Widening inequality: Societies need to address economic, ethical dimensions

Income and wealth inequality in India
Disparities of income generation between the richest 1% and the rest have implications in terms of perpetuation of wealth and income inequality.

The biggest problem faced by developed countries and emerging markets is the concentration of wealth in the hands of a few. The pandemic accentuated the problem by pushing more than 100 million people into poverty worldwide. The wealth of billionaires grew by leaps and bounds during the same period. Many jobs were lost and the impact on education will have long-term repercussions that may lead to an increase in deprivation and inequality.

The so-called build-back-better plans seem to be failing along with the objective of using the pandemic as an opportunity. Colossal failure in pandemic planning and implementation of policies has increased the gap between the wealthiest 1% and the rest of the population, highlighting Thomas Piketty’s words in ‘Time for Socialism’. “I am now convinced that we need to think about a new way of going beyond capitalism, a new form of socialism, participative and decentralized, federal and democratic, ecological, multiracial, and feminist”.

READ I  Widening inequality has serious repercussions for Indian economy

While the long march towards equality and participatory socialism may be a long shot, the debate over the nature and consequences of inequalities continues. Scholars like Piketty have established that inequality is essentially an ideological and political phenomenon rather than an economic and technological one. Based on the absolute moral responsibility principles, these scholars opine that most of the rich and ultra-rich earn either by producing luxury for the richest 1% or by exploiting the necessities of the rest. In both cases, the concentration of wealth gives rise to inequalities.

income inequality

Let’s start with a basic social need like education. Good universities and institutions charge a fee which works in favour of the class of haves. The technological advancements allow the finance sector to operate with fewer people, more machines and divergent income spectrums. Privileges and wealth concentrate in the capitalist world, making certain skills valuable, products meaningful and also creating a class of people who can manage them. In many more ways, those who do well in a society are conditioned by inequality.

Scholars like Yaron Brook see disparities in income as an inevitable outcome of value creation and individual specialisation differences. They explain wealth as an individual possession and not that of any nation. The way national wealth is considered as a pie is criticised. The underlying assumption is that when individuals are set free, they tend to produce wealth in different quantities. They see inequality as the result of the functioning of an economy.

inequality in india

inequality index

In the aftermath of the pandemic when the difference between the wealthiest 1% and the rest seems to be expanding, it is crucial to analyse certain important dimensions of wealth generation and devolution in the light of these arguments from both sides.

The wealth tax debate

Wealth tax is imposed on an individual’s net wealth or the market value of their total assets minus liabilities. Recently, there have been discussions on imposing wealth tax in the US. This was to serve the debt-ridden economy and the treasury faced major opposition against the proposal. The number of OECD members that impose a net wealth tax increased from eight in 1965 to 12 in 1996, but dwindled to five in 2020. India also repealed its 1% wealth tax in 2016.

The reasoning that the wealth tax results in greater devolution of wealth seems to have been discounted by the discontent against risk-taking and entrepreneurship behaviour. Countries like Singapore intend to increase personal income tax (if not wealth tax) for the ultra-rich to finance their post-pandemic rebuilding. Thus, the international consensus over an equitable society seems to stop with the debate over the imposition of wealth tax as a measure to check income disparities.

Occupational origins of inequality

Holding an account of the occupations that push the fortunes of the top 1%, two leading ways become visible. People dealing with occupations such as finance, elite medicines, law and management constitute almost half of the ultra-rich, while the other half benefits hugely from electronics, communication, computers and digital developments. It can be said that a one chunk of occupations deals with the luxury of the rich and the other with the survival of the struggling class.

The inconclusive debate over the successes of capitalism uses the reduction of poverty worldwide as a barometer. The world has managed to reduce the poverty headcount to around 10%. However, pro-capitalist policies have created a class of poor called the new poor which mainly consists of the urban, non-agricultural poor working in the most compromised sectors. This relates to the inequality debate as the disparities of income generation by the top 1% and the rest reserves implications in terms of greater devolution of wealth. Advocates of pro-poor policies suggest alleviation as the absolute moral responsibility of the governments and the ultra-rich.

A world more divided over income and possession of wealth is creating a class of poor that is hardly mentioned in the individual poverty debate. The debate over the dimensions of inequality is confined to the realm of academia at present. There is a striking need to address the consequences through fiscal measures.

(Kaibalyapati Mishra is a research Scholar at the Centre for Economic Studies and Policy, Institute for Social and Economic Change, Bangalore.)

Subscribe to Policy Circle newsletter