Rising Inequality An Outcome Of Predatory Or Rent-Seeking Activities, Says Economist Jean Drèze

I made that statement after recalling that India had a special inequality problem. It has to deal with inequalities of different sorts, including not only economic but also extreme inequalities of caste, gender, education, power and so on.

These inequalities are very entrenched, and they tend to reinforce each other. India also has a serious problem of relational inequality, in the sense that social distance often translates into strained relations between people. All this makes India one of the most oppressive societies in the world.

In that context, I noted that India, like most other countries, also had a rich history of resistance to inequality. Resistance to the caste system, for instance, goes way back—not only to BR Ambedkar but before that to [Jyotirao] Phule, Kabir, [Gautam] Buddha and countless others who are not remembered. It stands to reason that the victims of inequality always include some who are not taking it lying down.

Historical examples of resistance to economic inequality are perhaps less prominent, but partly because of selective amnesia. In the more recent past, there are many striking examples of resistance. That is what communism, for instance, was all about, to a large extent.

The way communist ideas spread like fire around the world, and inspired millions of people to risk death or torture for the sake of revolution, is very telling.

Even if you feel that they were misguided, you must admire their courage. The popularity of this movement clearly reflects a deep-rooted aspiration for justice.

Aside from its own varieties of communism, India also has a history of non-violent resistance to economic inequality, such as the Bhoodan movement, trade-union initiatives, and recent campaigns for economic and social rights. None of this is to deny that there may be growing tolerance to certain forms of economic inequality.

But I stand by the statement that India, like most countries, has a rich history of resistance to inequality, continuing to this day.

Even the recent agitations led by the Cockroach Janta Party can, to some extent, be seen as a revolt against an economic order that creates plum job opportunities for a privileged few even as it leaves the masses behind.

I don’t think that we can possibly justify India’s atrocious inequalities in this roundabout way. If it were true that inequality is a by-product of rapid growth, and that the poor still gain in the process, there might be a semblance of argument for tolerating inequality for the time being. But most inequalities are not a by-product of economic growth. In many cases, they are historical legacies.

Unequal land ownership is one example. In Kashmir, radical land reforms from the early 1950s onwards dealt with that historical legacy in substantial measure, paving the way for a remarkably prosperous and relatively egalitarian rural economy.

The rest of India missed that boat, perpetuating a legacy of extreme inequality and oppression in rural areas. Caste and gender inequalities, of course, are largely historical legacies too.

Even when economic inequality is a by-product of economic growth, it cannot be casually downplayed on the ground that the poor are better off. The question is not whether the poor are better off, but whether they are better off than they might have been under a more egalitarian development strategy.

There is a basic confusion here that has been handsomely exploited to justify rising inequality.

I would add that when economic growth is associated with rising inequality, it does not mean that inequality is a by-product of growth. It can also be an outcome of predatory or rent-seeking activities.

If a big company decimates small producers by unfair means, as often happens, inequality is likely to rise. Ditto when a tycoon becomes ultra-rich by tweaking government policy in his favour. Extreme wealth has a lot to do with this sort of business. We must beware of convenient arguments that treat rising inequality as an inevitable side effect of rapid growth.

I think that the trend of growing centralisation is indeed unfortunate in many ways. Decentralisation is a basic democratic principle, because it helps people to have a say.

Centralisation, where applicable, needs to be justified. With the [Narendra] Modi government, it is more like a reflex.

If you are trying to cling to power at all cost and herd the entire nation into the Hindu nationalist mould, then naturally, you must control as much as possible.

Under the garb of cooperative federalism, the Centre is increasingly imposing its will on the states. The NEP [National Education Policy] is a good example.

Until now, the successive national education policies had a largely indicative character. They were rarely read as binding instructions on the states.

Today, the Union government is using strong-arm tactics, like attaching conditionalities to PM-SHRI funds, to force the latest NEP on the states, including elements that may not be to their liking such as the three-language formula and the emphasis on so-called Indian Systems of Knowledge.

MGNREGA [Mahatma Gandhi National Rural Employment Guarantee Act] is another casualty of centralisation. It was meant to be a decentralised programme, with gram panchayats in charge and every state free to design its own employment guarantee scheme. It did work that way for a few years, with some success.

From 2013 onwards, however, the Centre started micro-managing MGNREGA from Delhi. The wage payment system, in particular, was centralised and then badly messed up, with disastrous effects on the entire programme.

The recent replacement of MGNREGA with the Viksit Bharat Guarantee for Rozgar and Ajeevika Mission (Gramin) Act takes centralisation even further. The results so far, including an unprecedented crash in employment generation in the first four months of this financial year, are not impressive.

These are just two examples. We have seen the counter-productive effects of centralisation in a wide range of social programmes.

I hesitate to comment on this because I don’t particularly hang out in those circles and I have very little experience of NITI Aayog. I have never been an admirer of the Planning Commission, but I remember it as an institution that had a certain openness to what tends to be called civil society today.

For instance, there were regular and reasonably inclusive consultations. This mattered, because the Planning Commissioner had real powers to influence the allocation of so-called Plan funds, and these funds often supported important social programmes such as the Integrated Child Development Services and MGNREGA. Today, these powers have been largely transferred to the Finance Ministry, and the Finance Ministry is a veritable fortress, inaccessible to the general public.

NITI Aayog is not quite a fortress, but it is a bit of an exclusive think-tank. I suspect that it has become more accessible than the Planning Commission used to be to corporate lobbies, consultancy firms, embedded scholars and such. Their influence can often be felt in NITI Aayog reports, the positions they take and their jargon. The general public, however, does not seem to be welcome.

Let me first point out that the impact of AI on economic disparities depends on how the economy is organised. In an enterprise owned and controlled by the workers, like the Mondragon cooperatives in Spain, AI could be a blessing.

It would enable the workers to produce just as much in fewer hours, without anyone being dismissed.

The productivity gains would be widely shared.

It is in a capitalist enterprise that there is a risk of AI destroying jobs even as it boosts profits.

India is not in a middle-income trap, at least not yet. The idea of a middle-income trap is that high growth rates become difficult to sustain after the initial surge that often pulls a country out of the low-income category. There is no sign of that happening right now, but it could happen. Whether AI makes it more likely or not is hard to say.

The future of AI, even short-term, is full of uncertainties, and I doubt that it is possible, in this fog, to be clear about its impact on economic growth in India.

Perhaps the main danger is not that growth will slow down, but that the current pattern of jobless growth will continue or even intensify.

Universal quality education, taxing the rich and expanding the social security system would be a good start. The disarray of the schooling system is a monumental injustice to disadvantaged communities.

India has no wealth tax, no inheritance tax, minuscule property taxes, and even low income-tax rates at the top.

Social security entitlements are extremely limited and shrinking in some cases. All this needs urgent intervention. We have some idea of how to go about it.

Taking a longer view, I feel that the big move towards economic equality will happen when we democratise the economy. The vast inequalities we are seeing today are an offshoot of capitalism.

The capitalist enterprise, run for the profit of shareholders, is an aberration. The state-owned enterprise, oddly associated with socialism, is a poor alternative. In both cases, workers have no say.

But there is growing evidence of the possibility of democratic enterprises, where managers are accountable to the workers rather than to shareholders or the state.

In democratic enterprises, there is no scope for the sort of profit hoarding we see in capitalist enterprises. In this and other ways, economic democracy could pave the way not only for a more egalitarian society but also for political democracy beyond electoral rituals.

Meanwhile, there is a fair amount we can do by other means. Some countries, like the Scandinavian ones, have achieved reductions in economic inequality using economic and social policies that are quite feasible in India today.