Inequality and extremism

Published: February 23, 2014
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The writer is a former caretaker finance minister and served as vice-president at the World Bank

The writer is a former caretaker finance minister and served as vice-president at the World Bank

Most analysts now recognise that income inequality has become a prominent feature of the Pakistani economic landscape. The Gini coefficient — one of the most frequently used measures of inequality — is not especially troubling for Pakistan. Official numbers don’t tell the full story. For the full story to be told, we need to delve a bit into the country’s economic past. Pakistan’s economic history was punctuated by three periods of boom — 1963-66, 1980-83 and 2004-07 — each followed by long periods of slow growth. All the boom periods resulted from large foreign capital inflows and a good part of this resource went into the activities that favoured the relatively well-to-do segments of society and relatively better-off regions of the country. Each boom period was the result of public policy that favoured the rich over the poor.

The poor and the deprived don’t look at Gini coefficients; they see what is occurring around them. What they see is lavish consumption. Let us look at just one example of this. The string of wedding halls in Lahore Cantonment’s Garrison Club are lit up even when the city’s lights are down and are often referred to as the Punjab capital’s Las Vegas strip. This does not go unnoticed by those who have to deal with high rates of food inflation, irregular supply of gas and electricity, and lack of job opportunities. There cannot be any doubt that this attracts the poor and the unemployed to the ranks of the terrorists. If the economy does not reward the poor, some of them are likely to vent their frustration by resorting to violence.

Extremism and associated terrorism has produced a vicious cycle. One interesting insight on this is provided by the economists Samuel Bowles and Arjun Jayadev. While their work is concerned with developed countries, some of its conclusions apply to countries like Pakistan that are faced with a serious security problem. These analysts correlated inequality with the number they call ‘guard labour’. They matched guard labour per 10,000 workers with the incidence of inequality. Their main finding: “However one totes up guard labour in the US, there is a lot of it, and it seems to go along with economic inequality. States with high levels of income inequality employ twice as many security workers as less unequal states. When we look across more advanced industrialised countries, we see the same pattern: the more inequality the more guard labour. Social spending, also, is strongly correlated with guard labour across the nations. There is a simple economic reason here: A nation whose policies result in substantial inequalities may end up spending more on guns and getting less butter as a result.” The US, with a Gini coefficient of 0.35, has the highest income inequality among developed countries. Denmark with 0.23 and Sweden with 0.24 have the lowest. The US at 160 guard labour per 10,000 workers has the highest ratio among this group of nations. Sweden with 55 has the lowest.

This pattern is also evident in Pakistan. There are no firm estimates for the number of people in Pakistan’s workforce who belong to guard labour. They are to be seen everywhere in all large cities. In addition to the check points on the roads, gated communities protected by their own guards are becoming a common sight. Guard labour does not add to the economy’s overall productivity and efficiency. The larger the proportion of people hired by security firms, the lower the number going into productive economic activities. An economy develops when the workers engaged in low-productivity activities move to those that are more efficient in terms of the contribution they make to the economy. This is one other way in which terrorism is hurting the economy. There are good reasons why policymakers must see extremism as a serious economic issue. Bringing sustained growth to the economy and distributing its rewards evenly among the country’s different segments and regions must rank high on the policymakers ‘to do’ list.

Published in The Express Tribune, February 24th, 2014.

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Reader Comments (7)

  • Nadir
    Feb 23, 2014 - 11:27PM

    Sadly progress in Pakistan is the implementation of exclusionary development such as gated communities, which keep the riff raff out and allow the rich to talk about how this or that development or shopping mall reminds them of Dubai and how if the poor just worked harder things would be so much better. This tax dodging moneyed class believes that they are the victims and the poor best serve them.Recommend

  • F
    Feb 24, 2014 - 2:55AM

    At the face if it, seems logical to assume that inequality (poverty) leads to extremism. But what explains terrorism emanating from rich states like Saudi Arabia and well off middle class? OBL was wealthy, Zawahiri is a professional doctor! Why are the affluent taken in by the self righteousness of the faithful, mind mumbling conspiracies, false history and perpetual victim hood?

    Recommend

  • Mirza
    Feb 24, 2014 - 9:00AM

    The inequality in the US and other countries result in violence and crimes. While most of the terrorism in Pakistan is propelled and ignited by the fanatic Whabi indoctrinated in our madrassa. So let us not mix and confuse violent crimes with jihadist bombings, and killings. In many cases they simply kill and not rob.
    As an economist of repute one expects some solution to tackle the problem of inequality in Pakistan. One question that needs to be answered is how such a tiny economy can sustain a million man army with active WMD programs and defense societies to banks to cereal? As the Op Ed indicates not only the army men get the perks while employed as non productive but due to the circumstances created by Gen Zia and his cronies these men become our “guards” even after they retire and double dip while never being productive. Can any honest writer give the budget details how much is going to defense and non productive activities and how much to education, healthcare and other civic needs? This should include all the perks of retired officials which Gen Mushy transferred in civilian portion of the budget.Recommend

  • Malik
    Feb 24, 2014 - 9:48AM

    Excellent article indeed. But i am sure it will fall onto deaf ears. Polarization and class difference is now reaching record levels in Pakistan and i dont know how long such a system will prevail like that.Recommend

  • Feroz
    Feb 24, 2014 - 11:44AM

    You are going back to the question of the Chicken and the Egg, which comes first. Economic activity cannot be fast tracked without controlling the security situation and security situation cannot improve without controlling the flow of citizens taking up Jihad. Without taking on armed extremists the country does not have a bright future. Dodging this issue as has been happening for decades has not helped the problem vanish. Every other issue can only come later. If after such colossal loss of lives the country cannot prioritize, it reflects on the intelligence and capability of rulers to stop the rot. We have still not stepped into the realms of will and conviction yet.

    Recommend

  • Nasir Jan
    Feb 24, 2014 - 7:46PM

    True to some extent. When life is cheap there is always a buyer. Young suicide bomber who was caught recently admitted that he got Rs 80,000.Recommend

  • Oily
    Feb 24, 2014 - 10:07PM

    Missing the main point….lawlessness……poor taxation system…illegal wealth constitutes almost 60 percent of Pak Economy…just a small detail of Tax returns of parliamentarians is a good sample to show the lifestyles and how earnings are concealed. Secondly 65percent of population is rural….they are happy, they getting good price for their crop..no electricity, no gas, hasn’t made their life as miserable as the urbanites…

    So, Mr.Burki, open your eyes, look around and don’t judge by urban outlooks only…Recommend

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