COST OF LIVING SQUEEZING OUT THE MIDDLE CLASS
Making the rich richer and the poor poorer
By DR. MIRZA ARSHAD ALI BEG
Feb 10 - 16, 1996
Development strategies in Pakistan have unfortunately failed to ensure the flow of benefits to all sections of the population. They have contrarily made the rich richer and the poor poorer. Furthermore, while making the poor poorer, they have taken toll of a large segment of the second lowest 20 per cent (quintile) and a fair share of the third quintile. These two strata of the society form the lower middle class, which on having been made poorer, have been squeezed out and are being forced into the ring of poverty.
The process of inequitable distribution of benefits has disadvantaged the fixed income or the salaried class comprising the lower middle class forming the two quintiles from the bottom, more than the others. This class has had to part with a substantial portion of its meagre earnings due to the cost spiral in order to maintain its lifestyle.
In contrast with the poor, the lower middle class does not go on the street for begging, or doing menial jobs. It certainly has a large family and the head of the family does encourage his wife and children to earn a little to contribute to the income of the family. Alternatively, it has entered into corrupt practices to earn a little more. The recent changes in tax structures, devaluation of the rupee and increase in prices have affected a much larger section of population and forced many persons to think of alternatives since the price spiral that has been set into motion is least likely to be brought under control.
The inequitable distribution of income has interestingly been attributed to population pressure, although increase in population has no meaning for the poor and the lower middle class. The family head expects to get more income with a larger family than with a small one. He can, if he sends one of his sons as child labour, be assured of a net fixed income. This would be denied to him if he has a small family. The cost of living has gone up so much beyond comprehension that even good arguments cannot face reality. Child labour is thus legitimised by the high cost of living and inequitable distribution of income.
The government has no institution to cater to the needs of the lower middle class whose survival is at stake. It constitutes the vote bank and is very important for the slogan mongering. The poor can start begging, and may earn more than a white collar urbanite. He can become a construction worker and earn Rs. 100 to 125 per day in Karachi but the white collar brother in the lower income bracket can not do so and he continues to look for opportunities in an office. The office jobs are not in plenty and the imposition of ban on fresh employment has discouraged the youth from hoping to get a better lifestyle for his family and therefore he is looking for an opportunity to go abroad. The rise in cost of living has thus forced a change in the traditional society.
The income of the top 20 per cent households had a share of 49 per cent in 1990-91 while the next three quintiles which constitute the middle class, had a share of 45 per cent and the poor 20 per cent had 5.7 per cent of the share. The second quintile from the top has had access to the facilities, perks and fringe benefits and hence has enjoyed the benefits more than the rest. A large number of the members of this group can easily be seen to be living beyond their means. The higher increments and promotions offered to such actors are crumbs that increase the share of the unearned income of this group. Since dishonesty is only lamented and remains unpunished in this country, a fair share of the household income is taken away by the corrupt practices and unfortunately it remains unarrested.
Corruption can easily be seen to be transferring the household income into the top two quintiles and a redistribution of the income of the lower strata owing to inflationary pressure. This has inflated the share of the former by 5 to 10 per cent and deflated that of the lower quintiles proportionately. Accordingly the top most quintile is presently estimated to have a share of 51 per cent, followed by the second with a share of 27 per cent which is 60 per cent of the one for the middle class viz. 45 per cent, leaving only 18 per cent to be shared by the remaining two quintiles i.e. the third and fourth quintiles or the lower middle class. The third quintile, according to these estimates, may have a share of 10 per cent while the fourth quintile has almost succumbed to inflationary pressure and may have a share of 8 per cent, leaving only 4 per cent for the lowest quintile.
These estimates are supported by the recent Report on Poverty released by the IBRD. The Report suggests that in Pakistan there are some 39 million people living below the poverty line i.e. they have an income of less than Rs. 3,500 per year. It is quite apparent that the poverty line has now become so extensive as to include those who were trying to make an attempt at better living for themselves. It is the gradual loss of status of the members of the various quintiles that is pinching the society.
The process of rise in prices of all commodities, on the one hand and the fixed income of the salaried class and the fixed-for-lifetime income of the pensioners on the other hand, are in sharp contrast with each other. It is hard to imagine as to how the said class of people can still manage a living. The lower middle class has to spend on its food, clothing and other needs of living, on educating its children, getting them married, besides paying taxes. Yet, it is this lower middle class which is fleeced by the government by raising the cost of living in the routine as well as through mini-budgets, and in return giving them a very nominal increase in pay for bare survival. Just imagine that the cost of commodities has gone up by a factor of 30 to 100 during the last 40 years but the pay has increased only by a factor of 10 to 15. This is the class that is politically and economically exploited and there is no assurance that its fate will improve.
