By Ramesh Kanitkar
In this election season, there were vociferous debates on economic models, but little discussion on what Obama called the defining challenge of our time: economic inequality. Why do we vote? We don’t benefit from casting our votes; we don’t benefit from not casting our votes either, summing up the status of voter empowerment after more than six decades of democracy in India.
What a welfare state can do for the people is to give them land, and that is very much on the cards. Under the Forest Rights Act (FRA), they can claim land their forefathers used to till, but most do not have proofs. The state governments promised to distribute its unused land to the poor and even distributed token certificates of land rights at a “garib kalyan mela”, or the poor welfare fair.
What the community has got from our welfare state is job assurance under MGNREGS (which they don’t need), money to construct houses under Indira Awas Yojna. What the community has so far got from the great white hope of our times, liberalisation and economic reforms, is better and better wages that, however, are not enough to keep up with the inflation and certainly not enough to accumulate capital.
When we debate growth versus development, when we talk about the “neo middle class”, when we list out benefits of liberalisation. They have jobs, even if in the informal sector, and their income has grown to an extent from 1991 to today. What they do not have is capital: no land, no investment, no higher level skills. But they have no means to reap benefits of an India emerging as one of the fastest growing economies.
If we compare the marginalised citizen not with the middle class taxpayer but with a specimen of the top one per cent money makers in the country, the contrast would be way too stark — again, not just in terms of income, but also in terms of capital (especially the inherited one), and the ability to reap benefits of a global economy.
With this much background, here is what we need to seriously come to terms with: this contrast, this inequality is increasing. This is what US president Barack Obama has called “the defining challenge of our time”.
Growing inequality is a shocking surprise, because growth is supposed to take care of precisely this inequality. That has been the assumption following from the work of the American economist Simon Kuznets, which is the standard textbook view expressed in our policymaking circles as the trickle down theory: if economy grows, everybody benefits — even if some benefit less than others. A rising tide, in the words of John F. Kennedy, will lift all boats. Instead, what is happening is what many vaguely, simplistically put as this: the rich have become richer and the poor poorer.
More than growth, more than job creation, economic inequality is the biggest challenge before Indian economy in the 21st century. This conclusion comes not from left wingers but from pro-market institutions ranging from the International Monetary Fund (IMF) to the Asian Development Bank (ADB). In their majestic work last year, “Uncertain Glory: India and Its Contradictions”, Jean Dreze and Amartya Sen were talking precisely about people when they wrote: “Since India’s recent record of fast economic growth is often celebrated, with good reason, it is extremely important to point to the fact that the societal reach of economic progress in India has been remarkably limited.” While inequality is common around the world, India has a “unique cocktail of lethal divisions and disparities” of caste, class and gender apart from the economic ones — with each adding to the other.
The economist duo also underlined the trend of growing economic inequality. Even if inequality had remained static, “poor people would have gained much more from India’s rapid growth”, but the gap has increased, pushing the poor down.
The ADB has specific figures too. A February 2014 working paper calculates that the inequality (measured in something called Gini coefficient: 0 means perfect equality, and 1 perfect inequality) increased from 0.33 to 0.37 between the early 1990s and the late 2000s. The bottom line: “Had inequality not increased, the poverty headcount rate at the $1.25-a-day poverty line would have been 29.5 per cent instead of the actual 32.7 per cent in 2010 in India.”
If the Congress is voted out of power, this would be the critical factor.
In the west, the gap between the rich and the poor has been a matter of hot and excited debate for a while. First, it was the Occupy movement of 2011 which drew attention to the “one per cent” (the slogan of “one per cent” came from an essay by Joseph Stiglitz, who noted that the top one per cent Americans had come to control 40 per cent of the country’s wealth). And second, because a French economist and his colleagues have put together astounding data going back to the 18th century and covering 20 countries, coming to the same conclusion in a book that has made it to the bestseller charts.
Thomas Piketty’s ‘Capital in the Twenty First Century’ (translated from French and published this month by Belknap Press of Harvard University Press) is attracting rave reviews. Paul Krugman calls it a “truly superb book”. “It’s a work that melds grand historical sweep — when was the last time you heard an economist invoke Jane Austen and Balzac? — with painstaking data analysis… This is a book that will change both the way we think about society and the way we do economics.” The Financial Times finds it is “an extraordinarily important book”. The title and the ambition of the book have invited comparisons with Marx’s magnum opus, though the author modestly points out differences.
Piketty’s central finding is that the level of inequality — not just in incomes but in overall capital, including wealth (land and shares) — between the top and bottom tiers of society in the west was very high, but the shocks of the two world wars and the state’s socialist interventions later reduced the difference to an extent. However, since the 1990s inequality is increasing — around the world. He also briefly touches upon the Indian case, based on income tax data from 1922 to the early 2000s. His prognosis: inequality in overall capital is increasing. This is leading the world back to the pre-1915 days, when the rich were rich for generations and the poor had no chance of making it big, no matter what — we are, in other words, returning to “patrimonial capitalism” of the kind portrayed in nineteenth century novels.INAV