Equally poor or unequally rich

Before any discussion on the subject of inequality, it is worth asking whether a society where everyone is economically equal desirable, undesirable or is it an irrelevant feature of the society. The question is better asked in the context of the goal of a state, which was summarised by Kautilya as increasing the yogkshema (well-being) of its citizens. So a better-phrased question is – how does inequality in a nation affect the well being of its citizens?

At a societal level, inequality can create an elite-class of citizens who have undue influence on how things are run and they can permanently shun the underclass by unfair means. This is how feudal societies were. In India, the means to keep the underclass poor were legitimised by creating a religious code that ‘officially’ discriminated by, for example, declaring ownership of any assets to be illegal by castes involved in manual labor. The cause and effect can get mixed here. People with influence can garner unfair economic benefits (such as the recent millionaire mukhiyas of Bihar report) and vice-versa. This is surely not something that improves the well being of a nation’s citizens.

Many-a-times inequality is conflated with poverty. It is evident that poverty is not good for any society. However, it is possible to end up with a society where everyone is rich (by some arbitrary absolute standard) but the society is still unequal. Similarly, unequal societies may have lot of poverty, especially when there is a class of people whose riches depend on keeping other people in poverty (like feudal India). This reminds us that we need to have better governing institutions to prevent elite capture, and if such institutions are strong, then the concerns of inequality need to be replaced by concerns over poverty in a country like ours. India has a liberal, republican system of governance that is meant to address exactly these issues but we have a long way to go on making that system robust enough.

The confused arguments ignoring need of strong governing institutions and conflating problem of poverty with inequality seems a deliberate attempt for making a case for redistribution of wealth. Since Marxism has been discredited, redistribution recipes keep resurfacing in various other garbs. Sometimes it is by highjacking the debate on human rights that were about life and liberty to turn them into economic rights that can only be fulfilled by redistribution. In this case, it is by suggesting that this Marxian remedy can redress inequality.

The deceptively easiest way to make rich and poor the same is to make the rich guy poorer. Let’s play this out. Say, we do this transfer once and make everyone equally poor (or rich). Next month, the difference will again creep up and we would again do so. It doesn’t take a genius to figure that more people will destroy hand-me-down wealth than increase it. Over time, everyone will only become poorer and poorer till people revolt against this system and get back to the business of trying to become richer by generating wealth. There is a reason why Soviet Union broke up and we need to stay away from that path.

Technology is another factor that influences inequality. Globalisation is one manifestation of technological improvements in areas of transport and telecommunication. Impact of globalisation can be directly seen in India in the fact that the small percentage of people connected to the global economy through their knowledge of English earns better wages than non-English speakers. This segment has seen phenomenal growth since the 1991 reforms helped connect Indian economy to the global one. This has increased the inequality between this class of Indians and the one’s who are in those areas of economy (like agriculture) where reforms have not happened.  There is no evidence that people have become poorer due to the reforms though, the only debate is on the increase of inequality. In fact, there is strong evidence that everyone has benefited but the quantum of benefits has been different. This means that we have to learn what makes a certain class become richer faster and apply those lessons to other parts. The solution, as we discussed, can’t be to make the rich class poorer.

Another manifestation of technology is the ability to automate things. This means that few people can, theoretically speaking, produce all the wealth of this world by use of technology. This can create short-term inequality since many jobs where machines replace humans will disappear. This is a real problem and although over a longer term newer occupations replace older one’s (like automotive mechanics have replaced farriers who did horse shoes), we need mechanisms to help workers adjust and retrain for new skills. As the pace of technological change is increasing, such shifts will happen more frequently in our society.

Inequality is at best an indicator that we can use to understand how different segments in our society are growing. By itself, it is neither good nor bad. Becoming equally poor surely doesn’t seem to be a solution to anything. And being unequally rich is also a state that needs to be managed. Currently, the inequality story suggests a multi-faceted approach that we need to take in India. We need robust institutions that stop elite capture, reforms that can free all sections of the society and allow them to generate wealth, and manage the labour shocks that come from technological breakthroughs.