Corruption root cause of growing inequality

LAHORE: Corruption is the main cause of growing inequality, affecting poor people more intensely than the affluent segments of the society. 

Corrupt officials demanding bribes bring basic services beyond the reach of poor people. Denial of basic civic services makes them feel voiceless and powerless, hampering growth and development and in turn increasing income inequality and poverty. Economists believe that corruption is the gravest threat to Pakistan’s survival than terrorism.  Corruption raises businesses costs and has the same effect as taxation does. But, it is most difficult for small and poor entrepreneurs to avoid. 

Of course, this is against the spirit of a developmental state. In developmental states, progressive taxes are collected; labour is regulated and the chronically poor are protected. There is a sense of nationhood. Investment is attracted that also promotes national development goals.

Truly developmental state has a powerful, competent, autonomous and stable bureaucracy and its political loyalty is not tested. Reforms in bureaucracy have been delayed for too long. We still protect the influential. A developmental state is relatively independent of special interests although it is well linked with non-state actors who contribute to policy formation. Economic development is consistently prioritised by government policy, which promotes productive entrepreneurship.

Pakistan is plagued with nepotism, intolerance and poor educational system. To graduate into a development state tolerance, meritocracy, social mobility and high levels of education have to be valued and promoted. National leaders in a developmental state promote development (which may also benefit them) and corruption is limited or at least not as predatory as in Pakistan. The planners in Pakistan would have to reform their growth model on these lines to ensure inclusive and pro-poor growth.

One way to reduce poverty is through inclusive growth, particularly in turbulent times like the one being faced by Pakistan. Despite various challenges all is not lost. The country could join the developed world by redesigning its policies independently without taking dictation from outside powers. 

History has proved that Pakistan never attained sustainable growth while depending on foreign assistance provided with strings. The country was ditched when the assistance providers thought that it was not in their national interest to assist Pakistan.

The economic planners should give importance to the quality of our national institutions. They must realise that the quality of institutions matter. Strengthening institution would require courage to stand up to vested interests. There is dire need to build pro-growth institutions. They should first identify a narrow and specific set of ‘growth-enhancing’ institutions, and then support them.  Pakistan is currently plagued with weak accountability to the electorate and poor capacity to deliver. This reveals that the state is currently unwilling or unable to fulfill the role of a development state.

Governance guru Kaufmann collected evidence from 170 countries that show that good governance supports wealth creation, but economic growth does not result in improved governance.