY NABEEL ZAFAR: It is often reported that the number of people pushed down the poverty line in Pakistan is increasing by the day. The ongoing economic downturn has further made matters complicated as issues related to poverty and inequality that are now hitting an ever-growing number of Pakistanis.

The difficulties experienced by Pakistanis are not only the one experienced by them as these issues are a cause of concern for the global community that is feeling their pinch.

The issue however is particularly relevant to the developing countries and is not paid heed to by the people of the developed world though their policy makers are aware of the hazardous affects of these phenomena globally and are trying to bring in structural changes in the economic management of developing countries.

Currently a raging debate centres on the impact of globalisation on poverty and inequality as data suggests that the poverty levels that declined in the first half-a-decade of the current century but the poverty and inequality levels started to increase and now it is reported that around 2.5 billion people around the world face extreme poverty. It is conceded that the needs and wants of people have also increased with the growth of consumer society and people getting access to more goods and services.

Interestingly, other measures including the quality of life in developing world have also improved as is evident by increasing literacy rates and life expectancy and has brought a vast change in the requirements of the common folk but still inequality and poverty increase defying logical explanations and are difficult to come to grips with. The question holds relevant in this context that states that this increase may be due to the impact of globalisation.

In this context it is pointed out that these phenomena were largely avoided by countries such as China, Vietnam and Taiwan that lowered trade barriers and promoted foreign investment resulting in the declining incidence of poverty and inequality in the past few decades. Though this aspect is widely recognised but even for these countries, it is not clear that within-country inequality has been reduced as the growing rural–urban divide in many developing countries suggests rising inequality coupled with hardening attitude on part of the governance experienced by the people of these countries.

On the other hand, many other countries have seen little change in poverty levels, and inequality has either remained fairly constant or risen. Many global organisations dealing with these matters associate greater globalisation with increased growth, declining poverty and falling levels of inequality particularly when viewed in global backdrop. However, it is pointed out that liberalisation in developing countries does not reduce poverty or inequality and that is contrary to the situation under which the developed world tackled this problem.

It is also mentioned that the observation in this respect is associated with skills required to engage in activities aimed at increasing economic productivity particularly associated with trade and foreign investment often implying that more highly skilled workers gain more from international integration than do low-skilled ones resulting in exacerbating the degree of within-country inequality. Interestingly, inequality seems to also have risen recently in the developed countries but the general impression is that this outcome is not unexpected.

It is often pointed out that the highly developed trade affairs bring to fore the fact that in rich countries high-skilled workers should gain the most from globalisation and low-skilled ones should be the losers as this fact is just opposite of what should happen in the poor countries and that is even considered the obvious result of this process.

This seems to have occurred in a number of developed countries although it has probably been tempered by the redistributive effects of the welfare state. It is therefore deduced that inequality has risen in a number of developed countries though it is not to the level experienced in the developing countries.

The more surprising outcome has been that low-skilled workers in the developing world have not done better and though there are numerous reasons articulated for this result but it is a problem for poverty reduction and equity in the developing world, especially since these countries by and large do not have well-developed welfare states.

The impact of financial crises and their diffusion in a global system are also concerns with regard to poverty and inequality.

It is frequently argued that such crises are more likely, more intense and spread more broadly in a globalised world. On the other hand it is pointed out that with an open economy domestic and international shocks may balance each other out and actually make the system more stable.

In the above situation it is often mentioned that the financial shocks result in negative consequences for countries as was borne out by the Asian financial crisis of the late 1990s and the recent global financial crisis that have both increased poverty and inequality.

It is added that the policies of governments in such countries shape the globalisation process in their countries seems to be important in influencing the way globalisation affects poverty and inequality.

This perspective implies that such countries experience quite different experiences with globalisation that are often cannot be rated as positive and many increase the consequence of poverty and inequality.

Inquiries have been made in respect of the impact of globalisation on state capacity and it is found out that such states do not have enough capacity to tackle these issues that has been often stated to be the case with Pakistan.

It means that in this case the process of globalisation weakens countries and erodes their capacity to govern with highly adverse circumstances. In this connection it is reiterated that states are often judged by their capacity to manage their economies, to respond to crises and to provide public goods such as health care, national defense and education.

As countries get closely associated in a global economy they experience decisive decline in their ability to manage their economies due to many reasons that are considered difficult for them to manage. It is mentioned that the smaller size of an economy of the developing countries in comparison to the world economy means that this weakness becomes very obvious. It is widely assumed that countries will experience the externalities of other countries’ policies but will often be unable to manage these negative consequences.

This situation becomes obvious when it is observed that losing control over monetary policy, especially if a country opens its capital account and lets its currency float is a well-known example of this.

Additionally, tax competition among states in a globalised world is another concern as taxes provide the resources for governments to provide public goods and go a long way in impacting poverty and inequality.

The crux of the matter is that in the developing world structural adjustment to the economic activity is required to be frequently undertaken otherwise it is not possible to reduce the levels of inequality and poverty. It is earnestly expected that the Pakistani economic managers would heed the advice rendered by the IMF that is insisting on bringing out fundamental structural changes to the economic structure of the country.