Can we solve the issue of poverty without solving the issue of conventional economic paradigm: a critical review.
Shah, Anwar ; Khan, Karim
The paradigm of conventional economics is developed on the basis of
Adam Smith's invisible hand theory. Individual freedom and the
allocation of resources based on the free market forces are the main
pillars of this paradigm. According to the theory, the central concern
of an individual is to maximise his/her private interest
(utility/profit). Alternatively, the regard for others is not
incorporated in the objectives of economic agents. Though this theory
postulates that individuals while serving their private interests end up
with providing optimal outcomes for the society; it is silent on the
issues like poverty or income inequality etc. In other words, one can
guess that poverty and income inequality may come out as negative
externalities of this paradigm. If this is the case, then this study
suggests that until we don't solve the problems in the roots of
conventional economics, we cannot solve the negative externalities like
poverty or income inequality. The paper proposes that the real solution
of poverty lies in the paradigm shift where the objective of an
individual falls in line with the objective of a society.
JEL Classification: A100
Keywords: The Invisible Hand Theory, Poverty, Paradigm Shift
1. INTRODUCTION
The primary focus of economics is to allocate resources in order to
achieve the well-being of humans. Wellbeing has many dimensions, ranging
from the level of mere subsistence to the equality of opportunities to
accumulate, and to safeguard life and wealth. Poverty, thus, is one of
the parameters for measuring the welfare of society in general. Given
this importance, the Millennium Development Goals aim at halving the
world poverty by 2015. Many organisations in the world set poverty
eradication as one of their key objectives. Likewise, poverty reduction
has got a central place in the international politics. Accordingly, each
country including Pakistan has launched programmes for the alleviation
of this great menace. The election manifesto of all the mainstream
political parties in Pakistan includes poverty alleviation as one of
their main goals. Additionally, poverty alleviation is one of the major
subjects of talks in electronic media and in the editorials of
newspapers, both at the national and at the international level.
Nevertheless, poverty is still a major problem of humanity across the
globe.
There are four different understandings of poverty in the existing
literature, i.e. the monetary approach, the capabilities approach, the
approach of social exclusion, and the participatory approach [Laderchi,
et al. (2003)]. However, in practice, the monetary approach mostly
retains its global dominance in both the descriptions and analysis.
Under this approach, poverty is defined as "a state or condition in
which a person or community lacks the financial resources and essentials
to enjoy a minimum standard of life and wellbeing that is considered
acceptable in society" [Pakistan Economic Survey (2014)]. Likewise,
according to the World Bank (1990), poverty is basically the
"inability to attain the minimal standard of living and having
insufficient money to purchase the basic necessities of life such as
food, clothing, housing, elementary education etc." Alternatively,
the poor people are those who do not have sufficient income or
consumption to put themselves above some minimum threshold of wellbeing
in the society.
Given the global prevalence of this menace, there is considerable
amount of resources kept aside in the budgets of most of the developing
countries for eradicating it. Besides the domestic resources, the
international donor agencies like the World Bank, the International
Monetary Fund (IMF), the Asian Development Bank, the United Nations and
its various subsidiaries etc. spend enough resources for its
eradication. (1) Most of these agencies work almost in all of the
developing countries in the world. In Pakistan, besides the above
organisations, many governmental and non-governmental organisations work
in this field. For instance, the organisations like the Benazir Income
Support Programme (BISP), the Pakistan Poverty Alleviation Fund (PPAF),
Pakistan Baitul Mall (PBM), AKHUWAT, Khusli Bank Pakistan (KBP),
Al-khdimat Foundation, Edhi foundation, National Rural Support Programme
(NRSP) etc. are actively working for the eradication of poverty. In
addition to the field work, a number of academic and research
seminars/conferences are conducted on the issue of poverty in the world
as well as in Pakistan. (2) Such seminars or conferences have three
purposes. First, they are aimed at creating the awareness regarding
poverty. Second, they identify its various dimensions. Third, they
provide academic inputs to the policy practitioners and donor agencies
about how to target the identified dimensions of poverty.
