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March 17, 2016

The injustice of inequality


March 17, 2016

A defining 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 long-term 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, Wallis and 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 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 counter-posed 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.” Accordingly Rawls gives a key role to justice in the design of institutions, “Justice is the first virtue of social institutions, as truth is of systems of thought….laws and institutions no matter how efficient,… must be reformed or abolished if they are unjust”.

Quaid-e-Azam Muhammad Ali Jinnah regarded equality to be one of the foundational principles of Pakistan. In his address at the public meeting in Chittagong on March 16, 1948, he postulated, “The great ideals of human progress, of social justice, of equality and of fraternity constitute the basic causes of the birth of Pakistan….”.

This principle is articulated in Article 38 (a) of the constitution of Pakistan as follows: “The state shall secure the wellbeing of the people irrespective of sex, caste, creed or race by raising their standard of living by preventing the concentration of wealth and means of production and distribution in the hands of a few to the detriment of the general interest……”

I have argued that persistent social, economic and institutional barriers exclude the majority of the people of our country from equality of opportunity to develop their human capabilities. This violates not only the basic requirements of justice but also the foundational principle of the state of Pakistan.

The writer is a professor of economics at the Forman Christian College University, Lahore.

Email: [email protected]



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