CORRUPTION, DEVELOPMENT, AND INCOME DISPARITY ...

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1 Graduate of BSc in Business Studies, School of Business And Trade; Pilatusstrasse 6003, 6003 Luzern, Switzerland 1 Student of BSc in Civil Engineering, Faculty of Science and Engineering, Sonargaon University; 147/I, Green Road, Panthapath, Dhaka 1 Student of LLB(Hon’s), Faculty of Law, Dhaka International University; House # 4, Road # 1, Block - F, Dhaka 1213 1 Student of BSc in Physiotherapy, Faculty of Medicine, University of Dhaka; Nilkhet Rd, Dhaka 1000 CORRUPTION, DEVELOPMENT, AND INCOME DISPARITY IN PAKISTAN 1 S M Nazmuz Sakib (Orcid- https://orcid.org/0000-0001-9310-3014) ([email protected]) ABSTRACT: Corruption and income disparity have positive correlation and negative impact on Sustainable growth and development. Corruption is the root cause of income inequality. Corruption of all kinds are deeply incorporated in every sector of Pakistani Institutions. Corruption leads to many discriminations in a society where wealthy individuals get wealthier while the marginalized people remain poor. Previous Research also reveal that Income inequality may rise in democratic regime than in Authoritative one. Current study shows the direct relationship between the corruption and inequality and its impact on the Overall Growth and Development of Pakistan. In order to achieve inclusive growth, it is recommended that effective policies should be adopted so that corruption and income disparity could be eradicated. Key Words: Corruption, Income disparity, Sustainable development, Inclusive growth, Democratic regimes. INTRODUCTION: In the beginning of the 19 th century more than 80% of the world was in extreme poverty but then in 1975 the world became divided into rich and poor with rich being 10 times wealthier. Then as S M Nazmuz Sakib is an eLearning expert and done more than 500 MOOCs or Massive Open Online Courses and experienced as an instructor in sites like Udemy. He has completed his BSc in Business Studies from School of Business And Trade, Switzerland with CGPA 4 in the scale of 4 and 97.06% grade marks on an average. He is also a certified Google IT Support Professional, Google Data Analytics Professional and IBM Customer Engagement Specialist Professional.

Transcript of CORRUPTION, DEVELOPMENT, AND INCOME DISPARITY ...

1Graduate of BSc in Business Studies, School of Business And Trade; Pilatusstrasse 6003, 6003 Luzern, Switzerland 1Student of BSc in Civil Engineering, Faculty of Science and Engineering, Sonargaon University; 147/I, Green Road, Panthapath, Dhaka 1Student of LLB(Hon’s), Faculty of Law, Dhaka International University; House # 4, Road # 1, Block - F, Dhaka 1213 1Student of BSc in Physiotherapy, Faculty of Medicine, University of Dhaka; Nilkhet Rd, Dhaka 1000

CORRUPTION, DEVELOPMENT, AND INCOME DISPARITY IN

PAKISTAN

1S M Nazmuz Sakib (Orcid- https://orcid.org/0000-0001-9310-3014) ([email protected])

ABSTRACT:

Corruption and income disparity have positive correlation and negative impact on Sustainable

growth and development. Corruption is the root cause of income inequality. Corruption of all kinds

are deeply incorporated in every sector of Pakistani Institutions. Corruption leads to many

discriminations in a society where wealthy individuals get wealthier while the marginalized people

remain poor. Previous Research also reveal that Income inequality may rise in democratic regime

than in Authoritative one. Current study shows the direct relationship between the corruption and

inequality and its impact on the Overall Growth and Development of Pakistan. In order to achieve

inclusive growth, it is recommended that effective policies should be adopted so that corruption

and income disparity could be eradicated.

Key Words: Corruption, Income disparity, Sustainable development, Inclusive growth, Democratic

regimes.

