Rover's Diary: taming the market economy with a welfare baton
ARTICLE (April 21 2008): For a Pakistani enamoured with India's on-going economic boom, the consolation prize of a visit to India is that prices of most of the food and petroleum products are higher than Pakistan's. On the other hand, when compared in dollar terms the minimum wages and poverty levels are almost equal to Pakistan's.
Sitting in Delhi, the city of Mirza Ghalib, I cannot help but be reminded of his famous couplet: Dil Khush Huwa Masjid-e-Wiran Ko Dekh Kar/Meri Tarha Taera Bhi Khana Kharab Hai.
Please don't take me wrong, I'm not getting sadistic pleasure in the misery of the poor people of India, who are finding it difficult to have a good square meal. I'm just stating a fact for those Pakistanis who love to compare prices and claim that they are lower in India. Most of them tend to forget that the Indian rupee is stronger than the Pakistan rupee by almost 36 percent.
World economists agree (which they seldom do) that the days of cheap food and fuel are over. World fuel consumption is shooting up with a rising appetite of the Chinese dragon and the Indian tiger. For quite a foreseeable future, Asian countries would lead the consumption growth, led by these two giants who have over one-third of the world's population.
Similarly, food prices have sky-rocketed because of higher consumption in Asia, where average economic growth has been good and has led to changing lifestyle; shortage of crops, and shift in cropping pattern owing to the drift of US to bio-fuels.
Now the biggest challenge for countries like Pakistan and India, where every third person lives below the poverty line, is how to minimise the impact of this killing inflation on the poor. They have been left at the mercy of market forces by our dogmatic economic planners. True, the growth has trickled down to middle classes in both the countries and their size has grown along with their lifestyle. But this has led to unbearable inequality in both societies. According to one study in the USA, the combined wealth of Bill Gates and Warren Buffet is equal to 100 million poor of the country.
In the Fortune top 10 world's richest men include four Indians, and yet the abject poverty on the roads of Indian cities is eye-disturbing. In Pakistan, the last 8 years have also thrown up many billionaires in dollar terms, and yet the inequality is fraying the social fabric.
As socialist revolutions are out of vogue these days, the anger of the poor is being reflected in civil commotions, break-down of law and order, increased violence and sharpening of political conflicts wrapped in religious or ethnic semantics. All these actually are anarchic revolutions of the poor.
So, where we do go from here? Just rely on the lullaby, the classic capitalist song that eventually the benefit of the economic growth would trickle down to the poor. Such a process, it has to be realised, is slow and cannot keep pace with the fast-forward world. The champions of unbridled capitalism must realise that to keep the economic engine moving forward smoothly, they have to change the direction and take the route of creating a social net for the poor.
Tightening of monetary policy is not going to go far; in any case it's a double-edged sword. Former Editor of The Economist Bill Emmott had summed it up well: "Capitalism in its present form is unpopular, unstable, unequal and unclean."
The American model's faultiness is evident from the poor performance of its economy and how it is robbing the poor to enrich the defence and oil industry. On the other hand, comparatively UK and other welfare states have done better.
Back to the sub-continent, I would say that the first thing our governments need to meet the higher fuel prices is to work for harnessing the alternate energy resources. Both countries have wasted much of their scientific talent in producing weapons of mass destruction. Now is the time to channelize their abilities towards finding ways to conserve energy and exploit the natural resources.
In Pakistan, we have the Alternate Energy Board and in India they have an elaborate set-up of The Energy and Resources Institute (TERI). Unfortunately, in both countries these organisations have low priority, although they should be on the top of the priority list of any government in view of the rising oil prices. Vast micro-hydel energy resources, which can be used without stirring up water disputes, are still unexploited.
Wind energy in India is contributing only 3 to 4 percent of Gujrat and Tamil Nadu energy requirements. In Pakistan, many companies have been allotted land in the wind corridors, but haggling on tariff has resulted in unwarranted delay. In the meantime, our penny-wise NEPRA did not realise that the prices of equipment have risen dramatically in the international market.
Now let's take the food inflation. The reports that world wheat output is going to be at 30 years low, sends jitters down the spine of people. One would have some consolation in this part of the world had the benefit of higher prices of agricultural produce been transferred to the rural poor. But it is well known that much of the margin goes to the middleman. First, the state has to intervene here by expanding credit to the small farmers, who are exploited by the middlemen. Secondly, it has to create co-operatives so that farm produce can be taken directly to the market as it would reduce the cost of transportation and the high mark up made by the middlemen.
In urban areas the poor have to be protected with higher minimum wage laws which should be implemented; most employers ignore them so far. At the same time an effective unemployment allowance should be given to the poor with assistance in training them in useful trades. At present much of the unemployment is because of the mismatch between the demand for trained workers and the available human resources.
Yes, all this will cost the government substantial money, but it should be treated as an investment in building a society with low friction points which sap the energy of the nation and lowers its productivity. There is a lot of fat in government's budget, which can be shed by cutting un-productive and wasteful expenses.
My Indian sources confirm that it is true for their country also. India has entered the election year with rising food prices issue, challenging the incumbent government. Pakistan has just brought in a coalition government with bigger challenges ahead. People, please get ready, hold your breath and tighten your belt as the flight ahead is going to be turbulent, fair weather is far away. (ayazbabar@gmail.com)
Business Recorder [Pakistan's First Financial Daily]
