Wednesday 12 December 2012

Re: [pakgrid] Re: Growing Incomes and Economic Mobility in Pakistan

 

Hello Ali,
    I will be very interested in learning more about your research work.  The committee system that you have mentioned is truly amazing, specially the mechanisms used to select the recipient of next installment.  These mechanisms include priority based on social needs (such committees are mostly held by women who manage family finances), lottery based (used by groups of people who don't have urgent needs for large sums of money but need discipline for savings, system does not account for cost of capital) and the auction based systems (used by businessmen in local markets).  It is the 3rd type that I find most fascinating.  You will be hard pressed to find such a dynamic model for setting interest rates based on local demand for capital.   A big drawback of these systems is that they do not scale up as they are very strongly social trust based.

As far as undocumented economy is concerned your observations are absolutely spot on.  Stitching part of the whole apparel industry, the retail industry, labor in construction industry, the whole restaurant business for masses and many others are all undocumented.  Material input to these segments is somewhat documented.  So in retail service industry supply chain is documented at MNC production level, chips that Frito Lay produces or vegetable oil that Dalda produces are documented.  The value add of retailing is not documented.   Similarly wheat produced is documented (to some accuracy) but the value add of local Tandoor is not accurately documented, although in cities we know how much natural gas was consumed by tandoors.  Same is the case with apparel industry.  Cloth produced is somewhat documented but value add of stitching is not.  So it is possible to estimate size of this undocumented economy to some accuracy.

Your point is well taken, why do so?  Just to invite more corrupt bureaucracy to enrich its pockets?

The question I would like to answer is, how can we use social networks, cloud computing, recommendation systems, supply chain management to make this undocumented sector more productive while they stay under the radar of corrupt, inefficient, self serving and foot dragging bureaucracy that happily serves corrupt political or non-political governments. 
 
With Regards
Qasim
pk.linkedin.com/pub/qasim-sheikh/0/250/712
+923008540838 (mob)

From: ali mansoor <ali_mansoor_kh@yahoo.com>
To: pakgrid@yahoogroups.com
Sent: Saturday, December 8, 2012 4:43 PM
Subject: Re: [pakgrid] Re: Growing Incomes and Economic Mobility in Pakistan

 
I am currently working on a research project about the Informal economy. And It did not come as surprise that above 90% of small business are not registered. It is not that these businesses would start paying taxes, they dont fall in that bracket. Just that the wealth they generate and jobs they create are never brought on paper. These businesses never apply for bank loans, committee system works very well, they dont register because more exposure means more corrupt officers coming for bribes. very few actually have financial benefits of not registering.
 
 The point is this weatlh is not on paper and that is why the surprising gap in numbers and reality. To check this just look around yourselves, how many of the businesses and families you see are on registered system. De Soto is one of the greats on this area, on how this hidden economy misguides our perception and decision making.
 
Regards,
Ali Khawaja

--- On Fri, 12/7/12, Qasim Sheikh <qs358@yahoo.com> wrote:

From: Qasim Sheikh <qs358@yahoo.com>
Subject: [pakgrid] Re: Growing Incomes and Economic Mobility in Pakistan
To: "Nasser Lone" <nasser.lone@cal.berkeley.edu>
Cc: "pakgrid@yahoogroups.com" <pakgrid@yahoogroups.com>
Date: Friday, December 7, 2012, 3:48 AM

 
Thank you very much for this message my dear friend.  Without your permission I am sharing it with a much larger audience.  My 2 cents worth of comment, 13 billion dollars a year sent by expats may be an important force here.  Most of these funds are sent by workers who are not from families that inherit wealth.  Youth from such families goes abroad and does quite well but typically has limited need to send money back.  Also, these 13 billion dollars are spent quite carefully by families receiving these funds.  It would be really good to know what percentage of these funds go to education, health, construction industry etc.
 
With Regard
Qasim
pk.linkedin.com/pub/qasim-sheikh/0/250/712
+923008540838 (mob)

From: Nasser Lone <nasser.lone@cal.berkeley.edu>
To: nasser.lone@aya.yale.edu
Sent: Friday, December 7, 2012 4:20 PM
Subject: Re: Growing Incomes and Economic Mobility in Pakistan

This forward was sent to me by my dear friend, Zahid, who has included a question for his
"economist friends"? I am not an economist, but I would like to comment with two responses,
one quasi-economic, and the other quasi-sociological. First, though, here is a link to the post:

http://southasiainvestor.blogspot.sg/2012/11/growing-incomes-and-economic-mobility.html

My quasi-economics response:

On the one hand, when we look at published numbers (per capita income, GDP growth, etc.)
and people cribbing about inflation, unemployment, business difficulties (law & order,
electricity, gas), it appears that the economic situation is dire - hence the amazement at this
very positive picture. One the other hand, when you look at living standards of people, it is
clear that prosperity is significantly increasing at all levels, upper class, middle class, lower
class, technical labour, menial labour, urban, rural, and so on. You can see it in
transportation (2-3 cars vs. 0-1; motorcycle vs. bicycle; etc.), appliances (7 A/Cs vs. 0-1; TV's
in servants' quarters; etc.), gadgets (smartphones, mobile phones, etc.), food (fruit
consumption, meat/chicken consumption) and so on.