INTRODUCTION:

In the beginning of the 19th century more than 80% of the world was in extreme poverty but then

in 1975 the world became divided into rich and poor with rich being 10 times wealthier. Then as

S M Nazmuz Sakib is an eLearning expert and done more than 500 MOOCs or Massive Open Online

Courses and experienced as an instructor in sites like Udemy. He has completed his BSc in Business

Studies from School of Business And Trade, Switzerland with CGPA 4 in the scale of 4 and 97.06%

grade marks on an average. He is also a certified Google IT Support Professional, Google Data

Analytics Professional and IBM Customer Engagement Specialist Professional.

years past those poor countries emerged as developing economies and income disparity began to

rise sharply. The countries began to become richer and richer every year making the other countries

poorer, hence increasing the income gap.

This difference in income distribution sprung due to international and domestic policies.

Internationally globalization has been the most important reason for income disparity. The era of

globalization was when countries connected with each other through trade, technology, migration

and massive financial system integration. Globalization created awareness of rich countries’

income that led to discontent in poor countries due to which poor countries tend to aspire for more

even though they grow gradually, creating a perception of deprivation. With trade came multiple

opportunities to utilize the inputs in the most efficient ways. Firms get the opportunities to

reallocate their production in other areas of cheap labor and export their goods throughout the

world. This offshoring of production led to the notion of Foreign Direct Investment, hence

integration of financial markets.

Domestic policies include health and social benefits, education and utilization of natural resources,

this improper utilization of resources is corruption. The economics of corruption deals with the

misuse of public power of officials representing a nation for their personal benefit leading to a

detrimental economic impact on the society. It leads to misallocation of resources in many sectors,

for instance, in finance, health care, education and avoidance of taxation consequently affecting

the GDP of a country. To begin with corruption affecting in financial sector could be of the form

that the foreign direct investment pouring into a country is not being used properly in the country’s

project rather its filling up the pockets of the officials handling it. This will lead to investors to opt

for an environment that is fair and have a competitive business market. Also, corruption can cause

distortions in the market mechanisms by manipulating the prices of goods by bribing officials. As

a result, the education and health care system cost increases and the quality deteriorate.

Moreover, corruption is associated with tax evasion, so the income generated by businesses within

a country is not included in the GDP calculation. Hence all these factors negatively impact the

GDP of a country.

In some countries, corruption influences elections. Corruption emerges when the government

borrows money from businesses, to run election campaigns and after the elections are over, they

protect the interests of their respective businesses.

Corruption and Income disparity in Pakistan:

Pakistan is a developing country having population of 216.6 million and facing many socio-

economic challenges. The growth Rate of Pakistan is deteriorating over the passing year.

Corruption usually takes place in society where is problems like poverty, political instability,

limited accountability, terrorism, little transparency in government operations all these collectively

weakens the institutions (Muhammad Aman Ullah C. U., 2021).

The scale of Corruption usually higher in developmental projects and Schemes, mainly defense,

public sector cooperation’s and bank write offs.

According to one estimate the loss made to national treasury is over 20 million per Annum. This is

caused by the departments of the Government, most prominent of all are reported by transparency

international as in National perception Survey are:

1-power Sector

2-Tax customs

3-law enforcement and police

4-Health and education

5-Land Administration

Corruption is one of the major issues in Pakistan, Every Institution directly and indirectly involves

in corruption. Human behavior is mainly determined by the norms, perception, and values. (Robert

Edward Dowse, 1986). Due to which resources are not being efficiently used and all the resources

are being incurred by the elites and the marginalized segments being unaffected and untouched.

Figure :1

Pakistan National corruption Perception survey (Institutions)

S. No Years

2009 2006 2002

1 Police Police Police

2 Power Power Power

3 Health Judiciary Taxation

4 Land Land Judiciary

5 Education Taxation Custom

6 Taxation Custom Health

7 Judiciary Health Land

8 Local

Government

Education Education

9 Custom Railway Railway

10 Tendering Bank Bank

Source:http://www.Prof-Pakistan.com/2009/09/24/TransparencyInternationalPakistan Highlights.

Moreover, Corruption provoke poverty, which hampering the process of the growth and

development. Developmental states have powerful, autonomous, stable, and competent

bureaucracy which is not influence by any political party. On contrary, Pakistan failed to reform

the structure of bureaucracy. Moreover, Corruption provoke poverty, which hampering the process

of the growth and development.

