The big Tripura poll message

The voters in Tripura have sent a clear message to policymakers: they care more about improving their own well-being and standard of living than worrying about income inequality. By soundly rejecting the communist credo of equality and the equal misery that comes from socialism, big government and centralised planning, the voters have sent a message to Delhi: Focus on creating wealth, not just distributing it. And this is especially meaningful in an election year when passing out freebies using taxpayers’ money will be a tempting political strategy.

Left-leaning socialists have a made a healthy living blaming capitalism for all that ails modern society including inequality, environmental problems, global warming, extinction of animal species, unemployment, health-care costs etc. But the record of economic history is unequivocally clear: Capitalism, free markets, and economic freedom have done more to improve living standards and liberate people from poverty than any government scheme.

Globally, the percentage of people living in poverty has dropped from 60% in 1970 to less than 10% today, despite a more than doubling of the population during the same time. India’s own experience with liberalisation and economic freedom has resulted in more than 300 million people being pulled out of abject poverty since 1991.

Yet, people rise in alarm when groups like Oxfam put out provocative reports claiming that inequality in India is rising and that 73% of the wealth in India is now going to the richest 1%. Last year India’s then Commerce Minister, Nirmala Sitharaman, reacting to the 2017 Oxfam report at Davos, made a misplaced statement that the “world needs to do a reality check on globalisation and that recalibration was required in countries where capitalism and democracy co-existed.” This was a misplaced statement from a Minister whose job was to promote globalisation and free markets. During her three-year tenure as Commerce Minister, exports dropped almost 23% despite a growing global economy and a supportive 8% depreciation in the rupee.

The notion of inequality is deeply troubling because it jars our sense of fairness. But is it inequality that bothers us or the fact that some people don’t have enough to sustain themselves? Would differences in income matter if everyone had enough? Would we, for example, be as concerned about the disparity in income between a billionaire and a millionaire even though in absolute terms it is higher than that between a millionaire and someone making 10,000 rupees.

It is not inequality that bothers us, but insufficiency, and the fact that some people don’t have enough while others have plenty. The real issue, therefore, is not income inequality but poverty and the oppression and the injustice that accompanies this poverty. The misplaced focus on income inequality is a dangerous distraction from the real problems that face the poor: lack of economic opportunity, large differentials in educational and skill levels, and systemic injustice. In an ideal world inequality is undesirable, but in the natural world, inequality is inevitable. People have different levels of ability; some take more risk than others, some are more innovative, some more productive, and some just plain smarter than others. It is, therefore, a statistical certainty that people will end up dispersed over a wide range of economic outcomes. And as economies become freer, and more prosperous and complex, the premium on skills and education increases and further accentuate disparities in income. New technologies like automation and artificial intelligence will make the existing skills of millions redundant and increase inequality. And that has nothing to do with capitalism – it is the natural result of human progress.

The concern should not be inequality but what causes it. If inequality is the byproduct of the wealth creation process where innovative entrepreneurs are creating fortunes from new products and services that are changing people’s lives, then it is a welcome sign of growth and prosperity. But if the inequality is being created because a group of people have access to the levers of power and monopolise wealth–as in countries like Venezuela–then it is a cause for concern. Therefore, it is not enough to identify the presence of inequality–an additional argument is required to show that there is injustice and wrongdoing involved.

Understanding this is important because it leads to entirely different policy prescriptions. The zero-sum approach to wealth, which is the argument used by those who blame capitalism for all ills, will lead us back to the failed socialist policies of high taxes on savers and investors, large state-run welfare programs, and massive intervention by the state. If we conclude that free markets are distorting wages and creating inequality then are we going to appoint a czar or a government committee to decide how much a doctor should make versus a carpenter? That is a slippery slope of central planning that has failed everywhere every time.

Instead, if we should shift the debate from inequality to reducing poverty and increasing opportunities for the poor, our focus changes meaningfully to getting people at the bottom up to the standards of employment required for the modern economy. This requires increasing economic freedom, minimising government control over resources and means of production and building up the institutions responsible for human capital formation–higher investments in human capital, better schools and higher institutions of learning, higher R&D, more on-the-job training etc.

The aim of economic policy is to improve living standards for citizens and to provide meaningful opportunities for everyone to make the most of their lives. In a positive-sum society, the fact that some have more than others does not make this goal harder to achieve. How are the chances of a poor child affected by the fact that an Internet entrepreneur made billions as opposed to just millions? There is nothing morally wrong with some people earning more than others as long as that money is made in a fair and free market and not through fraud and abuse of power. 

We have a clear choice: should we focus on growing the pie and building wealth so that everyone gets more or should we fixate on ways to divide the existing pie and in the process dissuade wealth creation. The voters of Tripura have given us the answer: Sabka Sath, Sabka Vikas needs to focus more on “vikas”; than on “sath”.

The author is the founder, contractwithindia.com. Views expressed are personal