Opinion
Is inequality natural or a political-ideological creation?
Summary
A close study of it suggests a role played by ideological politics that should alert us to its dangersAn Oxfam report on income and wealth inequality recently set a cat among the pigeons. It is accepted that while complete equality is a heartwarming concept, evidence that it ever existed in the world is weak. Despite Karl Marx’s clarion call of “from each according to his ability to each according to his needs", complete equality of outcomes has been problematic for its misalignment of incentives. While most agree that some difference in economic outcomes is necessary for an efficient economy, broad equality of opportunity is widely accepted as is the de minimus. Education and healthcare of reasonable quality, access to good quality jobs, nutritional security and skill improvement opportunities are required for all, without exception.
The Oxfam report shows that the bottom 50% of the Indian population’s income has come down to 13.1% of the total from 20% in 1991. Meanwhile, the top 10%’s income, which averaged below 40% up to 1991, rose to 57.1%. Next, consider wealth: the top 10%’s wealth, which was 54% of the country’s total earlier, has ballooned to 64.6%, while that of the bottom 50% has dropped from 8.4% to 5.9%. Alarmingly, inequality has widened so much that wealth of India’s bottom half is lower than that of its 98 richest people.
Is inequality a natural state or a problem? Post-Milton Friedman, known for his free-market advocacy, and Richard Posner, the American jurist who brought these ideas to the judiciary arguing that justice requires society to maximize wealth, the received dogma has favoured the wealthy over the needy and producers over consumers.
Recently, an article by Jaithirth Rao had attacked Oxfam and advised it to leave economics alone and distribute blankets. Oxfam may or may not offer perfect advice on correctives, but can we ignore the data? When half our population has only 6% of all wealth, does it not point to a problem of pathways adopted? There is nothing to show that Oxfam’s survey is robust and its numbers can be contested. So, what is in contention? Deep-rooted problems of society peep out of these data-sets and stare us in the face. Learned critics of Oxfam, like Rao, should read Thomas Piketty’s latest book Capitalism and Ideology, in which he argues there is nothing economic or technological about inequality, it is all political and ideological.
It is true that society is willing to tolerate a certain degree of inequality, but a knowledge gap between perceptions and reality has resulted in extraordinarily high tolerance. Researcher Dan Ariely found that the actual distribution of wealth and income in the US was 0.1% 0.2%, 3.9% 11.3% and 84.4% from the bottom to top quintiles, but in a blind test he did, people thought that it was 2.9%, 6.4%, 12%, 22.2%and 58.5% respectively. Acceptable inequality in the US, he found, was a distribution of 10.5%, 10.5%, 14.1%, 21%, 22% and 31.9% for quintiles in ascending order.
If inequality is a natural state, what are we to do if it is too high? Inequality is corrosively divisive. A high level of inequality is anti-growth because the losers are prone to lack of trust and violence. Once it is clear that the dividends of economic growth are going to a relatively small group, opposition to growth can spring up. If we look at our own growth dividend from 1980 to 2016, a 66% share is estimated to have gone to the top 10%, 23% to the middle 40%, and the bottom 50%’s gain has been a measly 10%. It may be difficult to predict its impact but surely it cannot be benign.
Bank loans with low interest rates are available to rich oligarchs, while India’s poor are driven to moneylenders. With technology reducing low-skill job opportunities, labour earns ever less, while quality jobs have been scarce. This dangerously impedes social mobility, which is the safety valve in an unequal society.
India’s public education and health systems are broken and suffer from chronic under-funding and gaming by stakeholders. Private education and healthcare are too costly for most. Access is far from universal. This is sure to create psycho-social problems, perhaps even the conviction that the system is rigged. Glitzy infrastructure projects may dot urban skylines, but the bottom 50% may begin to feel they have little skin this game. This is possibly why high-decibel advertisements of development rarely resonate with this section.
The more one studies the intricate inner workings of economic processes, the more one gets convinced that ideology and politics play a major role in our egregious widening of inequality. Fire-sale privatization without an efficiency and equity calculus could create winners who may not deserve success. Insolvency proceedings could see gains made by those who drove a business bankrupt. A bad bank can grant big buyers access to bargain basement priced assets. All this can worsen inequality. Pikes may not be visible near the fence, but they are not unlikely either.
Rao’s dismissive advice to Oxfam appears to stem from the complacency that marks this ideology and politics. The Oxfam report offers data that everyone can analyse and interpret. It has a right to exist in the idea space and deserves deep conversation, whether one accepts a problem of structured economic violence or not. Dismissing its findings and asking Oxfam to distribute blankets is like a teacher dismissing a correct answer given by a neo-learner only because she used fingers to count and advising her to go back to cattle grazing. When we dismiss glaring problems as mere aberrations, we ignore the writing on the wall. If this is not a politico-ideological outcome, what is?
These are the author’s personal views.
Satya Mohanty is former secretary, Government of India.