Given the set of activities, one may expect that poverty in the
world as well as in Pakistan might have dropped to a negligible level.
However, this is not the case as is indicated by the recent trends in
poverty across the globe. For instance, the current situation of
income-based poverty in the world shows that there are 1.2 billion poor
people in 104 developing countries [Human Development Report (2014)].
This figure is based on the definition of $1.25 a day. In terms of
multidimensional poverty headcount, there are 1.5 billion poor in 91
developing countries. The Multidimensional Poverty Index (MPI) measures
deprivations in the three dimensions i.e. health, education and living
standards. Although, the world poverty is declining overall; however,
almost 800 million people are still at risk of falling back into poverty
if any setback occurred. There are many people in the world who face
either structural vulnerabilities or life-cycle vulnerabilities. This is
in-spite of the fact that over the past three decades, the extent of
global poverty has been declining consistently. For instance, the
percentage of people living in the extreme poverty in 2013 is less than
half of what it was in 1990 [UNDP (2013)].
Likewise poverty, the income inequality in the world shows that 40
percent of the world's population lives on less than $2 a day.
Their share in the global income accounts for just 5 percent. Another
indicator shows that the 85 richest people in the world have the same
wealth as the 3.5 billion poorest people. The share of the richest 20
percent people is three-quarters of the world income. According to the
Human Development Report (HDR) (2014), the income inequality in
developing countries rises by 11 percent from 1990 to 2010. The whole
region of sub-Saharan Africa has been left behind: it will account for
almost one-third of the world poverty in 2015 as compared to its status
of one-fifth in 1990 [Human Development Report (2007)]. In a recent
keynote address to the policy forum on income inequality of Organisation
for Economic Cooperation and Development (OECD), Richard Freeman (2011),
professor of economics at Harvard University, noted that "the
triumph of globalisation and the market capitalism has improved the
living standards for billions while concentrating billions among the
few. It has lowered inequality worldwide but raised the inequality
within most countries
The situation of poverty in Pakistan is not very different from the
other developing countries in the world. In Pakistan, every third person
is living below the poverty line [Naveed and Ali (2012)]. Naveed and Ali
(2012) measure poverty on the basis of five dimensions, i.e. education,
health, water supply and sanitation, household assets/amenities, and
satisfaction from service delivery. In a province-wise comparison, the
same study shows that 52 percent of the total population in Baluchistan
is living below the poverty line. This is in spite of the fact that
Baluchistan is considered as the land of minerals. In the same way, 33
percent of the Sindh's population is living below the poverty line,
followed by the Khyber Pakhtunkhwa (KPK) which is having 32 percent of
its population living below the poverty line. In Punjab, the percentage
of poor people is lower as compared to those of the other provinces,
i.e. 19 percent of its population lives below the poverty line.
Similarly, the Human Development Report (2013) ranks Pakistan as 146th
in 187 countries in terms of human development, i.e. its Human
Development Index (HDI) is 0.515. Likewise, Pakistan's Inequality
Adjusted Human Development Index (IAHDI), the Multi-Dimensional Poverty
Index (MDI) and the Gender Inequality Index (GII) are 0.356, 0.264 and
0.567, respectively. These indices show that there is threatening level
of inequality combined with the existence of non-income dimensions of
poverty in Pakistan [United Nations Development Programme (UNDP)
(2013)]. Besides, the gap between the poor and the rich is increasing
day by day. For instance, the Gini coefficient in Pakistan shows an
increase of about 17 percent from 1987-88 to 2004-05, i.e. its value
increases from 0.35 in 1987-88 to 0.41 in 2004-05.