Figure:2

Survey on Causes Of corruption -Mega and petty

Lack of Accountability 31.68%

Low salaries 16.54%

Monopoly of power 16.43%

Discretionary power 12.61%

Lack of Transparency 9.97%

Power of influential people 4.49%

Red Tapism 4.28%

Others 4.8%

Source: NACS -NAB, Government of Pakistan

Yet there is rising the trends of Corruption in the earlier years but later, the mode of corruption is

decreasing. This is due to several reason, like the proactive work of NAB and anti-Corruption

agencies of Pakistan. Pakistan also improves its score to 32. However, Statistics of SAARC shows

that Pakistan has the highest ratio of Corruption. Pakistan needs the structural reforms of its

institutions and need clear accountability.

Due to continuous failure to control the mode of corruption foreign investor feel reluctant to give

add to Pakistan (Diamond, 1994).

Corruption is the main cause growing inequality and affecting the marginalized segment of the

society and weak (soft and Hallow) states thrive the disorganization and poor relationship among

the specific group with the Authority (Muhammad Aman Ullah T. A., 2011).

Developmental states have powerful, autonomous, stable, and competent bureaucracy which is not

influence by any political party. On contrary, Pakistan failed to reform the structure of bureaucracy.

According to (Transparency international ,2018) Pakistan is among 117 out of 180 countries in

term of CPI.

Figure:3

Corruption Rank in Pakistan,2010-2020

Source: Transparency international

This shows the enhancement of country’s ranking on the index basis during last ten years. As

Pakistan was ranked 139 in 2012, and in 2017 it was 117, which seems like corruption is decreased

over the past five year that shows a positive significant (TI,2018). Figure 3 shows the trends of

corruption in Pakistan over the last few years. This figure illustrates the fluctuations over the

years, the increase in corruption were mainly due to the poor governance and corrupt bureaucrats,

this also hindered the domestic and foreign investment.

Rise in income Disparity

Gini coeefient is most reliable method to calculate the income disparity and using gini coeffient

calculated from primary hose hold data or group data.

(Jamal, 2015) Reported that during 1987-1988 to 2012 -2014 income disparity is increases 6%,2%

and 8.7% in Pakistan as a whole,both urban and rural are included in this .The income disparity of

20% population has increased to 5.7% . According to the report published by (UNDP, 2016) the

income of upper quintile grew by 31.7% as compred to the 4.1% growth in income of poorest 20%

during the last 20 years.

Aziz Sugested that inequality can be controleed by effective fiscal policy and making polocies that

encourage eduactyion,health and better living standard .Bu in case of Pakistan where the initail

distribution of land highly skewed towards the ruling class by left behind the marginalized

segments of the society . (Hasan, 1997) Concluded that over the last decades income disparity

snapshots the disasterous distribution which is due to several raesons .Depsite the land reforms

inequality in Agricultural sector couldn’t be controll.Secondly, the industrail class also the reason

behind the rise inequality ,where some industries are protected and exempt the proption of tax.

Figure:4

Regional wise Income disparity

Gini Coeffiecent

0=perfect equality ;100=perefect inequality

31

Total income earned by richest 20% of the

population

41.1%

Total income earned by poorer 20% of the

population

9.5%

Poverty Rate(National) 34.0%

Urban poverty rate 28.0%

% people living less than 1$ a day 31.0%

% people living less 2$ a day 84.7%

Source :UNDP ,2017

Figure 4; demonstarte the wide range of disparity among different social status ,41 % of wealth is

concentrated in the hands of rich ,While poor contains only 9.5 %. Morever the Richest 20% of

Punjab have GDP of 5.2 and HDI of 1.6 which is greater than the 20% of poorest population.

Converely ,Inequality among province varies ,As Sindh is a trading hub the richest 20% of sindh

population have GDP of 5.8% and HDI of 1.8% greater than poorest of 20% of population.The

province experinces the increase in income inequality from 2006-2016 after that the difference

between the rich and poor quintiles decrease .Sindh also have increase inequality in education but

life expectancy seems equal within Sindh.

According to the (Pakistan, 2004) Inequlaity moves in two directions ;Vertical ,which is among

the individual of the society and Horizontal .which among group of any society .These groups are

unequal interm of social economic status.

