Monday, April 19, 2021

Income Inequality: Elite Capture in Pakistan

A recent United Nations report on inequality reveals that the richest 1% in Pakistan take 9% of the national income.  A quick comparison with other South Asian nations shows that 9% income share for the top 1% in Pakistan is lower than 15.8% in Bangladesh and 21.4% in India. These inequalities result mainly from a phenomenon known as "elite capture" that allows a privileged few to take away a disproportionately large slice of public resources such as public funds and land for their benefit. 

Share of Income of Richest 1% in South Asia


Elite Capture:

Elite capture, a global phenomenon,  is a form of corruption. It describes how public resources are exploited by a few privileged individuals and groups to the detriment of the larger population. 

A recently published report by the United Nations Development Program (UNDP) has found that the elite capture in Pakistan adds up to an estimated $17.4 billion - roughly 6% of the country's economy. 

Pakistan's most privileged groups include the corporate sectorfeudal landlordspoliticians and the  military. UN Development Program's NHDR for Pakistan, released last week, focused on issues of inequality in the country of 220 million people. 

Ms. Kanni Wignaraja, assistant secretary-general and regional chief of the UNDP, told Aljazeera that Pakistani leaders have taken the findings of the report “right on” and pledged to focus on prescriptive action. “My hope is that there is strong intent to review things like the current tax and subsidy policies, to look at land and capital access", she added. 

Inequality in Pakistan. Source: UNDP

Income Inequality:

The richest 1% of Pakistanis take 9% of the national income, according to the UNDP report titled "The three Ps of inequality: Power, People, and Policy". It was released on April 6, 2021. Comparison of income inequality in South Asia reveals that the richest 1% in Bangladesh and India claim 15.8% and 21.4% of national income respectively.

In addition to income inequality, the UNDP report describes the inequality of opportunity in terms of access to services, work with dignity and accessibility. It is based on exhaustive statistical analysis at national and provincial levels, and includes new inequality indices for child development, youth, labor and gender. Qualitative research, through focus groups with marginalized communities, has also been undertaken, and the NHDR 2020 Inequality Perception Survey conducted. The NHDR 2020 has been guided by a diverse panel of Advisory Council members, including policy makers, development practitioners, academics, and UN representatives.

Savings, Investments and Exports:

It is generally accepted that the rich save a much bigger portion of income than the middle class and the poor. The effect is strongest among those in the top quintile of the lifetime earnings distribution—they have substantially greater wealth relative to their earnings than those in the bottom 80% of the distribution, according to published research

Lower inequality in Pakistan is reflected in its abysmal domestic savings and investment rate of around 10% of GDP. It shows in Pakistan's lower economic growth rate compared to Bangladesh and India. The distribution of national income in a country is a key socioeconomic variable with broad economic and societal implications. Income inequality and wealth inequality are related because the flow of income determines savings and investments, which in turn determine GDP growth and accumulation of wealth. An economic model offered by Galor and Zeira finds that the effect of rising inequality on GDP per capita is negative in relatively rich countries but positive in poor countries like Pakistan.

Investment as Percentage of GDP Source: State Bank of Pakistan 


While Pakistan's per capita income more than doubled from $500 to $1,000 in the ten years 2000 to 2010, the growth has slowed to less than 30% from 2010 to 2020. Faster GDP growth in the decade of 2000-2010 was partly the result of significant increase in Pakistan's savings and investment rates. Meanwhile, rising worker remittances from overseas Pakistanis have been boosting Pakistan national savings rate and helping reduce current account deficits
 
Savings Rate in Pakistan. Source: Dawn


Pakistan's exports doubled from $10 billion to $20 billion in years 2000-2010. In the last decade 2010-2020, the nation's exports have grown only about 25% to $25 billion. Exports have declined in terms of percentage of the country's GDP from 13% to 10% in the most recent decade. 

Pakistan FDI inflows have significantly lagged behind those of the rest of South Asia.

FDI Inflows in Pakistan. Source: World Bank

Pakistan saw rapid economic growth in the 1960s in spite of low domestic savings rate. This can be explained by foreign development aid of as much as 10% of GDP that Pakistan received in that decade. . 

