Poverty in Pakistan – An Academic Study
The Nature & Definition of Poverty
Poverty is the state of one who lacks a usual or socially acceptable amount of money or material possessions. Poverty is said to exist when people lack the means to satisfy their basic needs. In this context, the identification of poor people first requires a determination of what constitutes basic needs. These may be defined as narrowly as “those necessary for survival” or as broadly as “those reflecting the prevailing standard of living in the community.” The first criterion would cover only those people near the borderline of starvation or death from exposure; the second would extend to people whose nutrition, housing, and clothing, though adequate to preserve life, do not measure up to those of the population as a whole. The problem of definition is further compounded by the non-economic connotations that the word poverty has acquired. Poverty has been associated, for example, with poor health, low levels of education or skills, an inability or an unwillingness to work, high rates of disruptive or disorderly behaviour, and improvidence. While these attributes have often been found to exist with poverty, their inclusion in a definition of poverty would tend to obscure the relation between them and the inability to provide for one’s basic needs. Whatever definition one uses, authorities and laypersons alike commonly assume that the effects of poverty are harmful to both individuals and society.
The group in society with the smallest income and consequently, with the lowest plane of living, is usually referred to as the “poor”. Different people have defined poverty in a variety of ways, most of which are quite pessimistic. For example, Oliver Goldsmith says: ‘Laws grind the poor and rich men make the law.’ Other definitions are presented in the following discussion
Poverty is a disease of ‘The Money (Profit) System’.
The smallest group – the rich – do little or nothing and enjoy the abundance of things made by the largest group – the poor – who live lives of semi-starvation and misery. The newspapers just one of many devices invented and fostered by those who are selfishly interested in maintaining the status quo are full of accounts of ‘crimes’ committed by the impoverished ‘theft of trade’ mainly.
Poverty is the inability to secure for oneself the benefits of ‘civilization’.
Necessities, comforts, pleasures. What are the causes of this ‘shortage’? What was formerly done by human hands is now done by machines (technology). These machines are owned by the minority (the rich) and are worked by the majority (the poor) for the benefit of the minority (the rich). The minority also own the land. The majority must pay the minority for the ‘priviledge’ of being permitted to live in the place of their birth. Generally, the majority work hard and live in poverty so that the minority may live lives of luxury without working. Poverty is caused by Private monopoly, landlordism, employerism, ownership.
Poverty is the shortage of the necessities of life or the benefits of civilization.
The advance of civilization has increased economic prosperity and raised standards of living. The poor of today enjoy comforts and conveniences not possessed by people of earlier societies.
Because poverty is a relative term, at any given time and place there are the comparatively rich and the comparatively poor. In spite of economic progress, the poor, in the sense of those in the lowest economic group, have persisted because of the persistence of economic inequality and the stratification of society in the various economic groups. The poor in this comparative sense, we shall have with us until and unless society should be modeled under some communistic plan. The elimination of poverty is as impossible as the elimination of the last train coach, which is frequently the victim in railroad wrecks.
The term “poverty” can be restricted to those individuals and families whose incomes are so small, and whose planes of living consequently are so low, that neither health nor working efficiency can be maintained. Although standards of living also are relative, it is possible at given time and place to formulate the elements and to estimate the costs of a minimum standard of decent living. The social pathologists regard poverty as a social disease and the poor as abnormal members of the society. In this sense poverty can be reduced, if not eliminated.
Poverty and pauperism are not synonymous, and those individuals who live below the poverty line but who are too proud to ask for help should not be referred to as paupers. Pauperism is a condition of dependency. Paupers belong to the social-debtor group, consisting of the defective, delinquents and dependents. There is a strong tendency for the poor to become paupers. The proper treatment of paupers and other members of the social-debtor groups belong to the domain of sociology. But the economist as well as the sociologist must concern himself with the problems of subnormal planes of living and inadequate wages. Objective causes of poverty, such as low wages and unemployment which lie within the economic organization, are definitely within the fields of applied economics, or developmental economics.
Types of Poverty
Several types of poverty may be distinguished depending on such factors as time or duration (long- or short-term or cyclical) and distribution (widespread, concentrated, individual).
Cyclical poverty refers to poverty that may be widespread throughout a population, but the occurrence itself is of limited duration. In nonindustrial societies (present and past), this sort of inability to provide for one’s basic needs rests mainly upon temporary food shortages caused by natural phenomena or poor agricultural planning. Prices would rise because of scarcities of food, which brought widespread, albeit temporary, misery.
Throughout the 19th and early 20th centuries, the industrialized nations of the world experienced business panics and recessions that temporarily enlarged the numbers of the poor. The United States’ experience in the Great Depression of the 1930s, though unique in some of its features, exemplifies this kind of poverty. And until the Great Depression, poverty resulting from business fluctuations was accepted as an inevitable consequence of a natural process of market regulation. Relief was granted reluctantly to the unemployed to tide them over until the business cycle again entered an upswing. However, since the Great Depression, the chief means of alleviating poverty caused by business fluctuations have been a nation’s fiscal, regulatory, and other policies designed to stimulate the economy, and direct government assistance to the victims of unemployment, either through unemployment compensation, welfare, and other subsidies or by employment on public-works projects. Although business depressions affect all segments of society, their impact is most severe on people of the lowest socioeconomic strata, because of their marginal resources.
In contrast to cyclical poverty, which is temporary, widespread or “collective” poverty involves a relatively permanent insufficiency of means to secure basic needs–a condition that may be so general as to describe the average level of life in a society or that may be concentrated in relatively large groups in an otherwise prosperous society. Both generalized and concentrated collective poverty may be transmitted from generation to generation, parents passing their poverty on to their children.
Collective poverty is relatively general and lasting in much of Asia, the Middle East, most of Africa, and large parts of South America and Central America. Life for the bulk of the population in these societies is at a minimal level. Nutritional deficiencies cause disease seldom seen by doctors in the highly developed countries. Low life expectancy, high levels of infant mortality, and poor health characterize life in these societies.
Collective poverty is usually related to economic underdevelopment. The total resources of many developing nations in Africa, Asia, and South and Central America would be insufficient to support the population adequately even if they were equally divided among all of the citizens. Proposed remedies are twofold: (1) expansion of the Gross national product through improved agriculture or industrialization, or both, and (2) population limitation. Thus far, both population control and induced economic development in many countries have proved difficult, controversial, and disappointing in their results.
Concentrated collective poverty.
In many industrialized, relatively affluent countries, particular demographic groups are vulnerable to long-term poverty. In city ghettos, in regions bypassed or abandoned by industry, and in areas where agriculture or industry is inefficient and cannot compete profitably, there are found victims of concentrated collective poverty. These people, like those afflicted with generalized poverty, have higher mortality rates, poor health, low educational levels, and so forth when compared with the more affluent segments of society. Their chief economic traits are unemployment and underemployment, unskilled occupations, and job instability. Efforts at amelioration focus on ways to bring the deprived groups into the mainstream of economic life by attracting new industry, introducing improved agricultural methods, and raising the level of skills of the employable members.
