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The pro-poor myth

Pro-poor growth, equitable, inclusive growth and growth with a human – the current era of economics is all about these words and terms. These interconnected ideas show a clear reaction against earlier theories like ‘growth alone’ and ‘trickledown economics’. But all these concepts are amorphous in nature.

Definitional confusions also abound. For example, literature on pro-poor growth defines it in two ways. First, economic growth is said to be pro-poor if it is not accompanied by a reduction in the income share of the poor and if the income of the poor increases no less, on average, than their rich counterparts in percentage terms.

The second definition adds more complexity to the concept saying that economic growth should result in some increase in the income of the poor, however small it may be. That means that if the annual income of a rich person increases from Rs100,00000 to Rs110,00000 at the rate of 10 percent while that of an average poor person increases from Rs100,000 to Rs110,000 (also at 10 percent), it will be considered pro-poor growth according to this definition. Does this not render the definition of pro-poor growth meaningless?

Two important points immediately crop up from these definitions. One, the definition of pro-poor is very lax and broad and a change in income in percentage terms does not make the pro-poor idea meaningful. With such economic growth, even if we call it pro-poor, poverty reduction will almost remain an impossibility. Such growth will keep widening the gap between the rich and the poor. Two, the efficacy of pro-poor growth as per these definitions depends on the distribution of initial endowments in the society. If society is highly unequal, then even if pro-poor growth becomes a religion with policymakers, it will not yield tangible results with regard to poverty alleviation and inequality reduction.

All this means that a third definition of pro-poor growth is required, which entails that the poor should have greater-than-average share in the additional income generated by a country in absolute terms. Promoting pro-poor growth thus requires strategies and policy initiatives which are deliberately biased in favour of the poor to ensure that the poor gain proportionally more than the rich in the process of economic growth. This definition is, however, not received favourably by many especially the right-wing on the pretext that it is unrealistic and gives rise to distortions in the economy while slowing down growth.

Pro-poor growth doesn’t only have definitional problems. There are issues with the operationalisation of this concept when it comes to the practical world. What exactly are the policies which can induce pro-poor growth? Broadly speaking, a pro-poor growth strategy requires removing institutional and policy-induced biases against the poor. Discrimination on the basis of gender, ethnicity, and religion is antithetical to pro-poor growth since it hurts the poor more. Macro-policies that constrain economic growth include urban-biased infrastructure development and big-city oriented industrial location policies etc.

The concept of pro-poor growth becomes meaningless if the distribution of initial endowments is highly unequal in society; there would be need then for some serious policy tinkering with regard to redistribution of endowments. In our case inequitable distribution of land endowments is a case in point. Providing access to land via land reforms should therefore become central to efforts aimed at poverty reduction in Pakistan.

The Indian experience of land reforms shows that, contrary to standard arguments of advantage of economies of scale, land reforms in India had positive impact on productivity of agriculture, investment and accumulation of assets. Moreover, contrary to fears, land reforms benefitted the households with lower initial levels of assets more thus pointing towards positive impact of land reforms from equity perspective. But the half-baked land reforms in Pakistan did not produce tangible benefits from productivity as well as equity angles as they did in India.

But the question here is whether governments in Pakistan have the political will to go for reforms given the power of the land owning class and the likely political fallout. If outright land redistribution is not possible due to political exigencies, several other steps can be taken to ameliorate the situation. For example, state land can be distributed among the landless. The law of inheritance can be implemented strictly so that women are not deprived of land and preferential treatment can be provided to small landowners with regard to access to agricultural loans, etc.

Direct pro-poor policies are also needed, which include adequate public healthcare and education spending, access to family planning services, improved access to credit provision (financial democracy) and promotion of small and medium enterprises. Literacy and other social indicators are woefully low in Pakistan. Investment in education and health is central to reducing poverty and increasing long-term economic growth. Female literacy and increasing their labour participation can turn out to be more effective for poverty reduction. Public services transform the lives of the poor, empower them and improve their life chances.

According to an Oxfam report released recently, public services can be great equalisers in economic terms and can mitigate the impact of a skewed distribution of income and wealth. The virtual income provided by investment in public healthcare and education increases real income of the poor by 10-20 percent. It is unfortunate that our social spending is abysmally low. According to the Pakistan Economic Survey we spend 0.4 percent and 2 percent of our GDP on health and education respectively.

A well-administered progressive taxation system is also pro-poor. Pakistan’s taxation system is hardly progressive. The rich who should pay taxes are out of the tax net while the poor have to bear the brunt of taxation through indirect taxes. Judging by the statement: ‘how people are taxed, who is taxed and what is taxed tell more about a society than anything else’, Pakistan’s taxation system tells a lot about the socio-economic dynamics of our society.

How are people taxed? The poor have to pay taxes through indirect taxation. Such a taxation system can hardly perform the function of redistribution of income in society. Only captives of the taxation system, like the salaried class, are taxed. Wide-ranging exemptions and weak state capacity has made the taxation system irrelevant as far as its redistributive function is concerned.

In a stratified society like Pakistan, we cannot satisfy ourselves just by sloganeering over pro-poor growth and equality of opportunity. As observed by Oxfam: “If you are born in a highly unequal country you will most probably die poor, and your children and grandchildren will be poor too. In Pakistan, for instance, a boy born in the rural area to a father from the poorest 20 percent of the population has only 1.9 percent chance of ever moving to the richest 20 percent”.

Can we expect a son of an agricultural worker born in rural Pakistan to compete with a scion of a rich man living in the metropolis of the country? Pro-poor growth is a big myth – just like ‘meritocracy’ and ‘equality of opportunity’. Pro-poor growth will remain a slogan unless public policies are clearly biased in favour of the poor.

The writer is a graduate of Columbia University.  Email: jamilnasir1969@gmail.com Twitter: @Jamilnasir1

Jamil Nasir, "The pro-poor myth," The News. 2014-11-12.
Keywords: Economics , Economic needs , Economic aspects , Public policy , Economic growth , Economic issues , Macroeconomic policy , Economic policy , Healthcare issues , Foreign policy , Land reforms , Economic survey , Economic reforms , Taxation policy , Indirect taxes , Income Tax , Agriculture-Pakistan , Poverty , Pakistan , India