Here a question arises that why the conventional economics fails to
achieve the single objective of human wellbeing as was farsighted by the
earlier philosophers like Adam Smith. The purpose of this paper is to
discuss the answer of this question. In this study, we conjecture that
there exists a flaw in the philosophy of conventional economics, i.e.
the conventional economics does not incorporate all the dimensions of
human behaviour. This inconsistency is probably the root cause of the
global poverty and income inequality. Until, this inconsistency is
removed, probably, we would not be able to see an endless solution to
these global issues. The economists and policy practitioners set the
goals of eradicating poverty and inequality from the globe, which is
fundamentally, a normative aspect; however, the strategy they adopt for
the solution of these issues is derived mainly from the philosophy of
invisible hand, which is inherently a positive aspect. Due to this
inconsistent approach, the world is facing continuous problems of
poverty and income inequality. Rest of the paper is organised into four
sections. Section 2 sheds lights on the conventional approach for the
eradication of poverty. In Section 3, we discuss the inconsistency in
the conventional approach regarding the solution of poverty. Section 4
offers how to make the strategy of poverty reduction in line with the
social objectives while Section 5 concludes the paper.
2. CONVENTIONAL APPROACH FOR THE ERADICATION OF POVERTY
The focus of the conventional approach is to eradicate poverty by
the structural transformation of the traditional third world
agriculture-based economies into the modern industries-based capitalist
economies. In this regard, poverty has not always been the prime
concern; rather, the primary concern remains on the accumulation of
capital and wealth. The reason is that the conventional theory is firmly
moulded in the structure of Adman Smith's (1776) Theory of
Invisible Hands. Alternatively, in this structure, the individuals are
allowed to maximise their private gains. Invisible hands will help the
poor though helping the poor will not be the objective of those involved
in the maximisation of their private gains. This presumption has played
a vital role in diverting the economists' and other policy
practitioners' attention primarily towards the wealth-generation
regardless of its distribution among the various segments of the
society.
As far as the wealth distribution is concerned; the mainstream
theory is of the view that there exist trade-off between equality and
economic growth. It is assumed that the Marginal Propensity to Save
(MPS) of poor is lower than the MPS of the rich. This, in other words,
implies that inequality is a precondition for higher savings, higher
investments and higher economic growth. This is based on the presumption
that higher savings though combined with the initial unequal
distribution of income leads to higher investment which, in turn,
increases the demand for labour in the next stage of growth process,
leading to higher wages and higher share of labour in the economy. This
hypothesis is summarised in the famous Kuznets Curve which proclaims
that poverty and inequality could be resolved over time through the
"Trickle-Down Effect". Under this traditional approach, the
solution of poverty requires the implementation of the three D's
namely Deregulation, Decentralisation and Denationalisation [Ghayur and
Burki (1992)]. It is hypothesised that such policies will result in
higher economic growth and will lead to lower poverty without any
intervention in markets. Besides, the advocates of this approach
recommend the elimination of general or non-targeted subsidies as such
subsidies are considered as leading to price distortions which have
negative implications for economic performance. In return, the
"social safety net" and "paying cash subsidies" is
introduced to compensate the negative welfare effects of those who are
suffered from higher prices during the adjustment period.
Once the conventional approach could not give the desired outcomes;
the proponents devised a series of poverty-reducing strategies,
including the basic needs strategies in the 1970s. However, according to
Comia, et al. (1987), such policies were again faded away in the 1980s
when the stabilisation and adjustment policies took place. For instance,
the Structural Adjustment Programme (SAP), and the other market-oriented
policies such as liberalisation were the main focus of the era. Most of
these policies were in the framework of the famous "Washington
Consensus" which was based on the conventional approach that
pro-growth policies will reduce poverty at the global and national
levels [Dini and Lippit (2009)]. However, the occurrence of mass poverty
in African, South Asian, and Latin American countries shows that the
policies of liberalisation era did not work. The estimated data, based
on United Nations Development Programme (UNDP) database, shows that
inequality in the distribution of world wealth has increased
dramatically from 1960 to 1994. For instance, the share of industrial
countries has increased from 77.3 percent in 1960 to 81.4 percent in
1994. Alternatively, the share of developing countries has decreased
from 22.7 percent in 1960 to 18.6 percent in 1994.