(Pacific, 2007)Reported that poverty prevails more in rural areas than in urban areas because of the

deprivation inadequate facility and emergence of inequality . Conculded that there is unequal

distribution of income in Urban areas of Punjab,where the gini coeffiecient is highest among all

in year 1987-1988 to 2013-2104 having 5% .Income equality also increase in rural

punjab.Moreover,the income disparity also increase in Balochistan and KP by 28 %,26%.Emprical

results shows that income inequlaity is incraeses in rural areas of sindh,KP,balouchistan and

Punjab.Reported that overall there is increase in regional disparity mainly income diaprity in recent

years (Pasha, 2018).

Figure:5

Source :World development Indicators 2002 (The world Bank ,2002)

LITERATURE REVIEW:

(Solimano, 2001) states, the expansion of global inequality is driven by increases in global

inequality rather than changes in local inequality. The staggering growth in real income, material

wellbeing, and the pace of specialization, especially in high-end economies that are only a century

and a half away, has led to complex examples of territorial consolidation, gaps in GDP per capita.

The misuse of power to gain private benefit prevail in a society like Pakistan, This has reached in

every segment of the society (Javaid, 2010).Religion play important role in Pakistan, but according

to the paper there is mismatch between the religious ethical values and Corruption they confront.

(Muhammad Aman Ullah E. A., 2020).The issue of inequality is important phenomena since

1960s,Since number of attempt has made to measure the expenditure or income inequality using

Household Income and Expenditure Survey (HIES) (Anwar, 2003).The wide spread of poverty

Pakistan is due the poor governance and income inequality also there is a positive correlation

between the poverty and income disparity in both short and long run (Zainab Akram, 2011).

(Zeira, 1992) analyzes income distribution through investment in human capital, the distribution

of wealth completely affects all financial activity. Furthermore, in terms of the diversity of

investments in human capital, these influences have also been passed down a long time ago.

Therefore, growth is influenced by the potential distribution of wealth, or more precisely by the

percentage of people who have acquired large amounts of wealth, which allows them to invest

resources in human capital. In summary, from a macroeconomic perspective, the test shows that

the distribution of wealth and wages is important. They affect production and investment in the

short and long term, as well as examples of adaptation to exogenous vertigo. Therefore, we strongly

believe that this link between wage distribution and macroeconomics will prompt further research

in the future.

(Thomas Piketty, 2017)It has also been argued that the share of labor has decreased in the total

income of the developed countries as capitalists own the major share of national income. Along

with, the rise in the share of capital, the earnings of labor are also responsible for the inequality as

incomes of high skilled labor have increased greatly relative to the earnings of low-skilled workers.

(Farooq, 2013)reinvestigated the impact of corruption on economic growth by incorporating

financial development and trade openness in growth model in case of Pakistan and concluded that

corruption hinders economic growth by having feedback effect between both countries. Also,

where corruption is common the foreign investors withdraw their investments as there is more risk

than benefit although it could be easier to get away with its Keeper 2010).

(Jong-sung Y, 2005)discusses the bidirectional link between corruption and inequality. As

inequality increases the wealthy have both more opportunity and are more prone to engage in

corruption, whereas the poor are more vulnerable to extortion and are helpless when it comes to

holding the rich and powerful accountable. In corrupt countries, inequality also adversely affects

the norms of the society as it gets their work done without any obstruction thereby changing their

belief on rules and institutions and accepting corruption. Consequently, the procedure of

government expenditure is disturbed; more tax money is spent on large projects like airports and

highways rather than spending on health and education.

The World Bank’s World Development Report of 1997 stated that without an honest state

“sustainable development, both economic and social, is impossible”. Similarly, (Kaufmann, 1998)

revealed a survey in which officials on higher positions from more than sixty developing countries

classified corruption as “the most severe impediment to development and growth.

This paper focuses on corruption being an important aspect in determining income disparity or not.

The work of Amanullah is reinforced by including underdeveloped and a few developing nations

with more recent data up to 2018.

Why Corruption and inequlaity are worse ?

