ECONOMICECONOMIC INEQUALITIES
Definition
Economic inequalities mean the yawning gap of possessing income and wealth between the rich and the poor i.e. "haves and have nots"
Introduction
Economic inequalities imply the concentration of wealth in a few hands whereas majority of people in the society line the verge of bare subsistence level. It's a paradox of poverty in the midst of plenty. On the whole, a few enjoy all sorts of conceivable luxuries. The majority of the people have no access to basic facilities like drinking water facility, sanitation, health, education and training facilities. The labourers do not get their due remuneration proportionate to their contribution in the production of goods and services. The labour is a perishable commodity and also has got a weak bargaining power and as such these weaknesses are exploited by the capitalists who are getting richer and richer at the cost of the poor.
Causes
• Competition: In a capitalistic economy, all means of production i.e. farms, factories etc. are owned by private individuals. The maximization of profit is the sole consideration by using their assets. There is cut -throat competition among the, capitalists and more and more people are thrown to the working class.
• Vicious Circle of Poverty : The vicious circle of poverty prevails in the under -developed countries which means that income of the masses is low, and it results in low purchasing power, low demand for goods, low inducement to invest, less capital equipment, low productivity and the net result is "poverty" • Unproductive Social Expenditure: The national income of backward countries is more in equally distributed than in the advanced countries and there is concentration of wealth in a few hands and such income is also spell on unproductive social expenditure i.e. marriages and social gatherings instead of economic development.
• Horizontal and Vertical Differences: Horizontal differences mean differences due to demand and supply of labour, which are quantitative and qualitative. The quantitative differences are differences in amount of work done and qualitative differences are differences in abilities and skills. The vertical immobility i.e. less opportunities for training is responsible for economic inequalities.
• Political Inequality: Political inequality leads towards economic inequality. Inequalities of wealth, incomes and opportunities are shocking to the democratic conscience. It is strange that masses are on the borderline of starvation, whereas a few rich people are rolling in the conceivable luxuries.
• Difference of Earnings: Difference in earnings also arise from differences in ownership of capital and property which may be due to inheritance, gifts, thrift and saving opportunities or windfall chances or luck. It results in the division of society in to haves and have nots.
• Monopoly: The existence of monopoly by a particular class results in the manipulation of factor incomes, leading towards economic inequality.
• Interference in Price Mechanism: Differences in income may also arise due to interference in price mechanism by owners of resources of their own products.
• Price System: The price system also promotes economic inequalities. It enables the big landlords and industrial magnates to acquire vast property which they can transfer to their heirs and successors.
Effects
• Misallocation of Resources: Economic inequalities prevent market mechanism to work independently. It causes misallocation of resources and social problems. The fruits of economic development do not reach to an average man. Spirit of co-operation, which is necessary for economic growth, vanishes. The demand for luxuries increases and the resources are shifted from production of necessaries to the production of luxuries.
• Gulf between the Rich and the Poor: The rich becomes the richer and the poor becomes the poorer. The rich indulge in all sorts of conceivable luxuries whereas the poor are not able to get even two square meals a day. They are clothed in rags and live in hovels and their children often die from lack of milk and medicine whereas the rich man's dogs are better fed. The gulf between the rich and the poor is even widening. From this arises the class conflict. The society is divided between "Haves and Have Nots", which are constantly at war with each other. Conflict between labour and capital is going on in all capitalistic countries. Strikes and lock outs are inevitable.
• Exploitation of the Poor: Ruthless exploitation of women and children of the poor class, callous disregard of the aged, the sick and the unemployed and the mercenary human relations are the conditions in capitalistic society.
• Reduce Social Welfare: Economic inequalities of income and wealth are socially unjust, politically undesirable and economically harmful. Extreme inequalities of income reduce social welfare. Income inequality creates inequalities of opportunities for education and training in favour of high income groups and also creates class distinction and generates class - conflicts.
• Promotion of Capitalism: The economic equalities have increased rather decreasing in the planning era. Extreme inequalities of income and wealth are, in fact, outcome of capitalism. Establishment of Industrial Empire is the ultimate end.
Measures
• Role of Government: The government should take necessary steps for the reduction of inequalities of income and wealth, by promoting social justice, social stability, social welfare, increasing production and by providing equal opportunities.
• Effective Taxation Policies: The Government should levy progressive taxation, wealth tax, etc.
• Uplift of the Poor: Free education, free medical aid, old age pensions and stipends for poor students should be provided to the poor; who would uplift the living standard of the poor.