Thus, the poor economic performance combined with the sharp rise in
poverty in many countries in the 1980s led to the renewed interests in
the reduction of poverty. In particular, the adverse results,
particularly in African countries were so huge that the international
financial institutions like the International Monetary Fund (IMF), the
World Bank and the others were forced to pose the idea of social safety
nets [Stewart (1995)]. In this regard, the UNICEF's
"Adjustment with a Human Face" in 1987, the UNDP's first
"Human Development Report" in 1990, and the World Bank's
"World Development Report" on poverty in 1990 made poverty
reduction as a central agenda of the international development. For
instance, in the early 1990s, the World Bank president, Lewis Preston
declared that "poverty is the benchmark against which we must be
judged" [Dini and Lippit (2009)]. Along with this change, the
emphasis also shifted from income growth to unemployment, income
distribution and the basic needs.
According to the basic need approach; development is the
enhancement of human freedom by ensuring the opportunities to lead a
freer-life [Streeten (1995)]. In the same way, Sen (2001) asserts that
people cannot be free if they do not have the resources to do what they
like to do. In other words, the core of basic needs is to favour the
creation of conditions in which people have the real opportunities of
living the kind of lives they would like to lead, and to focus,
particularly, on peoples' capabilities to choose the lives they
have reason to value [Sen (2001)]. Thus, the focus has to be on the
freedom generated by commodities, rather than on the types and
usefulness of commodities. Alternatively, according to the social
judgment approach, adequate nutrition, safe water, better medical
services, better basic schooling, decent shelter and continuing
employment are all considered as parameters on which the success of
society could be measured. Since the provision of these goods cannot be
ensured by the market forces; therefore, the basic needs approach
attribute primary role to the institutions of state to redistribute
resources towards the deprived segments of society. Wolfensohn (2000) is
of the view that "a balanced and holistic understanding of the
causes and effects of poverty can lead to reforms that promote
inclusion, economic growth that reaches the poor, and social
development--these are key to sustainable peace ... our job will be to
help the countries harness the trends ... to promote growth, poverty
reduction and social harmony" (pp. 7-8).
3. INCONSISTENCY IN THE CONVENTIONAL APPROACH
The main focus in the conventional approach remains on growth;
however, over the time, it focused on the different dimensions of
growth. As stated earlier, the principle argument in the conventional
approach is that the mass structural poverty would be eradicated by the
capitalist-induced growth; however, the poverty management exercises
like the compensation and resettlement, the social protection and social
risk management etc., is assumed to supplement, support and harmonise
this process of growth. Most of these poverty management exercises are
seemingly contradictory even including those of the World Bank. This is
justified by the fact that first they consider that poverty is
structurally determined by the backward institutions. In order to
eradicate poverty, such institutions should be transformed in order to
make them in line with the forces of free market. Onwards, they
emphasise the need for the benevolent handholding of the poor through
the social protection mesas the poor in the world has come out as a
negative externality of the strategy of free market forces. This, in
other words, implies that the capitalist approach of growth first makes
the people poor; and then suggests how to provide relief to them.
Thus, the growth based on the theory of invisible hand could not be
a solution of poverty. For example, Harris-White (2006) argues that the
poverty cannot be eradicated in capitalism. On the contrary, poverty is
constantly being created and recreated under the institutions of
capitalism. Capitalism is a mode of production in which capital in the
form of money and credit, physical machinery, stocks of goods and
labour--is privately owned. Production is for sale, labour is for sale;
and sale is mediated through money. The owner of the means of
production, often operating through specialised managerial labour,
controls the hiring, firing and working conditions of labour, the choice
of technology, the commodities produced, and the exchange of the output.
