LONDON School of Economics and Politics highlighted in its working paper that in colonial India, wealth disparity stemmed from concentrated riches among the affluent, divided into landowners, capitalists and European colonial officials. Second, the process was also influenced by political motives, wherein salaries and pensions for government officers were considerably higher than the average Indian incomes. Indian nationalists labeled this as an ‘economic drain,’ contending that excessive payments led to reduced investment funds and exacerbated inequality by enriching government officers disproportionately.
Muhammad Ali Jinnah articulated the same in his distinguished Presidential Address, delivered on 24 April 1943, that there are millions and millions of our people who hardly get one meal a day. Is this civilization? Is this the aim of Pakistan? Do you visualize that millions have been exploited and cannot get one meal a day! If that is the idea of Pakistan, I would not have it. Upon Pakistan’s independence, it inherited two distinct classes: the rural elite consisting of feudal landlords and the urban elite consisting of industrialists and government officials.
We peer into the annals of Pakistan’s historical trajectory, tracing the arc of its advancement in the noble pursuit of eradicating disparities and breathing life into the solemn pledges tendered during the epoch of its emancipation. In order to reduce assets inequality, in 1959, Ayyub Khan introduced laws limiting land ownership. Ownership was capped at 500 and 1000 acres for irrigated and non-irrigated lands respectively. Zulfikar Ali Bhutto announced reforms on March 1, 1972, regulated under Martial Law Regulation Act 115. Limits were set at 150 and 300 acres for irrigated and non-irrigated lands respectively. Subsequently, the Land Reforms Ordinance of 1977 further reduced these limits to 100 and 300 acres.
However, these reforms were reversed in the 1990s by a Shariah Court ruling, deeming them “Un-Islamic.” This decision allowed the land elite to regain over 1.5 million acres of uncultivated land in cultivated form without reimbursing the government for the gains from the initial land reform. This reversal bolstered their political power significantly.
Bureaucratic reforms have yet to be implemented in Pakistan, resulting in a situation where the bureaucracy operates with significant authority and receives higher compensation compared to other sectors. According to a study by PIDE, civil servants earn approximately 20% more than they earn their counterparts in the private sector. Furthermore, around 80% of public sector employees receive more than three non-salary benefits, mitigating any salary disadvantage for civil officials in comparison to their private-sector counterparts. For instance, a Grade 21 officer’s overall cost exceeds that of a United Nations national officer by 12%. Regrettably, most public sector organizations have struggled to effectively deliver essential services to the public. Past governments have not prioritized comprehensive reforms in this regard and have instead relied on increased taxation to sustain these benefits.
The prevailing misconception that the public avoids taxation is inaccurate. The current tax structure demonstrates regressive attributes, with indirect taxes contributing 60% of total tax revenue. Additionally, a significant portion of direct taxes is effectively passed onto consumers through withholding methods, accounting for up to 70%. Meanwhile, public in Pakistan lack fundamental rights, leading to persistent poverty driven by factors like inadequate inclusive growth and ongoing inequalities. Projections suggest a concerning 37.2% poverty rate by 2023.
Despite economic progress, rural-urban discrepancies persist, resulting in double the poverty rates in rural areas. Education challenges are evident, with Pakistan ranking second globally for out-of-school children (22.8 million aged 5-16), constituting 44% of the affected cohort. An educational divide is evident, with 66% of the non-poor and 34% of the poor in lower-middle-income groups having access to primary education. Higher education enrollment is skewed, with only 9% from low-income backgrounds, primarily in lesser-known public universities.
Costly education, creating barriers for low-income individuals and resulting in a mere 23% participation in secondary education compared to 77% in the top 60%. At the tertiary level, only 9% of the bottom 40% have access, mostly in less prestigious public institutions. Graduates from lower-income backgrounds face challenges securing high-quality employment due to unequal alumni networks. The informal sector employs 71.7% of the workforce, exposing individuals to vulnerabilities. Healthcare is underfunded at 1.2% of GDP, ranking 122nd globally, exacerbating healthcare disparities. The cost of legal proceedings hampers access to fair trials and justice.
Let us examine the affordability of housing for individuals belonging to the lower-income and lower-middle-income segments. The estimates presented reveal that 62% of the total housing units are sought by lower-income households with an approximate income of Rs. 27,120, while an additional 25% are required by lower-middle-income households earning up to Rs. 113,000. However, a comprehensive analysis encompassing their income levels, existing savings and factoring in an annual inflation rate of 25% unmistakably underscores their inability to procure residences, including houses, apartments, or portions thereof.
The LUMS survey reveals that the uppermost docile of households accounted for 24 percent of the total increment in income, in contrast to the lower half of households which garnered 32 percent of the said income growth. Additionally, the study underscores a notable dissimilarity between wealth and income inequality, with wealth inequality registering at 70.7 percent, more than twice the magnitude of income inequality at 32.7 percent. This reveals that a substantial proportion of the nation’s wealth, specifically 83 percent and 96 percent, is concentrated within the highest quintile and top two quintiles of households, correspondingly.
State must review its current governance structure to actualize the vision of Jinnah and post-independence promises, ensuring public necessities. Formulating a robust and enduring economic governance framework holds significance, as it presents a viable avenue to alleviate the prevalent debt burden, exceeding 70% of the budget, salaries and pension outlays and other unproductive expenses. Such measures would enable the government to redirect its focus towards enhancing public welfare. This sentiment can also serve as the key message for nation. Neglecting this fuels discontent, backing populist or extremist parties as alternatives, escalating polarization and youth frustration.
—Dr Abdul Wahid is an assistant professor (PhD Financial Economics) National University of Modern Languages (NUML), Islamabad.
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