• Government Participation in Economic Activity: The Government should step up the rate of growth by direct participation in economic activity by providing economic and social overhead capital, building necessary infrastructure, creating financial institutions, moulding social structure and adopting legal framework to the task of development.
• Suitable Monetary and Fiscal Policies: The Government should adopt suitable monetary, fiscal and trade policies in order to reduce economic inequalities. Appropriate monetary and fiscal policy can convert the state into a welfare state.
• Implementation of Economic Plans: The Government should ensure the implementation of economic plans and operation of industries in the public sector. It should build up basic infrastructure with proper organization to boost up plans.
• Prevention of Concentration of Economic Powers: In the private sector, some control should be exercised by the government and certain incentives be given according to plan e.g. price control, influencing investment, licensing, control over capital issue, control over imports, prevention of concentration of economic powers and destruction of monopolies etc.
• Discouragement of Unearned Income: Living on unearned income should be discouraged which is a major cause of wealth accumulation and economic inequalities.
• Role of Economic Planners: The planners, who are custodian of general welfare, should shape their plans so as to narrow down the gulf between the rich and the poor.
• Promotion of Saving Habits: The vicious circle of poverty must be broken by increased savings at the domestic and the foreign resources. The country may also suffer from lack of resources like water and mineral resources or poverty of the soil. But, in the matter of economic development, the things of crucial importance are small in capacity to save and small inducement to invest. Other deficiencies can be made up and the handicap of natural factor removed, if the problem of capital formation is successfully tackled.
• Excess Profit Tax: A lump sum tax is an "excess profit tax" and is levied primarily to reduce inequities of income distribution. It aims at regulating profits at a socially desirable level.
• Fixation of Prices: Prices may be fixed or manipulated in favour of the poor section of society.
• Redistribution of Labour Resources: Labour resources can be redistributed by increasing vertical mobility, education, training, economic opportunities, inequalities of capital ownership and breaking down barriers to entry into jobs and professions.
• Promotion of Social Welfare Programmes: Provision of a comprehensive social security and social welfare programmes will also reduce economic inequalities.
Economic Inequalities in Pakistan
The ultimate objective of any process of economic growth is reduction or gradual elimination of poverty. There are two important and related concepts of poverty, i.e. absolute poverty and relative poverty. 'Absolute Poverty' is viewed in terms of minimum calorie intake and 'Relative Poverty' is looked at in terms of the provision of basic needs i.e. food, shelter and clothing, which take cumulative contribution in determining the so called 'Poverty Line.
Rapid industrialization has been a demanding feature of economic policy since the birth of the country in 1947. Pakistan during Fifties and Sixties exhibited one of the most remarkable economic growth rates, particularly in the field of large scale manufacturing.
The process of industrialization within this period resulted in widening the gap between the rich and the poor and led to the concentration of industrial incomes and economic power. There was nothing new but it was in line with the experience of other developing countries Hundreds of millions desperately poor people throughout the world have been hurt rather than helped by economic development.
In Pakistan, the phenomenon of extreme inequalities of industrial incomes and assets was first highlighted in April 1968 by Dr. Mahbub-ul-Haq, the then chief economist of Pakistan. In his speech delivered at Karachi, he made a sensational statement that the twenty two industrial houses in Pakistan owned 66 percent of the industrial assets and 87 percent of the banking and insurance.
The dominant position of the industrial houses was affected as a result of disintegration of Pakistan and large scale nationalization.
The 1972 nationalization further eroded their position collectively, they incurred a total loss of Rs.1430 million (on account of manufacturing, non-manufacturing and banking and insurance asset). In terms of the value of assets, Saigal, Habibs, Amin, Fancy, Valika and Beco were the worst hit by these nationalization. These 6 industrial houses together apportioned a loss of assets amounting to Rs.972.4 million. In the pre-nationalisation period, 41 houses accounted for nearly 42 percent of assets of the large scale manufacturing sector. This dropped to 31 percent for 39 houses in the post-nationalisation period.
Causes of Economic Inequalities in Pakistan The following are the causes of economic inequalities in Pakistan:
• Corruption and red tapism.
• Feudalistic system in agriculture sector.
• Lack of participation by informal sector in the economy of Pakistan.
• Lack of social reforms.
• Lack of common man's participation in politics
• Lack of professional education.
• Urbanization.
• Drug trafficking.
• Poor privatization in the 1990's even in 2007.
