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Pakistan’s 4,000 half-a-million-dollars-a-year families
In Pakistan’s nearly 4,000 households have more than half a per cent of the total national income.
By Shahid Javed Burki
Published: November 24, 2014
The writer is a former caretaker finance minister and served as vice-president at the World Bank .
In a democracy — even like the one in Pakistan that is still evolving — good public policy action comes only with public pressure. Prime Minister Nawaz Sharif’s three Es for priority action — energy, extremism and the economy — reflected what people thought a good government needed to do. Some of these got done in the period of a year and a half for which this government has been in power. Efforts have been made and are being made to increase the supply of electricity. A big investment programme by the Chinese has been agreed upon, which will result in the building of a number of coal-fired power plants. This is a sector the Chinese understand well. They are now the world leaders in coal technology.
The government has also decided to use force to deal with extremism. Operation Zarb-e-Azb was launched against militants, who are from many countries, not just Pakistan. These people had, in the words of the novelist Muhammad Hanif, turned the North Waziristan tribal agency into a ‘terrorist resort’.
All terrorist groups and all the areas in which they were active were to be targeted. According to a Voice of America interview by Major General Asim Bajwa, who accompanied General Raheel Sharif to Washington, the operation was going well and no discrimination was being made among different terrorist groups. The operation had been extended to the Khyber tribal agency.
The economy was also responding to some of the government’s initiatives. The Nawaz Administration had followed the old practice of getting outside help to get the economy moving again. The International Monetary Fund and the World Bank (WB) had provided large amounts of capital to help the country to meet its foreign obligations, as well as resources for some of the larger capital-intensive projects. For instance, the WB had agreed to fund a part of the multi-billion dollar Dasu Dam project on the Indus River.
While there was progress on the ‘three Es’, several others Es could have been added to the list of priorities. Attention needed to be given to education, employment, environment, equality. Let me take up the case of the issue of equality, which I have addressed in a number of previous articles.
It is my view that the success of Imran Khan in getting tens of thousands of people to attend his dharna in Islamabad and go to his rallies in various parts of the country is in the perception that a good segment of the population has not benefitted from the little pick-up that has taken place in the economy. It is felt that the rewards of growth have been captured by the well-to-do. This trend is attributed by Imran Khan’s supporters to a number of factors, including pervasive corruption. As I discussed in one of the earlier articles, it was this type of perception that fueled the anti-Ayub Khan movement in the late 1960s which eventually forced him out of office.
Persistent and growing inequality is a phenomenon not unique to Pakistan. It is also occurring in developed countries, such as the United States, which follows an economic model roughly equivalent to the one Pakistan is pursuing. There is extensive reliance on private initiative, which is rewarded by the tax system. Low taxes, particularly on the rich, deprive the government of the resources needed to develop programmes that would help the poor and reward those in the middle classes. It is interesting to note what has been the result of this approach in the United States.
According to a recent paper by the economists Emmanuel Saez and Gabriel Zucman, almost all the increase in American inequality over the last 30 years is attributable to the “rise of the share of wealth owned by the 0.1 per cent of the richest families”. And much of that rise is driven by the increase in the share of top 0.01 per cent. “The wealth of the top one per cent grew an average of 3.9 per cent a year from 1986 to 2012, though the top one-hundredth of that one per cent saw its wealth grow about twice as fast. The 16,000 families in that tiptop category — those with fortunes of at least $111million — have seen their share of national wealth nearly double since 2002, to 11.2 per cent.” Pakistan has followed the same pattern.
Using the WB data on inequality in Pakistan, which provides distribution according to quintiles, I have determined the share in national income of the top 10 per cent, top one per cent, top 0.1 per cent and top 0.01 per cent of the population. I have assumed that the distribution of income noted by the Bank is replicated as we move up the income scale. If this assumption is correct, then it appears that in Pakistan’s case, nearly 4,000 households have more than half a per cent of the total national income. In dollar terms, this translates into roughly half a million dollars a year per household. For the bottom 10 per cent, per household income is $2,900 a year. The rich households, therefore, are 175 times richer than poor households. These numbers give some substance to the differences in patterns of consumption that we see in Pakistan’s large cities. What the super-rich spend on the marriages of their children and how the poor manage their existence is one example of this glaring inequality.
This is one way of looking at the durability of the Imran Khan phenomenon.