Similar to collective poverty in relative permanence but different from it in terms of distribution, case poverty refers to the inability of an individual or family to secure basic needs even in social surroundings of general prosperity. This inability is generally related to the lack of some basic attribute that would permit the individual to maintain himself. Such categories of persons include the helpless aged, the blind, the physically handicapped, the chronically ill, and the chronic mentally ill. Physical and mental handicaps are usually regarded sympathetically, as being beyond the control of the people who suffer from them. Efforts to ameliorate poverty due to physical causes focus on education, sheltered employment, and, if needed, economic maintenance.
By contrast, those persons who have handicaps in social adaptability have long been associated with improvidence, a label covering such behaviour as laziness, the inability to manage money, drunkenness, and producing too many children. The socially handicapped, as indicated in the language used to identify them, are stigmatized. Their handicaps are often felt to be within the control of the individual, if he chooses to control them, and his poverty, then, is regarded as the outcome of his own failures. The person is often dealt with punitively, given financial aid only reluctantly, and pressed to accept casework services to help him change his ways. Two attitudes toward the poor–sympathy and hostility–have permeated the literature on poverty.
Extent of Poverty
The extent of poverty is difficult to determine, for there are no absolute norms from which deviations can be measured. Nevertheless, it is apparent that poverty is a chronic, as well as an acute, problem of economic society. Although varying in intensity from time to time, and from place to place, it never entirely disappears. Again, poverty displays itself in a more concentrated form in the cities than in the country, and in more aggravated needs in the winter months than in the summers.
Although the poverty rate in the rural sections may be smaller than in the cities, recent investigations make it doubtful. Urban poverty is conspicuous, but even more distressing conditions may be hidden away in obscure rural communities. For society at large, the expression “the submerged tenth” was formerly used to explain the character and extent of poverty.
The new industrial revolution in the USA was lauded as the final conquest of poverty in this country. But their national prosperity witnessed only a modest reduction in poverty, because increased industrial productivity was not accompanied by improved distribution and expanded social security. The Great Depression from 1929 to 1933 was marked by an unprecedented increase in poverty, pauperism, and relief work, public as well as private.
The same thing happened in the rest of the world. After the Great Depression, even countries where only a small proprtion of the people was considered poor, the experienced long periods of recession wherein the incomes and earnings of the people deteriorated. So pockets of poverty emerged amongst the most prosperous nations of the world as well. Countries in Asia and Africa, especially were left totally poor as they had never possessed a strength needed to revive from the Great Depression. Consequently, these countries are still caught in the vicious circle of poverty.
Comparisons of the extent of poverty today with the earlier days are dangerous because standards of living and concepts of poverty are not constant. What would be considered deplorable and inhuman today was regarded as unfortunate but natural by our grandparents. In earlier depressions people starved or froze to death, as they do today in primitive societies and war-stricken countries. Families in the lowest third of USA live in deplorable conditions in terms of current economic techniques of production and modern standards of living. Nevertheless, they are living better than the poor of other lands and earlier times are.
A new study reports that in 1993, 56% of households living in poverty included one or more workers. And nearly two-thirds of all people living in poor families with children lived in families with a worker. While many of these workers cannot find full-time jobs, even those who work full-time may not earn enough to pay for a family’s basic needs.
Many of us are taught if we work hard, we’ll get ahead…But this isn’t always the case, and the working poor – who try to play by those rules – often lose out.
Here is one example: Following a period of unemployment, a head of household finally finds a job, one that pays $5 an hour, more than the minimum wage. Unfortunately, this story doesn’t have a happy ending.
Five dollars an hour multiplied by 40 hours per week equals $867 in gross monthly income — $291 less than the state’s own minimum standard of need for a family of three, which is $1,158. Instead of living happily ever after, this family must depend on their local hunger program to provide food for their dinner table. Otherwise, even working full time, these parents would be forsed to send their children to bed hungry.
Homeless and Hungry
A recent Seattle-King County Coalition of the Homeless survey found:
26% were children under 18
52% of these were children under age 8
One out of five children in United States is living in poverty. Public assistance does not meet a family’s basic needs. It makes it difficult for them to move out of poverty and into the mainstream, and their children are less likely to grow up healthy and strong.
Many people don’t realize what it’s like to live in poverty, and many believe welfare recipients would choose welfare over work. Form our experience, nothing could be further from the truth. Nevertheless, it is not unusual to hear disparaging remarks about welfare recipients – comments often overheard by children living in poverty.
Causes of Poverty
One set of forces explains the aggregate amount of poverty. These are aggregate causes, also called social explanations of poverty. We have approximately 35 million poor people in America. This set of forces should explain why we have that poverty. Another set of forces explains the allocation of this total among individuals. These are called individual causes or explanations of poverty. This set of forces should explain the makeup of that 35 million, that is, what individuals are poor.
Poverty is explained by individual circumstances and/or characteristics of poor people. Some examples are:
- Amount of education, skill, experience, intelligence.
- Health, handicaps, age.
- Work orientation, time horizon, culture of poverty.
- Discrimination, together with race, sex, etc.
There are two types of aggregate poverty theory: case and generic. There is no agreement on which is the correct explanation of most poverty.
- Add up all poverty explained by individual theories, and that is equal to total or aggregate poverty. In other words, according to case theories of poverty, individual and aggregate explanations are really the same. According to these theories, aggregate poverty is just the sum of individual poverty. If case theories are correct, we should address the individual cause of poverty. For example, if poverty is caused by inadequate skills or education, then the solution is skill training or compensatory education. If poverty is caused by discrimination, then the solution is anti-discrimination policies.
- Poverty is explained by general, economy-wide problems, such as
- inadequate non-poverty employment opportunities
- inadequate overall demand (macro problems, macro policy)
- low national income (Less Developed Country)
If generic theories are correct, poverty is caused by one set of forces (general, economy-wide problems) but distributed according to individual theories. Also, if generic theories are correct: Improve the quantity and quality of jobs.
Remember that the things that cause poverty in case theories explain its distribution in generic theories. Because of this, both theories are consistent with the same facts (statistics). Therefore, it is very difficult, maybe impossible, to determine which is correct through direct test.
There’s some indirect evidence pointing to generic theories: For example, there is the failure of poverty to fall during periods of large training programs, and the failure of poverty to fall with rise in general educational level of population. Further indirect evidence later on in the course.
Simple and Complex Causes
Many people made the error of assuming that poverty has just one cause. Thus Malthus thought that poverty was due to the pressure of population on food supply. On the other hand, Karl Marx found the explanation in the ownership of the instruments of production by a capitalist class and the resulting dependence of the proletariat on the bourgeoisie. Socialism, therefore was his remedy. To Henry George, poverty was the result of individual rather than social absorption of economic rent and the unearned increment from land. In “Progress and Poverty”, he pointed to the single tax and the elimination of the landlord as is answer to the problem of poverty.