• Lack of democratic awareness.
• Poor collection system of tax revenues
• Black marketing and hoarding.
• Mis-utilization of public assets.
• Lack of planning for industrial growth.
• Poor infrastructure.
• Favouritism and nepotism.
STEPS TAKEN BY THE GOVERNMENT
Reduction in the Size of Land Holding: The government through various land reforms has ultimately reduced the size of individual holdings of land to 150 acres of irrigated land on 3(X) acres of un-irrigated land.
Progressive Taxation: In order to reduce the income differences, the incomes at higher levels are taxed at progressive rates i.e. lower rates for lower incomes and higher rates for higher incomes.
Discouraging Formation of Combination: The Government of Pakistan keeps an eye on and restricts the formation of business combinations among different industrial units for reaping monopoly profits. These combinations cause monopolies in the market and consumers have to pay heavy price.
Protection of Middle Class: The middle class which is the backbone of the economy is being protected through various reforms and taxation policies.
Increase in Horizontal Mobility: The government by opening up employment exchanges, providing transport facilities, information of jobs through press etc. is increasing horizontal mobility to decrease the income differences of workers.
Increase in Vertical Mobility: The government of Pakistan is extensively providing educational and training cultural environments for all the people to move from low level to high level position. This measure is proving quite effective in reducing disparity of income.
New Entrants in Industry: The government is giving liberal concessions and interest free loans for setting up small scale industrial units in Pakistan. This step has greatly helped in raising the income level of the persons with small means. The government is also providing loans on minimum interest rate to young unemployed persons so that they may start any small business and they may become self-employed. These loans are extended through Young Investment Promotion Society.
PROPOSED MEASURES
Changes in National Pattern of Growth: Rapid progress in reducing poverty will thus require changes in national patterns of growth, which means social and economic reforms at the national level.
New Institutions and Policies: If the poor are to gain directly from the growth and participate fully in the development process, new institutions and policies are needed to achieve redistribution of productive resources to the poor, generate rapid expansion in jobs and income earnings opportunities and provide social and economic services to the masses. A shift of development strategy to achieve these ends will depend on political priorities.
Increase in Agricultural Production: Sixty five percent or more of the poor live in the rural areas. In the past, the governments have put disproportionate efforts in developing the urban and industrial sectors. But the neglect of agriculture has often caused stagnation or even decrease in per capita food production, and food prices to rise. Rural poverty has thus increased and inequality has become wider. We believe that a necessary condition for faster overall growth will increase in agriculture production, especially in food corps. This will require a high proportion of development funds to be directed to rural areas for infrastructure, credit, storage, marketing extension services, research, agricultural implements and production inputs such as fertilizer, improved seeds and pesticides. We know from experience that unless such action is accompanied by structural changes, the impact on rural poverty may be negligible and ineffective.
Redistribution of Lands among Landless Farmers: In Pakistan, there are sharp disparities in land ownership. Such agrarian structures are both unjust and inefficient. To reduce rural poverty and increase production, there should be further land reforms to redistribute land among the landless and small farmers. The farmers and workers would be allowed to form associations and organizations to bargain their wages and conditions of work, etc. Agricultural income tax should be levied to make big landlords to contribute to the national exchequer.
Easy Availability of Credit: In order to utilize the potential of the informal sector in assisting development, there is need to assist it through easier availability of credit, training to upgrade skills, technical advice on product improvement, provision of better tools and infrastructure facilities, encouragement of sub-contracting by large firms and of purchases by the public sector from the informal sector which can create new sources of demand. In order to encourage the overseas Pakistanis investment in Pakistan, the Government should take steps and offer better investment packages to them.
Formulation of Effective Programmes: The government has to meet other needs through programmes in education, health, housing and water supply. In spite of resource constraints, effective programmes can be devised to reach the deprived groups within a relatively short period of time. In health, housing, water supply and other services, what matters is the determination to reach the maximum number of people with services appropriate to the country's means. This is even true in education, where a number of countries have shown that it is possible to make extremely rapid progress with relatively limited resources in these areas. These efforts may involve:
• The use of the maximum number of educated people as part time teachers,
• Better utilization of existing facilities and the inclusion of some elements of basic literary education in nutrition, health and family planning programme.
• Emphasis should be shifted from higher education to free primary education.
• Zakat should be imposed on goods of trade, assets, inventory, and raw materials to broaden its base and increase the number of ultimate beneficiaries.
