Role of non-market institutions in resource redistribution during lockdown


Corona Virus can transmit from one person to another person. To avoid exponential growth in the spread of Corona Virus cases, social distancing is suggested by experts. Father of Monetarist School of Economics, Milton Friedman said that one thing which a person can always be sure of is that everyone would put his or her self-interest before others. Apparently, it is realized by governments that this is perhaps not the right thing to expect and put faith in at the moment. Private choices in pursuit of self-interest and invisible hand are now deemed to be less reliable in current situation. Lockdown was considered necessary by governments in everyone’s individual and collective interest. So, it was decided that everyone cannot be allowed to pursue self-interest and lockdown has been implemented to achieve social distancing. After the lockdown, there are millions of poor people who do not have work. When lockdown happens, a great many people find resource markets stalled where they used to get income. This includes not only the poor people but a lot of other workers including factory workers, transporters, cab drivers, rickshaw drivers, salespersons, porters, loaders, delivery workers, construction workers, retailers, goods suppliers, mechanics and those working on daily wages in bakeries, restaurants, petrol pumps and gas stations, for instance. In normal circumstances, most of these people are non-poor, i.e. earning more than the subsistence level of income. But, because they earn income daily, they are now also vulnerable and at least for the lockdown period, most of them are effectively poor. If the government or third sector does not intervene, then these people do not have the purchasing power to afford essential purchases. Even if it is disliked or abhorred by free-market enthusiasts, governments are now intervening in price regulation, supply management, subsidies and influencing the previous long term contracts like employment and financing. All of that is deemed necessary now. More than ever, such crises necessitate the flow of resources from the haves to the have nots. But, frozen goods and resource markets cannot help, especially the poor and vulnerable people. That is where, prosocial behaviour and beyond-market distribution of resources is necessary. However, mainstream economics treats altruism as ‘impure’. It looks at altruism in the paradigm of pursuing self-interest. Economists like Andreoni reason that altruism can be explained through the ‘warm glow’ effect. People feel good to help others as they gain personal and private comfort. They might be doing it because of social pressure, to gain fame, to improve social image, to exhibit status or to avoid the guilt of saying no to a social cause in public. The paradigm of self-interest is neutral between a person’s decision to help others or to not help others. If fear and uncertainty make people more shortsighted, self-centric and engage in hoarding cash, withdrawing from banks, disinvesting their savings in capital markets and buying essential goods in bulk, then there is no drive, urge or impetus that economics offers to suggest otherwise. It is neutral between these selfish choices and the choice for altruism. Call towards duty has to come from somewhere else. In poor countries like Pakistan, people with surplus resources are engaging in charity, donations, and volunteering. Within few days, 800,000 people voluntarily registered themselves for the volunteer work in the ‘tiger force’ constituted for relief efforts. Empirical evidence in Pakistan in multiple research studies has found that faith is the biggest motivation behind charitable donations and it encapsulates and is associated with other humane motives. As per World Giving Index 2019 report, Pakistan ranks at 69 in overall ranking and at 41 in ranking based on monetary donations. The data aggregates the response of 1.3 million respondents from more than 125 countries over a period of 10 years. Pakistan’s rank is above many of the European countries, such as Poland, Portugal, Belarus, Slovakia, Estonia, Romania, Hungary, Latvia, Czech Republic, Croatia, Bulgaria, Lithuania and Serbia and some of the Asian countries like Japan, China and India. Most of these countries which rank below Pakistan have much higher per capita incomes. Even though Pakistan ranks at 152 among 189 countries on Human Development Index as per Human Development Report 2019, but Pakistan’s ranking on prosocial spending, helping strangers and volunteering is much more impressive. In most countries where data is available, private wealth to income ratio ranges from 4 to 7 as per the data made available by World Inequality Database. Let us assume this ratio to be 5 for Pakistan. Pakistan’s GDP is around $300 billion. Conservative estimates put the size of informal economy at one-third of total GDP. Adding both the value of production in formal and informal economy, we get $400 billion. Five times the sum of aggregate GDP in documented economy plus the value of production in informal sector will be around $2,000 billion. If one-fifth of that national wealth comprises assets which are eligible for Zakat, then 2.5% rate of Zakat on that portion of wealth would turn out to be $10 billion. It roughly equals 2.5% of aggregate value of production in formal and undocumented economy. Estimates using disaggregated data of income and wealth subject to Zakat in a study published in Pakistan Development Review in 2015 also confirm estimates even little higher than this percentage of GDP for Pakistan. It is important to put this money mobilized through philanthropy to effective use. Scholars have come forward and explained that people can pay Zakat in advance to the people suffering from lockdown. There are approximately 50 million poor people in Pakistan. If extreme poverty line is defined at $1.3 a day, Rs 10 billion is needed to feed them daily. Total federal Public Sector Development Program size is Rs 675 billion for the whole year and it is allocated for overall development spending for the country. If total federal PSDP is just allocated to feed the poor, it would be enough for roughly 2 months only. Lockdown has not affected poor only, but the daily wagers and earners who are non-poor in normal circumstances if they get daily work, such as rickshaw drivers, street food vendors, truck, bus and pickup transporters, coolies, drivers working for Careem, Uber, Bykea, Foodpanda, Swvl, Airlift and those working in factories, restaurants, bakeries, malls, markets, salons, boutiques, petrol pumps, car service centers, and so on. In Pakistan, less than 10% people have access to bank credit and not more than 30% people have formal employment contracts. Pakistan Institute of Development Economics estimates that a prolonged lockdown can bring short-term unemployment to as many as 20 million people. Many of them would be looking after 2 or 3 dependents on average in their families. In response, the government has launched Ehsaas Emergency Cash programme to extend one-time cash support of Rs 12,000 to 12 million families benefitting 78 million individuals. 17,000 payment points are being established across the country with special protective measures to facilitate payment of cash assistance. The role of non-market philanthropic activity can also not be undermined. An important goal is to reach the right targets efficiently. If the ration packs or cash support does not reach rural areas, then it may create panic and bring a lot of people coming to urban areas in the hope of help and work. Private welfare institutions like AlKhidmat, Alamgir Welfare Trust, Saylani, JDC, Edhi and others can collect most of their donations in the urban areas. It is important that the funds are also allocated widely across the country. That is where, planning and coordination is vital. It is important to leverage human resource and public institutions, such as utility stores for food distribution alongwith banks and ATMs for cash distribution. Monitoring is also a key aspect to avoid the funds going to the wrong targets or to the right targets multiple times. To overcome this problem, the profiled data in Ehsaas Program and BISP is now being utilized. Private NGOs also need to cooperate with government. They have the trust capital, but lack infrastructure to reach masses across the length and breadth of the country. Government has the trust deficit, but it has profiled data and government machinery to mobilize activities and human resource. It is hoped that a close and collaborative effort between non-market institutions and government will leverage the philanthropic impulse and provide social safety net to the affected people. —The writer is Assistant Professor of Financial Economics at SZABIST University, Karachi and holds PhD in Economics from National University of Malaysia.

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