The correlation between corruption and inequality has been largely analysed in a litearture that

both have negative impact on economic growth ,by distrubing the income distribution

process,foreign aid and decision on public expenditure.Inequlaity aslo provoke the elites to do

corruption and hold the political and economic process. (Zúñiga, 2017). Corruption and Inequality

both are the consequent of the bad social structure and creating a vicious cycle which then

negatively impact the growth and development. (Warburton, 2001).Income inequality led to

“Saving glut” As rich are saving more as increased in their earning and poor will have spent more

as increase in inflation. As increase in saving leads to fall in interest rate which further rise in assets

price and increase the borrowing and it is harder for central bank for management of economies.

Corruption tend to reduce the investement on public spending and the infrastructure of the country.

Persistent inequlity in income and resouce ownership may have negative impact on individual

opporturnity ,people rather do workhard they often go for favour and corruption ,collectively leads

to the un desirable outcomes (IMF,2017).Likewise ,Inequlaity in health ,education and other socio-

economic factor may left some people deprived (Galor, 2004).

Moreover ,corruption of any kind may hampering the process of development ,In Pakistan there

are a lot of developmental projects that has been not implemented because of the corruption and

inequlaity that is commomly circulating in our society. Government intiative towards the reducing

inequality usually politically infulence so it is short lived and had no longer impact (Rajan,

2011). Inequlaity in Education and health and other socail opportunities may lead to deprivation in

a society .While stuying the case of Pakistan,It is Found that our Society is deprived of basic social

and Ethical Values and Norms. The powerful elites that ruling on us extracted all wealth for their

priavte interest.Basically ,Pakistan has extractive institutions and the income inequlaity and

corruption are their by product .As in extractive instituations all of the resouces are occupied by

the rich people which due to lack property rights and accountability.

Figure:6

The self -perpetuating cycle of everyday corruption

Source: By Sean Roberts (changing corrupt behaviors assessment: addressing everyday corruption)

Relationship between Corruption and income disparity with Economic

Development, Hypothetical evidence:

HYPOTHESIS 1: Greater Inequality is associated with higher number of corruption and

hampering the growth and development:

However, the impact of Corruption and inequality has different consequences to democratic region.

In Authoritative regimes, the rich and powerful use or manipulate the resources according to their

interest. In advance democratic nations oppression as a substitute for corruption cannot be use, so

rich rely more on corruption, inequality increase, and the redistribution pressures goes increasing.

On average the inequality on corruption would more in democratic nations than Authoritative

regimes. This Hypothesis directly implies to Pakistan, where the Consumption of richest people

are 1.5 % more than 72million poor people. (Zofeen T. Ebrahim, 2015). In Pakistan a large number

of people usually sell their votes in exchange for money ,Mostly happened in the rural areas of

Punjab ,KP, and Sindh where the hold of feudalism is so strong .These influential people will buy

votes to maintain the status quo of inequality .Societies fall in to the vicious cycle Corruption and

income inequality .Consequently ,this widening inequality causes long-tern negative impact on

human development .Many Current studies shows that COVID-19 created more inequality in

Pakistan ,especially for the daily wager and contractual labor. Overall, during pandemic inequality

officials Suplements

icome by asking for

bribes

Citizens give bribes to get state service

Tax aviodance

Insufficient State budget

Ineffective governace and poor

state salaries

rose substantially, as some income group maintain their income and made high profits. Whereas

the poorest 20%, most of them lost their jobs. Increase in income inequality is marginal, the rising

trend of inequality needs highest attention and action by the government.

HYPOTHESIS 2: The adverse effect of inequality on Corruption is greater in democratic regimes:

This is because the election is more susceptible to clientelism and democratic political policy

making are usually capture by special interest than their Authoritarian counterparts are. Moreover,

In Authoritarian regime, they don’t conduct the competitive elections and have weaker grounds for

clientelism Politics. Their policy process are centralized and have less scope for capture.

Nonetheless, the level of corruption differs both in democratic and authoritative regimes.

