Pro-poor reform

The new set-up must quickly undertake substantial reforms to save our moribund economy and ensure durable economic stability, productive growth, equity and sustainability.

The IMF, think tanks, business groups, etc. mainly propose technical reforms, such as deregulation and privatisation, to loosen the hold of an elite-run state on markets, assuming, against global evidence, that unbridled markets can ensure progress.

However, the elites that run our state run markets too. Thus, many state ills actually stem from market ills, twin deficits exist partially as businesses seek endless subsidies and engage in tax evasion and can’t compete globally. The outcome is that one can’t reform the state without reforming markets as market elites will soon recapture it.

Reforms in which the bulk of the populace barely figures will produce an elite-run market that fails on all four aims mentioned above.

With the Soviet state-monopolist model proved infeasible, the way forward is a welfare-cum developmental state that mainly serves the interests of the poor and also ensures that markets provide fair avenues to them.

Such reforms must target the state and market, make masses their focus and use their political mobilisation as the key force to unleash reform.

The starting point must be a review of the factors that cause poverty among the masses, ie, small producers and labourers in rural and urban areas in Pakistan.

Such bottom-up analysis will reveal not only the lack of economic and social investment by the state as key factors but also the people’s exploitation and marginalisation by markets and local elites.

It will lead to a comprehensive structural reform agenda that covers legislation, policies, strategies, projects, services and institutional reform at the federal, provincial and local levels, unlike the usual band-aid welfare.

The agenda will expand the poor’s ownership of assets (including land reforms) and access to credit, skills and technology; and ensure the rule of law to protect them from elite abuses.

It will expand locally devolved quality education, health, family planning and other social services; and support community-based groups which mobilise and advocate for the poor to increase their bargaining power in markets and politics. Minorities, women, and far-flung areas must be the top priority.

This major investment in the poor will not only serve ethical concerns but also become the main driver of national progress as reduced poverty ignites growth that benefits all. Despite our large population, our internal market is small, given low incomes.

Increasing people’s incomes will expand the size of the national market and profits for producers. This, in turn, will again create jobs, and expand incomes and the national market size, thus igniting a virtuous cycle of progress. The poor spend more on local goods than the rich, benefiting local producers and the external account.

This sharp focus on the poor would serve as the foundation for reforms in policy areas that hog mainstream reform agendas, such as fiscal, external, investment, state enterprise and energy issues.

But the policy steps in even these areas will now centralise and protect the interests of the poor. To achieve fiscal balances, the state would only give targeted subsidies to the poor, eliminate elite and universal subsidies, focus more on direct taxes on untaxed sectors to generate enough resources for the increased investment in the poor, and avoid indirect taxes that burden the poor.

To end oligopolies in industrial realms that rig both markets and the state, the state would ensure investment flows to small and medium firms, not just large market elites, in new sectors that yield jobs, productivity and exports to ensure trade balances.

Smart regulation will replace deregulation and broader state units restructuring will replace only privatisation.

The result would be a propoor industrial policy but also agrarian and informal sector policies that mainstream ecological concerns.

This agenda goes beyond reforms and actually restructures society in favour of the masses. But such change can only come from long-term political mobilisation around this agenda to help grassroots progressive parties win power.

In the interim, though, such an agenda can help pinpoint the perils of pro-elite reforms championed by mainstream sources and put pressure on them to adopt at least some of its elements.

This major investment in the poor will not only serve ethical concerns but also become the main driver of national progress as reduced poverty ignites growth that benefits all. Despite our large population, our internal market is small, given low incomes.