Slow economic growth
The economic growth in the country is slow owing largely to its strong linkage with the agriculture sector and a weak industrial base. The former does not promise any amelioration in rural poverty, while the latter does not offer any hope for self-reliance nor of massive employment opportunities. The helplessness of the situation can be judged from the statement of the President of Pakistan who was advising the government in November 1995 to find and introduce a workable economic system to ensure economic justice to growers, ginners, textile industry and exporters. He was, while addressing a Convention on Cotton, asking the growers and ginners not to indulge in malpractices, dishonesty and cheating in the marketing of the cotton produce, or mixing by growers. The malpractices identified by the President are those that raise the cost of production. If they persist, the cost spiral will remain in motion. What is painful about the escalating cost is that it has to be borne by none but the taxpayers, the most faithful among them being the salaried class.
The current rate of growth of economy is low in spite of the best efforts of the government which is handicapped by factors such as inflation. This is a disincentive because the cost of credit has to be kept high during inflationary pressures. A vicious circle that ensues, keeps the growth rate down and puts pressure on prices. The government has been trying to widen the tax net but has not effected meaningful cuts in its own expenditure. The current inflationary rates are estimated to be in the 18 to 20 per cent range in terms of wholesale prices and 13 to 15 per cent in terms of consumer prices indices.
The lack of effective measures to contain the inflationary pressure has allowed the downward multiplier to continue and to remain operative. It has thus adversely affected the living conditions of the lower middle class. This is responsible for perpetuating impoverishment in the lower strata of the population in Pakistan.
Crisis after crisis has been thrust on the impoverished lower middle class of the country. The present and the latest economic crisis has been brought about largely by mismanagement of resources. The devaluation of the rupee, accompanied simultaneously by an equal amount of increase in the prices of petroleum products and imposition of 10 per cent regulatory duty on certain imports, has given rise to escalation of prices and rise in the SPI index by 13 per cent compared with last year. It has impacted the Stock Market and has brought down the KSE 100 share index to a record low and reduced the average value of the shares by 40 per cent.
The economic crises have gradually eroded the benefits of development in the urban as well as rural areas. Their impact is worse in the urban areas where plenty of material is seen moving around but is not within the affordable range of the common man. It is of lower order and not felt so much in the rural areas since the development processes there are neither aimed at uniformity nor at uniform distribution among the poor who form the main stratum of the rural society.
There has been no attempt at removing the disparity caused by the inefficient distribution of the benefits of growth in the diverse sectors of the economy. The various strata of the society have themselves taken the lead in upgrading their status, some by resorting to fair and others to unfair means. Those who adopted fair means were the ones who migrated abroad and while remaining in a sort of self-exile, remitted a handsome portion of their salary to their dependents. Those who resorted to unfair means got themselves engaged in smuggling, narcotics trade and illegal practices, taking advantage of the prevailing corruption in the country. But the forces, positive as well as negative, are responsible for the distortion of the income distribution pattern in the society. A section of the poor in the former category and the middle class in the latter did benefit from these efforts which were made by such people themselves and were not in any way helped by the government agencies.
The urban poor had, by migrating to the affluent economies tried to short-circuit the ring of poverty and had at that time taken the lead to upgrade their status. They did benefit their families who acquired a better status in a very short period of time. The lead taken by these urbanites, being disorganised, was short lived and was taken over by the exploiters who set up overseas employment agencies. The income distribution system again turned inequitable.
Cost escalation and the landlord
The inequitable income distribution system in the rural areas, due mainly to the economic conditions, relates mainly to the attitude of landlords and their kins towards the class of people who are born in poverty and have been almost sold to poverty. Adverse economic conditions created by the crises mentioned above, have put the poor to further disadvantages due to neglect, and poverty remains their fate. The villages are, in any case, the victims of neglect, one of the reasons being the strong orientation of the system towards the feudal lords who govern the distribution of resources. The crises may be to their benefit and they often take advantage of them. In case of disasters, for example, the aid has to flow through them and they need not distribute it to the needy.
Their grip, thanks to the politicised bureaucracy, is equally firm on the urban dwellers since they have been helped by the latter to become industrialists, financiers, or heads of service organisations. The feudal lords have no sympathies with the upgradation of the living conditions or with the equitable distribution of resources. The price spiral is to their advantage since it only helps them in squeezing out the lower middle class which, if it survives, poses a threat to their pride.