In case of Pakistan, Because of the political and economic instability. Moreover, the unequal

distribution of wealth in Pakistan is a serious problem. The weak growth of political institutions

and uncertainty in the continuity of democracy regimes in Pakistan has serious consequences for

economic growth and inequality. The large growing corruption and inequality in Pakistan

distressing the socio-political situation. As Pakistan is a youth bulge, the government is failed to

provide employment to them. As a Result these youth are more vulnerable towards crime,

corruption and religious extremism .Moreover ,due to regional disparities ,people in Baluchistan

facing sense of deprivation leading insurgency .The fact is that path towards democratic

dispensation involves democratic culture of equality for each of the Citizens .But the leaders in

Pakistan increasing inequalities on the basis of social structure ,beliefs .No wonder democracy has

become a contentious issues (Rehman, 2015) .

HYPOTHESIS :3 The perception and acceptability of corruption is higher in more unequal

societies, usually the developing nations:

This is what happening in Pakistan, where the weak Bureaucratic structure allow people to do more

corruption, which is the prerequisite of all inequalities that is emerging in our societies. Corruption

in a society creating unequal distribution of wealth and deprivation other socio-economic factors.

In conclusion, all the above hypothesis shows that there is positive relationship among the

corruption and income inequality and hampering the development process.

CONCLUSION:

In conclusion, there is a significant relationship between corruption and inequality. Corruption may

also be likely to induce the existing inequalities, Country may then tarp in a vicious cycle of

corruption and inequality. In Pakistan, the income disparities and corruption are deep-rooted which

are a big threat towards the sustainable development and growth. Moreover, corruption has

prevailed for quite a long time which has collapsed the judicial system of Pakistan. Petty bribes

and corruption in public procurement process and private investments are the common forms

prevalent. The grants and loans that Pakistan receives from international agencies do not fulfil its

purpose. As a result, the government institutions are not developed, be it educational, related to

health or infrastructural. It is also found that income inequality increases in more democratic

regimes. Higher Income inequality has observed in the rural areas of Pakistan than in Urban,

Baluchistan and FATA have highest level of income inequality than another province. Pakistan is

one of the countries that is deeply involved in the vicious cycle of corruption. It has been listed as

the world’s most corrupt country according to the CPI (Corruption Perception Index). The country

had practically institutionalized corruption as the foundation of governance. So, it is evident that

corruption has become a norm in Pakistan, therefore making the rich richer and the poorer even

more poor. On the other hand, In order to be rank low in corruption and in inequality, it is much

need to implement strict measures in combatting corruption. Anti- Corruption Board has to be

independent from other governmental bodies who has taken steps to create awareness in the

governmental bodies to execute the laws and regulations smoothly. Their job was also to regulate

financial transactions, both domestic and foreign on every three years. Also, it has strengthened its

administration using technology since it makes work efficient and transparent. The media also helps

by conducting corruption control programs for businesses which creates awareness among the

citizens. International agencies have made major efforts to promote transparency but despite of that

we see some countries especially the poor ones have not much impact on it due to lack of

accountability.

POLICY RECOMMENDATIONS:

Corruption is like a disease; treat it before it harms you. As in Pakistan corruption has become a

norm, bribing the officials is not believed unethical as it has become part of their culture which

makes it difficult for the accountability institutions to perform.

One way to combat this disease is to stay united with the all the administrative units i.e., the federal

and provincial governments should work together. The disunity between units makes officials feel

neglected and then they go find other ways to fill in their pockets. Secondly, all payments should

be made transparent and the best way to do is to make use of technology wherever possible which

will make monitoring easier since these tools are hard to tamper with. As (Benjamin A. Olken,

2011) say that there should be monitoring to the grassroot level by involving regular citizens to

keep a check on their officials. Corruption is mostly in the form of tax evasions and public resource

allocation and this can be detected by making it transparent through conducting frequent audit.

Because corruption is not something that can be detected in a day nor it can be dealt with overnight.

Last but not the least the officials should have a political will to do what is beneficial for the nation.

The leaders of the nation should keep the citizens betterment before their personal gains. Amartya

Sen in his recent book, "The Idea of Justice," began a chapter on Institutions and Persons, with a

few words,

"goodness has much to do with smartness," quoting the great philosopher Wittgenstein. So, a good

thing would be to promote anti-corruption movements as it would improve their image and integrity

in the eyes of the public and therefore would help them win elections which would be smartness.

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