Markets slump and inequality

The slump in global stock markets since July has wiped out an estimated $5 trillion of wealth, five times the GDP of India. So, world inequality has fallen dramatically. Are poor people across the world celebrating the great reduction of global inequalities? Are socialists celebrating increased equality ? No, not at all.

But why not? For years, analysts have worried about rising inequalities in India. Rapid growth has sent the stock markets soaring, and several Indians have entered the Forbes list of top billionaires of the world. Simultaneously, 300 million remain below the poverty line. This stark contrast has evoked much outrage.

Prime Minister Manmohan Singh says that unless the poor participate in fast growth, uprisings could disrupt our nationhood – over 150 out of 600 districts are affected by Maoist violence. The same theme is echoed in a recent study of Asian inequality by the Asian Development Bank. The ADB chief economist has been widely quoted as saying that high levels of inequality disrupt social cohesion, and could lead to civil war.

If this were really true, then the stock market slump should have healed social tensions. An Indian Express story on August 12 estimated that the richest five Indians had lost more than $10 billion in the previous fortnight. The total wealth lost by all shareholders was $52 billion (Rs 210,000 crore), almost equal to the GDP of Bangladesh.

So, inequalities in India have fallen dramatically. Not even the most draconian tax measures could have reduced the wealth of shareholders by $52 billion.

But are the 300 million poor people of India celebrating? Are landless labourers in Bihar delighted that the wealth of the Ambanis has suddenly fallen by billions? Are the tribals of Chattisgarh and Jharkand joyous that the Tatas have become poorer? Are illiterate Dalit women, the most oppressed and powerless section of our population, ecstatic that the stock market slump has improved income distribution?

Of course not. And this has consequences for theories of social tension. Now that the stock market slump has significantly improved India\’s Gini coefficient of wealth, will Maoist insurgents in Chatttisgarh give up insurrection? Will ULFA in Assam cease its depredations because of greater equality between the people of Assam and those of Dalal Street? Will the militants in Kashmir become less militant because of an improved income distribution?

To even suggest this would be farcical. Yet that farcical notion is deeply entrenched in much socio-economic analysis. The millionaires of Nepal are deeply invested in Indian stock markets. Does the ADB think that their stock market losses, which have reduced inequalities, will ease tensions in the neglected Himalayan region of Nepal?

Economists focus on measures of inequality like the Gini coefficient. But ordinary folk have very different concerns. Bihar is the poorest state and Goa the richest, but the poor Bihari does not worry about the disparity. He knows that his travails are due to local politicians and mafia, not rich Goans. He is not interested in impoverishing the Ambanis, he wants to become rich himself. He welcomes a booming stock market that might bring investment and jobs to Bihar.

Many analysts think society is happier when inequalities fall and unhappier when inequalities rise. Really? In an economic recession, profits fall much faster than wages, so equality improves. But do the poor enjoy a recession , with its unemployment and weak wages? Not at all. They far prefer an economic boom, even though profits rise much faster than wages.

People want more income, not better Gini coefficients. They are concerned with inequality only when they see some powerful people gaining at their expense. They don\’t grudge Sachin Tendulkar or Shah Rukh Khan their riches. Both these gentlemen are from families of modest means, and have become billionaires through talent. That makes them role models, not hate objects. They are examples of what ordinary Indians seek – a chance to become rich and famous themselves They do not want a slice of Mao\’s China, they want a slice of Deng\’s China. They want the opportunity to rise.

The ADB review is dead right in its key conclusion: governments in Asia must do much more to improve equality of opportunity. In India, it is shocking that after six decades of independence and the spending of millions of crores, literacy is barely 65%, and most people who complete school cannot read simple paragraphs or do simple maths sums.

It is outrageous that every village does not have a functioning school and health clinic; does not have electricity, telecom and a pukkaroad ; does not have access to effective rule of law or judicial redress.

This is the inequality that I keep complaining about. Instead of doing something about it, socialists point fingers at the rising wealth of Ambanis and Tatas, as though that is responsible for the sad plight of our villages. It would be as ridiculous to blame Tendulkar and Shah Rukh Khan.

The shocking denial of access to basic facilities at the village level institutionalises inequality of opportunity, and prevents the poor from rising. Urban facilities provide some social mobility. But rural facilities are typically so pathetic as to become poverty traps.

For this, our netas and babus are fairly and squarely to blame. These heroes of the Left are the zeros that have ensured continuing inequality of opportunity, poverty and powerlessness. Their solution is to compete in offering castebased reservations, not in providing the equality of opportunity that might make caste irrelevant.

I too am outraged that 300 million Indians remain poor. I am outraged not that a few Indians have become billionaires but that thousands more have not, for want of equality of opportunity. I look forward to an India with thousands of billionaires and millions of millionaires. I do not wish to give the poor a few doles, keeping them as objects of pity. I want to convert them to millionaires, to objects of envy.



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