Inequality, like pollution, must be reduced

On the first day of the Davos summit in Switzerland this year, Oxfam International published a report titled “Survival of the Richest”. The timing of the publication is deliberate, and Oxfam does this every year in January at the inaugural of the Davos meetings. This is done to gain maximum publicity, on the sidelines of a conference where the world’s elite from the business and political world congregate. Reportedly the participation fee per person this year was more than 120,000 dollars although it is never publicised.

The gains of economic growth increasingly are captured by a smaller fraction of the population

More than three thousand paying delegates attend, and many other speakers are also invited. The conference this year was held in the shadow of a looming recession which has been forecast by both the World Bank and the International Monetary Fund, for developed economies. There is also the long shadow of the war in Ukraine which has lasted for a year with no end in sight. The theme this year was “Cooperation in a Fragmented World”. The fragmentation refers to the de-globalisation tendency due to trade wars, and now disruption due to the Ukraine conflict, and consequent inflation and recession.

The other big fragmentation is the growing divide between the rich and the poor. The gains of economic growth increasingly are captured by a smaller fraction of the population. The Oxfam report this year highlights the trends in inequality and poverty all around the world. This year’s report shows that both poverty and inequality have worsened. These two measures are different. The former measures how many people are getting two square meals a day or can meet minimum needs. The latter measures the gap between the rich and the poor.  It is theoretically possible that a society may have negligible poverty, and yet have very high inequality. For a growing economy poverty tends to subside while inequality may increase. But usually there is some correlation.

This year’s Oxfam report says that for the past two years the wealth of the top 1 percent has increased by 26 trillion dollars, more than twice that of the bottom 99 percent. Most of this wealth is presumably due to rise in the stock market and in housing. Income gains are substantially going to the very top. On the other hand, nearly 1.7 billion workers have seen their wages rise slower than the rate of inflation, which means their purchasing power has eroded. Thus, poverty has increased.

The wealth of the richest 100 Indians is now about 660 billion dollars or about 55 lakh crores

Even the World Bank’s 2022 report says that global poverty has increased from 8.4 percent to 9.3 percent. The WB uses the poverty level of 2.15 dollars a day. By the end of 2020, due to the pandemic an estimated 7 crore additional people were pushed below the poverty line, of which 5.6 crore are in India alone.  India was mindful of the impact of the pandemic, especially on the poor, and hence ran a free food program for two and a half years, which covered 81 crore people. That program has been extended by one more year, implying the continuing need to protect the poor and ensure food security, in the light of high food inflation.

What about inequality? Oxfam has published a special report focused on India. It says that during 2022 the number of billionaires rose from 102 to 166.  The wealth of the richest 100 Indians is now about 660 billion dollars or about 55 lakh crores.  Two third of the wealth gains in the past two years have gone to the top 1 percent globally. A similar trend is evident in India. This means that wealth and income inequality is getting worse. If you think in terms of education access, the UNICEF last year reported that more than 600 million children remained affected by partial or full school closure, even at the end of two years of the pandemic.

As late as September last year the estimate was 244 million still out of school as per UNESCO. In India too probably 100 million plus students have had a setback in their education thanks to school closure or inadequate access to online tools, bandwidth or infrastructure. To rebuild this human capital will take a lot of effort while a tiny section of Indian society will see their kids move faster ahead. So apart from income and wealth, in education access and attainment too we are seeing widening disparity. Add to that, other elements like healthcare, safe drinking water, and other dimensions. You can see that inequality is not getting better but worse.

Society can never have complete equality. Economic growth rewards those who are more talented and more entrepreneurial. Faster growth widens that gap. But at some stage we have to pause and ask, how much inequality is acceptable to us as a society. Just like the modern industrial age will always have pollution, thanks to electricity, transportation and construction, but we also put curbs on pollution. As a society we have imposed requirements to switch to cleaner energy. New emission norms for cleaner cars. Scrubbers in factory chimneys to reduce noxious fumes. So, also at some point we must say this much inequality and no more.

Otherwise, we have to contend with social instability, increasing law and order problems, investor nervousness, and eventually slowing or stagnant growth. It will be a nightmare for all of us. A large number of unemployed adolescents will contribute to social tension.  Hence the reduction of inequality requires the same attention and focus as the reduction of pollution. Because it affects all of us, and not only the poor.

As we celebrate the seventy fourth Republic Day, let’s remember the foundational values of fraternity, liberty and equality. That equality is in the economic, social and political sphere. As prophetically warned by Dr. Ambedkar in a historic speech on November 25, 1949, if we ignore the peril of increasing inequality in Indian society, then “those who suffer from inequality will blow up the structure of political democracy which .. (we have) .. so laboriously built up”. His prophetic words were uttered twenty years before the first instance of Naxalbari violence. It is a warning we must heed today with greater urgency.

(Dr. Ajit Ranade is a noted economist)