There is no doubt that Pakistan's economy has seen qualitative shifts towards increased marketisation and commodification in the past two decades. However, the claims extrapolated from these shifts require further scrutiny

Pakistan's middle class is fast expanding, poverty is declining, and wealth is expanding -- but income inequality is rising.
Pakistan's middle class is fast expanding, poverty is declining, and wealth is expanding -- but income inequality is rising.

Over the past few months, Pakistan's economy has received largely positive coverage in a number of international media outlets. For a country usually in the news for its endemic political instability and prolonged battles with Islamist militancy, this shift in focus heralds an interesting change.

Underpinning much of the coverage is a set of core statistics: the country's GDP growth rate crossed 4 percent last year, and is expected to surpass 5.5 percent in 2017. The stock market rose by 46 percent in 2016, and is now in line for an upgrade to emerging market status by the middle of 2017. Foreign exchange reserves have grown to a record high of $20 billion, while more inflows are expected via a number of big-ticket energy and transit projects under the $57 billion China Pakistan Economic Corridor (CPEC). Finally, measurements by the United Nations Development Program (UNDP) show multidimensional poverty declining from 55 percent of all households in 2005 to 38 percent in 2015.

Beyond macroeconomic indicators, another factor that has received considerable attention in recent coverage is the country's growing middle class. One recent piece, published in the Wall Street Journal, cited this burgeoning middle class as the primary fuel behind the twin boon of democratic stability and economic growth.

Depending on the definitions used, Pakistan's middle class is estimated to be anywhere between 5 to 35 percent of the population. Using income-based methods, the Pakistan Institute of Development Economics (PIDE) finds that approximately 55 million people earn between 75 to 125 percent of the overall median income. Credit Suisse, on the other hand, estimates that 9.7 percent of Pakistan's adult population, around 7 million people, possess wealth between $10,000 and $100,000. By this measure, Pakistan's would be the 18th largest middle-class in the world.

In the absence of reliable data on changes in the income distribution, a number of other metrics serve as a useful way to gauge Pakistan's "middle-class revolution". One of these is the ownership of consumer durables: today, approximately 40 percent of all households own a motorcycle while nearly 60 percent own a television, up from 4 and 20 percent respectively in the early 1990s. Similarly, household ownership of washing machines and refrigerators is now in the mid-40s as well, up from under 20 percent just two decades ago. This expanding market for sale of household appliances, along with its untapped potential, has not gone unnoticed by foreign investors. Late last year, the Turkish consumer goods giant Arcelik entered the Pakistani market through a $240 million buy-out of a local white goods manufacturer.

Similar expansion at the upper-end of the consumer market can be gauged from the sale of passenger cars, which rose from 40,000 units in 2000 to nearly 200,000 in 2016. A considerable portion of this market is now financed through credit, as banking outlays for the purchase of automobiles hit an all-time high of $1.1 billion in 2016, up from $415 million in 2012.

Beyond descriptive statistics, the spatial and visual transformation in Pakistan's expanding urban centres tell a similar story. Private schools and colleges have cropped up everywhere, offering instruction in the English language as their contribution towards personal enrichment and upward mobility. Similarly, new real estate developments in housing and retail can be found selling profitability and modern amenities to investors and consumers respectively. Advertising campaigns for these projects often rely on some variant of an idealised western lifestyle, clearly playing on, and perhaps in part shaping, the aspirations of a vociferous market.

There is no doubt that Pakistan's economy has seen qualitative shifts towards increased marketisation and commodification in the past two decades. However, the claims extrapolated from these shifts require further scrutiny. For example, given its size and internal variation, it is difficult to assert a uniform effect of the middle class on democratic stability. At this stage, what can be gingerly asserted is that middle class consumers are gradually finding their voice in demanding improved public services from various tiers of elected governments. This trend has been partially supported by the presence of a rabidly active private media sphere, which speaks to and for its largely middle class audience, and the popularity of the Pakistan Tehreek-i-Insaf (PTI), a party anchored in its middle class support base. Both have helped shift political discourse to a somewhat more technocratic disposition.

At a more structural level, sustainable growth and an inclusive route to middle-class existence in Pakistan are still far from established. Stable employment opportunities in the manufacturing sector, which historically offered a path to upward social mobility in other countries, are absent due to persisting industrial stagnation. Share of large-scale manufacturing in total GDP and employment has hovered around the 14 and 11 percent mark respectively for the past two decades. The country's growth trajectory is now increasingly underpinned by low labour absorbing enterprises in retail/wholesale trade, construction, transport and communication, and financial services.

In the absence of a stable path up the socioeconomic ladder, those who have graduated to middle class status in the past few decades have mostly done so through employment in the public sector, or on the back of successful small-scale entrepreneurship in the services economy.

Both of these routes do not offer a sustainable resolution to the aspiration of millions of individuals. One primary consequence of the absence of clear pathways is that while the overall poverty rate has gone down, wealth and income inequality have both risen. The upper 20 percent of the income distribution now consumes 7 times more than the bottom 20 percent, up from 4 times more in 1990.

Another related outcome is the steady rise of unemployment, which official figures place at 6 percent, but more rigorous measures place closer to 15 percent. As of 2017, Pakistan's economy needs to grow at 7 percent per year just to accommodate 2 million new entrants in the labour force every year.

None of these cautionary notes should be used to dismiss more optimistic takes on the country's future. Recent developments, such as the aforementioned expansion in the middle class, decline in poverty, greater GDP growth, and increased Chinese investment, do provide a base on which to build a more inclusive and productive economy. However, this would require considerable investments in infrastructure development, social protection, and human capital at a scale which only the government can undertake. It is therefore prudent to suggest that without these much-needed accompanying interventions, Pakistan's middle-class growth will likely be both exclusionary and short-lived.

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