Accept plain truths about growth

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Accept plain truths about growth

Tuesday, 12 February 2019 | Abhishek

A recent Oxfam report has painted a gloomy picture about global wealth inequality. The warning must not be ignored

The number of billionaires, owning the same amount of wealth as the world’s poorest half, fell from 43 in 2017 to 26 in 2018. This is not only because the rich got richer but also because the poor got poorer — the wealth owned by them fell by 11 per cent, according to the Oxfam Inequality Report 2019 released recently. As for India, the report said that the wealth of the top one per cent increased by 39 per cent; whereas that of the bottom 50 per cent increased by just three per cent in 2018. This means that in India, even though the poor are not losing what they had, the gap is increasing continuously.

Questions are being raised on the methodology used. It has been argued that the report continues with some of the false premises of the earlier Oxfam reports and creates a falsified and biased view. Some of the accepted recommendations may do more harm than good to the poor. The argument goes that poverty — which means that someone is incapable of providing for basic necessities — and inequality — which means difference between the wealth among individuals — are two different issues with the former being the more serious one. The report priorities inequality and the media sensation it created may lead to the adoption of policies that actually slows down growth of the country, which is responsible for the phenomenal poverty reduction in absolute terms in the recent decades for many countries.

Taking a balanced view, it can be said that some of the criticisms being raised are very much true and cannot be ignored as “neo-liberal propaganda.” It has been the lesson of history that any approach based on the premise of one-size-fits-all approach does not work. Conditions in various countries are different and while offering advice and formulating policy, a nation-specific approach needs to be taken. For some nations, inequality may not be a problem as big as poverty. On the other, for some, measures taken to reduce inequality may hinder the domestic capital formation, thereby inhibiting the growth rate.

Putting the report aside, questions cannot be ignored. First, inequality does matter. Even the International Monetary Fund (IMF) agreed that, for a country, if the Gini co-efficient is higher than .27, it negatively impacts growth. At present, there are only a few countries with Gini co-efficient less than .27. This means that for the most of the world, reduction in inequality will result in higher growth and much higher poverty reduction. Second, even though we don’t agree with the numbers projected by the report, we cannot develop a blind eye to the practices of exploiting loopholes in tax codes so as to shift profits to tax havens or avoid corporate taxes. There are reports of rich people buying citizenship in the countries offering minimal taxes. But scrutiny of their wealth causes an overall damage to their capability as well as the image of the governments of the developed and developing countries alike.

The spirit of neo-liberalism lies neither in crony capitalism, forgery or immoral practices but in competition. The concentration of wealth in a few hands is disastrous not only for those, who don’t own anything, but for those who hold it. Pandit Deendayal Upadhyay was of the view that,“When a person gets infatuated with the idea of wealth or is under the spell of commodities and its level of consumption, he comes under the dominance of wealth. For that person, wealth no more remains a means to an end but becomes an end in itself. A person under this fetishism loses its relevance to his individuality, nation, dharma and spiritual happiness” (Kulkarni, 1991). So, the warning that “rising wealth inequality threatens the social fabric of the nation” and “subverts democracy” must not be ignored.

It is important to understand that wealth of the billionaires rises not because they are working harder but because they are managing to push the wages at the lower level further down. It is not that they are not paying taxes to the Government; they are also not paying proper wages to their employees in general and to the women employees in particular. In many ways, even if unintentionally, the Government seems to be working for the wealthiest. For example, if tax exemptions are being given for employment generation, formal and decent jobs are not being created. This may further damage the poor and create conditions for populism and authoritarianism.

(The writer is research scholar, Centre for European Studies, School of International Studies, JNU, New Delhi)

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