There is no single cause of poverty, for this social disease is a complication of many elements. Moreover, some causes of poverty are also results. Although unemployment and low wages are important sources of poverty, numerous other factors exist. Moreover, such answers are inadequate, for the student is forced to seek further in his attempt to find those underlying causes of unemployment and low wages that contribute to poverty.
The familiar classification into personal and environmental causes is helpful but it merely different ways of grouping similar causal factors and different avenues of approach toward the same problem. Sickness, for instance, is both an individual and an environmental factor. Human sympathy engenders personal consideration for sick individuals, but scientific interest expresses itself in a study of the nature, causes, and significance of the disease itself. Again, individual causes of poverty indicate its incidence more than its causes, i.e. what individuals will constitute that group, assuming a given amount of poverty. For an explanation of its existence, one must turn from the specific question, to the more general problem of analyzing impersonal factors and objective causes in the environment that create that volume of poverty in the society.
Objective Causes of Poverty
By the use of efficient methods of production and improved economic organization, western civilizations have made a better adjustment to their environment than has the Orient, where dire poverty persists. Active adaptation and technological progress enable a dynamic society to keep ahead of the Malthusian specter of starvation. Thus, national prosperity is an underlying condition for the amelioration of poverty. It is determined both by natural resources, and by the arts of production. Nevertheless, the developed countries also experience some pockets of poverty amidst prosperity.
Distribution, as well as production is a vital issue in the causal analysis of poverty, which may exist along with the so-called “national prosperity”. Despite the United States’ tremendously increased prosperity before 1929, serious economic inequalities lingered. Insufficient income was a factor in economic inadequacy or poverty. The wages of many male workers were insufficient of themselves to support the comfort of a family.
Changes in industry such as the introduction of machinery, brought considerable hardships on certain groups of workers, even though their general and long-run effects are beneficial. Economic progress has its social costs in unemployment. Its human effects in poverty must be ameliorated by social security.
A bad system of land tenure, such as that in England during the inclosure movement, in Ireland under its absentee landlords, or in Mexico in the era of peonage, also is productive of poverty. The United States was fortunate in its former abundance of land. Indeed, the problem of poverty in this country can be said to date from the elimination of the frontier and the exhaustion of free land in the West.
Growth of population must be accompanied by the discovery of new processes and the better utilization of depleted resources. In the long run, the only way to preserve prosperity and to prevent poverty is to increase the productivity of industry.
Effects of Poverty
Just as inefficient economies and industry can have a negative impact on the environment, so too can lack of economic activity or industry impact negatively on the environment. At the Stockholm United Nations Conference on the Human Environment in 1972, former Indian Prime Minister Indira Gandhi spoke of the link between poverty and environmental degradation when she attributed pollution primarily to poverty and underdevelopment. On hearing this, many developing countries attending the Conference expressed concern that environmental goals could detract from their development objectives.
At the time of the Stockholm conference, an estimated 944 million of the world’s people lived in poverty. Scientists and policy makers were beginning to witness the environmental degradation scarring the planet, a result of years of irresponsible industrial development. The connections between poverty and environmental concerns had not yet been clearly drawn.
Today we know the connections all too well. About 40 per cent of the world’s population lives in poverty. More than one billion people are considered absolute poor, and every day an estimated 40,000 children die of disease and malnutrition.
Those who live in poverty are often too preoccupied with immediate survival to be concerned with environmental issues. They do not have the luxury of using what resources they have access to in a sustainable manner. Often, the poor are forced to exploit the environment due to limited choices of food and fuel.
Environmental degradation and poverty are strongly intertwined, resulting in a vicious cycle in which poverty causes environmental stress that, in turn, perpetuates poverty. The only way out of this vicious circle is along the path of sustainable economic development and the efficient use of modern technologies.
The present system used to calculate the gross national product (GNP) takes no account of the depletion and degradation of natural resources and, therefore, overstates progress and generates environmentally destructive policies. In the long term, however, environmental losses creep onto profit-and-loss balance sheets. They impose heavy burdens on societies as well as the global and state economies of both developing and developed countries. Local and national economies from Australia to Zimbabwe feel the economic stress of degradation when agricultural yields decline, fish catches fall, and the costs of cleaning up toxic wastes, providing health care and alleviating hunger begin to eat away at any profits. In the developing world, this falling productivity is reducing living standards, thereby creating more poverty.
The unequal distribution of land, rather than a shortage of land, forces the poor to exploit marginal environments. Most agricultural land is concentrated in a small percentage of holdings usually owned by a privileged minority who use it for export crops, forcing the poor to unsuitable lands. This pressure on the land by growing populations leads to a host of environmental problems such as soil erosion and loss of water sources.
The world has the ability to end absolute poverty. When the poor are given the means and opportunity to break out of the vicious circle in which poverty holds them, real sustainable development will become a possibility.
Remedies for Poverty with special reference to Pakistan
Public Ownership of Technology
Technology has become the ‘property’ of a comparatively few individuals who have used it not for the benefit of the Whole, but for profit. [The PC, the Internet and the Web are just the beginning resurgence of a new ‘skilled worker class’] We are poor because we are robbed of the means of production. The real reason for ‘shortage’ is that the raw materials which could be used for the benefit of All have been stolen by a numerically insignificant group who refuse to let them be used. Strangest of all, the people who struggle to survive, instead of trying to understand the real causes of their misery, spend all their time applauding this small group of imbeciles who mismanage the affairs of the world and pay them large sums of money to do so!
The only possible remedy is the Public Ownership and Management of the Means of Production. Never before in the history of humankind has it been possible to produce the necessities of life in such abundance as at present – and as yet millions of people are living and dying in wretchedness and poverty. The management of the affairs of the world – the business of arranging how we live – is at present in the hands of ignorant, insolent overfed imbeciles. The result of their mismanagement is that the majority of people go without and must struggle to live. And a great number die of want everyday. The State is not a gene-pool or a tribe, and cannot really play the bio-survival unit convincingly. Everybody on Welfare becomes paranoid, because they are continually worrying that they are going to get cut off (“exiled”) for some minor infraction of the increasingly incomprehensible bureaucratic rules. And in real totalitarianism, in which the bogus identification of the State with the tribe is carried to the point of a new mysticism, the paranoia becomes total. Real bonding can only occur in face-to-face groups of reasonable size. Hence, the perpetual attempt (however implausible in industrial circumstances) to decentralize, to go back to the tribal ethos, to replace the State with syndicates (as in anarchism) or affinity-groups. Bio-survival anxiety will only disappear when world-wide wealth has reached a level, and a distribution, where, without totalitarianism, everyone has enough tickets.
Changing the System
And we must work to change the ‘brain’ of the System – one cell (person) at a time. The way to change is through disseminating Information – People need to be informed. Socialism is inevitable… but it will only come as the majority of us become enlightened and Demand Action. No individual can practice co-operation by himself.
