Dr. Omer Javed |
On 27 March, the Prime Minister launched a welfare program called ‘Ehsaas’ (or care), to uplift the vulnerable sections of the population to ‘reduce inequality, invest in people, and lift lagging districts… where poverty is higher,” to borrow from the policy statement released by the government. He highlighted one of the pillars of the Ehsaas programt again on Labor Day when he talked of the ‘mazdoor ka ehsaas’ (or care for laborer) program.
The welfare program consists of 115 policy actions which target four broad potential sources contributing to vulnerability, inequality, and poverty, by addressing elite capture, providing social safety nets, creating employment, and developing human capital. These are all lofty targets in their right. Unfortunately, the policy document for all its good intentions lacks knowledge in terms of understanding the extent and relative significance of underlying sources that cause inequality and poverty, both generally, and specifically in the case of Pakistan.
Ehsaas Policy Ignores the Three Elephants in the Room
Attention needs to be drawn to ‘three elephants in the room’ of this policy: importance of the role of government, economic institutions, and social rights. First, more attention should be given to the role of government, which is found in almost every welfare model around the world; in which, the government takes a leading role in providing social rights, especially to provide a comprehensive universal education through enhanced public sector education funding initiatives.
As things stand in the Ehsaas program, it will not go a long way in sustainably, allowing people to stand on their feet and to come out of their income inequality and poverty traps.
The Ehsaas policy has given a disproportionate role to the private sector in this regard. Secondly, the Ehsaas welfare policy does not emphasize the importance of the role of well-functioning economic institutions in implementing welfare policies. As a consequence, no interventions are suggested in this regard in the program. This is crucial if the Ehsaas program is to successfully reduce the vulnerabilities mentioned earlier.
These institutions include the law, rules, and procedures that provide the environment within which the economic actors in organizations and markets operate; they also include the line ministries at the federal and provincial levels dealing with these subjects. One of the main ways in which the economic institutions help these initiatives is to reduce transaction costs. Another significant role include providing improved governance structures and incentives policy.
As things stand in the Ehsaas program, it will not go a long way in sustainably, allowing people to stand on their feet and to come out of their income inequality and poverty traps. There is not enough focus on economic institutions or provision of necessary income support, or any set of government interventions in favor of for example, farmers, laborers, human capital, or women.
Thirdly, the policy puts a far greater focus on social expenditure than on social rights- especially the right to education and associated with it the public sector education expenditure and provision of a sound institutional basis for it. It is the exact opposite of the experience of any successful welfare model around the world. In Scandinavian countries, the government provides high levels of both public sector expenditure on education and spending in other social safety nets.
The most successful welfare models are the Nordic countries which have the lowest income inequality and poverty levels. The Nordic model first improved its economic institutions in the public sector and then used them to deliver on both social rights and social expenditure. Moreover, it was after this base was laid out by the public sector that the private sector was introduced, and that too strategically, so that the profit-driven nature of the private sector does not undo the gains achieved by public sector interventions. There were strict oversight and regulation of the private sector by good quality public sector institutions.
However, in the PTI government’s policy document it assumes- and with great naivety to say the least – that the welfare fruits can be delivered via leapfrogging in a shortcut way often via using the private sector. It is not possible without bringing to the table a wholesome and integrated plan to assign the right role to the government and improve economic institutions at least to the extent that the initiatives in the policy document can be delivered for people.
There is no understanding, for example, of how elites (people with authority) and oligarchs (people with money, who connive with that authority) have influenced policy in ways that benefit themselves at the cost of the vulnerable. The primary tool of this collusion of politico-economic elites/oligarchs has been to design economic institutions that allow the perpetuation of neoliberal thought process.
The policy document also highlights government’s inability to understand the shortcomings of essential income support (or BISP in Pakistan) when compared with the efficacy of the social credit program; a philosophy developed by C. H. Douglas in the early twentieth century, and in his words a policy intended to reach, ‘absolute economic security’. The policy of social credit is required to enable people to buy a needed basket of goods and services with government support.
