Home Economy COVID-19: impact on middle-classes and demand for a new social contract

COVID-19: impact on middle-classes and demand for a new social contract

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A conversation with Aasim Sajjad Akhtar, a Professor of Political Economy at the National Institute of Pakistan Studies, Quaid-i-Azam University and Juvaria Jafri, a Lecturer in International Political Economy at City University on the impact of coronavirus pandemic on Pakistan’s middle classes, rescue packages and government’s response.

 by Farwa Sial

The full impact of the COVID-19 pandemic on developing countries is still unfolding. While many countries have managed to achieve some stability in eliminating the spread of the crisis, others are struggling on various fronts. In South Asia, India has received much global attention owing to the violence of a hasty lockdown which was imposed without warning and an accompanying social safety net. Other countries in the region including Bangladesh, Srilanka and Nepal also continue to grapple with the existential question of how to ensure that contagion control does not come at the expense of destroying livelihoods. 

In this conversation, we focus on the situation in Pakistan. We invited Aasim Sajjad and Juvaria Jafri to address some questions related to the current situation in Pakistan. The following four questions were designed to provide a glimpse of how the pandemic is impacting the existing socio-economic structure of the Pakistani economy particularly focusing on class inequality, fin-tech as a potential solution and the activist and citizen-led first historic demand for a long-term welfare package. 

[toggle title=”Dr Asim Sajjad” type=”open”] Aasim Sajjad Akhtar, a Professor of Political Economy at the National Institute of Pakistan Studies, Quaid-i-Azam University. He is one of the founding members of the Awami Workers Party (AWP). His research has focused on state theory, informality, colonial history, the rise of the middle classes and social movements in Pakistan. His latest book is ‘The Politics of Common Sense: State, Society and Culture in Pakistan’.  [/toggle]


[toggle title=”Dr Juvaria Jaffri” type=”open”] Juvaria Jafria Lecturer in International Political Economy at City University. Dr Juveria’s research is on financial development in Pakistan, including inclusive finance, fintech, and impact investing strategies. Her latest co-edited book is ‘Geofinance between Political and Financial Geographies: A Focus on the Semi-Periphery of the Global Financial System.’ [/toggle]

The impact of COVID-19: before and after 

Farwa Sial (FS): Juvaria and Aasim, thanks for agreeing to be part of this discussion. Can we start with a brief overview of the state of the current pandemic in Pakistan? We would like to know a bit of context to the current situation.

Juvaria Jafri (JJ): Let’s look at the most obvious number related to Covid-19 first; the death toll. For Pakistan, the death toll is up to 3,229 while testing indicates that there are up to 165,062 cases of the virus (June 2020). These numbers — their data quality and politics of their production — are highly contested; opposition parties have been critical of these figures for being underestimated. And it’s also important to remember that for most intents and purposes Pakistan is no longer under lockdown so these numbers will almost certainly surge. 

Economically, the pandemic will hit Pakistan’s pressure points. The fiscal deficit could reach double digits after initial projections of 7 per cent; GDP growth as the economy is estimated to contract by 1.5 per cent and possibly more; and the incidence of poverty — based on the headcount ratio — is expected to rise from a quarter of the population to as much as a third as 3 million or so become unemployed.  Lifting the lockdown is for averting economic catastrophe, but there is very little to indicate that this is a viable strategy; unless of course the virus is proven to be not as deadly in Pakistan as it has been elsewhere. 

From this situation, I think there are some questions to mull over. What is the meaning of the trade-off between the lockdown and the economy? What is it about the domestic and global economic structure that has allowed the question to be presented as a choice? 

Asim Sajjad (AS): Pakistan’s political economy – and I emphasise the political – is deeply inegalitarian. Over the past few decades, as the economy has been opened up to flows of capital, livelihoods of the rural poor have been devastated, which has accelerated mass influx into urban areas – in short, casual labour/self-employment are the norms in both urban and rural settings. As is now common knowledge, the shutdown of the global economy has severely impacted the labouring poor, wherever they may be. Given the paucity of data on so-called ‘informality’, it is impossible to establish with great certainty what the exact fallouts will be, but already a figure of 20 million job losses are being floated – and bear in mind that many working people do not fall into the category of ‘formally employed’ to begin with. 

It is in this context that the government’s limited emergency relief measures must also be evaluated. The extension of the targeted cash transfer programme (which goes by the name of Ehsaas, formerly ‘Benazir Income Support Programme’) to address the fallouts of the pandemic on the working poor is a necessary step, but far from sufficient, both in terms of amounts as well as simply reaching the most vulnerable – both a function of administrative incapacity as well as political will. 

To return to Pakistan’s political economy, even during the pandemic the military establishment has reinforced extractive and punitive logics, especially in ethnic peripheries. More generally fiscal imperatives revolve around ‘national security’ while big business lobbies – in real estate as well as agro-industrial sectors like wheat and sugar – easily evade the tax net and, in fact, are at the apex of the decision-making hierarchy. 

Impact on middle-classes  

FS: Aasim, your latest book analyses the phenomenon of the Middle Classes in Pakistan. First, is there a particular pattern to the rise and dominance of middle classes in Pakistan? Can you and Juvaria also address the impact of the pandemic in relation to class inequality?  