The Universal Declaration of Human Rights say that everybody has the right to life and to a decent life: a right not only to employment, but to decent pay, decent working conditions, ‘the right to form and join trade unions’, the right to a proper home and the right to feel secure, ‘in sickness, disability, widowhood, old age’: the right to dignity. Nowadays, this is a subversive document, to be preverted and circumvented.
Definition and Measurement of Income Distribution
It is the way in which the wealth and income of a nation are divided among its population, or the way in which the wealth and income of the world are divided among nations. Such patterns of distribution are discerned and studied by various statistical means, based on data of varying degrees of reliability.
Wealth is an accumulated store of possessions and financial claims. It may be given a monetary value if prices can be determined for each of the possessions; this process can be difficult when the possessions are such that they are not likely to be offered for sale. Gross National Product is a net total of the flow of payments received in a given time period. Some countries collect statistics on wealth from legally required evaluations of the estates of deceased persons, which may or may not be indicative of what is possessed by the living. In many countries, annual tax statements that measure income provide more or less reliable information. Differences in definitions of income–whether, for example, income should include payments that are transfers rather than the result of productive activity, or capital gains or losses that change the value of an individual’s wealth–make comparisons difficult.
In order to classify patterns of national wealth and income, a basis of classification must be determined. Factor shares categorize wealth and income on the basis of the ownership of factors of production: labour, land, capital, and, occasionally, entrepreneurship, whose respective forms of income are labeled wages, rent, interest, and profit. Personal distribution statistics, usually developed from tax reports, categorize wealth and income on a per capita basis.
Gross national product (GNP) per capita provides a rough measure of annual national income per person in different countries. Countries that have a sizable modern industrial sector have a much higher GNP per capita than countries that are undeveloped. In the late 1980s, for example, the World Bank estimated that developed countries had a GNP per capita of $17,000, while undeveloped countries had less than $400. Income also varies greatly within countries. In the United States there is considerable variation between agricultural and industrial regions, females and males, and nonwhites and whites. While the bulk of the U.S. population has a middle income that is derived largely from earnings, wages can vary considerably among occupations.
A considerable proportion of high incomes derives from investment, and the higher the income, the higher the investment-derived portion tends to be. Because most fortunes require long periods to accumulate, the continuing existence of a class of very wealthy persons depends on their ability to keep their fortunes large and to pass them on to descendants. Earned incomes are affected by a different sort of inheritance. Access to well-paid jobs and to other occupations of high status is largely the product of education and opportunity. Typically, therefore, children tend to retain the status of their parents and are likely to earn similar incomes. Statistical studies of the distribution of wealth and income may shed light on various economic, social, and political questions.
Uneven Distribution of Income
The inequality in the distribution of income and wealth between nations as well as people within the same nation can be seen by analyzing the following classification:
Economic inequality is expressed not only in wide differences of purchasing power among individuals within a particular nation, but also by glaring discrepancies between the total and per capita incomes of various nations and those of different areas within a particular nation.
For instance, United States is the richest and most productive country in the world. It is followed by other industrialized or developed countries in terms of per capita income, that is, by Great Britain, Canada, Australia, Germany, Japan and South Africa. The distribution of income within nations is very dynamic. For example, in 1936, Germany was third with a per capita national income of $389 and France was fourth with $276; a decade earlier in the period immediately following the First World War, their respective positions had been reversed. Countries in the Asian and African regions, with the exception of Japan and some Latin American countries, have the lowest income per capita in the world.
Another form of geographical maldistribution of income is that reflected between two areas in the same country. It is not unusual to find pockets of poverty amidst prosperity in any country. In Pakistan, we can compare Karachi with a remote area of Balochistan, a stark contrast to each other in terms of income, literacy, and health facilities. Even in an advanced country like the United States, there are certain areas which have experienced high growth in income and prosperity and then areas that lag behind in development. Federal grants or loans in USA are designed to provide greater equality of opportunity to people in the low-income areas.
The four basic occupations that are important in this respect are manufacturing, agriculture, trade and services. Contrasts in the relative importance of these four basic occupations with swings in the business cycle are evident. Nevertheless, the great and growing importance of manufacturing stands out. In developed countries, this share of the manufacturing sector is usually the largest, followed by trade and services and finally, agriculture, which is of a declining significance. However, in a country like Pakistan, where 70% of total population is involved in direct or indirect agricultural activity, the importance of agriculture is much more. In fact, in Pakistan, the landlords draw the biggest chunk of national income which also goes untaxed.
Functional Mal distribution
Economists outline the following four factors of production, namely, land, labour, capital and business enterprise. Shares in distribution going to these four factors of production are, respectively, rent, wages, interest and profits or losses. Distribution is a pricing process as well as a sharing process; it gives value as well as products to each of these factors of production. Again, a share in distribution is also a cost of further production. Wages, for example are also a reward for labour performed; but they are also constituent elements in the costs of producing a good, which are included in its price. Like the value of a commodity or service, the rate of return on a factor of production is determined by demand and supply. It is expressed by its price in the open market, e.g. the current interest rate or the prevailing wage rate for a particular type of labour.
In a new country, rents are low because the supply of land is abundant as compared to that of labour and capital. In an older and more densely populated country, rent absorbs a greater portion of national income. In any given time and place, the rent that a piece of land yields its owner is conditioned by the relative scarcity, desirability of location, and degree of fertility of that type of land. Such a statement is a partial explanation of rent but it does not justify it.
The indirect or round about method of production is first to create capital and then to produce consumption goods with the aid of this capital. The Industrial Revolution increased this roundaboutness of production and intensified the importance of capital. The interest rate depends on the supply and demand for capital. The justification, of interest payment, however, again assumes the individual ownership and saving of capital as in the case of labour and land.
Profits represent an uncertain and residual share in the process of distribution. They arise from a multiplicity of causes. The justification for profits lies in the assumption of business responsibilities and financial risks of production by individual enterprisers and captains of industry.
In Pakistan, there is a relative scarcity of capital. On the other hand, we have an abundance of unskilled labour and so the wage rate is dangerously low. The greatest chunk of national income accrues as rent and profits to landlords, capitalists and entrepreneurs.
Causes of Inequalities in the Third World
In Third World countries themselves inequality has many faces. Consider the following:
LAND OWNERSHIP AND USE
In Latin America, 17 percent of landholders own 90 percent of arable land. What this means is that millions of people have no opportunity to grow their own food and are condemned to a precarious and lowly paid existence as farm laborers or tenants.
Much of the best land in less developed countries is used to grow export crops or to raise livestock for the developed world. Fifty percent of land in the West Indies, for instance, is used to grow coffee. bananas and sugar for export. Little of the profit comes back to workers; 8 out of 10 children are underfed.
POLITICAL REPRESSION / MILITARY SPENDING
Repressive regimes representing military, ethnic or economic elites block measures like land reform that could benefit the poor. Such regimes, particularly in Latin America, are often supported by Western governments with arms and military training. Buying arms for both internal and external use absorbs about 5.5 percent of the GNP of the developing world. In some of the poorest countries like Pakistan this spending is at least twice that on health and education.
