Growing inequality worries businesses

By Afshan Subohi
Published in DAWN on January 10, 2022

THE business community is worried over the deepening and widening income/asset disparity in the country as the resulting social and economic discontent may ignite unrest and, in turn, threaten businesses and their future outlook.

Business leaders partially blame the elite for the malaise, but hold the government responsible for the growing rich-poor gap. They appreciate the Ehsaas programme but do not believe it can arrest the alarming trend that can inflict a massive blow to an already torn society and the struggling economy.

Some business leaders pointed out the under-utilisation of resources in case the disparity persists, compromising the nation’s development prospects.

They have their doubts about the relatively better placement of Pakistan in the global inequality index and blame the habit of wealth concealment among the asset-owning classes for the unrealistic depiction of reality.

The recently released ‘World Inequality Report 2022’, based on the latest data, observed that income and wealth disparity had been rising globally since the 1980s. It pointed to the “increasing grasp of wealth in a few hands, exacerbated by the Covid-19 pandemic, with the world’s richest 10 per cent owning three-quarters of global wealth”.

The report attributed the trend to a series of deregulation and liberalisation programmes. The evidence gathered also showed that over the past 40 years, nations have become richer, but governments have gone poorer. It also noted considerable gender disparities.

A few years ago, Pakistan stopped reporting income and regional disparities in its annual assessment of the economy in the Pakistan Economic Survey. The issue has been hammered over the year, but neither the country’s economic team shared the wisdom behind dropping a key indicator nor bothered to resume the practice.

Corporate leaders fear that the nation’s development prospects might stand compromised as charity alone cannot address the emerging complexities

The Pakistan National Human Development Report 2020 of the United Nation Development Programme also highlighted the issue of inequality, floating the idea of two separate Pakistans: one with limitless opportunities to pursue quality education, secure responsive healthcare, and living luxuriously off generational wealth for the rich; and the other for the poor with sketchy access to even the bare minimum. It noted: “Overall, the total privileges enjoyed by Pakistan’s most powerful groups amounted to Rs2,660 billion in 2017-2018, equivalent to 7pc of the country’s GDP”.

Musadaq Zulqarnain, Chairman of the Interloop Group, found inequality in Pakistan increasing at a worrisome rate. He did not shy away from the part his class played in creating the mess but felt it is the system that is at fault for letting the powerful abuse their financial muscle.

“The key responsibility is that of the government which has provided opportunities for the elite capture. The amnesty on real estate is an example that has not only provided cover to untaxed income and black money but also provided a chance to the elite to double the worth of their assets while the poor are striving for two square meals. The elite class is also responsible for neither paying proper taxes nor investing in industrialisation which can generate employment. They are happy to make money through real estate.

“The business class needs to worry as money is diverted to non-productive activities and the unrest created by disparities is harmful to business,” he said.

Saquib Shirazi, Chairman of the Pakistan Business Council and CEO of Atlas Honda, who also sits on several boards, found the issue rather problematic because of the narrow fiscal space available currently that limits the scope of the government intervention.

In his opinion, the social security net extended by the Ehsaas Programme benefitted the vulnerable rural population more than the urban poor, particularly during the pandemic. “In the West, the low-salary class not enjoying social welfare cover and people who lost livelihood to the pandemic were helped generously; so generously that in order to get them back to work, the employers had to improve their pay and perk packages!

“The onus of creating a more equitable society is on the state, but in a mixed economy, the burden has to be shared by the key stakeholders. The focus needs to be on skill development of youth from lower-income strata to help them qualify for better jobs,” he concluded.

Chaudhry Mohammad Saeed, a former president of the Federation of Pakistan Chamber of Commerce and Industry, was of the opinion that the gap had increased because more and more businesses were making it big, whereas the workforce had not seen significant quality improvement. In fact, it has deteriorated in some sectors. “Pakistan is ranked the lowest in the global labour efficiency index,” he reminded, arguing that it was the middle class that had faced the brunt of back-breaking inflation despite often working multiple jobs.

Khurram Mukhtar, CEO of Sadaqat Ltd and patron-in-chief of Pakistan Textiles Exporters Association, shared an interesting opinion. He thought that rising inequality had more to do with the transforming world of business where the return on investment in technology is better than the human capital, and believed that the low efficiency on the part of the workers was contributing to the increasing rich-poor divide.

“The last year was exceptionally good for the corporate sector, and it must have improved the country’s standing on the inequality index. The income of workers and skilled professionals increased owing to manufacturing growth.

“The existing regulatory framework is outdated and could not safeguard the interest of all stakeholders. It offers options for tax evasion through wealth concealment or misreporting. To reduce the income gap, the policymakers will have to promote skill development,” he said.

It is pertinent to mention that Pakistan is not bracketed with ‘the most unequal nations’. The World Inequality Report 2022 has assessed Pakistan to be relatively better than most nations in this regard.

Almost everyone reached for comments perceived Pakistan to be more unequal than the said report suggests. The distorted picture is attributed to under-reported wealth in private hands.

“The culture of income and wealth-concealment is deeply entrenched here. The tax system harasses honest tax-payers and rewards tax-evaders. Every few years, amnesty schemes are designed and implemented to legalise the ill-gotten or hidden wealth. Except for the salaried class whose tax is deducted at source, no one pays what they actually owe to the government,” commented a business-watcher.

“It is the fear of the taxman, the history of dishonesty and the hassle of keeping pace with complicated formalities of recording income and assets that together dissuade people from coming clean on taxes,” said Saquib Shirazi.

Chaudhry Saeed blamed the lack of trust on the government for high tax avoidance and evasion.

The response of federal Human Rights Minister Shireen Mazari did not reach Dawn till the filing of the report, but Rabiya Javeri Agha, Chairperson of the National Human Rights Commission, told Dawn that the charity alone cannot resolve the issue of wealth and income disparity in the country.

“Pakistan needs to address economic inequality through proactive rights-based interventions for sustainable, long-term uplift of the vulnerable,” she said.

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