The in­jus­tice of in­equal­ity

The Pak Banker - - 4EDITORIAL - Dr Ak­mal Hus­sain

Adefin­ing fea­ture of Pak­istan's econ­omy and so­ci­ety is the in­equal­ity of in­come and pro­duc­tive as­sets. The re­sul­tant in­equal­ity of op­por­tu­nity is an as yet un­recog­nised form of in­jus­tice. It also saps the hu­man po­ten­tial of so­ci­ety and un­der­mines longterm de­vel­op­ment. At the same time the in­jus­tice of in­equal­ity weak­ens the state, as it be­comes the ba­sis of griev­ances that fuel mil­i­tant ex­trem­ism, sec­tar­ian vi­o­lence and in­ter pro­vin­cial ten­sions.

In the en­su­ing dis­cus­sion, I will in­di­cate the na­ture of in­equal­ity in Pak­istan and the in­sti­tu­tional and pol­icy frame­works that have ac­cen­tu­ated it over time. I will ar­gue that the eco­nomic and political struc­tures that make in­equal­ity en­demic to so­ci­ety con­tra­dict the very idea of jus­tice.

Pak­istan's econ­omy is char­ac­terised by an in­sti­tu­tional struc­ture that sys­tem­at­i­cally gen­er­ates rents. (Rent is de­fined as a re­turn on an as­set, in­clud­ing skill, that is greater than the re­turn on the best al­ter­nate use). This is achieved by re­strict­ing com­pe­ti­tion and ex­clud­ing the ma­jor­ity of the peo­ple from the process of in­vest­ment and high wage em­ploy­ment. Con­se­quently, in­equal­ity is built into the process of eco­nomic growth.

At the same time such in­equal­ity pre­vents growth from be­ing sus­tained. This is be­cause an in­sti­tu­tional struc­ture which re­stricts com­pe­ti­tion lacks in­cen­tives for ef­fi­ciency and in­no­va­tion. Re­cent re­search has shown that coun­tries with rent-based in­sti­tu­tional struc­tures are un­able to gen­er­ate sus­tained long-term growth and can only grow in brief spurts. (For ex­am­ple, North, Wein­gast; Ro­drik; Aghion).

The sys­temic ten­dency for in­equal­ity in Pak­istan that is rooted in its in­sti­tu­tional struc­ture is re­in­forced by the fact that pro­duc­tive as­sets in both agri­cul­ture as well as large-scale man­u­fac­tur­ing are highly un­equally dis­trib­uted. It is not sur­pris­ing there­fore that, ac­cord­ing to an es­ti­mate by Shahid Javed Burki, the rich­est 18,000 Pak­ista­nis have an av­er­age an­nual in­come of $72,700 which is about 70 times the over­all per capita in­come of $1,050 of the pop­u­la­tion as a whole.

Eco­nomic in­equal­ity has en­gen­dered per­sis­tent mass poverty, so that even to­day, 69 years af­ter In­de­pen­dence over 60 per­cent of the peo­ple live in poverty de­fined in terms of $2 per per­son per day. Such poverty is re­strict­ing not only the present but the fu­ture po­ten­tial of the na­tion be­cause as much as 45 per­cent of


and the coun­try's chil­dren are suf­fer­ing from mal­nu­tri­tion.

In most cap­i­tal­ist coun­tries the state taxes the rich to pro­vide pub­lic ser­vices to the poor as a way of mit­i­gat­ing the in­equal­ity gen­er­ated by the mar­ket mech­a­nism. How­ever, in Pak­istan since about 66 per­cent of tax rev­enue is ob­tained through in­di­rect taxes, fis­cal pol­icy tends to fur­ther ac­cen­tu­ate in­equal­ity in the dis­tri­bu­tion of dis­pos­able in­come.

For ex­am­ple, ac­cord­ing to an ear­lier study by Dr A R Ke­mal, the in­crease in the tax bur­den as a per­cent­age of in­come was high­est at 6.8 per­cent for the low­est in­come group and low­est for the high­est in­come group at mi­nus 4.3 per­cent. Thus the ef­fect of such tax­a­tion over time is to in­crease the dis­pos­able in­come of the rich and re­duce the dis­pos­able in­come of the poor.

To make mat­ters worse, even the pro­vi­sion of qual­ity pub­lic ser­vices tends to favour the rich rather than the poor. Thus the af­flu­ent and the in­flu­en­tial have bet­ter ac­cess than the poor over doc­tors and beds in govern­ment hospi­tals, seats in the few qual­ity govern­ment schools that ex­ist and credit from state owned banks. Sim­i­larly, pub­lic funds are in some cases dis­pro­por­tion­ately spent on mega projects in big city cen­tres aimed at ac­cel­er­at­ing the speed of au­to­mo­biles, rather than pro­vid­ing safe drink­ing wa­ter, san­i­ta­tion, qual­ity health­care and education to the poor in back­ward re­gions.

In­jus­tice is inherent to mar­kets that deny a voice to those with­out pur­chas­ing power in the process of pri­vate-sec­tor re­source al­lo­ca­tion, pro­duc­tion and dis­tri­bu­tion. In Pak­istan in­jus­tice is also em­bed­ded in the govern­ment's fis­cal pol­icy; al­lo­ca­tion of pub­lic re­sources and pri­ori­tis­ing of so-called de­vel­op­ment projects. Th­ese forms of in­jus­tice oc­cur be­cause the poor are ex­cluded from the sys­tems of power and gov­er­nance. As I have ar­gued in my ear­lier pub­lished aca­demic work, the poor face mar­kets, state in­sti­tu­tions and lo­cal power struc­tures which dis­crim­i­nate against their ac­cess over re­sources, pub­lic ser­vices and gov­er­nance de­ci­sions that af­fect their daily lives.

The struc­tures of sys­temic in­equal­ity and per­sis­tent mass poverty are coun­ter­posed to the very idea of jus­tice as well as the foun­da­tional prin­ci­ple of Pak­istan. For ex­am­ple, John Rawls who is ar­guably the most in­flu­en­tial philoso­pher of con­sti­tu­tional law in the 20th cen­tury ar­gues, "Free mar­ket ar­range­ments must be set within a frame­work of political and le­gal in­sti­tu­tions which reg­u­lates the over­all trends of eco­nomic events and pre­serves the so­cial con­di­tions nec­es­sary for fair equal­ity of op­por­tu­nity."

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