Published in The Express Tribune, November 24th, 2014.
In Pakistan’s nearly 4,000 households have more than half a per cent of the total national income.
By Shahid Javed Burki
Published: November 24, 2014
The writer is a former caretaker finance minister and served as vice-president at the World Bank .
In a democracy — even like the one in Pakistan that is still evolving — good public policy action comes only with public pressure. Prime Minister Nawaz Sharif’s three Es for priority action — energy, extremism and the economy — reflected what people thought a good government needed to do. Some of these got done in the period of a year and a half for which this government has been in power. Efforts have been made and are being made to increase the supply of electricity. A big investment programme by the Chinese has been agreed upon, which will result in the building of a number of coal-fired power plants. This is a sector the Chinese understand well. They are now the world leaders in coal technology.
The government has also decided to use force to deal with extremism. Operation Zarb-e-Azb was launched against militants, who are from many countries, not just Pakistan. These people had, in the words of the novelist Muhammad Hanif, turned the North Waziristan tribal agency into a ‘terrorist resort’.
All terrorist groups and all the areas in which they were active were to be targeted. According to a Voice of America interview by Major General Asim Bajwa, who accompanied General Raheel Sharif to Washington, the operation was going well and no discrimination was being made among different terrorist groups. The operation had been extended to the Khyber tribal agency.
The economy was also responding to some of the government’s initiatives. The Nawaz Administration had followed the old practice of getting outside help to get the economy moving again. The International Monetary Fund and the World Bank (WB) had provided large amounts of capital to help the country to meet its foreign obligations, as well as resources for some of the larger capital-intensive projects. For instance, the WB had agreed to fund a part of the multi-billion dollar Dasu Dam project on the Indus River.
While there was progress on the ‘three Es’, several others Es could have been added to the list of priorities. Attention needed to be given to education, employment, environment, equality. Let me take up the case of the issue of equality, which I have addressed in a number of previous articles.
It is my view that the success of Imran Khan in getting tens of thousands of people to attend his dharna in Islamabad and go to his rallies in various parts of the country is in the perception that a good segment of the population has not benefitted from the little pick-up that has taken place in the economy. It is felt that the rewards of growth have been captured by the well-to-do. This trend is attributed by Imran Khan’s supporters to a number of factors, including pervasive corruption. As I discussed in one of the earlier articles, it was this type of perception that fueled the anti-Ayub Khan movement in the late 1960s which eventually forced him out of office.
Persistent and growing inequality is a phenomenon not unique to Pakistan. It is also occurring in developed countries, such as the United States, which follows an economic model roughly equivalent to the one Pakistan is pursuing. There is extensive reliance on private initiative, which is rewarded by the tax system. Low taxes, particularly on the rich, deprive the government of the resources needed to develop programmes that would help the poor and reward those in the middle classes. It is interesting to note what has been the result of this approach in the United States.
According to a recent paper by the economists Emmanuel Saez and Gabriel Zucman, almost all the increase in American inequality over the last 30 years is attributable to the “rise of the share of wealth owned by the 0.1 per cent of the richest families”. And much of that rise is driven by the increase in the share of top 0.01 per cent. “The wealth of the top one per cent grew an average of 3.9 per cent a year from 1986 to 2012, though the top one-hundredth of that one per cent saw its wealth grow about twice as fast. The 16,000 families in that tiptop category — those with fortunes of at least $111million — have seen their share of national wealth nearly double since 2002, to 11.2 per cent.” Pakistan has followed the same pattern.
Using the WB data on inequality in Pakistan, which provides distribution according to quintiles, I have determined the share in national income of the top 10 per cent, top one per cent, top 0.1 per cent and top 0.01 per cent of the population. I have assumed that the distribution of income noted by the Bank is replicated as we move up the income scale. If this assumption is correct, then it appears that in Pakistan’s case, nearly 4,000 households have more than half a per cent of the total national income. In dollar terms, this translates into roughly half a million dollars a year per household. For the bottom 10 per cent, per household income is $2,900 a year. The rich households, therefore, are 175 times richer than poor households. These numbers give some substance to the differences in patterns of consumption that we see in Pakistan’s large cities. What the super-rich spend on the marriages of their children and how the poor manage their existence is one example of this glaring inequality.
This is one way of looking at the durability of the Imran Khan phenomenon.
Published in The Express Tribune, November 24th, 2014.
