Day by day, my conviction that the people advising Prime Minister Imran Khan are utterly incompetent is solidifying. Nine months after forming the government, the inflated cabal that surrounds him has proven to be one heck of a waste. In the most critical area, economic management, the finance minister has managed to shove three mini-budgets down the people’s throats, and just dropped a petrol bomb while shamelessly telling us that we should be thankful that prices were not increased further. The Federal Board of Revenue (FBR), as usual, is a mess, coming up Rs350 billion short at a time when the national kitty is running empty.
Such sad state of affairs calls for a complete analysis and overhaul of policies. Yet the nation is being bombarded with additional waste. A few days ago, the PM announced a scheme by the name of Ehsas, another in the long line of schemes to tackle poverty. Its quiet apparent that absolutely no homework or analysis was done before embarking on yet another venture which is likely to end up as another failure.
Let me take the reader through a short detour of Pakistan’s attempts at tackling this issue.
The People’s Work Program (PWP) was initiated in 1953, primarily with the aim of enhancing agricultural income and industrialisation in rural areas. It also included funding for areas such as schooling and sanitation, aiming at the social side of growth. Over time, it has morphed into other names and programs like People’s Works Program, Tameer-e-Watan and Khushal Pakistan program.
Microfinance gained prominence in Pakistani circles in the early 1990s, inspired by the work of Agha Khan Rural Support Program (AKRSP). The AKRSP model was replicated at the public level by founding of National Rural Support Program (NRSP) and the Punjab Rural Support Program (PRSP). Two further programs by the name of Pakistan Poverty Alleviation Fund (PPAF) and the Khushali Bank were founded later. Aside from these, there are institutes like the Small Business Finance Corporation (SBFC) that was established to provide credit to borrowers from small and cottage industries.
Last, but not the least, is the catchy, donor-inspired social protection concept, readily deployed to justify modern day interventions like the much-touted Benazir Income Support Program. Again, nothing new here. The Employees Social Security Scheme became operational in 1967, the first of such initiatives. In the 1970s, its coverage was extended to provinces, which have their own chapters of this institution. Then there was the Workers Welfare Fund Scheme and the Worker’s Children Education Ordinance of the early 1970s which provide for education, matrimonial and housing related benefits. In 1976, the Employees Old Age Benefits Institution (EOBI) was established to provide for old age benefits.
In 1980, the Zakat and Ushr Ordinance was promulgated to give an Islamic tinge to this issue. The early 1990s saw introduction of SAPs (Social Action program). Its focus was on four major areas: elementary education (primary and middle schooling), primary health care, drinking water supply and rural sanitation and population welfare. This was followed by the Poverty Reduction Strategy (PRS) in 2001 for which considerable loans have been taken from the International Monetary Fund (IMF). Not to be left behind, and to garner political capital, the PPP government came up with the BISP and Khan’s government has resorted to dishing out chicken and eggs (inspired by a donor, the honourable Bill Gates) to ‘eradicate’ poverty. And now, we have Ehsas.
I only gave the examples of the public sector above. Privately, according to a conservative estimate, Pakistan’s generous people shell out at least Rs500 billion per year as charity. Add to this the vast network of charitable institutions and organisations. We have a huge public plus private infrastructure in Pakistan that is exclusively devoted to social welfare causes.
We have tried most of these ideas before, spent trillions of rupees since the 1950s, and here we are in 2019 where the government intends to start yet another program. Despite the massive amounts of expenditures, there is not much that has improved in terms of poverty (except for some marginal improvements), social indicators like education and health remain abysmal, and Pakistan is near the bottom of every major human and economic development index.
What is it that out policymakers are getting wrong? For a start, they are failing to understand historic evidence. The largest reduction in poverty in the entire recorded history of human kind occurred right next door in China. In a modern day equivalent of a miracle, 700 million Chinese escaped the clutches of poverty for good. How did they achieve this miraculous feat? Persistently high rates of economic growth complemented by an excellent governance structure that ensured poor people enjoying the fruits of this growth (the technical word for this is ‘inclusive growth’).
Pakistan has never had persistently high growth rates (with growth spurts in between), and traditionally has had a very poor governance structure, meaning that fruits of high growth rates rarely reached the poorest segments of the society. The simple implication of this is that Pakistan’s policymakers can spend trillions more if they want, but poverty and related issues (like malnutrition) won’t budge much. This fact, for example, explains why after spending Rs600 billion of taxpayer money through BISP, evidence suggests that there were only marginal improvements (not to forget the billions that never reached the intended beneficiaries, as outlined in a previous column).
There also needs to be an understanding of the simple fact that piecemeal aid in the form of cash hand outs cannot achieve much since expenditures over time tend to be higher than income. A few days after the PM announced to increase the cash hand out amounting to Rs5,000, his government dropped a massive petrol bomb, whose inflationary effects will make even Rs10,000 hand outs redundant. So why have such massive state machinery at taxpayer dole to run such schemes? Your guess is as good as mine.
Aside from this, policymakers fail to appreciate the effects of additional income and the question of entitlement. Persistent rise in incomes ensures that a smaller portion of budgets is spent on food only (the ‘Engel curve’), and the other goes towards enhancing human capital and quality of life. This can only come about through persistent GDP growth rather than marginal hand outs. Second, there is a difference between entitlement to money due to work and entitlement due to political imperatives. The former incentivises hard work and ingenuity while the latter is just a freebie, which is totally dependent upon state of government finances. And of course, nobody wants to talk seriously about the large family sizes of the poor, which dissipates the effects of any additional income – let’s not forget that China’s remarkable success went hand-in-hand with their one-child policy.
More can be written to support the above contention. But it is time to wrap up the discussion by suggesting that Ehsaas-type schemes are highly unlikely to achieve much given the economic realities, history and poor governance structure. What we need is healthy economic growth and a governance model that can ensure inclusion of poor people in this process. Instead of fancy schemes with fancy names, concentrate on five and 10 year plans, towards which Khan’s government has shown least seriousness.
The writer is an economist