This owner has access to the credit from the specialised financial
institutions, even though he may challenge their control. An
employer's control over the capital takes place in the context of
competition for market shares. However, it is widely believed that the
objective of profit maximisation forces the capitalist to adopt new
techniques leading to unemployment. For instance, Burkett (1991) is of
the view that politicians, the mainstream media, and the orthodox social
science have all been telling us that capitalism is the only viable
option for solving the world's problems. Yet, the global capitalist
system is itself entering the third decade of a profound structural
crisis, the costs of which have been borne largely by the exploited and
oppressed peoples of the underdeveloped world. Burkett (1991) further
states that the World Bank's assertion that the free-market
policies are consistent with the effective anti-poverty programmes does
not confront the class structures and the global capitalist interests
bound up with the reproduction of mass poverty in the third world.
The inconsistency in the approach of conventional economics can be
judged from an old report on human development, i.e. UNDP (1998).
According to this report the global spending on luxuries were
sufficiently enough to educate all and to provide them with the basic
health services. This fact is shown in Table 1. As is visible from the
table, only the spending on cigarettes in Europe would have been enough
to educate all and to provide the basic health facilities to them. For
instance, the spending on cigarettes in Europe is $50 billion while the
need for the global basic services was only $40 billion. If the
preferences of individuals incorporate the regards for others; then the
luxuries like cosmetics, perfumes, ice-creams etc. could easily be given
off for the welfare of the vulnerable class of the society.
Given the above discussion, it is understandable that there remains
fundamental flaw in the approach for tackling the issue of poverty. Due
to this reason, poverty has come out one of the serious issues in the
world. The above thesis also shows that the lasting solution of poverty
is not in what the conventional approach presents. Hence, a question
arises that what the solution, then, is? The following section provides
a brief answer of this question.
4. MAKING THE STRATEGY IN LINE WITH SOCIAL OBJECTIVES
Poverty alleviation itself is a normative goal. Therefore, the
strategy to alleviate poverty should be, accordingly, normative.
Alternatively, poverty could not be only achieved with a positive
strategy. The current strategies in the path don't judge the
individual behaviour on the basis of whether it is leading us to our
desired goal or not? We can resemble the current situation of the world
economies with a school where the objective is to have a result with the
highest number of students with "A" grade. However, the
administration of the school allows every student to schedule their time
and activities the way they wish. If the students use their freedom for
non-academic activities; then it is less likely that the school would
achieve its desired goal. For instance, if, instead of study, the
students allocate more time to activities such as plying games, surfing
internet etc., then it is less likely that they would achieve A grade.
Thus, in order to achieve the desired objective, the administration of
the school needs to judge the behaviour of students on the basis of the
objective set for the school. In the same way, we have a normative
target of poverty alleviation; but the conventional approach positively
allows every individual to allocate their resources the way they desire.
Alternatively, the freedom and the maximisation of self-interest are
protected in this system.
Besides, the freedom regarding the allocation of resources is not
subject to moral or any other societal constraint. It only assumes that
the phenomena of free market forces where all individuals pursue their
private interests will lead to the alleviation of poverty. As stated
earlier, this assumption is very unrealistic and the current trends in
the poverty of the world contradict this assumption. According to the
orthodox approach, individuals are myopic and are only motivated by
their personal interests. In other words, they are unable to match the
desirability of their private demands with what is required for the
overall welfare of society. Hence, they need some scale for judging the
matching of their private demands with the interests of society. For
example, it is common in our day-today life that we pass moral judgment
on the demand of family members for having an excursion trip to Europe
if their brothers or sisters are starving to death as it contradicts
with the interests of the family. Likewise, we need to pass moral
judgment on the behaviours of individuals if they don't fall in
line with the interests of a global family. If this world is like a
village; then, it not possible to say that let the people enjoy their
lives while most of them are facing the abject level of poverty. Thus, a
village with such inconsistent philosophy for its dwellers can never see
the dawn of a day with poverty eliminated.
