When even Davos concerns itself with rising inequality, you can be sure that the problem has become grave. You can also be sure that a forum concerned with protecting the fortunes of attendees, each of whom paid a participation fee running into thousands of dollars can, at best, have no worthwhile solution. Or worse, that it will propose policies that will only aggravate the trend.
Nevertheless, many internationally influential organisations such as Oxfam and Transparency International have started to time the release of their reports with the meeting of the World Economic Forum, hoping, perhaps, to influence the conversation between the rich and the powerful gathered at Davos.
The gap between the rich and the poor in both developed and developing countries is growing rapidly within the ambit of the economic recovery after the global financial crisis of 2007-2008. So much so that the wealth of the 85 richest people on earth is now equal to that of a bottom half of the world’s population. Put another way, it means that each of these 85 individuals is worth almost $19 billion – an amount greater than the GDP of 83 countries.
The causes of this stunning fact are many, including the job redundancies created by technology, the global degrading of educational institutions, especially those accessed by the poor, and the rising cost of healthcare. But most invidious would be the gaming of the system through increasingly regressive tax systems in both developed and developing countries. And despite historically low taxes, the wealthy conceal an estimated $21 trillion in tax havens, mostly in the developed world.
Does the need to address the worsening plight of the poor exercise the minds of politicians globally, and ours, in India? It does not appear to.
Although the Gini coefficient for India was still a relatively decent 36.8% compared to 41.5% for China and 53% for Brazil in 2010-11, inequality in India has, according to Oxfam, skyrocketed in the last decade. The number of dollar billionaires has gone from six to 61, and the share of the country’s wealth that they hold has gone from less than 2% to an astonishing 26%. Simultaneously, data of the National Sample Survey Organisation shows falling consumption levels of even food grains among the poor in India
And yet inequality does not appear to figure high as a concern for our putative prime ministers. During his first one-on-one interview to the Times Now channel on 27 January, Rahul Gandhi upbraided the interviewer for not asking him about anything important like “how are we going to take this country forward?” But Gandhi himself did not mention inequality as a concern. He took credit for the slew of subsidies and measures enacted by the Congress-led governments since 2004, which include legislating the right to employment, food and education, and to challenge corruption in government through the Right to Information Act. Therefore, we may interpret his economic vision as more handouts and subsidies, which are either skimmed off by intermediaries or end up benefiting the middle classes without stimulating job creation.
Rahul Gandhi’s challenger and the Bharatiya Janata Party’s candidate for the prime minister’s post, Narendra Modi, has correctly identified high inflation as the biggest predicament facing the country. For this, he blames corruption and the mis-governance of the incumbent government. But his remedies of rationalised international trade in agricultural products and a price stabilisation fund will hardly change the economic structures that are increasingly tilting against the poor. Besides, Modi’s wish-list of a hundred new “smart” cities, bullet trains to all corners of the country, and IITs IIMs and an AIIMS in every state are all desirable but unlikely to be accessible to the poor.
However, his focus on building transport and agro-infrastructure, and expanding power supply, should create jobs and develop skills, and may benefit some of the poor. Still, the vision remains that of trickledown economics, the benefits of which hardly reach the really poor.
The main and maybe only plank of the Aam Aadmi Party (AAP), the third new political force that has burst on the arid Indian political landscape, is corruption and accountability – two sides of the same coin. AAP’s moves to reduce the price of power and increase the supply of free water have caught the imagination of people in New Delhi. But these policies do not constitute a national economic programme. Nevertheless, considering the scale and depth of governmental and corporate corruption in India, any curtailment of its prevalence will be beneficial, especially for the poor, who are its greatest victims.
How does the rest of the world approach the global phenomenon of inequality? In his State of the Union address on January 28, U.S. President Barack Obama recognised that “inequality has deepened…upward mobility has stalled … corporate profits and stock prices have rarely been higher.’’
The U.S. has a Gini coefficient of almost 41% and average wages in 2014 are 20% less than they were in 1981. Nevertheless, Obama’s proposed reforms are anodyne: greater access to improved education for low-income students; a slightly raised minimum wage; expanded tax refunds for the poor; and a new programme to help the poor to start saving for retirement. However, there is no evidence that a legislature that is ideologically fiercely divided will oblige even on these small changes.
As we welcome German President, Joachim Gauck, on an official visit to India this week, we might look to Germany, which has an enviably low Gini coefficient at 29%, for two important ways to reduce inequality and increase social harmony: one is the periodic negotiation in an industry or sector between labour and management representatives, who together consensually negotiate higher wages and job security.
The second is the basis of the grand Christian Democratic Union-Social Democratic Party coalition. It involved agreement on enacting a minimum wage; raising the age of eligibility for pension payments from 65 to 67; calibrating pension payments for women to take into account their absence from the workplace for child bearing; and augmenting the minimum benefits for the very poorest. All in all, a broad societal agreement to show solidarity with the poorest and to acknowledge the special contribution women make to society.
Germany’s approach broadens political and social acceptance, which strengthens democracy. In the U.S., the present ideological deadlock impairs the functioning of institutions such as the Congress, the bedrock on which democracy functions.
In India the approach of poorly-designed and badly-implemented handouts neither improves the conditions of poverty nor does it promote democracy. On the contrary, it has elevated corruption and the divisive politics.
Neelam Deo is Co-founder and Director, Gateway House: Indian Council on Global Relations; She has been the Indian Ambassador to Denmark and Ivory Coast; and former Consul General in New York.
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