Spending on the military by the former dictator, Mengistu, diverted badly needed funds from development, and was a major contributing factor to the Ethiopian famine disasters of the late 1980s.
LOW STATUS FOR WOMEN
By almost any measure – income, health education, employment, legal rights – Third World women lag far behind men. Lack of access to basic contraception for some 300 million women in 1990, for example, minimised their control over family size and spacing, which directly affects the health of themselves and their children.
At the international level, inequality manifests itself in a trading and financial system that allows a minority in the developed world to enjoy an affluent – and ecologically unsustainable – lifestyle at the Third World’s expense. Let’s see how this works.
Most Third World countries still suffer the colonial legacy of having “plantation” or “quarry” economies that rely on exporting a handful of agricultural or mineral commodities to rich countries.
Like commodity producers everywhere (including Australia), they are highly vulnerable to price fluctuations caused by weather, crop diseases, the activities of speculators in rich nations, and so on.
The low price of sugar on international markets has meant poverty and unemployment for many such people. But one big difference between developing country producers and those in the West is access to finance as a buffer against such market swings. In a falling market, Western producers can afford to hold on to stocks and sell when it rises again. Third World producers, however, need foreign exchange urgently (usually to repay debts to Western financiers) and are often forced to sell in unfavorable conditions.
The disturbing result is that rich producers are paid more than poor ones: for identical goods. Also working against reasonable prices for Third World producers is the fact that, for some commodities, there are a large number of developing countries selling, but only a handful of organisations in the North buying, thus giving the buyers considerable control over prices.
Further depressing earnings are the trade restrictions imposed on Third World agricultural products by industrial countries like the US, the “champions of free trade”. It’s been estimated, for example, that Latin America and the Caribbean would earn an extra $1 billion a year if US trade restrictions were removed.
Completing the gloomy picture is the drastic commodity price fall of the last decade caused by worldwide recession. On the other hand, prices of fuel and of the manufactured and processed goods Third World countries import from the developed world have risen.
Many developing nations, already struggling to repay huge debts to Western financial institutions, have little option but to increase commodity production to service these debts and to pay for imports which means running down their resources of farm land, minerals and forests. The poor returns they get rule out environmental rehabilitation.
Income Distribution in Pakistan
The over emphasis on the maximization of the GDP has also led to uneven distribution of income in Pakistan. The data on income distribution, based on Household Income and Expenditure Surveys conducted by the Federal Bureau of Statistics during 1963 to 1994, shows at least four distinct phases of inequality at the ratios of the highest 20 per cent and the lowest 20 per cent income groups.
The first phase between 1963-71 shows that inequality in income distribution narrowed the ratio of highest to lowest 20 per cent income group decreased from 7.1 per cent in 1963-64 to 4.9 per cent in 1970-71. The second phase, from 1971-79 widened the income inequality from 5.4 per cent to 6.1 per cent. Once again, the ratio declined in the third phase, 1984-87 from 6.2 per cent to 5.5 per cent. In the fourth phase, 1987-93, the inequality in income distribution worsened as the ratio sharply rose by 2.3 per cent to 7.8 per cent.
The inequality between the household income shares of the lowest 20 per cent and highest twenty per cent is obvious from the data collected by the Federal Bureau of Statistics from 1979 to 1993. In 1979, the lowest 20 per cent enjoyed a share of 8.3 per cent of the total income while that of the highest 20 per cent was 41.3 per cent. By 1992-93 the share of the highest 20 per cent increased by 7.6 per cent to 48.9 per cent while that of the lowest 20 per cent decreased by 2.2 per cent to 6.1 per cent. The middle 60 per cent share also declined from 47.6 per cent to 45.6 per cent during the same period.
Nature and Definition of Unemployment
Unemployment is the condition of one who is capable of working, actively seeking work, but unable to find any work. It is important to note that to be considered unemployed a person must be an active member of the labour force and in search of remunerative work.
Underemployment is the term used to designate the situation of those who are able to find employment only for shorter than normal periods–part-time workers, seasonal workers, day or casual workers. The term may also describe the condition of workers whose education or training makes them overqualified for their jobs.
Statistics on unemployment are collected and analyzed by government labour offices in most countries and have come to be considered a chief indicator of economic health. Trends in unemployment and statistical differences among groups in the population are studied for what they may reveal of general economic trends and as bases for possible governmental action. Full employment has been a stated goal of many governments since World War II, and a variety of programs have been devised to attain it. It should be pointed out that full employment is not necessarily synonymous with a zero unemployment rate, for at any given time the unemployment rate will include some number of persons who are between jobs and not unemployed in any long-term sense. In the United States an unemployment rate of 2 percent is often cited as a “base” rate.
In its most obvious sense, unemployment means being without a job. As an economic definition, however, this is inadequate. The term unemployment is one description of the economic condition of a society at a given time. Low unemployment means most of the labor force has steady work. High unemployment is an indication of an economy in recession, or worse. It means that a sizable percentage of the labor force is unemployed for a considerable length of time.
Underemployment is a category that comprises a large variety of workers, including some farmers, construction workers, house painters, and others whose work may be seasonal or sporadic because of weather. It may also refer to employees of a manufacturing firm whose plants run on a less than full schedule because of an economic downturn.
Part-time work is sometimes a matter of choice, sometimes a matter of necessity. Many women with families, especially mothers of small children, choose to work part-time to augment family income. Some of these women would prefer to work full-time, but they must divide their day’s responsibilities between workplace and home. There are other individuals, men and women, who would prefer to work full-time but cannot find such employment–again, probably because of unfavorable economic conditions. During good economic times a significant percentage of the labor force will add to their incomes by taking a second, part-time, job. This is usually called moonlighting, because such jobs have traditionally been evening part-time work after a full day at another job. Schoolteachers and police officers are among the types of workers who often moonlight.
Causes of Unemployment
There are three primary causes of unemployment: changes in the structure of economies, wage differentials, and government policies. Structural changes in economies will persist as long as there are economies. New technologies and diversity in innovation are among the factors leading to such alterations. International wage differences may make companies in high-wage countries noncompetitive. Government policies have existed as long as there have been national economies. Government policies are usually attempts to promote improved economic conditions, but they do not always have the intended effect.
The following factors are responsible for causing unemployment in any country:
Largely because of organized labor, wages in Europe, North America, and Japan are quite high compared to wages in China, Indonesia, Taiwan, and Mexico. Yet the differences in products put on the market are minimal. Companies with global markets find they cannot compete with companies whose manufacturing is done in low-wage countries. The solution in the United States has been to shift manufacturing facilities overseas or across the border to Mexico. This helps the competitive position of companies but puts workers in the high-wage nation on the unemployment line. Employment rises, of course, in those nations that received the new facilities.
