The empirics, though very puzzling, suggest a deep relationship between the population size and inequality. The size of the population is an important determinant of income inequality in a country. A large population size implies low levels of inequality in a society and vice versa. Mr Filipe R Campante and Quoc-Anh Do of Harvard University in their paper titled “Inequality, redistribution and population” have come up with this empirical finding after examining cross-country data of various countries. Does this relationship hold in our case? The answer is an emphatic ‘no’. We are a nation of over 180 million people, a big population size, but at the same time inequality levels are also high. Rather it would be true to hypothesise that income inequality has deepened in the country with the increase in population. Why has it happened so? The fundamental reason is: inequality in Pakistan is structural in nature.
The inequalities have perpetuated and transmitted through generations, as bold policy initiatives for expanding opportunities to the lower and excluded strata of the population have remained lacking. Initiatives like small payments to the poor households out of zakat funds or other social programmes have failed in the past and are likely to fail in the future to put a dent in poverty and inequality in the country, as we have not addressed the real causes of the issue. Unless structural causes for inequality are identified and addressed through bold policy measures, it would not be possible to arrest the widening chasm between the various economic classes.
First structural cause is the highly uneven distribution of resources especially land in the rural areas. The landed class in the rural areas has tightened its grip over economic, social and political power despite the point that it is very small in number compared with the landless that constitute the majority in the rural areas. Their power mainly emanates from the land they possess. Feudal by virtue of their political power have formulated, perpetuated and supported the policies both at the national and local level that favoured the landed class. If the state took some initiative that harmed their vested interests, they flouted such a move with full vehemence. Land reforms initiatives of the past are a case in point.
Half-baked land reforms failed to disperse the ownership of land among the rural people. As a result, inequality arising out of skewed distribution of land has transmitted to the next generations. Added to this, our whole premise of rural development was fundamentally wrong. Rural development was considered synonymous with agricultural development, thereby meaning that no concrete policy initiatives were taken for the rural people who did not own land and were not necessarily attached with agricultural activities. Non-farm economy never remained a serious focus of the government policies as the representatives of the rural area were the feudal/agriculturists who were concerned only about the landed class and the landless people remained out of the canvas of state policies as they lacked power and voice.
The poor have to toe the line of the wadera in the elections due to his stronghold over economic, social and political power as the honour, life and the very survival of the landless and poor people depends on the pleasure of the so-called wadera. Thus the point is that the majority in the rural area lacks voice and it explains why inequality is high despite big population. The powerlessness of the poor people means that the elite do not feel any threat from the poor for redistribution of resources.
Some analysts out of their desperation say that the common man is himself responsible for his woes. They argue that the common man does not exercise his right of vote for a change in the society and toes the line of the landlord or biradari head while casting his vote in the elections. But we should not forget that the poor are no less rational human beings than their rich counterparts. The poor take their political and economic decisions based on the realities they daily face in their lives.
The questions the poor voter, especially in the rural area, is confronted with are: Will he be able to withstand the wrath of the landlord/local influential or the biradari head if he does not toe their line? Who will come for his rescue if he is implicated in a fake criminal case? Will the state institutions and functionaries support him if he is pitched against an influential guy of the area? If a misfortune visits him, will the state social security system be sufficient to help him recover from such a calamity or he will he have to resort to his extended family/biradari? Such are the questions that haunt his mind and play a crucial role in the determination of his voting decision.
Thus the point is that the poor do not have a voice in the real sense. It partially explains why the state spends less on redistributive spending. Even the large population is unable to articulate its interests if its majority is systematically left voiceless. Consequently, redistribution of resources does not take place from the rich to the poor and inequality deepens with each passing day due to rise in the population of the poor.
Another structural cause of deep inequalities in the country is the educational system prevalent in the country. Education opens up the window of opportunity through the channels of employment and social mobility. If academic achievement is a ticket for achievement of status and power, then is it reasonable to assume that the students from public sector schools will be able to compete with the students educated in quality schools generally run by the private sector. Should we attribute it to the personal failings if a multitude of the children hailing from poor families do not reach college or university level due to dropouts at the school level?
If we assume that employment etc will be strictly on the principle of meritocracy, it will be an uneven competition as students from the low quality schools will not fare well even in a meritocratic world. Different education systems prevalent in the country are contributing to the widening chasm of inequality. So the policy implications from the perspective of inequality are: first, introduce effective land reforms or devise an effective policy for the non-farm rural economy at the least; second, improve public sector education system and connect to the job market.
Imperfect credit markets are another reason for high income inequalities in the country. The poor do not have access to capital markets to make investments or insure themselves against adverse shocks. For example, banks require collateral for loans and the poor do not get loans to start a business for want of collateral, as collaterals demanded by the banks are generally tangible things like land.
Similarly, during economic shocks they are not able to get help from the formal lending institutions. They generally have to have recourse to the informal loans from the private lenders. In such cases, interest rates are exorbitantly high. The capital markets thus work for the rich and the elite. Thus it is required that the capital markets are geared for the benefit of the poor and unprivileged through deepening of financial intermediation and developing new forms of collateral.
Inequality can also be addressed through taxation, social transfers and social spending. Our taxation system is not progressive in the real sense because the collection from personal income tax and property taxes is low. It may be mentioned here that these taxes are generally considered progressive and contribute towards reducing inequality in the society. Still we heavily rely on indirect taxes which are regressive in nature.
Investment in sectors like education, health and other social services tend to have more long-term impact on inequality. But our situation is very depressing as we spend the lowest in the region on education and health. Similarly social transfer schemes such as unemployment insurance etc are almost non-existent. Common observation vindicates the point that there is a negative relationship between social benefit spending and inequality. Nations which spend more on social spending have low levels of inequality like Sweden, Norway, France and Germany etc. On the other hand, countries that spend less on social spending have high levels of inequality.
In a nutshell, the inequality issue cannot be addressed unless its structural causes are addressed and people are empowered. It is the voice of the people that will compel them for redistribution of resources.
The writer is a graduate from Columbia University with a degree in Economic Policy Management. Email: firstname.lastname@example.org