Like many developed economies of the world, wealth distribution in Pakistan also remains a concern. Estimates point to glaring inequalities like the top 10 percent of the population earning 27.6 percent while the bottom 10 percent earn only 4.1 percent of the income or in some studies just 17 percent of the population controlling the majority of the national wealth. On the up side though, Pakistan generally has a low gini coefficient and therefore in comparative terms (say to the US or India or Bangladesh) depicts a decent distribution of income (which means relatively lower inequality).

Still, the worrying notes remain that, a) Even this level is unacceptable and b) More dangerously, the inequality in Pakistan is in effect climbing and reducing! As pointed out, India fares much worse where a handful of corporates (by some estimates less than 30) control a majority of the nation’s wealth; and this concentration of wealth notwithstanding, the troublesome part is that this disparity remains despite India (even today) supporting a very large public (state owned) sector—so what really would happen if the state’s corporate footprint was to reduce? In countries like France and the US, the gap as pointed out by many economists, principally Thomas Piketty and Joseph Stiglitz, the situation is even more stark. For example in the US, the gap between the country’s African and white American communities has increased instead of decreasing. Surveys by leading analysts Charles Schwab & Associates, show when trying to determine whether black Americans had as much saved in their 401(k) plans for retirement as white Americans, the results depict that black Americans only have half as much saved for retirement as white Americans of the same education level and job description.

In fact as the years have gone by, one has become accustomed to more and more data confirming this gap. Ray Boshara from the Federal Reserve Bank of St Louis has been regularly releasing such data and one of these releases tells us that, between 1992 and 2016, college-educated Blacks saw their wealth decline by 10 percent, while college-educated whites saw their wealth increase 96 percent—it simply seems brutal! Kevin Charles, Dean of the Yale School of Management, has furnished data that shows that the wealth divide was getting better between 1940 and 1970, but regrettably, since 1970, it has been the case of a steady decline, and it has just gotten worse and worse to the point that now, relative to white Americans, African Americans are in fact worse off than even their grandparents were. The question the economic managers need to ask here in Pakistan is that do we want to end up like these countries where the provincial, ethnic, gender or even regional (South vs. North) inequality has simply grown over time instead of coming down? Answer: Of course not, since the thing we need to be aware of is that the wealth gap is a big, big deal, especially in developing countries where both the population density and poverty levels tend to be on the higher side.

Growing inequality with a high level of poverty in essence means that the country is losing a lot of potential in its GDP growth and economic wealth creation and any growth that is being achieved is in effect exacerbating the poverty situation, since it is not equitably including the very citizens that need it the most. So the question arises, what can the Pakistani policymakers do to see to it that any new wealth creation gets distributed equitably and in the long run, the gap between the haves and have nots gets reduced? Well, here is a list of five things that seems to have worked across the spectrum of countries and economies that have successfully addressed the inequality gap over the last half century and Pakistan also can surely follow the same recipe rather than trying to reinvent the wheel.

First, a conscious but basic realisation has to come about that the segment with lower incomes will be starting out as being far behind from the wealthy and therefore need to be given extra state’s compensation or material support to help them in getting established. This means a range of things—depending upon to whom and where the targeted support is being directed—such as, allotment of minimum viable acres of farmland for cultivation in conjunction with a contract with the state that ensures help in management at least for 3 years; ensure that start ups being sponsored are in no way relegated or segregated to special areas and that they remain amidst other already successful ventures; and by seeing to it that when providing them with capital the banks do not redline them, meaning in them not being able to get loans or in not being able to get fair interest rates on loans, working finance and mortgages.

Second, there is always a challenge of systemic racism and unconscious or conscious bias that simply does not allow the poor to participate in the parts of the economy where the wealth is being created and this needs to be overcome. For example, if we take an account, it is ironic that the fields that are growing the most, that have the highest profit margins, have the least new entrants from the poor segments. There are so many things, but it all comes back to the fact that people left behind have to be provided a one-time help to bridge the divide. As we know, wealth accumulates over time, and once one gets behind it is very easy to fall into a vicious trap where incremental needs consistently outpace the incremental income.

Third, it is important to somehow also rope in the private sector in this exercise, because the economies of scale in redressing such widespread income gaps can only be achieved through the private sector’s active participation. Corporate Pakistan has to take social responsibility to do business with these new start-ups in what is known in the modern day management as undertaking “supplier diversity”. However, care will need to be taken that such endeavours do not limit themselves by focusing only on the supply chain, that’s the lowest margin part of their spend. Meaning, that a share should be provided where the real value and returns lie and merely in low paying construction activities or catering services or janitorial services, etc. while the elite continues to monopolise say private equity, hedge funds, venture capital, technology, media, fashion, etc. That is where the real wealth is created.

Fourth, a main part of the problem is that people in the poverty trap can invariably link their miseries to not having a roof of their own over their heads. Also, a burgeoning population climbing real estate prices are making this dream more and more improbable with each passing day. If this single issue is successfully addressed by the government, by all accounts the wealth disparity will fall by as much as 50 percent of its current level in Pakistan. Home ownership tends to be the real answer not only to inequality, but also to providing the very seed capital for people to launch their economic dreams and aspirations. If somehow the past discrimination and unfairness in housing is ended, the rest will automatically follow.

Fifth, and perhaps the most important is to be clear that the ultimate solution lies in education. An experiment in China about 25 years ago yielded to the government that starting a small public school—Kindergarten to Class 8—on average adds 3 times to the income an individual would otherwise have earned. Likewise, in the US an initiative that took up at an early age on teaching the kids about the stock market, has met with a lot of success. In this the potential to earn money from kids with such an exposure multiplies by almost 5 times more than a kid without being exposed to such teachings. On education comes the unanimous global consensus that the more a country educates its youth the more poverty it will alleviate and the more innovative it is in finding better and targeted ways of providing learning to the poor, the quicker it will be able to eradicate poverty.

Dr Kamal Monnoo

The writer is an entrepreneur and economic analyst. 

Email: 

kamal.monnoo

@gmail.com