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An end to inequality

Inequality in our country is now a lot worse than it has ever been in our history. The need to reduce inequality has been enshrined in Article 38(a) and Article 38(e) of our constitution, and remains a vital aim of the present government.

To achieve this goal, the government needs to skim off a large part of the earnings of the rich, who benefit most from economic growth, and use the revenue for the benefit of the poor. The rich are easily recognisable. Each month they earn more than 100 times the minimum wage. The tax authorities in the US used a similar criterion in the 1960s to identify the very rich, and imposed a higher tax rate on their earnings. We must do the same.

The poor are also easy to identify. They constitute 60 percent of the labour force who don’t even receive the minimum wage. They include young girls in rural Punjab who ought to be in school but are compelled to cut sugarcane or pick cotton to earn Rs100 daily; women in Faisalabad who make gloves at home and get Rs4 for each pair; and teachers at the Basic Education Community Schools who recently protested in Islamabad after not getting their salary worth Rs8,000 for eight months.

An ILO report states that the real wages of our workers declined by 4.7 percent in 2015-16. Millions live in deprivation and hunger is rampant. No wonder we have 40 percent of the world’s stunted children.

Wilful indifference to the conditions of the poor and malnourished children must not be tolerated in Naya Pakistan. A former finance minister brags about boosting the economy by over five percent as if this is the panacea for our economic ills. In fact, economic growth is neither relevant to how a vast majority of the poor live nor does it explain why so many people are becoming even more discontent as rising prices erode the real value of their earnings.

Yet, five percent growth is a substantial amount of new income or about Rs2.8 trillion. If it doesn’t trickle down to the poor, where does it go?

At the general level, the answer is that since our governments are made up of rich people who pursue policies that serve their interest, the wealthy naturally benefit a great deal from economic growth. But exactly how much of the national income the rich appropriate each year is unknown because our statisticians don’t prepare a group-wise breakdown of national income. They should do this so that the government knows how much to skim off. That is, if it is serious about reducing inequality.

Nevertheless, we get a pretty good idea of the earnings of the rich people in the corporate sector from the financial statements of the companies that they run. A quick glance at these statements reveals a smorgasbord of swelling wealth.

For example, in 2016, three CEOs alone earned Rs768 million, which is an considerable amount for a poor country. This means that their average earning is more than 1,400 times the minimum wage. It is Rs250 million more than their earning in the previous year. CEOs who run family-owned companies earn even more. Four CEOs who run textile and cement companies earn Rs196 million in salaries. Their average salary is one thousand times the minimum wage. In addition, as major shareholders in these companies they get a return on their investment. As a result, their total earnings add up to Rs6.6 billion or Rs263 million more than what they were in the previous year.

These few CEOs and their relatives collectively earn about Rs7 billion each year and pocket a fair share of economic growth. The difference in the income tax that they pay and what they should be paying amounts to Rs4 billion. This additional revenue can pay BISP grants to an additional 200,000 poor families or it can pay for a banana and one glass of milk every day to 400,000 malnourished children for one year.

Many CEOs claim that their earnings are rewards for increasing the earning per share of their companies. This is a flawed explanation since an individual’s contribution is impossible to gauge in a collective enterprise. In fact, these CEOs set their own salaries through pliant remuneration committees, which they fill with family members and corporate cronies. Naturally, their earnings keep rising, even as the companies’ earnings per share plummets. This prompts the question: are our companies good corporate citizens or are they sources of further enrichment for the rich?

Some years ago, French economist Thomas Piketty drew attention to rising inequality in the world and to the skewed distribution of wealth as its principal cause. Paul Krugman and Joseph Stiglitz also warned of “an era of extraordinary wealth concentration in the hands of a few people”, and advocated taking steps to reduce inequality that may also increase economic growth. They pointed to the insidious link between inequality, wealth-creation and politics, and how one cannot be understood independently of the other.

In our country, this means that inequality, poverty and malnutrition among children are neither inevitable nor necessary, nor the result of skewed demographics or corruption. They are the direct result of the actions of our rulers, their deliberate budget decisions, and their deliberate policies that favour the rich. Making our society equal has rarely been their priority.

Likewise, the present right-wing economic doctrine suggests that poverty is best eradicated by promoting the rich. The same doctrine was pursued 60 years ago, unfettered by an undue preoccupation with distributional policies or ideas of social justice. It led to a decade of ‘reforms’ whose ‘achievement’ is celebrated so accurately in this memorable verse of our great poet Habib Jalib: “Bees gharanay hain abaad aur baki kay hain lachaar” (Twenty families prosper, the rest despair).

As in the past, the present pro-rich policies will only herald in yet another gilded age by using starvation and unemployment as weapons to subdue the working population and keeping wages low to boost our international competitiveness. They may well water down the support-system for the poor, such as utility stores and BISP.

Right-wing economic doctrines don’t mesh well with our reality and must be cast aside. To achieve our social goals, the government must do its constitutional duty to prevent wealth concentration and reduce inequality by skimming off the enormous earnings of a small group of people, such as corporate barons who live lavishly on the fruits of inheritance and state patronage. This wealth must be redistributed to strengthen safeguards for the poor, widen BISP safety nets and utility stores to help vulnerable groups; substantially increase BISP’s stipends to push r people out of poverty; and strengthen workers’ unions to prevent employers from suppressing wages.

As the pioneer of liberation theology Gustavo Gutierrez said: “the poverty of the poor is not a call to generous relief action, but a demand that we go and build a different social order”. For us, such a social order will shape a Naya Pakistan that promotes the welfare of the poor as the only objective and doesn’t make the rich richer.

Sarmad Khawaja, "An end to inequality," The news. 2019-02-06.
Keywords: Economics , Education community , Economic growth , Economic ill , National growth , Financial statements , Income Tax , Wealth concentration , Budget decisions , Naya pakistan , Social aspect , Public view