Structural changes to an economy are jarring, but they mean that the economy is adjusting to new conditions. When the adjustment has been made, the economy will run smoothly again. Government intervention in the economy is designed to soften the blows of change. Government intervention is also often designed to undo the problems caused by earlier failed policies. In both cases, relatively high levels of unemployment often result. Many economists argue that some of the policies that promote or prolong unemployment are welfare payments, unemployment compensation, the minimum wage, tax legislation, and trade regulation.
Welfare payments were designed to counter the problem of poverty. However, unemployment necessarily increases when money in the form of taxes is taken from the employed and transferred to a segment of the population that does not work. Welfare payments may also create disincentives to work. To counter the many criticisms of welfare, elected officials have implemented workfare programs, making the recipients of welfare do some work for the money they are given.
While not entirely a welfare program, it can also prolong unemployment. This has long been true in Europe, where payments to those out of work may have no time limit, or a very extended one. In the United States there has been a limit of 26 weeks. During the recession of 1990-92, however, Congress voted to extend the payment period, thus setting a precedent for future lengthy benefit periods.
Wages are set by law at a fixed level. This has proved one of the most harmful economic policies adopted by governments, because it can affect unskilled workers negatively. If an individual new to the labor force is willing to work for three dollars an hour but the government mandates four dollars, a company may be reluctant to hire the person. Companies have labor costs, and they will spend their money where it will do the most good. A minimum wage draws a line between the skilled and the unskilled. If a company is forced by law to pay higher wages to the unskilled, its costs rise. This being the case, it will no longer be interested in hiring truly unskilled workers. It will seek out better-qualified employees at the higher wage. Although minimum wage laws are strongly endorsed by labor unions, the laws have no direct effect on union wages, which are always much higher. But the minimum wage policy succeeds in keeping the poorly schooled and unskilled out of the labor market and therefore out of competition for jobs held by union workers
In 1990 the United States Congress passed a new tax law that, among other things, imposed a luxury tax on yachts. The effect of this provision, within a year, was the loss of about 19,000 jobs in the boatbuilding business. All tax policies have a direct bearing on business operations, usually by raising costs, potentially forcing layoffs. The controversial capital-gains tax raises the cost of capital formation by taxing returns on investment at high levels. Without capital investment no new jobs are created, and old ones may be lost. In Japan the capital gains tax is 5 percent; in the United States it was 28 percent in 1992. Taxes on savings
also hinder investment, because individual savings provide the funds financial institutions use for lending.
There is usually a very close connection between jobs and trade policy. Protectionist legislation, whether through tariffs or import quotas, raises prices of imported goods. If those goods are raw materials or finished products needed by American companies, the ability of those companies to produce competitively is diminished. By seeking to protect one industry, legislation inadvertently damages other industries and their employees. For example, government protection of the sugar industry in the United States forces industrial customers–such as candymakers–to pay prices many times higher than the world level. This lowers competitiveness and contributes to unemployment. Extreme protectionist legislation, such as that adopted early in the 1930s, stifles international trade and leads to massive unemployment.
Full Employment Policy
The United States Congress, in passing the Employment Act of 1946, committed the federal government to policies designed to achieve full employment. This was in accordance with the economic theories John Maynard Keynes developed in his `General Theory of Employment, Interest and Money ‘ (1936). Keynes insisted that government could, by manipulating the money supply and spending policies, achieve a stable level of employment.
The Keynesian recommendations have proved to be flawed. Only by injecting large amounts of money into the economy can government induce employment. This works for a time, but it causes inflation. Eventually the inflation will bring on a recession and high unemployment, as the economy tries to squeeze out the distortions caused by government spending. By contrast, an economy freed from excessive government intervention will normally have a high and stable level of employment.
Unemployment in Pakistan
After over fifty years, the economy is in such a worsening state which the country never experienced before. It is obvious from the fact that the biggest portion of the budget today goes towards the payments of foreign debts. Little is left for education, health and development. This has taken a serious toll on the employment opportunities in the country where finding a job at all levels is becoming harder by each passing day due to frequent lay-offs in the public sector in particular and private sector in general.
There are many seekers but few jobs. In a society where ‘who you know’ has replaced ‘what you know’ as the major criteria for jobs, chances of employment are bleak due to massive downsizing in the public sector. Tens of thousands of graduates leaving the universities every year are finding it harder to find a suitable employment.
Not only it is hard to find a job but the high level of unemployment has also hurt those already employed in a distinct way. With the abundance of workers the employers have leverage to hire and fire at will, play loose with the benefits and offer lower salaries and those who are not satisfied with the working conditions are always welcome to leave. Of course, there are thousands who are willing to fill the space at whatever the salary may be.
Unemployment undermines the economic and social stability of any society. Societies which fail to provide gainful and secure employment to their people invite political instability, social unrest and economic insecurity. The link between unemployment and crime has also been well established.
Employment is also directly related to all industrial and trade activities. These activities slow down when there is a high level of unemployment but increases when it is low. In an inter-dependent world the unemployment issue has taken a global perspective. This is evident from the following example: The average annual rate of growth in global exports was 6.6 per cent during 1965-80. It declined to 4.1 per cent between 1980-91. While the developed world enjoyed the biggest share of the global exports, the slow-down not only affected it but also the developing countries, as declining industrial activities in the former decreased the prices of primary commodities in the latter. In addition, many of the developed countries became more protectionist raising new protective barriers against imports, particularly the competitive products, from the developing countries to further worsen an already bad situation. The situation has worsened with the eroding of trade borders and supersonic speed of communications and transfer of money today.
The socio-economic fall out of the high unemployment rate in Pakistan is evident from the drastic increase in the crime wave. Today robberies, dacoities and kidnapping for ransom have become a fearsome fixture of life in the country. The resultant lack of civil peace and the rule of the law undermines the very basis of all industrial, economic and trade activities in the country. The case for sustainable development for employment can hardly be argued more forcefully.
Economic policy plays a vital role to help keep the unemployment rate under check. According to a UN report, the East Asian economies in the 1980s avoided stagnation and unemployment did so because they got their domestic policies right by prudent borrowing, creative use of foreign exchange rates, promotion of exports, protection of food growers and restraint of nominal wages. All these measures have combined to keep the growth of employment in step with overall economic growth. Can we learn a thing or two from this?
The theme of The First United Nations Decade for the Eradication of Poverty (1997-2006) was “Eradicating poverty is an ethical, social, political and economic imperative of humankind.” UN Secretary General Kofi Annan delivering his message on the International Day for the Eradication of Poverty observed on October 17, 1997 that “some individuals today are enjoying wealth on a scale previously unimagined. Yet victims of poverty still endure intolerable forms of deprivation. They continue to be marginalized and excluded.”
He also said that though overall, the relative incidence of poverty declined, yet the number of world’s poor has risen considerably as almost one quarter of world’s population still lives in a state of poverty. For instance, he added, the number of people with incomes less than $ 1 a day increased by almost 100 million between 1987 and 1993 and 1.3 million people, one-third of world population, live with an earning of less than $ 1 a day.
