Inequality hinders economic growth, say economists

There is a problem with the economy in most parts of the world, especially in America, and it is based on inequal distribution of wealth among the various classes of people, according to Joseph Stiglitz from Columbia University, Ravi Kanbur from Cornell University and Robert Wade from London School of Economics.

The leading economists came to the city on Tuesday to discuss the state of the world economy and the role inequality plays in hindering growth.

At a discussion organised by Azim Premji University and the Institute for New Economic Thinking (INET), Stiglitz recounted—at times hilariously—the economic crash in America and the inequality prevalent in the country. “The year after the economic crash, there was a 93 per cent increase in growth for the 1 per centres (the wealthiest 1 per cent) and the growth at the top has not trickled down to the rest of the society. In fact, many Americans are where they were economically a decade and a half ago,” he said. “One of the lessons to be learnt from the crash is to realise that inequal wealth will mean inequal politics,” said Stiglitz. “Candidates have to raise money for campaigning and that money comes from the wealthy which means they also have a stake in politics,” he said.

Ravi Kanbur spoke about various countries in the world that have managed to slowly reduce inequality while also help growing the economy, a feat many economists believe to be impossible. “For managing growth and equality in the same place, you need to identify structural inequalities in the system and then go about bringing in policies that will eradicate them. Countries like Taiwan and Korea from East Asia started with land reforms and introduced equal distribution of education in the 40s, 50s and 60s and that led to relatively equal growth in all sectors,” he said.

However, Robert Wade remained a bit pessimistic about world economy in general as he believed those in power had not learnt their lesson yet. “Economists during the crisis let down the faith the public had on them and I don’t think those in power have learnt the lesson about bringing in equality,” he said.