Daily Times

One of the UN Sustainable Development Goals (SDGs) — Goal 10 — focuses reduction of inequality in the developing countries in economic, social and political spheres. Targets primarily include normative prescriptions which include ensuring equality of opportunity and reducing inequality of outcome.

Among the SDG-10 targets, the first one aims at reducing income inequality by maintaining income growth rate of the bottom 40 per cent of population higher than the national average income growth rate. But SDG-10 has missed targeting wealth inequality, which makes more profound impact on overall inequalities than anything else. Among SDG-10 targets the reduction in income inequality is the only one which is both specific and measurable. Indices like GINI, Atkinson and Theil can help policymakers in measure and analyse economic inequality. I will limit discussion to the economic inequality which includes both income and wealth inequalities.

In Pakistan, economic inequality is striking in its spatial pattern. The rich mostly live in posh gated communities. They can be seen driving SUVs escorted by gun-toting guards. They entertain themselves in exclusive clubs. Their children attend expensive schools. In South Africa apartheid era, policies generated acute economic inequality. In Pakistan it is economic inequality which intensifies social and political division. Across the economic divide, two different worlds never meet. If the purpose of development is to create enabling conditions for a ‘good’ life, then an unchecked economic inequality is surely an antithesis of development. Economic inequality is normatively acceptable only as long as there is enough equality of opportunity to enable socio-economic mobility. Life chances of a person should not depend on economic status of forefathers. Injustices of the past often cause present inequalities. High economic inequality promotes malignant tendencies in society like high incidence of crimes, abuses of human rights and an elite capture of power.

Sweden, with GINI index value of 25, is a low inequality country. While the post-apartheid South Africa, with GINI index value of 63.1, is still among the most unequal countries. In case of Pakistan, due to improper income and wealth data, the latest GINI value is 30 (higher the number, higher the inequality) which deceptively portrays Pakistan as a moderate inequality society. For inequality analysis in developing countries, welfare economists prefer an analysis of consumption inequality owing to relative credibility of consumption information.

In South Africa apartheid era, policies generated acute economic inequality. In Pakistan, it is economic inequality which intensifies social and political division

According to the Household Integrated Economic Survey 2015-16 of Pakistan Bureau of Statistics, the monthly per capita consumption expenditure of top 20 per cent of the population in Pakistan was 4.76 times higher than the bottom 20 per cent. In 2013-14, this consumption gap was 4.44 times, which indicates a trend of rising economic inequality. This gap has many connotations. For instance, with their greater consumption of fuel and energy, the rich make disproportionately high carbon imprint on the environment. Such consequences of economic inequality make moral justification of high inequality untenable.

High income inequality is not good, but it is wealth inequality which causes an elite capture of economic and political power. In 2016, 3.5 billion adults collectively owned only 2.4 percent of total household global wealth. On the other side of this distributional spectrum, only 0.7 percent of the adult population owned 46 per cent of global wealth. This ‘one percent versus the rest’ phenomenon holds equally true in Pakistan. Thomas Piketty convincingly argues that if return on capital remains above the growth rate of economy for a prolonged period, it causes high concentration of wealth and acute inequality. The real challenge is to strike a reasonable balance between enterprise and innovation effect of economic inequality and welfare reducing effects of economic inequality. Higher education, financial inclusion through easy access to credit and social protection measures are the way to reduce inequality. It is a cliché that a journey of a thousand miles begins with one small step. Gathering good quality income and wealth data should be the first such step under SDG-10 initiatives in Pakistan.

If taxes make only 10-15 percent of national income, it is not possible to make any substantial investment in sectors which are vital to reducing inequality. In 2016, tax revenues in Pakistan were 12.6 percent of national income. In this tax revenue, direct taxes comprised a smaller proportion of 39.1 percent. The bulk of tax revenues in Pakistan come from indirect taxes whose burden is shared equally by the rich and the poor. This strange fiscal equality makes no sense if economic rewards are not shared equitably. Inherited wealth and gifts of assets are important drivers of inter-generational inequality. If this unearned wealth is taxed progressively, it would not be unfair. There is a need to ponder about some kind of imposition of a meaning inheritance tax system in Pakistan.

SDG-10 gives an opportunity to realign priorities and set targets for 2030. For a better society reduction in both income and wealth-inequality is required. Higher tax revenue generation to finance quality public sector education, public services and social protection initiatives can reduce the widening gulf between the rich and the rest of the population. Financing anti-inequality policies will require the rich to pay more in terms of taxes. But a fair balance between revenue generation and encouraging savings for future investment is important.

Security, peace and an orderly society are possible only through a just economic order. Gated communities, clubs and separate schools for the rich are not sustainable in the long run. Similarly as the rich consume earth resources more and pollute the environment, it is their moral responsibility to pay higher for a sustainable future. We must pay heed to Victor Fuchs when he says “I value freedom, justice and efficiency, and economics tells me that I may have to give up a little of one of the goals to insure the partial achievement of others”.

The writer is a development policy analyst

Published in Daily Times, December 1^st 2017.