Foreign Aid to Pakistan as Percent of GDP Source: World Bank

Summary:

The richest 1% of Pakistanis take away 9% of the national income. Inequality in Pakistan has many dimensions beyond income. The rich enjoy greater access to education, healthcare, financial services, employment and business opportunities. Corporations, feudal landowners, politicians and the military are the most privileged groups with the best opportunities to own businesses, financial assets, farmland and real estate. They capture an estimated $17.4 billion - roughly 6% of the country's economy. Ms. Kanni Wignaraja, assistant secretary-general and regional chief of the UNDP, told Aljazeera that Pakistani leaders have taken the findings of the report “right on” and pledged to focus on prescriptive action. “My hope is that there is strong intent to review things like the current tax and subsidy policies, to look at land and capital access", she added. The policymakers in Pakistan should consider the negative economic implications of any such moves, particularly on savings and investments in the country.  




21 comments:

Unknown said...

Riaz Bhai, Pakistan lacks wealth creators. India has the third biggest number of super rich (also known as Billionaires) after USA and China. They may hold lot of capital, but still create lots of jobs down below. This is part of process called Capitalism, like it or not. In socialism, nobody make money- reason USSR disappeared. China is Dictatorial capitalism disguised as communist- reason why they have grown so fast. So the general message is try and become billionaires, rather than cribbing at their wealth.

Now coming to Pakistan. Pakistan has been an economical nightmare since creation. Army creates (or rather attracts) wealth. Nobody else stands a chance of gaining that slice of pie. Papa Johns pizza General is a case point. And the same army people migrate abroad with their wealth, after retirement. So the super rich is missing from Pakistan. Since the wealth and wealth creators are constantly eroding.

Unknown said...

India is Behind USA and China with number of Billionaires totaling more than 150. The list is getting bigger every year. Most of the people in the list are entrepreneurs who came from middle class backgrounds. if you are talented, you can succeed here. Another truth - Only a lazy person can die of hunger in India.

Fahad said...


Dear Unknown

According to you, lot of jobs are created by these few rich and multi-millionaires on India ,if this is infact true then why according to some of the authors and writers who have written articles online, India is facing the huge unemployment in the entire history of the country?

Since BJP came into power, how many jobs have been produced in India?

According to some surveys and researches, the richest people of India have increased from 5% TO 40% but the poverty in India is still a serious issue.

Fahad said...


Mr. Unknown,

The economy of Pakistan was much better than the economy of India in 1960s,70s and 80s. Purchasing power in Pakistan, per capita income in Pakistan was higher than that of India and value of Pak Rupee was stronger as compared to Indian Rupee against US$ in 1960s,70s and 80s.

In 1971 when East Pakistan seperated and became Bangladesh after the war, Pakistan was known as "ASIAN TIGER" at that time.

I am sorry to say this but economists use to make fun of the economy of India in 1960s and 1970s.

The economy of Pakistan actually started to suffer after when Gen.Musharaf completed his tenure as a President. Even before 2008, when Gen.Musharaf completed his tenure, Pakistan was much better than India in terms of development ,the ranking of Pakistan in HDI(Human Development Index) was better than that of India.

Also Pakistan had better ranking than India in "BUSINESS FRIENDLY COUNTRIES" index when Gen.Musharaf was ruling the country.

In 1960s, Pakistan was making great progress , the kind of progress which India can't even imagine in its dreams.

Kabir said...

Income share is 21% they control over 73% of wealth in India

Riaz Haq said...

ELITE political bargains are informal, relatively stable agreements among national elites about the pecking order of different ethnicities and classes (in our case state institutions too) in accessing economic privileges. This includes their relative access to economic resources and opportunities (eg government expenditures, subsidies and licences, access to state and private capital) and tax burdens.

https://www.dawn.com/news/1619278

Conservative estimates show that the privileges add up annually to nearly Rs370 billion for landed elites, Rs725bn for the corporate sector, Rs600bn for traders and Rs250bn for military elites. This is a total of nearly Rs2 trillion annually for a tiny sliver of the population. In contrast, Pakistan spent only around Rs1.3tr annually in recent years on education, health and other social expenditures to cater to the needs of its masses. Even a chunk of this is siphoned off by the rich.

Riaz Haq said...

Inequality and relative saving rates
at the top


by Philipp Lieberknecht, Philip Vermeulen

https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2204.en.pdf

The distribution of national income and wealth are key economic variables with broad economic and societal implications. The recent development of the World Wealth and Income
Database (WID), a large-scale database featuring historical cross-country inequality measures,
allows for a long-term analysis of the relationship between income and wealth inequality. Income inequality and wealth inequality are related because the flow of income determines saving,
which in turn determines the accumulated stock of wealth. A look at French and US data, two
countries with the longest time span of data available, shows that in recent decades the share
of income that goes to the top 1% or the top 10% has been rising. Simultaneously, the share
of wealth owned by the top 1% and top 10% has been rising as well. Remarkably, over the last
century, the top shares of income and wealth have been evolving in broadly similar ways. This
paper provides an analysis of the strong co-movement of income and wealth inequality across
time.