The true solution of poverty is a paradigm shift where the freedom
of individual is judged on the basis of its consistency with the moral
objectives set for the society as a whole. We need to reconsider the
philosophy of market economies which is based on the theory of invisible
hands. Alternatively, the academicians and policy practitioners need to
promote a world where the freedom of individuals is ensured in line with
the moral objectives set for the society. Moudoodi (2010), while
redefining the thoughts of an eminent Muslim Scholar Shahwliullah,
mention that the fundamental difference between the needs of human
beings and animals is that humans not only want the satisfaction of
their needs; but they also seek the grace in it. The level of seeking
grace in the demand is so heterogeneous that sometimes it exceeds the
level of optimality. Human beings are unable to clearly know and
understand this level of optimality. For example, one can drink water in
any glass, but taking grace or pleasure from drinking may lead to having
it in the golden glass. Likewise, the need of human beings is to conceal
their bodies from the vicissitude of weather and other environmental
effects; however, the satisfaction of this need could be done by
attiring simple dress. In contrast, wearing fashionable dress, fancy
clown, golden cuffs are just the personification of this grace. This, in
other words, implies that intervention from the outside is required to
curb the level of pleasure that crosses the level of optimality. In this
regard, a fundamental requirement is that an individual has to judge his
behaviour on the basis of some ethical constraints. For instance, he has
to give up pursuing his self-interest if it clashes with the interests
of society [for related discussion, see also, Chapra (1991); Keynes
(1926); Zaman (2012)].
To work against one's self-interest for the sake of protecting
the social interests requires a very strong motivation. This motivation
is not possible without incorporating the sense of accountably in
individuals. For instance, telling them that any action of theirs'
which is against the interests of society, they will be held
responsible. This does not necessarily means that such motivation may
come just from the public authority as it is impossible for public
authority to monitor individuals all the time. In other words, some
inherent forces must exist permanently in individuals in order to
prevent them from hurting the social interests. For instance, one such
force is the internal conscience of individuals. However, the limitation
of internal consciousness is that it sometimes becomes weaker in
preventing the individuals from hurting others. Hence, the only solution
is the fear of punishment in the life here after for any wrong-doing in
this world.
This idea, however, is not new in economics; and even Smith (1872)
is of the view that fear of God may results in coinciding the private
interests with the interests of society by providing moral sacredness to
actions. Here we quote a very famous statement of Adam Smith:
"When the general rules which determine the merit and demerit
of actions, come thus to be regarded as the laws of an all-powerful
Being, who watches over our conduct and, who, in a life to come, will
reward the observance, and punish the breach of them: they necessarily
acquire a new sacredness from this consideration"(Smith, 1872: Part
III, Chapter V).
The concept of punishment and reward in the life hereafter exist
almost in all religions. We need to strengthen this belief further so
that whenever a clash between the private and social interests arises,
one must stop there without any coercive force of the government.
Rather, an individual should fear the bad consequences of any wrong act
in the life hereafter. So the belief of life hereafter is inevitable for
the optimal allocation of resources as far as the social welfare is
concerned. Without a strong belief in the life hereafter, it is almost
impossible to stop individuals from maximising the selfish gains at the
cost of social cost. If this is not the case; then, we will remain
counting poverty for another 100 years, but we will never eradicate it.
Alternatively, defining the preferences of economic agents just on the
basis of self-interest is not a complete description of the human
behaviour; rather morality should be given a role in specifying both the
preferences and the constraints of individuals. Hence, the promotion of
morality-based behaviour is the only solution of the current poverty in
the World.