AS: Pakistan’s class structure is complex, but you are right to note that a certain ‘middle class’ has become increasingly more influential in recent decades. Having said that, there is a long historical lineage of educated middle classes supporting and, indeed, staffing an authoritarian state apparatus. Contemporary middle-class formations owe a lot to neoliberal globalisation; a growing and influential segment of society boasts middle-class lifestyles and articulates its politics through digital means. Established upper middle-classes, as well as a large youthful demographic which aspires to climb the social ladder, have been vocal supporters of Imran Khan’s Pakistan Tehreek-e-Insaf (PTI) party, and similar parallels can be found in countries also experiencing a youth bulge and adopting neoliberal economics wholesale (e.g. Modi in India).

It is important to bear in mind, however, that middle-class political mobilisations that revolve around vacuous slogans like ‘fighting corruption’ as well as hate-mongering against domestic and foreign ‘enemies’ reflect a crisis of the political-economic order rather than its success. The pandemic will exacerbate inequality and so it can be expected that more dissent will emerge from within the youthful and tech-savvy demographic that ascribed to Imran Khan’s populism. Only time will tell whether an alternative political imaginary that challenges hate-mongering and brings together a wide coalition of social forces, middle class as well as working people more generally. 

In sum, class and other forms of inequality that will worsen due to the pandemic can, ultimately, lead to more of the same – authoritarianism, rapacious exploitation of nature, profiteering for big business lobbies – or it will bring together the proverbial wretched of the earth with elements of the middle classes who want at the very least to temper the logic of capital with investments in public health, education, housing and other basic needs. The dominant ideology which undergirds an atomised middle-class aspiration of ‘survival of the fittest’ may have been badly exposed by the pandemic, but until there is a coherent political coalition that can compel a rollback of the market and investment in universally accessible public services, this middle-class aspiration will not be displaced, the crisis-ridden system continuing to rumble along, lurching from one shock to the next.

JJ: Yes, the pandemic in Pakistan has been a missed opportunity to build coalitions across social forces primarily because there has been no discussion about how the virus cannot be effectively countered unless everyone participates. There have been critiques of the PTI government for not enforcing lockdowns and social distancing rules, but not many of their economy centric decision making. This is unfortunate because the PTI’s welfare driven mandate could have been put into practice here. The Ehsaas scheme which I have written about previously was a starting point — albeit problematic — for stronger, broader safety nets but has been underutilised.

Fin-tech as a response to COVID

FS: Juvaria, you recently wrote about the potential of fintech to address some immediate issues surrounding pandemic control in Pakistan. Why is that important? Aasim, we would also like to know your thoughts on the implications of such technological innovations including in relation to concerns such as data privacy. 

JJ: The initial response of Pakistan’s federal government to the pandemic relied heavily on fintech to keep the most vulnerable in society from starving whilst in lockdown. The most vulnerable in Pakistan are the poorest, who rely on daily wages and have no savings or formal safety nets to fall back on. So when an emergency relief package was announced in late March, the government allocated Rs150 billion (£734 million) in cash support for the poorest 12.5 million households or some 67 million people. This was to be disbursed using fintech. Anyone who felt that they fell in the vulnerable category was asked to send a text message with their national identification number so that the database could verify if they are eligible for assistance. Those who were eligible would then be directed to a centre to collect cash support. 

Now you can point out this system of disbursement is not fintech because it does not involve financial institutions. Bank branches were involved in managing the cash transfer from the government to individuals but not in determining eligibility. But the system of selection which relies on scoring individuals to decide if they are poor enough replicates credit scoring practices. In this case, the text messaging system relied on using the government bureaucracy database National Database & Registration Authority (NADRA) to see who should not receive cash support. The Ehsaas Kafalat evaluation approach used here means taxpayers, car or motorcycle owners, and people who have travelled abroad multiple times are ineligible for the new coronavirus emergency assistance.

Fintech is useful for practices where it is clear who is to be included and who is to be excluded. While there is a consensus now that the measures were inadequate — hence the pressure to end the lockdown — we can also see that the NADRA system is extremely powerful. It could be used for instance to disburse cash payments to much a wider section of society, or even to everyone; as would be the case if Pakistan ever decided to adopt a universal basic income. 

AS: I agree that cash transfers are most effective when disbursement is enabled by cutting-edge technology. Yet it is worth bearing in mind that both financial systems/institutions and data gathering system/Big Tech are part of the problem in a broader sense. Universal Basic Income (UBI) is an ameliorative mechanism within the confines of capitalism, and transcending the crisis-ridden logics of capital is, for me, the only meaningful political-economic horizon. Technology presents a quandary because it contains the potentialities for humanity to transcend the problem of material deprivation once and for all. But within the confines of the current system, technology is actually a tool of domination – it is a pillar of advertising and what Marx called commodity fetishism, and at the same time through the collection of our personal data serves the purpose of social control. What advocates call the problem of ‘data privacy’ is only the tip of a very large iceberg. 