There is a gap between our perception of the economic situation in the country and the
reality. I have no formal or research basis to conclude anything, but my conjecture is that the
informal/undocumented sector of the economy is growing much faster than the
formal/documented sector, and it is this informal part that is driving the rising prosperity.

Another reason for this gap between perception and reality is that, as a group and as a
nation, we have become pessimistic and cynical in Oscar the Grouch mold (see attached) -
at least as far as national matters are concerned, which brings me to my second response.

My quasi-sociological response:

No doubt, Pakistan and Pakistanis face a lot of difficulties and challenges - law & order,
load-shedding, gas-shedding, inflation, corruption, on & on - and these difficulties are not
new. But just listen to ourselves talking about it - it seems apocalypse is nigh; and mind you
this talk of imminent collapse has been going on for decades and yet the country is not only
surviving, but in many ways flourishing. So while there are problems that we incessantly talk
about, but the biggest problem may be our own negative attitudes. We prefer to be
depressed about the challenges and difficulties, not to be uplifted by the good stuff -
elections, completion of term by an elected government, philanthropy (pakistan having
highest philanthropy), Edhi, youth social activism, development of media (downsides
included), new loci of power (judiciary, media, etc.), the most attractive foreign minister :-), IK
tsunami (symbolizing entry of corruption-free and ideological politicians), fast traffic corridors
in Karachi - the list is long.

The upshot here may be that we would not be too surprised by the post under discussion, if
we were not so down on ourselves.

I have another, more personal response as well. I am jumping with joy because the post
points out several very positive developments in Pakistan: pretty good social mobility and
income equality, growing middle class, improving educational enrollment, highest percentage
of "Regular wages & salaried" workers and of "High-End Self-Employed" among the South
Asian countries.

My two-cents non-economist worth.

With warm regards.

