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Social Democracy: The Middle Way for Pakistan

Middle Way
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Dr. Omer Javed |

The PTI government has indicated that it will reform the economy and institutions, in order to establish a welfare state; to do so, it draws inspiration from the state of Madinah, during the golden age of Islam. At the same time, it wishes to learn from the Scandinavian model of welfare, that PTI rightly believes practice the principles on which the state of Madinah was based on; justice, equity, and virtue. In both the welfare state of Madinah and the Scandinavian welfare model, moral philosophy is an integral part of policy, where it is duty of the privileged to take care of the underprivileged in society.

It was considered a virtue to promote equitable distribution of resources in the economy. In terms of policy, the Scandinavian countries practice a system of progressive taxation. Earlier, starting in Madinah and then during the golden age of Islam when Muslims were at the zenith of their political and economic power a system of progressive taxation on income and wealth in the shape of Zakat tax (or poor due) was strictly promulgated.

Hence, long before the poor relief laws of the Scandinavian countries, Zakat had institutionalized taking care of the poor, many centuries ago in the heartland of Arabia. But what the later Muslim governments pushed to the periphery this welfare system the Scandinavian countries strictly enforced into their policy. So that we see as early as in the seventeenth century, poor relief laws were being promulgated in Sweden; a representative Scandinavian country, both in terms of its early start towards adopting the welfare philosophy, and also because it most successfully implemented this system, as evident by its highest level performance as a welfare state among other OECD (Organization for Economic Cooperation and Development) countries.

A ‘Decommodification’ drive needs to be taken up by PTI, on the lines run by SAP, for improving the status and safeguarding the rights of people in the labour market; so that they are not treated as commodities bought and sold, with their standard of living totally left at the ravages of the least regulated capitalistic market setup.

In fact, a parallel which could be of interest for PTI is the Social Democratic Labour Party (SAP) of Sweden, which implemented and extended the welfare model in Sweden. After first coming to power in the late nineteenth century, has remained in power for around eighty of last one hundred years! So what did the SAP do, and how it could be relevant to PTI’s efforts toward making Pakistan a welfare state?

Read more: Pakistan’s democracy test: An Indian view

At the time when SAP first came into power, just like PTI, it faced two phenomena. Firstly, it was the ‘Gilded Age’, whereby the ‘rules of the game’ or institutions were formulated to favour the elites those with economic and political power which had resulted in a high level of inequality in the class structure. Secondly, just like Pakistan today, Sweden at that time was mostly an agrarian society, with most labor employed in and most national income generated from the agricultural sector. The elites were the only class progressing, while the poor relief laws in Sweden, like the social protection policy here in Pakistan, had not made a major dent in bringing welfare to the underprivileged. In Pakistan, any study of SROs (Statutory Regulatory Order) and public policy over the years would clearly indicate, most welfare benefit derived has been for the elites.

As a consequence, SAP grabbed the bull by the horns: took the philosophy of Marx, Keynes, and Veblen, and introduced the concept of ‘Social Democracy’ into the public policy realm. This basically meant creating policies that were a compromise between the income inequality creating institutions of the Gilded Age (for the Robber Barons of that time) of unregulated capitalism, and the other extreme of command communism (a politicized caricature of the otherwise moderate and original socialism, a concept destroyed by the dictatorial thought process of twentieth century fascists).

At the same time, it needs to be understood that the model of the welfare state under the philosophy of Social Democracy evolved over time, which should give confidence to PTI and other coalition partners about the level of relevance and applicability it should hold for Pakistan given (a) this evolutionary possibility, (b) the fact that Sweden was also an agrarian society when this first started to be implemented, and (c) this targeted the Gilded Age, similar to what currently prevails in Pakistan, in the shape of the overall neoliberal thought process reflected heavily in public policy, which protects the interests of the politico-economic elites and their beneficiaries.

Read more: Democracy has delivered little in South Asia – Salman Bashir, Pakistan’s…

In fact, as an aside but related remark, since the neoliberal introduction in Swedish policy in the late 1970s, Sweden became the fastest among OECD countries, in terms of increase in income inequality the withering of the middle class with negative consequences on democracy, as their recent elections highlight. This is how neoliberal policy hurts nations and this is what PTI should try to purge vociferously from public policy. In fact, there is a rethink in Sweden to shun the neoliberal wave for some time now.

At the same time, many centuries ago in the welfare state of Madinah and thereafter during the golden age of Islam, such reforms were carried out for the benefit of the vulnerable, including hedging those from poverty once they retired from active public service.

Under Social Democracy, SAP evolved the ‘Swedish Model’ and for which Marquis Childs in 1936 aptly coined the term, ‘The Middle Way’ between unregulated capitalism and command communism, where on one side the capitalist institutions were not allowed to leave ‘much’ for the ‘many’ in society, and on the other hand, where big bureaucracies were not employed to control every aspect of economic life. Under the middle way, inclusive economic institutions or the rules of the game for markets and organizations were formulated, to promote (a) cooperation, (b) equality, and (c) a high standard of living, so that a spirit of inclusive decision making or collectivism (and not unnecessary individualism that breeds the selfish interest and unhealthy competition) could be inculcated in policy for the welfare of all; and in turn a welfare state that works in a way that under it all the society fares well. Unlike the laissez-faire capitalism, SAP and its coalition partners like the Liberal Party brought forth a set of humane and egalitarian policies:

1. In 1913, a National Pension Act was passed to provide security for the elderly (many years before the capitalist U.S. passed any such similar law). At the same time, many centuries ago in the welfare state of Madinah and thereafter during the golden age of Islam, such reforms were carried out for the benefit of the vulnerable, including hedging those from poverty once they retired from active public service.