• To enhance the collection of Ushr, some sort of incentive should be given to the Chairmen Zakat committees.
• "Guzara" allowance should be restricted to only crippled and disabled. Other able bodied should be discouraged to become permanent dependent on Zakat, rather they should be rehabilitated to earn their livelihood and have their own footings.
• Education should be made compulsory for the women. Mobilization of Domestic Resources
• The success in altering the pattern and process of growth will depend on political factors, on efficiency, on policy formulation and implementation and the mobilization of domestic resources.
• Broadening the base of taxes by increasing the ratio of direct taxes and by minimizing the tax exemption given on various items.
• New taxes should be introduced especially on agricultural income.
• Progressive rates of user charges for use of public utilities i.e. electricity, gas, water, etc. In many cases, they can influence the distribution of the benefits of growth.
• To avoid tax evasion, the tax collectors should be given financial incentives etc.
Development Requires Participation of the People: This will need to be accompanied by efforts to encourage people to organize themselves workers and peasants, women and youth organize in trade unions, cooperatives and other groups will often be the guarantee of implementing reforms in many social and economic areas. Furthermore, such organization will help in decentralizing development activities, in mobilizing resources, as is undertaken by Agha Khan Rural Support Programme in Northern Areas, and in providing social services, extension services, credit, training and inputs on a group basis. Decentralizing government or administrative system could help in this progress. In achieving the main objective of development, every system should ensure full participation of the people.
Measures to Reduce Income Disparities in Pakistan
1. The market imperfection be removed particularly, the illiteracy be eradicated. The facilities regarding technical education and skill are provided at a large scale.
2. The information system is made effective. The problems of labour market are removed. The migrants should be aware of with employment opportunities in the business and trade centers. The trade unions should be organized so that they could properly bargain regarding the rise in wages and provision of facilities.
3. The population is controlled. The people are convinced that increasing number of children is responsible for their poverty. Rather increasing the children, they should enhance the power to work; they should improve their skill, efficiency and knowledge. All this will have the effect of increasing their incomes etc.
4. The inflation should be checked; the bank loans on political affiliations be stopped; the budget deficits be reduced and; the monopoly capitalism be replaced by a fair competitive economic system. This entire win discourages the growth of unequal income distribution in the country.
5. The taxation system should be made efficient. The progressive system of taxation should effectively be implemented. This will not allow the rich to get richer.
6. The government in order to enhance the incomes of the poor people should provide subsidies to the workers, labor, fixed and the low income groups. In this respect, the poor be exempted from taxes; they he provided with the basic needs like education, health, foodings and lodging at reduced rates.
7. Strict measures will have to be taken to check corruption, adulteration, frauds, dishonesty and scandals because they have promoted the ways and means of getting black money in the economy. The imports of luxurious goods are banned in the country. The simplicity is promoted in the country, because the artificial and prestigious tendencies have encouraged the money making activities in the country, whether legal or illegal.
8. The labour intensive techniques of production are widely used in the country. More properly, we should promote those indigenous techniques and methods which should not be the labour displacing. As a result, the problem of unemployment and under employment will not become so acute. When the poor possess the jobs the problem of unequal distribution would not be so serious.
9. The loans are provided to young, educated and skilled persons having no financial resources, rather to the big businesses. The educated persons will be able to get themselves employed by starting different trades and professions. More appropriately, the flow of loans from the banks. DFIs and specialized institutions should be diverted to the small businessmen, small industrialist and the educated unemployed. This will have the effect of raising their incomes". Moreover, the small businessmen should 'be provided with the advisory and consultancy services so that they could start their businesses with zeal and devotion.
10. The small farmers should be provided with the loans, implements and better agriculture inputs. Their produces should be protected of natural calamities and cobweb fluctuations. In this way, the poor farmers will be able to, produce more, reduce their costs and increase their revenues. Accordingly, when the incomes of this major section of the society increase the gulf of inequalities will shrink.
Conclusion
Modern governments try to reduce economic inequalities by promoting social justice, social stability and social welfare, increasing production and providing equal opportunities for all. For this purpose, the government levies different progressive taxation. On the other hand, free education, free medical aid and old-age pensions, stipends for the poor students are some of the remedies adopted for distributing the extra income of the rich among the poor.
A comprehensive and pragmatic approach is necessary besides government patronage and fiscal policies. Islam is a rational religion and it lays emphasis on the equality of mankind in all the matters of life. It also teaches us to work hard. In this way, we can have an access to everything with hard work and labour.