Nasser

>
> Here is a report which shows that Pakistan's middle-class is growing, inspite all the current
> difficulties that the country currently finds itself in. . I wonder if this is the same Pakistan that we
> live in ? I am surprised !
>
> Perhaps some of my economist friends might like to comment on this report?
>
> > ---------- Forwarded message ----------
> From: 
> Date: Thu, Nov 29, 2012 at 9:06 PM
> Subject: Fwd: Growing Incomes and Economic Mobility in Pakistan
> To: 
>  
>
>
>
>
>    SOUTH ASIA INVESTOR REVIEW SUNDAY, NOVEMBER 25, 2012
>
> Growing Incomes and Economic Mobility in Pakistan
> Listen to this article. Powered by Odiogo.com
> A 2012 study of 22 nations conducted by Prof Miles Corak for the Organization
> for Economic Cooperation and Development (OECD) has found income
> heritability to be greater in the United States, the United Kingdom, Italy, China
> and 5 other countries than in Pakistan. 
>
> The study's findings, presented by the author in testimony to the US Senate
> Finance Committee on July 6, 2012, rely on the computation of "inter-generational
> earnings elasticity" which the author explains as follows:
>
>
> "(It) is the percentage difference in earnings in the child´s generation associated
> with the percentage difference in the parental generation. For example, an
> intergenerational elasticity in earnings of 0.6 tells us that if one father makes
> 100% more than another then the son of the high income father will, as an adult,
> earn 60% more than the son of the relatively lower income father. An elasticity of
> 0.2 says this 100% difference between the fathers would only lead to a 20%
> difference between the sons. A lower elasticity means a society with more
> mobility."
>
> Intergenerational Mobility in Pakistan: 
>
> Corak calculates that the intergenerational earnings elasticity in Pakistan is 0.46,
> the same as in Switzerland. It means that a difference of 100%  between the
> incomes of a rich father and a poor father is reduced to 46% difference between
> their sons' incomes. Among the 22 countries studied, Peru, China and Brazil
> have the lowest economic mobility with inter-generational elasticity of 0.67, 0.60
> and 0.58 respectively. The highest economic mobility is offered by Denmark
> (0.15), Norway (0.17) and Finland (0.18).
>
>
> The author also looked at Gini coefficient of each country and found reasonably
> good correlation between Gini and intergenerational income elasticity.
>
>  In addition to Corak, there are other reports which confirm that Pakistan has
> continued to offer  significant upward economic andsocial mobility to its citizens over
> the last two decades. Since 1990, Pakistan's middle class had expanded by
> 36.5% and India's by only 12.8%, according to an ADB report titled "Asia's
> Emerging Middle Class: Past, Present And Future".
>
>  More evidence of upward mobility is offered by recentEuromonitor market research
> indicating that Pakistanis are seeing rising disposable incomes. It says that there
> were 1.8 million Pakistani households (7.55% of all households) and 7.9 million
> Indian households (3.61% of all households) in 2009 with disposable incomes of
> $10,001 or more. This translates into 282% increase (vs 232% in India) from
> 1995-2009 in households with disposable incomes of $10,001 or more.
> Consumer spending in Pakistan has increased at a 26 percent average pace the
> past three years, compared with 7.7 percent for Asia, according toBloomberg. 
>
> Mobility Drivers: 
>
> The study identified three key drivers of inter-generational mobility: Family, Labor
> Market and State.
>
> The biggest difference the family makes is in terms of education and training of
> the children. Growing labor market is important for the availability of better
> paying jobs, and the state matters because its policies influence access to
> education and growth of economic opportunities. For Pakistanis, the weakest link
> here has been the state which has failed to adequately fund education and
> facilitate economic growth through infrastructure investments. The private sector,
> the civil society and the international community have, however, stepped in to at
> least partially compensate for some of the most serious shortcomings of the
> state.    
>
> Education:
>
> Pakistani parents are taking education more and more seriously and enrolling
> their children at all levels. According to Harvard University researchers Robert
> Barro and Jhong-Wa Lee, Pakistan has been increasing enrollment of students
> in schools at a faster rate since 1990 than India. In 1990, there were 66.2% of
> Pakistanis vs 51.6% of Indians age 15 and above who had no schooling. In
> 2000, there were 60.2% Pakistanis vs 43% Indians with no schooling. In 2010,
> Pakistan reduced it to 38% vs India's 32.7%.
>
>
>
>
> As of 2010, there are 380 (vs 327 Indians) out of every 1000 Pakistanis age 15
> and above who have never had any formal schooling. Of the remaining 620 (vs
> 673 Indians) who enrolled in school, 22 (vs 20 Indians) dropped out before
> finishing primary school, and the remaining 598 (vs 653 Indians) completed it.
> There are 401 (vs 465 Indians) out of every 1000 Pakistanis who made it to
> secondary school. 290 (vs 69 Indians) completed secondary school  while 111 (vs.
> 394 Indians) dropped out. Only 55 (vs 58 Indians)  made it to college out of which
> 39 (vs 31 Indians) graduated with a degree.
>
> Labor Market:
>
> Pakistan's employment growth has been the highest in South Asia region since
> 2000, followed by Nepal, Bangladesh, India, and Sri Lanka in that order,
> according to a recent World Bank report titled"More and Better Jobs in South
> Asia". 
>
>
>
> Total employment in South Asia (excluding Afghanistan and Bhutan) rose from
> 473 million in 2000 to 568 million in 2010, creating an average of just under
> 800,000 new jobs a month. In all countries except Maldives and Sri Lanka, the
> largest share of the employed are the low-end self-employed.
>
>
>
> The report says that nearly a third of workers in India and a fifth of workers in
> Bangladesh and Pakistan are casual laborers. Regular wage and salaried
> workers represent a fifth or less of total employment.
>
> Analysis of the labor productivity data indicates that growth in TFP (total factor
> productivity) made a larger relative contribution to the growth of aggregate labor
> productivity in South Asia during 1980-2008 than did physical and human capital
> accumulation. In fact, the contribution of TFP growth was higher than in the
> high-performing East Asian economies excluding China.
>
> Summary: 
>
> The experience of OECD nations shows that construction of a large and vibrant
> middle class is an absolutely essential pre-requisite for a prosperous and
> democratic society.  In spite of all of its current difficulties, Pakistan's middle class
> is growing as evident from data coming from a variety of sources ranging from
> ADB and the World Bank to University researchers and Euromonitor consumer
> research firm.  More enlightened leadership in Islamabad can help accelerate this
> process by focusing greater attention to raising more revenue and increasing
> public investment in education, health care and infrastructure.
>
>  
>
>
>
>
>
>
>
>
>



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