The Man Who wanted Development, Beyond GPD!
Pakistani Economist Mahbub Ul Haq (1934 – 1998) is generally credited for leading efforts to create the human development index (HDI) of the UN’s Development Program, published annually since 1990 as part of the human development reports (HDRs). It was the first attempt to measure progress in terms other than economic (GDP) growth or per capita. The HDI combines country’s GDP with two basic dimensions of human life: education, as seen from adult literacy and school-enrolment data, and health, based on life expectancy statistics. In these efforts, he collaborated with Amartya Sen and used concepts of his capabilities theory of development. The two geniuses were friends since their Cambridge University student days. The subject of development kept them in close contact until Haq died in 1998. Both were sceptics of the popular use of GDP as a measure of national progress.
In last five years, we have seen the Sen-Bhagwati debate in India which many people erroneously see as development-vs-growth debate. If Professor Sen wants the government to focus more on development programs, Professor Bhagwati first wants to spur economic growth and then spend money on people development. Interestingly, Sen finds support from the left leaning people, perhaps because he advocates capacity building of people and Bhagwati gets favor from the followers of the capitalist textbooks. The pragmatic ideas of Mahbub Ul Haq become relevant here as a healthy bridge between the illusory Sen-Bhagwati divide!
Haq served as the World Bank’s Director of Policy Planning from 1970 to 1982 and left his marks in the Bank’s developmental policies. He next served as Pakistan’s Finance Minister from 1982 – 1988 when he launched several poverty alleviation programs and deregulated the economy and brought tax reforms. Then he became Special Advisor to the UNDP from 1989 to 1996 when he quit to establish the Human Development Centre in Islamabad. After his death in July 1998, it was renamed as the Mahbub ul Haq Human Development Centre and the UNDP instituted an Award for Outstanding Contribution to Human Development in his honor.
World’s most Poor Live in India
If latest official poverty line of Rangarajan Committee estimates 29.5% poverty; it was 22% until May 2014 using Tendulkar’s methodology. So, you can always change the number of poor – it is a great number game! The multidimensional poverty analysis finds that about 54% (650 million) of India’s population lives in poverty – being deprived of at least 33% of its 10 indicators. 16% (190 million) people are vulnerable to poverty. Taken together, 70% Indians are either poor or in close range. Among the poor 29% are in severe poverty. Talking in numbers, they imply 363 million to 650 million poor Indians. These are huge numbers by any standard and go well beyond the US population of around 320 million.
If we talk in terms of World Bank’s poverty lines, on the $1.25-a-day benchmark 42% people are poor and the $2-a-day makes 76% Indians poor. Summing up, leaving aside top 25 – 30% or around 300 – 360 million people rest of the Indians don’t have any respectful living standard.
If poverty has persisted even after six decades of sovereign rule there is only one conclusion. We have been fooling ourselves with the symptoms of poverty rather than attacking its root cause. When poverty is seen through the lens of some expert created monetary poverty line as we have been doing all these years, and as the World Bank also does with its $1.25-a-day threshold for extreme poverty, then the only obvious solution remains is to concentrate on economic growth. This is also the standard prescription given by the global money lenders.
However, by now we all know that such monetary approach to poverty is grossly inadequate. The moment we put on the goggles of income poverty the policymaking heads in the wrong direction. We get busy applying band-aids on the symptoms. This is what we have been doing for all these decades.
The more accurate way is to look at poverty of opportunity, not poverty of income. Income poverty is the result; poverty of opportunity is the real cause. Poverty of opportunity is a multi-dimensional concept embracing lack of education and health, lack of economic assets, social exclusion and political marginalization. It is only through a full understanding of the poverty of opportunity that we can begin to understand why people remain stuck in poverty.
Our concepts, measures and analyses must deal with poverty of opportunity. This means taking a multidimensional view of poverty as a situation of several deprivations, often one feeding another. This has been adopted in the multidimensional poverty index (MPI) which is a wonderful tool to uncover things the poor are actually deprived of, and what to do to change their situation. This tells that development should necessarily be a multidimensional process designed to remove hurdle that reduce people’s capabilities, particularly the basic capabilities needed for survival.
It is time to say goodbye to single-dimensional income (or consumption) measure of poverty, forever.
Poverty is a Cancer, Not Flu!
We can’t go on blissfully with a model of development that produces persistent poverty and hope that we can take care of it downstream through welfare programs or poverty reduction schemes. Poverty cannot be treated as a mere flu; it is more like cancer.
If the poor (people) lack critical assets (say land or housing), if they lack credit because banks and other lenders don’t consider them credit worthy, or if they are socially excluded and politically marginalized then a few State programs can’t change their situation much. It means, by and large, the poor stay where they are, in poverty!
The solution lies in a fundamental change in the very development model so that people become the target of development, their capabilities are built up and their opportunities are enlarged. It means shifting away from the narrow focus on economic growth as the sole goal of progress. Development should target the people and enhancement of their wellbeing should be the national goal. The process necessarily involves economic growth but only as one among several means. Today what is happening is that people’s wellbeing is compromised in favour of economic growth. They are reduced to the status of mere consumers and tools for growing the economy.
Markets Always Favor the Rich
We have to accept the hard fact that market forces always favour those who have money. It means, left to the market, economic growth will only increase inequality of wealth distribution. A part of the inequality comes from the influence of the rich entities on the State policies. Way back in 1960s, Dr Haq had noted dominance of only 22 industrial families in Pakistan’s economy. They controlled over two-third of industrial assets and around 80 percent banking and insurance. Nothing much has changed since then. Of the 10 million people who qualify today, only 2.5 million are tax payers. With this tiny base, Pakistan’s tax revenue is among the lowest in the world; its tax to GDP ratio is lower than even Sierra Leone.
In Pakistan, taxpaying parliamentarians and political elites are a conspicuous minority. A 2010 review found its PM and ministers among the non-taxpayers in the year they contested election. Obviously, the lawmakers create rules that leave loopholes to make their tax exemptions legal. Those who pay taxes are usually from the honest middle class. The rich and powerful landowners dominate the Parliament so they can make policies that sustain their financial interests.
Pak financial system is described by a retired tax administrator, Riyaz Hussain Naqvi who said: “This is a system of the elite, by the elite and for the elite… It is a skewed system in which the poor man subsidizes the rich man.”
He succinctly summed up how unjust rules made by powerful vested interests create and perpetuate poverty. It applies to all countries of the world but is more damaging in the developing countries.
Although rising inequality is a serious distortion, but in current circumstances it can’t be wished away. It points to the need of a people-focused development model where people take precedence over economy. Experience of past half century shows that people’s welfare can’t be left to market forces alone. It implies need for an out-of-box thinking so that market rules of changed and a clear role of the governments so that they can make the market work for all, not for the rich minority.
Why the role of government becomes important?
Because market is not elected by poor people, government is. Market can be brutal or indifferent to the needs of the poor, government can’t be. Market is supposed to promote efficiency; equity is not its concern. But governments cannot ignore equity and justice that are essential for proper health of social fabric.