2. The new Poor Relief Laws passed in 1918 in Sweden substantially enhanced the scope and penetration of this law for the welfare of the people. Under this, a fundamental shift in policy implementation was seen whereby executing the Poor Relief laws were devolved to the local governments, making them directly in control of the collected taxes allocated for that parish or local area. They were in charge of spending to assist those in need and for the overall welfare of the community; while the central government primarily assisted in tax collection. These laws and the mechanism of their implementation over time in Sweden could be a good example for PTI, as it hints to reform local governance for bringing a better welfare system, in an inclusive and locally empowered way.

How to meet the financing needs of a Swedish style welfare program a case in point the pensions and the poor relief laws in Pakistan the approach should be to understand that (a) even in Sweden the economy was transformed through Social Democratic styled policies in an evolutionary way to bring increased efficiency from agriculture both in terms of domestic production and exports, and also increasing industrialization but in a welfare oriented way welfare demands were enhanced and matched with collected taxes accordingly, and (b) progressive taxation was applied across income and wealth in a way that the rich had a substantial onus to provide for the poor; with such rates increased over time for the rich.

Read more: Democracy and education: The indivisible duo

Combining the principles of Swedish social democratic policy, as indicated above, with the unique feature of the principle of Zakat could be a good tool in Pakistan for (a) progressive taxation on both income and wealth, and (b) tax documentation through the Zakat tax to the majority of the population, serving as a good motivation for people to register and pay.

This is how neoliberal policy hurts nations and this is what PTI should try to purge vociferously from public policy. In fact, there is a rethink in Sweden to shun the neoliberal wave for some time now.

For this the government will have to (a) collect the Zakat tax itself (like in Saudi Arabia), (b) create a ‘Social Wealth Fund’ whereby (i) all Zakat collected tax is placed in a common pool of this Fund, (ii) its collection, spending and implementation plans and details made transparent for the public to see, and therefore shared periodically, (iii) the spending, like in the case of Sweden, to be done by local governments, with first priority of spending of the collected Zakat tax from local unit/area to be with local government of that area (and only the surplus is given back to the common pool for spending for some other local government), (iv) that this Fund is kept separate from the divisible tax pool under the National Finance Commission award, and (v) the current income and wealth tax regime to be revisited to rationalize its promulgation, relevance, and extent of existence, once after the Zakat income and wealth tax regime is brought into direct policy and collection of the government.

Read more: Indian Democracy at Crossroads

3. Hence, with the first two initiatives working towards meeting the requirements of a welfare state of a ‘just’ and ‘equitable’ society, the need to assist people in having access to a quality standard of living, SAP during 1932 to 1968 as a collective social responsibility, worked towards providing housing and child benefits. To finance this, SAP devised taxes on private sector entrepreneurs’ incomes and profits, especially the wealthy ones in a way that it remained profitable for them to be in the market/businesses, and yet contribute to governments’ demands on them to (a) reinvest their profits on productive activities, and (b) create jobs.

The above could be useful for PTI which is planning to (a) bring structural changes to the economy, shifting the focus from a few narrow and speculative fields to more value adding and job creating endeavors, and that too in a broad array of areas, (b) enhance the standard of living by creating a housing program, and (c) safeguard the future of the young population, which is also the predominant group demographically. At the same time, the concept and design of the Social Wealth Fund could be useful to implement the policies learned under the policies indicated above.

4. A ‘Decommodification’ drive needs to be taken up by PTI, on the lines run by SAP, for improving the status and safeguarding the rights of people in the labour market; so that they are not treated as commodities bought and sold, with their standard of living totally left at the ravages of the least regulated capitalistic market setup. Hence, a modern day example, could be that while the ‘too big to fail’ corporations were bailed out by the U.S. government during the Global Financial Crisis of 2008, not much planning was put in place to financially support the victims of the crisis, including the unemployed mass of employees that suffered during the downsizing drive of these corporations. Similar realities exist in Pakistan, where the pinch of the economic downturn in organizations is left by governments and economic elites, to be felt most by the employees, and where labor laws need both augmentation and greater implementation to safeguard the employees.

Read more: Is democracy consistent with Islam?

PTI government needs to bring in laws that would make it a responsibility of the government and employers, to safeguard the standard of living of the employees in both good and bad times, in such areas as for example, services of the disabled, medical and child care, housing and dental care, among others.

5. Last but not the least, and one of the important features of the social democracy model carried forward by SAP and Sweden in general, was to right size the government into successfully running strategic areas of the state, both in terms of nation building and sustaining it, and that included providing uniform and high quality education and health, and running strategic state owned enterprises like certain areas of transport and energy sectors among others; while at the same time involving the private sector in an institutional environment contrary to the one under the Gilded Age or the current neoliberal one. PTI can indeed learn from (a) the Swedish model on the lines indicated above, including bringing in its own innovation like creating a Social Wealth Fund, and (b) from the overall thinking of Islamic principles like Zakat, and how to streamline it in running successfully the welfare initiative through inclusive local governments, and in an overall evolving way, like Sweden did. Rome was not built in a day.

Dr. Omer Javed holds PhD in Economics degree from the University of Barcelona, Spain. A former economist at International Monetary Fund, his work focuses on institutional and
political economy, macroeconomic stabilization and economic growth. He is the author of the Springer published book, ‘The Economic Impact of International Monetary Fund programmes: institutional quality, macroeconomic stabilization and economic growth’. The views expressed in this article are author’s own and do not necessarily reflect the editorial policy of Global Village Space. 


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