Riaz Haq said...

From World Inequality Database


Top 1% national income share

https://wid.world/world/#sptinc_p99p100_z/WO;PK;IN;BD/last/eu/k/p/yearly/s/false/5.336/22.5/curve/false/country


World: 19/1%

Pakistan 18.3%

India 21.4%

Bangladesh 15.8%

Top 10% national income share


https://wid.world/world/#sptinc_p90p100_z/WO;PK;IN;BD/last/eu/k/p/yearly/s/false/28.711499999999997/60/curve/false/country

World 51.6%

Pakistan 44.6%

India 56.1%

Bangladesh 41.7%

Bottom 40% national income share

https://wid.world/world/#sptinc_p0p40_z/WO;PK;IN;BD/last/eu/k/p/yearly/s/false/3.7324999999999995/17.5/curve/false/country

World 5.9%

Pakistan 13.8%

India 10.4%

Bangladesh 14.1%

Anonymous said...

Farad beta if Pakistan was so much better than India till the 1980s why is it that it has no heavy industrial base or scientific and research institutes of the sort India has?

Why can't it design and build its own brand of cars trucks buses vaccines etc?

Riaz Haq said...

Wealth of India's richest 1% more than 4-times of total for 70% poorest: Oxfam


https://economictimes.indiatimes.com/news/economy/indicators/wealth-of-indias-richest-1-more-than-4-times-of-total-for-70-poorest-oxfam/articleshow/73416122.cms

India's richest 1 per cent hold more than four-times the wealth held by 953 million people who make up for the bottom 70 per cent of the country's population, while the total wealth of all Indian billionaires is more than the full-year budget, a new study said on Monday.

Releasing the study 'Time to Care' ahead of the 50th Annual Meeting of the World Economic Forum (WEF), rights group Oxfam also said the world's 2,153 billionaires have more wealth than the 4.6 billion people who make up 60 per cent of the planet's population.

The report flagged that global inequality is shockingly entrenched and vast and the number of billionaires has doubled in the last decade, despite their combined wealth having declined in the last year.

"The gap between rich and poor can't be resolved without deliberate inequality-busting policies, and too few governments are committed to these," said Oxfam India CEO Amitabh Behar, who is here to represent the Oxfam confederation this yea ..

Riaz Haq said...

The United States had Rockefellers, JP Morgans, Carnegies, Fords and others who built American business and industry. Japan has Hitachi, Honda, Mitsubishi and other big names credited with building its business and industry. South Korea is home to recognized global giants like Samsung, Hyundai and others. A handful of individuals and families, aided by their governments, have played outsized roles in industrialization and economic growth in most major economies.

https://www.riazhaq.com/2018/05/history-of-pakistans-business-and.html

The captains of business and industry neighboring India are also a few known large families including Ambanis, Birlas, Hindujas, Jindals, Mittals, Tatas, and a few others. They have contributed to economic growth in their country.


Pakistan had the so-called 22 families which began the process of industrialization in 1960s but they were devastated by the 1971 war. What was left of their business and industry was nationalized by the PPP government led by Zulfikar Ali Bhutto in 1970s. Many of these families have since recovered and rebuilt and several new ones have now emerged. Their continued growth and Pakistan's economic progress depend largely on the continuity of business-friendly government policies in future.

Fahad said...

Mr.Anonymous

In 1960s ,PIA was the 2nd best Airline in the world after Penam(American Airline ), how were Indian Airlines performing at that time ,pls note that I am talking about aviation industry. How well has India performed in aviation industry ?. Pls note that after 1960s,the ranking of PIA ,fell but still it was ranked in the top 10 Airlines of the world in 1980s.

In 1960s, a high tension lab was setup in government colledge Lahore which was the only type in entire Asia.

In 1960s ,industrial setup was made in Korangi area of Karachi by President Ayub Khan and after that the economy of Karachi boosted .

In 1980s,Shipping corporation of Pakistan was ranked at 4th number . I hope you understand that Shipping corporations are part of shipping industry .

Take the example of textile industry which contributes to the economy of Pakistan to great extent ,out of 100% of the economy of Pakistan ,60% of the economy of Pakistan depends on textile industry .

The film industry of Pakistan was also performing well in Pakistan during 1960s and 70s.

Fahad said...

