The poor getting poorer

 

We have learned from the textbooks that the system can be rigged in ways that it transfers wealth from the poor to the rich. But it is another matter altogether when one gets a glimpse of the process with one’s own eyes.

This fixing of the system can work in complex ways sometimes, but once one gets a handle on it, it’s actually quite simple. It is ubiquitous, from the taxation system to administered pricing, from the financial markets that handle people’s savings to the property market, to the way labour markets are structured.

This doesn’t apply only to the poor, by the way. It applies to all of us who do not control large capital and make a living on wages or salaries, trying hard to save our way to a better and more secure future.

If you’re not born into wealth, and you are not willing to break the law or operate a racket, your path to a secure future is difficult.

Given how the cost of living in this country rises — and ignoring the recorded inflation for the moment since we all know expenses rise much faster than the single digit percentage inflation is reported at — everybody who is making ends meet with the fruits of their own labour knows how nearly impossible it is to save up enough to buy a proper house, educate your children, safeguard your health, pay your utility bills and perhaps enjoy a few days off along the way.

If you’re not born into wealth, and you are not willing to break the law or operate a racket, your path to a secure future is a very difficult one and you count on benefits like lower power bills, fuel and rent to earn some breathing space.

A long time ago, I was interviewing an eminent, though less well-known, economist because he prefers to keep a lower profile. He told me something that it took me years to absorb. “They’ll produce growth, and for a few years, people will feel like their standard of living is rising,” he said, about the kind of thinking that usually informs economic policies in this country. “But then they’ll take it all back through inflation.”

Inflation, the textbooks tell us, is a tax on the poor. Nobody is hurt more by inflation than the poor and pensioners. The former because more than half their monthly income is spent on food alone, the latter because their incomes are fixed but their expenses are not.

I came back to this thought in recent days because once again, with my own eyes, I’m seeing this reappropriation of value by state and capital with what is happening in the power sector. Here is how it works. A few years ago, the average cost of a unit of electricity was around Rs12 according to ministry documents. The new government of Nawaz Sharif decided they wanted to bring this cost down to below Rs10, so they commissioned large projects in the power sector on cheaper fuels.

They met with partial success. Due to the new projects, the average cost of generation will indeed come down since the more expensive plants, which are generating at rates from Rs18 to 25, can be decommissioned and replaced with the cheaper, newer plants. Ninety-four trillion watt hours of electricity were sold in the country last year, around half of this to domestic consumers. This means a Rs2 reduction in the cost of generation could release about Rs188 billion (since one unit is 1,000 watt hours).

So as soon as this saving begins to appear on the horizon, a tussle breaks out amongst the large controllers of capital in the power sector, and state authorities, to capture their share. The sponsors of the private power projects want their profits, the state authorities want their revenue because they have been unable to broaden the base of the tax net, and revenues have, therefore, not kept pace with expenses.

But a problem stands in their way. The regulator is the ultimate arbiter of pricing in the power sector, and determines who will get how much from this emerging pie. In the conversation that has gone on around the power sector reforms all last year, the sponsors of the private power projects have been represented at the table, the government is, of course, there too, so are the donor agencies, and eyeing the whole affair keenly from a distance are the creditors, watching carefully how the expenses arising from the new projects will be met.

The donors and creditors will be reassured that the revenue thus generated will be used to retire the circular debt, without causing a blowout on government finances, and all future costs arising from these projects (and they are going to be considerable), will be billed to the consumer and not be allowed to impact state finances. Everybody is happy. Meeting adjourned.

Thus the spoils are re-appropriated by the rich at the very moment when they are approaching fruition. Over the years, I have seen the same thing happen in the oil and gas sector, in wheat procurement and sugar. The property market is notorious for gambits of this sort. Everybody knows the game is rigged, everybody knows the dice are loaded. The poor stay poor, the rich get rich. That’s how it goes. Everybody knows.

 

Leave a Reply

Your email address will not be published. Required fields are marked *