So, the challenge is to use established means and mechanisms to address immediate challenges yet always remaining alive to the longer-term ramifications of these mechanisms. Which is to say we must continue demanding reforms within the system whilst continuing to proffer radical overhaul as our long-term horizon.

Rescue packages: Universal Basic Income (UBI) 

FS: Asim you and the Awami Workers Party (AWP) and others are leading the debate on a rescue package which goes beyond the pandemic. What are the demands and how will it address inequality in Pakistan? 

AS: As I have already noted, we position ourselves with all social and political forces that advocate for basic needs like health, education, housing and a basic income to be provided free and indiscriminately to all. This is not as simple as saying that market needs to be held in check by the state – the market-state dialectic has framed the evolution of capitalist modernity for 500 years, and throughout the past 30 years, the state in postcolonial countries like Pakistan has actively aided and abetted multinational capital in its capture of natural resources as well as the commodification of all sectors of the economy, including the basic needs I’ve just listed. This means that we want to emphasise not only universal policies like a UBI along with other public services, but bring into focus the very logic of statecraft itself, which, especially in Pakistan’s peripheries (both geographical and the working poor in metropolitan areas), are essentially still colonial in nature. 

What this means is that the idea of a responsive and accountable state has to be normalised. The last thing we want is for there to be a resignation that basic needs can only be met under ‘exceptional’ circumstances like a pandemic. This would mean that we accept the neoliberal ideological pivot that there is no collective imperative to meet the needs of all citizens (because of fiscal constraints, a lack of administrative capacity, or any other variety of mainstream ‘state failure/incapacity’ arguments). Worse still would be the prospect that the state instead enhances its capacity to coerce and discipline – indeed, that such a punitive mandate is its raison d’etre. Indeed, the very problem is that the postcolonial state continues to treat too many of its own people as subjects, rather than citizens. At best it wants to make them into captive consumers of commodities, but minus political, economic and cultural freedoms. 

So, therefore, while demanding schemes such as UBI in the here and now, we believe it is necessary to push for a very reorientation of the state in the medium to long run. We want a state that is a people’s democracy, not a national security-obsessed apparatus that is largely unaccountable. Of course, capitalism is a global system that impinges on the political choices available to any particular body-politic, and so Pakistan’s specific context cannot be divorced from the global political economy as such. To reiterate: our horizon continues to be framed by short-term considerations, but ultimately founded upon the necessary long-term transformative visions that emphasize the dignity and freedom of all human beings, a model of ‘development’ through which humanity and nature co-exist harmoniously, and a transcendence of the commodity form through the active harnessing of human intellect (including technology). 

JJ: I want to follow up on Aasim’s point about UBI. There was some exuberance around this in the early days of the pandemic but I haven’t seen anything meaningful since then. There is, in fact, historical evidence that a UBI is consistent with a Madina Ki Riyasat, (Constitution of Media) as it was used during the first Islamic Caliphate in the 7th century. There are a few questions around the viability of a UBI in Pakistan. One, can we afford it? Two, how can it be disbursed? And three, how can it be effective? 

The question of affordability is perhaps the most straightforward one and depends on the amount to be disbursed and its frequency. Keep in mind that we are discussing a universal basic income so it would have to made available to all citizens, or possibly all residents, of Pakistan, regardless of their wealth or incomes. The idea is that those who don’t need it won’t claim it, and even if they do it will feedback into the local economy. The precise numbers are important here of course because for instance a PKR 12,000 monthly UBI claimed by 50 million households would be about a sixth of annual GDP; more than annual tax revenues. In some countries, UBI payments are linked to revenues from natural resource extraction but this is not viable in Pakistan. A possible option is funding from external sources or even an agreement that debt relief on existing loans would be channelled into UBI. In the absence of such measure the government in Pakistan, via the central bank, could use their standard budgetary finance mechanism which involves the issuance of debt. The alternative, more radical approach, would the one that has come out of Modern Monetary Theory (MMT) discussions and holds that it is possible for governments to create money without going in debt. This is complemented by recent work on CBDCs or central bank digital currencies. Under such an arrangement, banks could instantly transfer digital cash by creating deposits on their own books. There are of course inflationary concerns but there are no studies as yet to indicate how big an issue this might be.

These measures have a strong fintech component which brings us to the second point; how can UBI be disbursed. The Ehsaas emergency cash transfers offer some precedent by showing how databases can be utilised. But an actual UBI could take this further by (1) enhancing the digital aspect of such transfers and encouraging transactions to stay within the banking system, and (2) ensuring that a cash transfer is made to every biometrically through a  subscriber identification module (SIM) card; this would also avoid double payments. The third point is about how effective a UBI would be. For a UBI to be effective a key assumption that needs to be dropped is that it would be constrained by fraud; that undeserving persons would-be beneficiaries. While this might happen, it is important to place the emphasis on deserving groups benefiting instead of on undeserving persons exploiting the system. Beyond that, it is necessary for the government to regulate the supply chain of essential goods, particularly food and fuel, to limit inflationary pressures, particularly from speculative activities.  This report was first published in Developing Economics (DE) online magazine.

Farwa Sial is a post-doctoral researcher working on the ESID Project at the Global Development Institute, University of Manchester. She tweets at @farwasial.

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