Moreover, in case the person is unemployed, then the whole amount to make this purchase is provided in cash support from the government. The Ehsaas program has no mention of this critically needed social credit policy, which is required to augment the BISP effort. Also, as will become apparent to any student of comparative welfare states, the Ehsaas program draws little inspiration from different welfare models, especially the Nordic model that otherwise has been alluded to by PM in his many speeches.
Moreover, with due respect to the chairperson of the Ehsaas program, who spearheads this welfare policy endeavor, and taking nothing out of her efforts to deliver on the development challenges of Pakistan over the years; she needs a qualified support team who have the requisite academic knowledge and professional experience – to tackle the multi-faceted sources of inequity and bring forth solutions required to deal with issues such as inequality and poverty.
The welfare program lacks an understanding of the Neoliberal policy that is itself one of the leading sources of vulnerability in the country. True, elite capture – the foremost pillar identified in this policy – needs correction to safeguard the vulnerable class of the society from their policies. The policies that are being placed to undo this, for example as mentioned in the document – taxation system, water management, crop choices, and land use, among others- indicate the limited extent and the lack of penetrative teeth of this policy to deal with well perpetuated politico-economic elitist institutional design.
There is no understanding, for example, of how elites (people with authority) and oligarchs (people with money, who connive with that authority) have influenced policy in ways that benefit themselves at the cost of the vulnerable. The primary tool of this collusion of politico-economic elites/oligarchs has been to design economic institutions that allow the perpetuation of neoliberal thought process. Policy is formulated that sees little role for government and regulators in markets, and in organizations in the private sector, and in turn puts limited checks and balances on the excesses/extractive policies of this collusion between political and economic elites.
There is not enough focus on economic institutions or provision of necessary income support, or any set of government interventions in favor of for example, farmers, laborers, human capital, or women.
A classic case is found in the private sector provision of education or the SRO (statutory regulatory order) culture for providing tax breaks to some economic sub-sectors at the cost of others. Understanding this reality needs to find its feet in the policy recommendations of the Ehsaas program. If one looks closely, the influence of this neoliberal policy is quite evident as is the presence of ‘three elephants in the room’ phenomenon; although in this case probably not by design, by the architects of this welfare policy.
What More the Ehsaas Program should Incorporate
Reversing the elite capture, in addition to the lukewarm policies of this welfare program towards meeting the other three broad pillars of this policy, would have required the missing approach indicated above, along with some specific policies (mentioned below) to deal with inequality and poverty effectively. It is essential to re-balance the capital-labor relations, which have been distorted in the wake of rising financialization of the economy. Specifically, to tackle inequality arising from this channel, it is important to first return to the separation between investment and commercial banking, to safeguard the conflict of interest between the bank and the customer.
By doing so, in a weak regulatory environment of developing countries like Pakistan, this will mean that consumers of banking products are less likely to be exposed to riskier lending facilities through this separation policy since the government will hedge them against vulnerability to high-risk endeavors of the financial sector. In the mid-2000s, consumer banks – in attempts to increase profits and with little technical knowhow – sold many products to consumers – car and mortgage loans in particular, which later in 2008, as interest rates rose created the housing and other related crises, and increased NPLs for banks weakening the overall economy.
Another step here could be placing strict limits on customer dealing with financial derivatives. Secondly, the Ehsaas program should come up with a generalized tax to safeguard against speculative trading by placing this tax on all financial transactions. For example, speculation in the foreign exchange market in the economy, causes a lot of panic and economic misfortune to the masses, as is being currently seen, with the USDPKR hitting 152 in the open market. It makes sense to place some capital controls in the country. One could learn from Malaysia, which set controls of this nature, to good effect while dealing with the late 1990s financial crisis.