One of the primary aims of any government should be the elimination of unemployment. Although achieving zero level unemployment is not only ‘highly impossible’ but also undesirable at various levels to check the inflationary trend. It is imperative that all governmental policies need to be directed towards achieving this goal. Identifying the problem is the first step towards successfully solving it. However, a look at officially compiled statistics shows that unemployment level in Pakistan is much higher than that portrayed by the government.
This is primarily due to the criteria used for the measurements of labour force, employment and unemployment. Population census and periodic Labour Force Surveys are the major sources of data on labour supply, employment and unemployment in Pakistan. In addition, agricultural census also provides information on employment in the agriculture sector, the biggest employer of labour force, over 44 per cent or 15.98 million people in 1999.
Many changes have been made to define the meaning of labour force and employment in Pakistan— The Population Census of 1951 defined the labour force as all persons of 12 years and above were self-supporting, partially self-supporting or seeking work. In 1961, its definition was changed to include all those of ten years and above who were working for profit or wages or helping their family members. Not only the change lowered the age but it also included the unpaid family members in the employed.
Today, Labour Surveys define employment as “all persons of ten years of age and above who worked at least one hour during the reference period [the year] and were either ‘paid employees’ or ‘self employed.” Based on this definition, the total number of employed labour force in 1999 is estimated at 36.2 million.
The basis for the measurement of Labour Force and Employment; all persons of ten years of age and above in the first case and a minimum work of just one hour during the year in the second, tempts to under-estimate the level of unemployment in the country.
For instance, based on a population of 134.5 million today and a participation rate of 28.7 per cent, the total labour force in Pakistan comes to 38.6 million of which 36.2 million were employed. This also shows that only 2.4 million persons were unemployed in the country which reflected an affordable unemployment rate of 6.1 per cent. In fact, unemployment is a much more serious problem than the official statistics show.
This also poses another relevant and worrying question. If the unemployment rate of 6.1 per cent is correct, the employment rate is an ideal 93.9 per cent. Those who know Pakistan, and there are many, find this highly unpalatable.
Unemployment in Pakistan today is prevalent at all levels. It does not spare the highly qualified professionals any more be they doctors, engineers and MBAs. It hurts the illiterates, non-skilled, skilled, educated and professionals alike. However, it hurts the first two disadvantaged classes more than the others.
While the weekend editions of major national dailies appear to be full of ‘help-wanted’ advertisements they only tend to give a wrong picture of the unemployment situation. Firstly, the majority of jobs advertised are aimed at the highly qualified professionals whose share in the total employment is just 3.6 per cent. There are little or no vacancies advertised for the two biggest occupational groups— skilled agricultural and fishery workers whose share is 36.8 per cent and the elementary or unskilled workers whose share is 22.9 per cent.
An Overview of the Situation of Pakistan
The Social strategy sector has been the most neglected in the development strategy of Pakistan. As a result, few countries in the world show as great a gap between economic growth and social and human development as does Pakistan.
A research report on Social and Human Development in South Asia compiled by an UN Agency concludes that South Asia is the poorest region in the world, and that Pakistan is the poorest in this region. The report released by the Human Development Centre in April last, says that South Asia has emerged by now as the poorest, the most illiterate, the most malnourished and the least gender-sensitive region in the world. The governments of South Asia have made very little investment in providing the basic social services of education and health to their 1.2 billion people. The region is ill-prepared to enter the global competition of the 21st century. This is the blunt truth which is not yet being faced by the policy makers of the South Asia region nor adequately recognised by members of the international community.
Making the shocking disclosure that Pakistan ranks at the bottom of South Asian countries in social and human development sector, the report points out.
Nearly two-thirds of Pakistan’s adults are illiterates. Combined enrolment of children is only 37 per cent (55 per cent in India and 66 per cent in Sri Lanka) so that future generations are also being lost. Health facilities are woefully inadequate: 60 million people lack access to health facilities, 67 million to potable water and 89 million to elementary sanitation facilities.
The annual population growth rate of over 3 per cent is one of the highest in the world. It is estimated that Pakistan will emerge as the third most populous country in the world by the middle of the next century, with a total population of 380 million at that time putting enormous strain on country’s resources and social services.
Although the per capita food production has increased by 18 per cent in the last decade, over 700,000 children die each year and half of these deaths are related to malnutrition. This is a sad commentary on the poor distribution of income and food.
Despite having an elected woman prime minister twice during the last eight years, Pakistan has one of the lowest ratios of females in parliament (less than 3 per cent) and the lowest ratio of economically active women (only 16 females against 100 males) in the South Asia region.
Widespread regional disparities make the situation look much worse in some regions: for example, adult literacy rate which ranges from to only 17 per cent in rural Balochistan to 52 per cent in Urban Sindh.
The report points out that Pakistan’s real income per capita is 75 per cent higher than India’s, but India outstrips Pakistan in most social indicators. In fact, Pakistan has experienced the highest rate of increase in GNP per capita (231 per cent) among South Asian countries from 1970 to 1993. Pakistan’s per capita income is now comparable to Sri Lanka’s. But there is hardly any comparison between the human development indicators in the two countries. Pakistan’s literacy rate is 36 per cent, compared to 90 per cent in Sri Lanka. Pakistan ranks lower than Sri Lanka on UNDP’s annual Human Development Index. Obviously, the distribution of Pakistan’s income gains has been extremely uneven and the majority of the people have hardly benefited from its good growth record in the past.
There are no two opinions on the importance of investing in human development and making it a priority of development planning in Pakistan. There is a national consensus on the need to focus on provision of basic social services that got scant attention in the past 50 years. This historic neglect has resulted in Pakistan’s lagging basic social indicators, often lower than those countries with 30 to 50 per cent less per capita income than ours.
According to Dr. Mehboob-ul-Haq the causes of the present disturbing situation and the apparent divorce between economic growth and social and human development in Pakistan were:” a very skewed income distribution; the absence of any meaningful land reforms; non-existence of income tax on agricultural incomes; an overwhelming dependence of the fiscal policy on indirect rather than direct taxes; the heavy burden of defence expenditure and debt-servicing on limited budgetary resources; political domination by a rentier class that preempts the patronage of the state in its own favour; and a very corrupt ruling elite.”
Various development plans, in fact, neglected this most important sector and the emphasis was only on lip service and Publicity gimmics rather then any substantial work. Even the 9th Five Year Plan failed to take into consideration the magnitude of the social welfare requirements that remained untouched despite frequent pronouncements made by the government. Even the much-publicized Social Action Programme failed to extend the outreach of its coverage to the most vulnerable, including women, children and the infirm. The SAP has merely skimmed the surface in meeting the needs of the disadvantaged, primarily due to its weak conceptual framework which stressed on publicity rather than substance and was unsuccessful in reaching the rural communities or in involving them in programmes for their own betterment at the grassroots level.