Anonymous

As far as automobile industry of Pakistan is concerned ,pls note that out of 100% of the auto parts and tools which are used in the cars of Pakistan ,more than 50 % of those tools and autoparts are locally produced in Pakistan .

Fahad said...

Mr. Anonymous

Pls note that even before partition of 1947, this part of sub-continent which is now called "PAKISTAN" was the least developed part in entire South Asia . Pls note that British before partition, have ruled that part of sub-continent which is now called "INDIA" more than this part of sub-continent called "PAKISTAN". They built railway lines, airports and sea ports, institutions and universities and also built factories in Eastern Part of India.

On this side of sub-continent(PAKISTAN), how many airports, sea ports, railway lines, highways and factories were built by British?

I am sorry to say but British gave most of the things to Indian politicians in plates, the Muslim politicians and leaders who played an important role in the creation of Pakistan, had no choice but to start from scratch. Pls note that their was huge shortage of administrative units and buildings in Pakistan during partition of 1947, many of the officials in Pakistan didn't had tables and chairs to sit on and work in offices. And pls note that Indian politicians had to allocate some amount to Pakistan after partition so that Politicians and Leaders in Pakistan could run and manage the affairs of the country but Indian politicians stopped the allocation of those resources and money to Pakistan.

Pls note that it is not easy to built a country from scratch. Also Pakistan has suffered from nationalization which Sir Riaz has already mentioned . Also the country had to face martial law . Has India ever faced martial law?

It was the responsibility of the Indian politicians to transfer the resources and amount to Pakistan after partition as British government wanted Indian politicians to do, because British had to leave the Indian sub-continent during 1947.

As far as Scientific Institutions are concerned, India already had base of Scientific Institutions even before partition of 1947. Banaras in India is well known for its Astrological Research and this research is going on their even before partition happened.

But you must also accept and appreciate the fact that at the moment Pakistan is the only and 1st Muslim country in the world which has a research station in Antartica. Also Pakistan is the only Muslim country in the world which has a space agency called SUPARCO.



The Indian Archeologist who discovered Mohonjo Daro in Sindh Province of Pakistan before partition was a Hindu and he studied Archeology in Indian University before partition.

Riaz Haq said...

Effect of Workers Remittances on Private Savings Behavior in Pakistan


by Rahila Munir, Maqbool Sial, Ghulam Sarwar and Samina Shaheen


https://www.researchgate.net/publication/227368264_Effect_of_Workers_Remittances_on_Private_Savings_Behavior_in_Pakistan


The worker remittances are an important component of national savings, increased enormously at the rate of 30 percent per annum during the last eight years (2000-2007) and be around $ 5.5 billion by June, 2007. With higher increase in worker remittances and rate of return on deposits the level of national savings would increase more.

Riaz Haq said...

The rise and rise of remittances
Mohiuddin Aazim

https://www.dawn.com/news/1602001


Remittances remained above the $2 billion mark in December 2020 for the seventh month in a row. In the first half of 2020-21, inflows totalled $14.2bn. The amount was about 25 per cent higher than $11.37bn received in July-Dec 2019.

----------------

But if a reasonable portion of remittances goes towards savings and investment, it will be more helpful and reduce our dependence on external borrowings.

The PTI government is trying to promote such savings and investment by facilitating and incentivising overseas Pakistanis to use their remittances’ accounts for investing in Pakistan’s debt, equity and mortgage markets. Long-term success of this policy, however, depends on close coordination of fiscal and monetary authorities and overall political stability.


RKS said...

Riaz Haq: "Wealth of India's richest 1% more than 4-times of total for 70% poorest: Oxfam"

Dear Riaz Haq, you need to realize that some of the India's rich own wealth equivalent to 10 to 30% of Pakistan's GDP. But the lowest rung of people as as poor as poorest Pakistanis. This kind anomaly can be expected. India is a combination of Pakistan and EU. So super rich exist side by side with super poor. Only difference between India and Pakistan, super rich missing from Pakistan- since that kind of economic activity is missing.

Fahad said...


Mr. RKS

Pls note that poverty in India is much higher than that of Pakistan. I can quote tones of articles written by Indian and Western authors who have shown concern over the issue of poverty in India. In "GLOBAL POVERTY" index, India had a share of 33%, it is the highest share any country had in "GLOBAL POVERTY" index. Do you know how much is the share of Pakistan in "GLOBAL POVERTY" index? Only 3%. Now you will say again that India is a huge country with huge population, so obviously their will be more poors in India as compared to Pakistan or any other country ,if you use this kind of excuse to cover up the growing issue of poverty in India, then pls note that China has even more population than India. China is the largest country in the world in terms of population and India is the 2nd largest country in the world in terms of population, so their should be more poors in China as compared to India but in "GLOBAL POVERTY" Index, China only has a share of 13% which is much lower than the share of 33% which India has in "GLOBAL POVERTY" index.

