Growth trap

LAHORE: Irrespective of the scarcity of resources every effort must be made by the government that assumes power after election to address inequalities and poverty in the society. The first priority would be to ensure that the poverty level does not increase.

The new government would not have the luxury to reduce poverty through accelerated growth that ensures some trickle-down impact of incomes of the poor. This time around the impact would come through judicious redistribution of available resources and cuts in unnecessary non-development expenses. The state should for instance get rid of all rest houses and lodges of the government by auctioning them to the private sector. The rest houses are special recreation places for the baboos. This should stop forthwith. This will save billions of rupees spent every year on their maintenance. Besides the privatization proceeds would add billions in national kitty. This money should be spent on social sectors like health education. In the educational sector the amount must be spent on developing skill imparting institutions only.

Such pro-poor measures would address inequalities and increase the prospects for poor people to be prepared to get a share in the opportunities created by economic growth. Creditable research has revealed that the poverty impact of growth has been shown to be more than 10 times higher in those countries that combined growth with falling rather than rising inequality.

If one focuses solely on the period since the early 1990s, there are signs that a positive correlation is emerging between rising inequality and economic growth. It appears that the recent growth processes seen in many reforming economies including Pakistan have put upward pressure on inequality. There are exceptions, however, in that growth since the early 1990s has accompanied falling inequality in some countries but Pakistan is not among those countries.

Planners must realize that unless there is sufficient change in distribution, people who have a larger initial share of the pie tend to gain a larger share in the pie's expansion. Among growing economies, the median rate of decline in the US$2-a-day headcount index is only about 1 percent a year for those countries for which growth came with rising inequality. By contrast, poverty declined about 10 percent a year among countries that combined growth with falling inequality. Either way, poverty tends to fall, but at very different rates. Equitable growth is the fastest way to reduce poverty.

It would be wrong to blame globalization for poverty. In general, poverty is influenced by globalization but is seldom mainly caused by it. The extent and distribution of world poverty stem from a lack of access to resources and opportunities. Also, dependencies, corruption and other governance failures, and poor people's lack of rights in the face of traditional local power structures, as well as the lack of education and health care, are all key factors explaining poverty and hunger.

But an analysis of the links between globalization and poverty must take the dynamics and volatility of globalization processes into account. Given that the majority of the poor live in rural areas and depend on labor or earn their living as small farmers, the effects of globalization on employment and small-farm competitiveness are central to determining its impact on poverty.

From the experience of the recent election campaign the aspiring economic managers must have realized that the poor hungry people hungry people cannot wait for long-term solutions, such as the economic progress that globalization offers. Overcoming poverty through economic growth alone would require decades, even with a high growth rate. To bridge the time issue and to cope with emergencies, social policy is called for. The new regime would have to come up with a social policy aimed at mitigating the miseries of the poorest of poor.

It includes empowering women by improving their living conditions and enabling them to actively participate in the social and economic life of a country may well be the key for long-term sustainable development.