Political economy of elitism

Pakistan is often described as elitist state where economy is captured by a few

ISLAMABAD:

In literature on political economy, the elitism, a recurring theme, has been subject to two meaning.

One, as a normative concept, the elitism means that the affairs of a state or an economy are best handled when they are left to a select group, which by virtue of its knowledge, skills, experience or character is best positioned to pilot its ship.

In its second meaning, the elitism refers to an actual state of affairs in which political or economic resources, or both, are concentrated in a relatively small group, which uses them to preserve and advance its position.

Very often, there are two or more competing elite, for example landlords and capitalists. It is in the second meaning of elitism that a state or an economy can be called elitist.

Elitism is a problem that several countries have faced. Since democracy is a people-centred political system, one would expect that in a democracy, elitism would be conspicuous by its absence.

However, in both theory and practice, democracy and elitism are not mutually exclusive. The elite theory popularised by Italian social scientists Pareto and Mosca argues that all societies, regardless of the form of government, are governed by one or more political elite.

Pakistan has often been described as an elitist state. The essential narrative is that the national economy was captured by a small elite class, which both manipulated the market and controlled the state.

The result was a vicious combination of an inefficient resource allocation (market failure) and an inequitable income distribution (government failure). The elite has been so powerful that a change in government, or even a transition from despotism to democracy and vice versa, failed to hold it in check.

After coming to power in August 2018, the Pakistan Tehreek-e-Insaf (PTI) launched Ehsaas as its flagship social welfare programme, which was aimed at transforming Pakistan from an elitist to a welfare state through four means - countering elite capture and inequality in the system, strengthening social safety nets, fostering human resources development (HRD), and generating jobs.

Whether the governments in Pakistan deliberately promoted elitism, this is open to debate. However, it can’t be denied that for one reason or the other, over the years social welfare took a backseat in public policies.

Besides, the welfare policies have had a very narrow focus, ie income transfer to people at the bottom of economic heap. While cash transfers may help the recipients survive another day, they are an extremely weak instrument of promoting public welfare or even poverty alleviation. This makes Ehsaas, at least in theory, better than its predecessor, the Benazir Income Support Programme, as a public welfare project.

The ultimate test of a poverty alleviation programme is that the number of its beneficiaries decreases over the years and the programme eventually phases out. Cash transfers serve elitism in that they perpetuate the culture of dependence on the elite, as the recipients by and large have neither the incentive nor the opportunity to become socially useful economic agents.

Though in normal circumstances, cash transfers make little economic sense, these are an important means of garnering political support and winning elections.

Neglected area

HRD is an important means of increasing public welfare in the long run. This is especially true of a labour abundant country like Pakistan, which will always find it difficult to realise its growth potential without adequate HRD. However, HRD has remained a neglected area in Pakistan.

Not surprisingly, Pakistan is presently ranked 154 out of 189 nations on the UNDP’s Human Development Index (HDI), which comprises three broad indicators – life expectancy at birth, expected and mean years of schooling, and per capita national income.

The HDI doesn’t directly take into account income distribution. However, the HDI performance of countries is adjusted for inequality in income distribution and other relevant indicators.

Pakistan’s current inequality-adjusted HDI value is 0.384 compared with the world average of 0.587, developing countries’ average of 0.535 and South Asian average of 0.475.

Pakistan’s coefficient of human inequality is 30.2 compared with world average of 20.2, developing countries’ average of 22.3 and South Asian average of 25.4. Pakistan’s gini coefficient, which measures inequality in income distribution, for the period 2010-18 is as high as 33.5. It may be a consolation to us that at 37.8, India’s gini coefficient is even greater than Pakistan’s.

It may be mentioned that these two coefficients are measured on a scale of 0-100. Zero means perfect equality while 100 means perfect inequality.

Major challenges

There are two major impediments to upending elitism. First is the resistance to putting in place a supportive public policy framework, which targets egalitarian economic growth.

Several politico-economic factors discourage framing such a policy. The government may lose a considerable part of its political capital, as the lobbies, which helped a party come to power through hefty financial contributions and now want their share of the pie, may resist such a move.

There is also, in the short run at least, often a trade-off between economic growth and equality. Egalitarian considerations may put the brakes on growth.

For instance, stringent application of labour laws may shore up the cost of production and thus discourage private sector investment. Since governments have their eyes usually on the next elections, they prefer short-term gains. The second, and greater, major challenge to establishing a welfare state is availability of finances.

A welfare state requires an expansionary fiscal policy, which can be financed either through taxes or through deficit financing – though the latter isn’t sustainable in the long run. Therefore, a large and steady stream of public revenue is essential for pursuing welfare policies.

In Scandinavian countries – Denmark, Norway, Sweden and Finland – where social democracy proved a great success in the latter half of 20th century, the tax-to-GDP ratio had been on average as high as 40%, which allowed sustained fiscal expansion. Besides, in those countries there was a nationwide support for a welfare state, not as a matter of rhetoric but as a matter of contributing to its cause. For instance, wages and other working conditions were determined by a tripartite arrangement of employers, workers and the government.

By contrast, in Pakistan, the tax-to-GDP ratio has been as low as 10%. Pakistanis by and large are averse to paying income or wealth taxes – though they may contribute generously to charity. We saw how in the recent past the traders successfully challenged the government’s attempts to tax them. In such circumstances, a welfare state can only be set up by racking up public borrowing and thus accumulating fiscal deficit, which is not a long-run viable option.

The writer is an Islamabad-based columnist

 

Published in The Express Tribune, February 15^th, 2021.

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