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Article on budget by Huzaima and Ikram
06-19-2006, 06:56 AM,
Article on budget by Huzaima and Ikram

ARTICLE (June 17 2006) Our budget-makers, it appears, are consciously or unconsciously, following the American model of economic development instead of the European while dealing with economic classes within the society.

The European governments in general and the Scandinavian in particular deplore the idea that people should remain mired in poverty so they have
initiated a number of welfare programmes to help those lagging behind enabling them to move up economically and socially.

They also resent the sight of rich families staying at the top and thus impose high taxes on them to redistribute wealth and income in their societies. On the contrary, our successive governments since 1962, following the American approach of free-for-all meritocracy started benefiting the rich through their
economic policies. Of late, the rulers of the day have started selling strategic assets at throw-away prices to so-called foreign investors.

Budget 2006-07 is reflective of towing the American approach of restless uncertainties of market-driven models. Our budget-makers could have followed the European approach that inherently deplores extremes of wealth and poverty.

In the European view, social stability is desirable and if a certain amount of inflexibility is needed to underpin it, that is a price worth paying to avoid the
perpetual class conflicts and restless uncertainties of market-driven models.

"No relief for the poor section of society" was the instant reaction of most of the Pakistanis after hearing the budget speech on the evening of June 5, 2006. The figures released by the government prove beyond any doubt that encouraging economic indicators of recent years, do not mean that desirable economic
transformation has been achieved - it is still a far cry.

The analyses done by independent economists and observers reveal that "foundations for improved economic performance" are largely based on external
assistance. "Growth" in the wake of September 11 is in fact attributable to generous lending and debt rescheduling by the international financial institutions, and remittances by expatriate Pakistanis (which constituted nearly 4% of GDP).

Since 9/11 they remitted nearly 20 billion dollars. It is an undeniable fact that General Pervez Musharraf's regime has failed to introduce fundamental economic restructuring required to ensure the sustainability of the current donor-induced consumer-oriented growth.

Since his coup of October 12, 1999, the General and his economic wizards have not paid due attention towards production-oriented growth and making the
economy self-reliant.

GROWTH WITHOUT EQUALITY The economic indication as projected by the government may be satisfactory and the claim of our Prime Minister-cum-Finance Minister that our per capita income is now at par with other middle-income countries can be correct. Yet the common man is still waiting to enjoy these "benefits".

Insurmountable inflation is making life harder and harder for the common people of this country. The cost of living, even for upper classes is becoming
unbearable (utility bills and burden of various taxes are the highest in the world). There is a general consensus that inflation is twice as high as quoted by
official quarters.

The extremes of rich and poor are squeezing out a true middle class - a sizeable segment is being pushed below poverty line on daily basis. Budget 2006-07
testifies to the thinking of elitists who believe in "growth" without equality. Their definition of "wonderful economic performance" excludes any share
for the Pakistan's poor.

Inequalities are growing - so everyone is not reaping the benefits of economic recovery. The stock market and real estate profit-making are reflective of
non-budgetary support given to federal government because of its role in "war against terrorism" (sic). The growth in economy is largely due to import of
consumer goods (which include 60 porches cars!), boom in stock market due to speculative transactions and consumer-oriented spending.

In agricultural sector which is mainstay of economy productivity has, in fact, fallen, creating joblessness and frustration. The mundane reality is that due to rising tide of inflation and increase in gasoline prices, ordinary people cannot afford even every day food consumables - not to talk of sugar which the ruling mafia has converted into "white gold". What makes the situation worst is persistence of unprecedented wasteful non-development expenditures.

The current expenditure demand for Prime Minister Secretariat is Rs 538.751 million, and its Inspection Commission Rs 20.250 million, Staff Household and
Allowances of the President Rs 290.244 million, for NAB alone Rs 797 million and National Assembly Rs 1005.933 million, just to mention a few. It is shocking to note that for servicing of domestic debt the government will require Rs 190,785,072,000, for servicing of foreign debt Rs 48,720,712,000 and for foreign loan repayment Rs 56,335,998,000 in financial year 2006-07.

Does we still need any proof to show that our rulers are wasting national revenues and resources on non-development and wasteful expenditures? They have yet not learnt to live within means, the figures relating to domestic debt and its servicing and new loans of billion of dollars are simply horrifying.

Due to wasteful expenditure on current account and deficit financing, there emerges an artificial lack of funds for investing in social projects benefiting the
poor. This is the story of our economy in short. So we need more loans for development and social sector spending.

It is saddening to note that our IMF-World Bank-imposed financial wizards in the budget resorted to promote free-market economy and privatisation of strategic national assets that will have more and more disastrous results for poorer segments of society. The tilt of the entire budgetary scheme is towards
promoting interest of the rich and mighty.