Pls note that Indians proudly claim to be one of the largest democracy in the world and also claim to be one of the fastest growing economy in the world, while keeping these claims in view, India shouldn't have this much poverty but it is surprising to know that India has such a severe level of poverty which is only their in poverty stricken countries like Ethopia, Gana and Congo which are located in Africa.

Also know that a nation or a country is not called progressive or developed ,if their is a huge gap between rich and poor. In India their is a huge gap between rich people and poors,also the middle class population of India is very small as compared to neigbhouring countries, specially as compared to Pakistan.

Fahad said...


Mr.RKS

It is true that multi-billionaries or millionaires in India have increased in the last few years but the question is that how much has India and its nation benefited from such rich and multi-billionaire people? You have Mithal and Ambani who are the richest people of India, but the question is that if they have really contributed in the economy of India, then why since B JP came into goverment, India is facing job crisis and huge shortage of jobs?

Since last few years, India is facing huge unemployment which the country hasn't seen in the last 45 years, even when Congress was ruling over India, unemployment wasn't as high as it is today.

Now you tell me honestly, if you really believe that economy of India is performing really good, then why doesn't BJP government releases the DATA OF UNEMPLOYMENT? Why BJP government is hiding and keeping secret the "DATA OF UNEMPLOYMENT"?

Do you know Mr.Surjit Bhalla? He was a member of Economic Advisory Council in India, in the last few years he resigned from his position, if Indian economy is performing really good then why Surjit Bhalla Sahab resigned from his position of Economic Advisory Council?

Pls note that even the Chief or Governor of RBI(Reserved Bank of India) which I think is the central bank of India, has resigned from his position.

Fahad said...


Mr.RKS

When Indians proudly make claims of something, then burden of prove lies on Indians to prove that why inspite of all the claims which Indians make about their economic growth, still India is suffering from huge poverty issues and suffering from other issues?

Pls note that India is a country which is suffering from multi-dimensional poverty. I hope you know what is multi-dimensional poverty.

samir sardana said...

Pakistan is still way ahead of India and Bangla.The 1% only control 9% ! Also note that they pay a third of the taxes - which funds the govtt salaries and the military (to the extent of the direct taxes).They also might be paying MORE than a 3rd of the Indirect taxes - due to their luxury consumption !

All these cars being made and sold,in Pakistan - are bought by the so called ELITE and their EMPLOYEES ! And all those cars CARRY VAT which CANNOT BE AVOIDED.Pakistan needs more of these ELITES,who set up industry and enterprise.The Political Elite,is a different story

They also account for a 3rd of the bank loans - which is what funds the savings rates of the Pakistani salaried and pension class ! dindooohindo0

India is in a doomed scenario !

Look at the COVID situation ! In Pakistan - the rich and the poor, are dying, inspite of equal efforts, to save their lives !

Look at India - the Oxygen Doom - ever heard of any tycoon dying in India,for lack of O2 ?

This is ELITISM - INDIAN STYLE !

The frames of the crematoriums used to BURN THE HINDOO DEAD BODIES HAVE "MELTED" ! YES - MELTED !

https://www.hindustantimes.com/india-news/covid19-frames-of-crematorium-furnaces-melt-due-to-rush-of-bodies-in-gujarat-101618306897681.html

8 COVID DEAD BODIES ARE BEING BURNT ON 1 PYRE

https://www.thehindu.com/news/national/other-states/8-covid-19-victims-cremated-on-one-pyre-in-beed/article34265996.ece

5 COVID DEAD BODIES ARE BEING BURNT ON 1 PYRE

https://timesofindia.indiatimes.com/city/surat/five-bodies-cremated-on-single-pyre-in-surat/articleshow/82094745.cms

DEAD BODIES BEING CREMATED ON ROAD PAVEMENTS

https://www.hindustantimes.com/cities/noida-news/furnaces-full-hindon-cremation-ground-gets-new-platforms-on-footpath-101618771287386.html

The Indians have just exported 60 million COVID Vaxes - with a profit of say 1.5 USD/vax. That is a 100 Million USD, lining the profits of some INDIAN ELITE ! The beauty is that the Indian VAX is being sold in the importing nation at less than half of the VAX MRP in India!

This is ELITISM !

Jiye Jiye Pakistan !