Contrary to the essence of the theme of equitable distribution, the feudal lords have no sense of sharing the resources with their under-privileged brethren. They are the ones nominated by the parties contesting elections, to represent their constituencies. They use "Equitable Distribution" as a slogan and never take it seriously, otherwise the poor would not have remained poor nor the farmer a subsistence farmer complaining, just to name one, of the shortage of water. The landlord would not have taken the lion's share and the tiller may have received the return for his hard work.
Even the institutional systems meant for the rural areas, if developed there are strongly biased towards those for whom the scheme is not originally designed. The Zakat money, for example, is very inappropriately distributed, if it comes in the purview of the influential to distribute. The net result is that poverty remains perpetrated on the poor and their likely income from the institutional framework is siphoned off by the rich.
The small and marginal farmers, similarly do not get the benefits of the credit schemes developed for them. Agricultural credit was introduced to help the subsistence farmers but the benefit is enjoyed by land owners having a plot size of 5 hectares and over. Those who are landless receive 14 per cent of the credit, those possessing upto 5 hectares receive 12.5 per cent, those with 5 to 20 hectares get 40 per cent owners with 20 to 40 hectares receive 22 per cent, with those with more than 40 hectares get 8 per cent. The poor farmers remain poor in spite of the good intentions of the schemes. The rise in cost, however, takes away the benefits, if at all they reach them.
The urban as well as rural population is suffering from the scare of terrorism let loose by the Agencies that be. In a sense the latter are undergoing much more torture than the urbanites. They continue to be looted by dacoits, fleeced by traders, exploited by the waderas, and denied the basic human rights by the planners. The labour rate in Karachi has shot up to Rs. 100 and 125 per day these days but in the villages, it is either for free because he has to work for the landlord or it is Rs. 50. Prosperity for the poor or the upcoming middle class in the rural areas continues to be denied and equitable distribution of resources remains a far cry. The inflationary pressure is only adding to the misery of this section of population since with the existing attitude of the exploiters, it is easy to see that they would pass on the ills to the lower sections and benefit from their woes.
The people in the far flung rural areas are in greater economic stress due to the indifferent attitude of the officials and callous attitude of the traders who are fleecing the masses by charging them inflated prices of consumer goods and creating artificial shortages of everything.
Creation of deliberate shortages is one of the characteristic features of the marketing system in Pakistan. This menace instead of being contained, has become extensive. It has reached the agriculture sector which is faced with the shortage of fertilisers. Agriculture, the mainstay of Pakistan, is now the hotbed of political manoeuvring and opportunity mongering.
The result of shortage of fertiliser is likely to spell disaster for the growth of wheat and cotton, the two main crops. This is the season for the green vegetables, rape seed and other oil seeds. The sugarcane production will also be hit hard and the sucrose content will be lower. This may lead to reduction in the production of sugar next year. It must be mentioned here that politicising of artificial shortages is mainly responsible for cost escalation which is paid for neither by the poor nor by the rich but by the lower middle class throughout the country.
Equitable distribution of resources
Conducive environment for equitable distribution of resources cannot be created by making statements in he press. The leaders are themselves landlords. They cannot let the uplift schemes benefit the poor since that will entitle them to demand a share from the exclusive quota that they and their children are enjoying. It is to the benefit of the exploiting landlords/leaders that cost escalation crushes the poor and poverty persists in their area or else they would lose their grip on cheap labour. Equitable distribution of resources is therefore not likely to be encouraged.
The family in the rural areas can be saved from the adverse impact of cost escalation if it is assured of fixed income either from agriculture or from some craft or trade. It must be mentioned that the poor farm worker can not look for employment in the city because of his indebtedness to his kins and the money lender or his employer who has advanced some money for his bare survival. This is where creation of a network of agro-based industries has worked wonders in some developing countries and the models need to be adopted here.
The poor and the middle class in the urban area particularly Karachi have succumbed to the inflationary pressure. It is against this painful scenario that the government will have to mobilise the resources so that cash flows into the impoverished environment
The inflationary pressure has distorted the income distribution pattern of the society. It has disproportionately impacted the purchasing power of the third and fourth quintile i.e. the real middle class. The impact of the distortion is heavy on this class and has resulted in their being squeezed out down into the lower stratum. It has, for quite some time, been discouraging them from savings and has adversely affected their decision at making investments. The crashes that have occurred at the Stock Market has discouraged them further from making any investment.
The Consumer Price Index CPI is an approximate measure for estimating the cost of living. The CPI calculates the per cent change in the prices of selected commodities at selected places. The monthly rise in the per cent changes has been of the order of over 1 per cent from 1989 onwards i.e. the onset of the Democracy syndrome.