Our policy-makers could have learnt a lot from Nordic countries which are emerging far more vibrantly both socially and economically compared to America and others.

At this juncture of history, Pakistan needs class stability to avoid chaos, civic strife, lawlessness and religious obscurantism (we have intentionally avoided the term "terrorism" which is an American foreign policy offensive to control and impose the New world Order).

Two new studies reported by The Economist (May 27-June 2, 2006) confirm that if one compares the incomes of children with those of their parents, or consider how long people in one income group stay there, Nordic countries emerge as far more mobile than America. Britain shows more class stability than its northern neighbours, but it is still much closer to them than it is to America.

The authors rank countries on a scale from one to zero, with 1 meaning no mobility at all (ie a child's income is identical to its parents') and zero meaning
perfect mobility (ie a child's income bears no relation to its parents').

The Nordic countries score around 0.2 for sons, Britain scores 0.36, and America 0.54 (meaning that a son's earnings are more closely related to his father's in America). These figures are roughly in line with the conclusions of other studies, though they have the advantage of using standardised data, thereby minimising problems of definition that usually bedevil cross-country comparisons.

The biggest finding of the studies is not, however, about over-all social mobility, but about mobility at the bottom. This is the most indistinctive feature of Nordic societies, and it is also perhaps the most significant difference with America. Around three-quarters of sons born into the poorest fifth of the population in Nordic countries in the late 1950s had moved out of that category by the time they were in their early 40s.

In contrast, only just over half of American men born at the bottom later moved up. This is another respect in which Britain is more like the Nordics than like
America some 70% of its poorest sons escaped from poverty within a generation.

The Nordic countries are distinctive in one further way the sons born at the bottom (into the poorest fifth) earn roughly the same as those born a rung above them (the second-poorest fifth).

In other words, Nordic countries have almost completely snapped the link between the earnings of parents and children at and near the bottom. That is
not at all true of America.

Social mobility at middle-income levels is more similar everywhere (it is a bit higher in most European countries, but not by much). That may partly explain why Americans think their society is more mobile than it actually is (the middle classes tend to set the political agenda, and mobility is genuine enough for them).

It may also explain why few Europeans appreciate quite how much movement up and down the income ladder there is, because much of it takes place off the radar screen of the politically influential.

The obvious explanation for greater mobility in the Nordic countries is their tax and welfare systems, which (especially when compared with America's) deliberately try to help the children of the poor to do better than their parents.

One might expect social mobility and economic flexibility to go together - in fact, to be two sides of the same coin. But to the extent that redistribution is an explanation, it implies the opposite that social mobility is a product of high public spending, a bit like the low incidence of poverty or longer life expectancy (on both of which Europe also does better than America).

But greater public spending tends also to be associated with less economic flexibility - which is why Nordic countries have sought to limit the more arthritis-inducing features of their tax-and-spend programmes.

Yet redistributive fiscal policies alone cannot bring such results. If they could, Nordic countries would not do as well as they do (their welfare states are not appreciably more generous than Britain's). The other part of the explanation seems to be their superior education systems.

Education has long been recognised as the most important single trigger of social mobility - and all four Nordic countries do unusually well in the school-appraisal system developed by OECD.

"That in turn may explain why the bigger continental European countries, notably France, Germany, Italy, are not as mobile as the Nordic ones. With relatively poor education systems, they are bound to perform more like Britain. But that still makes them socially (if not economically) more flexible than the land of the free".

For, Europe, the secrets of greater social mobility are, first, tough redistribution policies that particularly benefit those at the bottom; and, especially in Nordic countries, a more supple and less class-ridden education system, running from top to bottom.

Our economic wizards could learn something from this but for them it is more important to go for the free-for-all economic American model. Education in Pakistan is not only very expensive now but it is also pathetically poor in quality.

If we judge our policies in the perspective of the above two studies, it is more than obvious that Budget 2006-07 is totally oblivious of redistributive fiscal policies and social welfare programmes for social mobility. Our poor has been given so-called "economic relief package" by way of mercy.

The relief (sic) is only of cosmetic nature and there is nothing in the policies or budget that aims at helping the poor to move upwards. Education is still at the lowest level in our state policies. Our education system is worthless. The federal and provincial governments must realise that it is not only spending more money on education that matters but how to use the entire system as an effective tool for social mobility.

There is a complete lack of understanding of this perception on the part of our rulers and the result is that poor segments of society are condemned to remain
mired in abject poverty and their children will have no chance to move up as education is either not available to them or is of no practical use.

Budget 2006-2007 is yet another routine exercise of balancing the books (that too by window dressing). We need meaningful redistribution policies that
specifically benefit those at the bottom. There is nothing in the Budget 2006-2007 towards achieving this goal. It is, as usual, a disappointing document.

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