At the same time, speculative practices in the stock market also need to be checked by similar policy measures as indicated above, to hedge small fish in that market. Speculative shocks in both these markets not only increase income inequality but also push-down all those just above the poverty line to below it. Thirdly, to tackle elite capture, more meaningfully would require putting in place strong redistribution policies, in addition to bringing in higher levels of tax rates on the upper-income brackets.
Hence, apart from generally introducing progressive taxation on income with significantly higher rates on the top income groups, other policies should be applied to safeguard the consumer from the pass-through of such taxes on their purchasing power in the shape of higher prices. Here, additional policies should include a) addressing initial conditions- such as education, extractive institutional design, and wrong incentive structures to organizations, markets, and individuals- that led to unjust increase in income inequality, and b) controlling high incomes by coming up with a clear policy to define limits of profits and incomes earned at the top, and by actors in markets with monopolistic power, especially those providing important services in the private sector- for example the prices, charged for services in the health and education sectors.
For the PTI government that spoke of bringing in the ‘riyasat of Medina’ and Nordic models, the current program is far away from achieving those aims.
The program also falls short of addressing the needs of laborers and human capital, first it does not tackle the need for labor unions, to improve the bargaining power of laborers and human capital, both with regard to local companies, and also with multinational companies’, in the wake of their practice of employing labor in countries with weak labor laws and regulation, so that they can pay them the minimum possible. Such exploitation should be targeted against in the Ehsaas program. Also, MNC’s labor contracts- need to be augmented through the welfare program policy intervention- MNC’s treat with a discriminatory bias, national and international staff, with huge pay and benefits, and job security conditions tilted heavily in favor of the latter.
Secondly, the policies of this program should link minimum wages with a rational basket of goods and services. Thirdly, the program should create a price commission and wage board to rationalize prices of both goods and services in both real and financial markets. It would also control inflation, which otherwise requires an over-reliance on the exercise of monetary policy, with its regressive consequences for growth and employment prospects. It enables citizens to have incomes that allow purchasing the products needed for a decent life. It once again highlights the importance of social credit policies that should be included in this program, in addition to the policy of necessary income support.
Fourthly, providing higher budgetary allocations for education, both in terms of implementing a universal, comprehensive educational curriculum at the primary and secondary levels, as was done in Nordic countries like Sweden, and graduating phase-wise to supporting higher education over the medium to long-term. Overall, there is a need in the welfare program to engage bilateral and multilateral aid in an aligned and harmonized way- and pushing them to move from a scatted project-financing mode to a full-fledged sector level program-financing mode as was envisaged in the Paris Declaration of mid-2000s- to achieve both the welfare ends and improving the economic institutional quality.
The Ehsaas program needs a rework under a capable team leader. In its current shape, the program is a non-starter in terms of really achieving the goals that it sets out as its desired objectives. Moreover, the vehicles that drive people out of poverty and inequality need to be brought into focus in the program- mainly the economic institutions, the underlying organizations, and markets, along with the required incentive and governance structures. Lastly, the program needs to establish a sequence of reform, a phase-wise implementation strategy, and an indicative medium-term budgetary framework.
In its current shape, Ehsaas program is currently more of plaster than a solution for the plight of people. For the PTI government that spoke of bringing in the ‘riyasat of Medina’ and Nordic models, the current program is far away from achieving those aims. The statement of Joseph Stiglitz, given at the beginning, should highlight to the government the immense challenge at hand. Nothing short of a wholesome policy will work to achieve the long term desired objectives of the Ehsaas program.
The ultimate aim is not to provide some sections of the population a time-based limited support mechanism; for example, in the shape of cash transfer or some stand-alone disjointed and weak initiatives, but to enable the vulnerable section to sustainably graduate out of inequality and poverty- and out of the clutches of elitist extractive and deep-rooted institutional design- through a policy on the lines indicated above.
Dr. Omer Javed is an institutional political economist, who previously worked at International Monetary Fund, and holds PhD in Economics from the University of Barcelona.