Friday December 08, 2023

Survival of the republic

January 29, 2023

Even though ‘Cooperation in a Fragmented World’ was this year’s theme of the World Economic Forum’s Annual Meeting in Davos, there is little that can be put on paper in terms of actual cooperation that transpired at the meet.

The gathering began amidst usual global complaints on the annual hobnobbing of the rich and powerful on fighting poverty and climate change and ended with the world hearing upbeat promises on an economic outlook beyond recession yet consistent concerns on inflation, need for more money to fight climate change and agreement on use of green energy and of course Ukraine’s demands for more military aid and actualization of commitments on the reconstruction fund.

The most pertinent context to the huddle in Davos was provided by the Oxfam report demanding an end to the widening global inequality as it shared that the world’s richest one per cent bagged nearly twice as much wealth as the rest of the world put together over the past two years. In other words, $26 trillion or nearly two-thirds of all new wealth worth $42 trillion created since 2020 or the start of the pandemic went to the richest one per cent of the world.

Titled ‘Survival of the Richest’, the report recommended that even a tax of up to five per cent on the world’s rich could raise $1.7 trillion a year which could lift two billion people out of poverty. While rising food and living costs crushed the majority of the global population, the wealth of uber billionaires surged through the very profits from food and energy corporations which made a windfall in their own profits and of their rich shareholders. Naming some of the global giants who made a killing off of food and energy inflation, the report pointed that on the other end of the spectrum are not just countries facing bankruptcy and spending four times more repaying debts to rich creditors than on healthcare, but that roughly one in ten people across the planet are going hungry which also translates to 60 per cent of the world’s hungry population including women and girls who often eat least and last.

This disproportionate growth in wealth and inequality around the world only has governments to blame which have shied away from adequately taxing the rich while a person of average means has to pay a number of direct and indirect taxes. As a stark comparison, the executive summary of the report began by pointing out that ‘Elon Musk, one of the world’s richest men, paid a ‘true tax rate’ of just over 3% from 2014 to 2018. Aber Christine, a market trader in Northern Uganda who sells rice, flour and soya, makes $80 a month in profit. She pays a tax rate of 40%’.

Pakistan is facing its own crisis of economic governance where a rotten system has been enforced that favours the rich and punishes the poor. One the one hand, from an elected government to an unelected or selected regime, subsidies amounting to billions of dollars are handed to a few favoured elite groups not just in the form of tax breaks alone but also through provision of competitive gas and electricity tariffs or preferred access to capital, land and services, etc. On the other hand, no meaningful effort is ever made towards fixing the structural disparities and inequalities that are hurting a vast majority of the people.

Take for instance the unfair and complex system of taxation in the country. While there is broad agreement that direct taxation is a just approach to revenue generation and helps bridge the inequality gap, each government has resisted reforming the system at one or the other pretext and prefers to rely on increasing indirect taxation that disproportionately affects the already disadvantaged. Coupled with low or zero-taxation for large and affluent sectors of the economy inconsistent with their true worth, undue pressure is applied to compliant sectors including urban salaried classes and corporates to meet revenue shortfall.

Pakistan is indeed a welfare state, but only for its elite. Far beyond from being just a quotable quip from the academic Ammar Ali Jan, this is based on the dismal statistics captured in Pakistan’s National Human Development Report 2020 which shared in April 2021 that the economic privileges accorded to Pakistan’s powerful civil and military elite add up to an estimated $17.4 billion or 6 per cent of the economy.

Breaking down sources of privileges of different vested interests including agriculture, industry, banks, exporters, traders, high net worth individuals, military establishment, and state owned enterprises, the report listed thirty-two (32) types of benefits afforded to them by the state ranging through the tax system, cheaper inputs, higher output prices and preferential access.

The level of inequality witnessed in Pakistan is not just in terms of income and wealth even though that too is quite stark as the poorest one per cent of Pakistan’s population held only 0.15 per cent of the national income compared to the richest one per cent whose share of national income exceeded 9.0 per cent in 2018–2019, according to the report. The report notes that the disparity has transcended to an extent that it seems as though the poorest and richest Pakistanis effectively live in completely different countries, with literacy levels, health outcomes, and living standards that are poles apart. It is not surprising then to comprehend how spectacularly our system of governance has failed to alleviate inequality and has in fact contributed to nurturing it instead.

It is hard to escape the nexus between policymakers and powerful groups that are allowed to use the system and its loopholes to their advantage – which brings us to the harsh reality of hollowed politics and democracy. Whether it is the weak functioning of a flawed democracy which has dimmed its sheen in Pakistan or its gradual elite capture, one thing is clear: a system with such inherent weaknesses would never deliver. A future without a broad agreement on what kind of a republic we wish to be and an equitable system of democratic decision-making would remain just as bleak.

The writer is an analyst working in the field of politics, democratic governance, legislative development and rule of law.