It is time that the Planning Commission re-introduced the missing social welfare sector in the economy. Programmes that actually impact on the day-to-day life of the people must receive the highest priority. The welfare of the deprived and discriminated segments of society must be the focus of attention. The effort should be to attend to all factors retarding the people’s development. Our best hope is that, notwithstanding the economic crunch and pressures of the Brettonwoods institutions, the Planning Commission would heed the sufferings of the people and strengthen the social welfare component of the ninth plan.
In a country like Pakistan, where less than 1.4 per cent of the children, enrolled in primary school, manage to reach universities and professional colleges, the increased demand for professionals in the job market could hardly make any difference for the majority which drops out at all levels of the academic progress.
The sharp decline in the household income shares of the lowest and the middle income groups can be attributed to unemployment and under-employment. Therefore the solutions lie in the following:
Demand and Supply
In a perfect economic scenario it would be lovely if the supply of labour matches the demand for jobs. Unfortunately, this could only be an utopian situation. Pakistan’s current employment situation is a nightmare and is feared likely to grow into a problem of more immense proportions unless concrete measures are taken immediately.
With the increasing number of educated people entering the work force every year and the ongoing retrenchment which will continue in future the supply is feared to surpass the demand. The challenge for the government is to try to match this supply with demand.
Most new jobs are created through self-employment and the informal sector. This is true for Pakistan where the government has initiated loans of Rs 10,000 to Rs 500,000 for individuals for small businesses and loans of Rs 500,000 to Rs 5 million for small industries. Till March 27 this year, Rs 5.5 billion loans were sanctioned and Rs 3.9 million was disbursed through the participating nationalized banks under the self-employment scheme.
The government has also established Small and Medium Enterprises Development Authority (SMEDA) to create jobs and facilitate business expansion. The Authority serves as the key institution in designing training programmes for entrepreneurs and organizing workshops and seminars on various topics.
The Prime Minister has announced a public transport scheme under which vehicles would be provided to unemployed persons on easy installments. A repeat of the Yellow Cab Scheme, introduced by the Nawaz Sharif government in its first tenure in the early nineties. The current scheme envisages to provide some 5,000 taxis, 2,000 pickups, 1,000 trucks and buses, 5,000 auto rickshaws and 25,000 two-wheelers. The scheme is expected to provide not only self-employment opportunities to thousands of people but many more indirect jobs in the auto repair and maintenance markets.
But besides creating new job opportunities it is also imperative to rights of the persons who are already employed. Job creation depends on a rapid economic growth which in turn is dependent on good macro-economic management, bureaucratic flexibility and institutional corruption. Good governance and the rule of law are also the two basic domestic basis for the economic growth.
In an inter-dependent world the importance of domestic policies make all the difference to keep the unemployment level in check. A stable and non-inflationary currency plus a high rate of savings and investment are some of the conditions necessary for the sustainable growth needed to create jobs. But this is not all, an effective law and order and an efficient civil administration are also the necessary prerequisites for the economic growth and progress.
Education and Training
The most important contribution that the national governments can make to economic growth and an efficient labour market is education and training. According to the UNDP report there is overwhelming evidence that the best investment countries can make, is the basic education.
The fact that the retrenchment displaced thousands, the majority of whom were not equipped to take up the new activities, and with fewer new job opportunities many of which are less well paid, less secure and of lower quality also pose many challenges for the government in Pakistan. However, while many public sector enterprises were forced to cut their work force the government can still ease the situation by focusing its attention on the transfer of employment from declining to growing sectors.
It is important that the opportunities to increase employment in declining sectors should not be forgotten. For instance, Pakistan has the biggest canal network in the world. While the agriculture sector still remains the biggest employer in the country the project to clean the canals to facilitate smooth flow of water to the end users is a must to increase productivity in agriculture as over 60 per cent of exports pertain to a single commodity— cotton. Investment in irrigation can create new jobs in the labour intensive sector of the country.
Tens of thousands of employees in the private sector have lost their jobs during the last couple of years including over 20,000 in nationalized banks and state-run non-banking financial institutions; Pakistan International Airlines, Steel Mills, Karachi Port Trust, Karachi Water and Sewerage Board, Railways, and many government ministries and departments.
Did the golden handshake scheme, encouraging the public servants to take early retirement for a financial package, work? For few in the executive positions whose financial benefits were bigger, choose to invest their moneys in one of many fixed deposit schemes to earn a fixed interest. For most in the lower income groups, the small sums received have long been spent to meet the needs of a particular occasion. Many, both in the high and low grades, are seen hectically searching for a suitable job. Needless to say, those in the lower strata in the semi-skilled and non-skilled grades are the worst sufferers in a job-deficient economy.
All this demands an immediate and affective action by the government.
As global trade in services have grown much faster it is imperative that government should devise policies which encourage and promote relative education in the particular field.
Persistence of unemployment amid poverty is not unusual but it takes a high toll on the economic growth and progress of the country. The relevant question is— Whether governments still have the capacity to influence employment? John Langmore, director of the Division for Social Policy and Development of the Department for Policy Coordination and Sustainable Development at the UN Headquarters, replied in affirmative during a press conference in February 1997. He said, “Even though national autonomy is reduced by globalization, there is still a high level of scope for independent action by governments. If governments acted in cooperation, the scope of that action would increase.”
He said that one of the problems that had led to the growth of unemployment in the last few years had been corporate downsizing, mainly in large companies. There had, however, also been a fashion for downsizing which had led to more retrenchment that might have been judged to be desirable. The experts now argue that increasing the turnover and profits required not downsizing, but strengthening the innovative capacity and dynamism of enterprise, he added.
A paper, The Employment Challenge, prepared for the UNDP’s roundtable conference in 1994, said that “With the conclusion of the Uruguay Round of bargaining in the GATT, the conditions have been established for worldwide freer trade in goods and services. International cooperation is more than ever necessary if full advantage is to be taken of this opportunity to put more people to work.”
It is imperative that the government should come up with policies which address the issue of unemployment in the country based on the global realities as only a faster growth in an interdependent world economy can help put the jobless to work. While many measures have been taken by the government to provide jobs to the people thousands still face retrenchment not only in public sector but also in the corporate sector.
It is imperative to provide basic education to the young and retraining to the adults to increase and upgrade employment. They should also be supported by increased and better technical assistance, particularly the transfer of education technology.
An obvious way of reducing these evils is to formulate a systematic development plan for public investment as an integrated whole. In order to do this, it is necessary to begin by making a careful estimate of the total amount and time pattern of the financial resources that the government expects to receive during the plan period from domestic sources and from external loans and aid. Next, it is necessary to make realistic estimates of the costs and benefits of the alternative investment projects within the public sector as a whole so as to select the most productive combination of projects, taking into account significant complementary relationships between the different projects. In selecting the best combination of projects to be included in the plan, it is necessary to pay special attention to the time pattern of costs and benefits. A poor country, with limited sources of government revenue, would have to discount future benefits heavily relative to the more immediate benefits and would have to give priority to the type of project with quicker returns in the form of expansion in output and tax yields over the type of project that may promise higher rates of return, but only in the more distant future.