The world has always been divided into rich and poor people. The divide is as old as civilisation. This long history, however, does not make it inviolable, not to speak of being sacrosanct. The rich have been accepted by society but not loved. Acceptance has been spontaneous where the rich amassed their wealth through hard work and sacrifice. Wealth inherited or accumulated through unscrupulous means or exploitation has been held in contempt and berated.
By and large the rich-poor divide has been tolerated where the prospects and opportunities for the poor and those in the middle to climb up the economic ladder have been fair. Economists like Kuznets famously observed that at early stages of development inequality of income widened and afterwards gradually narrowed down, making it reasonable. This has been an article of faith with economists and policy makers who were not overly concerned at the existence of inequality in society.
But now the old shibboleth has been challenged and excoriated with vitriol. It has been contended that inequality not only tends to perpetuate itself but goes on increasing with a momentum of its own. It has been pointed out that inequality in America has become a threat to the 'American dream' of having equal opportunity to become rich by all irrespective of birth or class. The Occupy Wall Street movement in the recent past in America was the first major public outburst against sequestering of wealth by a minuscule few and burgeoning disparity in income. Though having no immediate impact on policymakers the movement by the disillusioned youth turned economic inequality into a major economic issue. Now President Barrack Obama has expressed his concern in his state of the union message acknowledging the depth of the crisis. Sharp increases in the share of income going to the top one per cent of society, a rising share of income going to profits, stagnant real wages and rising gap between productivity growth and rise in median family income in America have contributed to the growing concern about inequality.
Issues associated with an increasingly unequal distribution of income is apprehended to linger long after the present economic crisis is over in America. Inequality in America and other developed countries seems to have become firmly entrenched and is burgeoning almost exponentially. The developing countries like Bangladesh are not lagging far behind in this regard. Growing inequality has thus become a worldwide phenomenon.
Those who defend inequality point out that concentrated wealth and economic power are legitimate because they result from superior performance in the free market economy. This apologists point to a normal market tendency towards inequality favouring those with a competitive edge. Some even argue somewhat perversely that inequality is the result of continual state intervention in the market to distribute wealth upward. The overwhelming bulk of income is rent on monopolies supported by subsidies and enforced by the state. More sophisticated explanation has been given to the effect that technological changes and globalisation have made it possible for those with great entrepreneurial talents to operate more efficiently and on a larger scale than before. Alongside this there has been a dramatic increase in the number of highly salaried people in the world of finance.
Recent studies also reveal that most of the increase in accumulation of wealth has come as a result of rise in the value of assets. Here the second generation owners of assets through inheritance has benefited most.
In America, it has been pointed out, the current tax code allows a far larger share of the income of the rich than the poor or the middle class to avoid taxation. This has allegedly contributed vastly to the unequal accumulation of wealth and is a glaring example of 're-distribution of wealth upward'.
If accumulation of wealth asymmetrically by the rich is both a cause of 'market failure' and effect of collusion by the government with the rich to help them evade payment of taxes the solution obviously lies in government intervention, firstly, to contain the market forces from running amok in favour of profit-seekers and secondly, to close the loopholes that allow tax evasion. Falling into the first category of measures is withdrawal or drastic reduction of preferential measures like subsidies that benefit the rich entrepreneurs, and to those who have passed the infant-industry stage. By removing monopolies sustained with public support government can create greater competition in the free market. A similar result may take place when resources (particularly credit) are made available to small industries.
Income redistribution in favour of the poor may play a significant role in both alleviating poverty and reducing inequality. Income redistribution through food stamp, unemployment benefit, free medical services, etc. though a palliative for the poor it gives them the vital breathing space to become more productively engaged in the real economy. Arguably, these do not contribute to reduction of inequality immediately. But if the income redistribution in favour of the rich (subsidy, tax loopholes, etc.) is taken away or whittled down substantially then over time the two forms of redistribution (upward and downward) may have the desired impact on inequality.
Those who shudder at the thought of redistribution because of its perceived negative effect should take note of what IMF economists have concluded about economic justification for reduction of inequality. In a recently published research paper they have made out a strong case in support of the fight against inequality saying income redistribution measures can strengthen economic growth. Do policies to redistribute income help of hurt growth? asked the IMF economists. The answer, they said, is a net gain, even if there is an initial cost to an economy from taxes and transfers which aim to close an income gap. 'While considerable controversy surrounds these issues, we should not jump to the conclusion that the treatment for inequality may be worse for growth than the disease itself', they said in their research paper titled Redistribution, Inequality and Growth. Their research findings could not have come at a more opportune time.
hasnat.hye5@gmail.com
The spectre of inequality
Hasnat Abdul Hye | Published: March 25, 2014 00:00:00 | Updated: November 30, 2024 06:01:00
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