5. CONCLUSION
The current economic system which is based on the Adam Smith's
theory of invisible hands has side effects in the form of poverty and
income inequality. The theory of invisible hands is based on the
ideology of individual freedom. Alternatively, it does not give any role
to institutions in specifying the preferences of individuals. For
instance, according to the conventional ideology, the individuals are
free from any moral, religious or social obligations in satisfying their
demands. Thus, accompanied by the assumptions of perfect knowledge and
selfishness-based rationality, economic agents are characterised by
preferences which are self-regarding, exogenous, and stable. Given this
structure, the ultimate purpose of individuals is to maximise their
material gains. Since the beginning of formal economic thought, this
ideology has been dominant and persistent. However, it has not been able
to produce the outcomes which Adam Smith had foreseen at the time of
developing the basics of this theory. In other words, the outcomes of
the mainstream economic thought have been controversial as far as the
welfare of society is concerned. For instance, it is concentrating the
resources in the hands of few; and the issues like poverty or inequality
are the production of this ideology. Still, there are no successful
instruments with this ideology in order to eradicate these crucial
issues.
In the current framework, there have been persistent attempts being
made in order to reduce the issue of poverty. So far, however, there are
no considerable achievements in this regard. Still, the 85 richest
people in the world have the same wealth as the 3.5 billion poorest
people. In Pakistan, every third person is living below the official
poverty line. A significant fraction of the population almost in all of
the provinces of Pakistan has no access to the basic services. The gap
between the rich and poor is widening day by day. While the theoretical
and empirical literature on poverty and poverty reduction is huge;
however, the real impact of such work appears to be insignificant. In
this study, we argue that the fundamental problem lies in the approaches
for solving poverty. For instance, all of the current approaches while
considering poverty as a negative externality try to internalise its
effects. In other words, these approaches don't try to fix the real
root of this problem. The root cause of poverty is the philosophy of
self-interest. Thus, until we do not address the morality-free
selfishness and freedom, the elimination of poverty is unlikely. For
instance, the new approaches to the reduction of poverty should
incorporate in their agenda the role of morality in curbing the
selfishness. Besides the informal institutions, there should be some
central authority which could look at the moral obligations of
individuals in the society. Our analysis suggests a complete shift in
the paradigm of economics for tackling the issue of poverty. We
conjecture that without such shift, we cannot see the dawn of a
poor-free global village for another 100 years.
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Comments
* The paper asserts that paradigm of conventional economics is
based on the invisible hand theory of Adam Smith. Under free market
forces, individual maximise private interest (utility/profit). Helping
poor is not incorporated in the objectives of economic agents. Hence,
poverty and income inequality come out as negative externalities of this
paradigm. This paper suggests that until the problem in the roots of
conventional economics is not solved, just working on to fix the
negative externalities may not solve the issue of poverty.
* Author raise question on organisations that why poverty in the
world and Pakistan not dropped as in 104 developing countries 1.2
billion people had an income of $1.25 or less a day and in 91 developing
countries 1.5 billion are MPI. And 800 million are at risk to be fall
into poverty.
* Sir I agree to you that theoretic foundations of conventional
approaches might lead to rising inequality. Under trickledown effect,
you have explained three D's namely deregulation, decentralisation
and denationalisation that they will reduce the poverty and growth. So
now it depends on the country how it implement this D and what is state
re-distribution policy, i.e. decentralisation in Pakistan not reap
benefit while in China and some other countries remained successful.
West is spending a lot on re-distribution along with progressive tax
structure while our tax structure is regressive. Yesterday we have
discussion that safety net is unable to eradicate poverty so that's
why importance of inclusive growth is now stressed by majority of the
literature that the benefits of growth will reach to all the segments of
society.
* Poverty is a mental and psychological phenomena as well,
therefore there is no consensus on the definition of poverty. I am just
your student in experimental economics, if you conduct experiment from
both extreme poor and upper middle class. Let say a poor have income of
Rs 12000 and upper middle have around 50,000. Both will say that we are
hardly surviving. Poor will say I need 2, 3 more while upper middle say
that I need 20 more.
* With due apologise, poverty and inequality depends on priorities
and needs as you mentioned in table 1 rather than capitalism. So if you
apply the definition of developing countries in west i.e. dollar a day
or 2350 calories or social inclusion, despite of capitalism, they have
less poverty, deprivation and a well-defined social protection system.
China is an example that during communist period (1948-78) they have
more poverty than Africa, but 1978 to onward, they move toward
capitalism and globalisation and not only reduce poverty in percentage
but also in numbers. China did successful land reforms late 70s but our
3 land reforms fail.
* There is too much debate on poverty but our policies lack that
how to include the poor and what he/she need. We have mainly focused on
targeted safety nets but we unable to build their asset creation (soft
and physical). Sir in our developing countries including Pakistan,
market are not completive so invisible hand is not working properly.
Issue is that our growth in not inclusive (see 60s decade and 2006-10)
with macro instability as well. Economic benefits are also skewed to our
ruling class. We are not reaping the benefits from demographic
transition because our institutions and governance system is not
benefiting the poor and we are unable to absorb our youth so they are
facing vulnerable employment and under-employment. Despite of all
resources, we are not utilising our potential momentum, including
growth, tax collection, etc.
* We are investing only 2.5 percent of GDP on human capital and our
educational system is not producing the right quality skilled labour as
per our need. Our graduates are searching jobs because they don't
have entrepreneurial skills while our employer is unable to create jobs.
Our educational institutes and our labour policies are not at same line.
Due to lack of social health protection, 98 percent of population
especially the poor and informal worker purchase health facility from
their pocket so they are vulnerable to health and other shocks. The
World Bank report of "Doing Business" shows that doing
business in Pakistan is quite difficult, Pakistan was at 66th rank/175
and now we fall to 128/189. We have huge disparities across the regions
and lack of infrastructure. We have to borrow from outside because we
have only 13percnet saving so cannot invest. Being lack of R & D,
our agricultural productivity is stagnant over the last 30 years, and in
absence of crop insurance and weak market structure, our farmer is
dependent on artis.
At end I agree you that to stop individual from working against his
self-interest for the sake of social interest require a very strong
motivation. This belief of day-of-judgment must be strong enough so that
whenever a clash between private and social interest arise, he must stop
there without any coercive force of government. 1 think if individually
we get this level of spirit, all the issues would resolved if we forgo
our interest on societal interest.
Shujaat Farooq
Pakistan Institute of Development Economics, Islamabad.
Anwar Shah <anwar@qau.edu.pk> is Assistant Professor, School
of Economics, Quaid-i-Azam University, Islamabad. Karim Khan
<karim.khan@pide.org.pk> is Assistant Professor, Pakistan
Institute of Development Economics, Islamabad.
(1) For instance, the main subsidiaries of the United Nations that
are working in the field of poverty and human development are the United
Nations Educational Scientific and Cultural Organisation (UNESCO), the
United Nations Development Program (UNDP), the United Nations
International Children's Emergency Fund (UNICEF), International
Labour Organisation etc.
(2) For instance, the research and development agencies such as
Pakistan Institute of Development Economics (PIDE), Sustainable
Development Policy Institute (SDPI), Innovative Development Strategies
(IDS) etc. regularly organise conferences on the issue of poverty
Table 1
Global Priorities and the World Need of the Basic Social Services
Billions
U.S.
Global Priority Dollars
Cosmetics in the United 8
States
Ice Cream in Europe 11
Perfumes in Europe and 12
the United States
Pet Foods in Europe and 17
the United States
Business Entertainment in 35
Japan
Cigarettes in Europe 50
Alcoholic Drinks in 105
Europe
Narcotics Drugs in the 400
World
Military Spending in the 780
World
Total 1418
The Cost of Achieving Universal Billions
Access to Basic Social Services in U.S.
all the Developing Countries Dollars
Basic Education for all 6
Water and Sanitation for all 9
Reproductive Health for all Women 12
Basic Health and Nutrition 13
Total 40
