Economic Inequality and the Quality of a Society

Anup K Sinha

Human society has witnessed widespread inequalities for a very long time. It could be in terms of power and control over other people through physical strength, gender, class or caste, or it could be in terms of access to resources like land, weapons, and food, or it could be in terms of income and wealth. Social philosophers have always posited some variety of equality as a necessary founding feature of a moral society. In other words, every society ought to have, according to these philosophers, some dimension of life where inequality will tend to disappear. It could be in terms of equality before some god, or equality in terms of opportunities, or equality before the laws of that society, or equality in terms of income and wealth. For all practical purposes, no society can actually ensure absolute equality. The task is to have the posited dimension of equality as a social virtue, to be practised and encouraged by the dominant powers as an ideological truth.

Since the modern industrial era began, there has been a sharp increase in inequalities of wealth and incomes, both across nations, as well as, within nations. The modern era has been marked by a strong belief in the efficacy of markets as optimal resource-allocators that process social demand by creating the required supply of commodities. The abstract pivot that promotes markets is the concept of the equality of opportunities. It is claimed that anyone can enter markets, and through trading, can earn profits, and then keep doing it so that more and more income is earned, and potentially, at least, steady wealth can be accumulated by the act of saving. Hence, any resultant rise in the inequality in income and wealth are unintended, but seen as acceptable consequences of market opportunities where people transact voluntarily, and with their own initial resource endowments. As far as resources are concerned, no one can be so poor as to have nothing. There is always one’s own labour power that can be bought and sold in the market for a price.

One plausible way to stretch this description of a market with the equality of opportunity to earn and become rich is that everyone would be able to extract some positive reward by participating in the market game. Some may win more, some less, but all will win something. Hence, while the unintended inequality might rise in terms of income and wealth, no one would return empty-handed. Earnings would be at least at a level where the person can live a life with dignity and without being a destitute. However, that has never been the case. In other words, playing the market game throws up terribly uncertain outcomes, especially if one enters the market with just a modicum of labour power, not augmented by good health and minimum education.

Absolute and Relative Poverty
Market economies have not only thrown up a massive degree of inequality of income and wealth, but has also been characterised by a great deal of absolute poverty where millions of people survive on the edge–half starved, malnourished, illiterate, with no guarantee of a stable income or livelihood, and the associated dignity that comes from doing socially meaningful work.

Absolute poverty is associated with basic deprivations like inadequate income to buy the necessities of life such as food, clothing, shelter. Sometimes, the measure of absolute poverty is kept at a poverty-line that just allows access to the minimum number of calories required to keep body and soul together. Such measures are clearly inadequate and completely omits other necessary items of living. Even by this standard global poverty is still quite high though with a downward trend over the last 3 or 4 decades. There are more sophisticated measures that are now used like a multi-dimensional index where over and above inadequacy of incomes, the level of nutritional attainment and access to education and basic infrastructure are factored in. These measures essentially look at poverty as inadequate access to monetary resources, opportunities to earn, voice in the national affairs, and security of life and living. These measures go deeper into understanding poverty beyond mere monetary incomes. Hence, even if incomes are rising beyond the basic poverty line, it does not mean that individuals are better-off in the sense of having a standard of living that is acceptable. These measures also point to the fact that even when an economy is growing and absolute poverty is decreasing, relative poverty may still be quite large.

As far as relative poverty is concerned, even if people have attained a certain standard of living that is acceptable by multi-dimensional indices of poverty, there still remains a feature of the deprivation in the sense that people do not get all that they might want. For instance, one cannot go the best hospital, but other citizens can. This can have an adverse effect of the well-being of an individual. Hence, some economists have suggested that per capita income should be corrected by the Gini-coefficient that measures the degree of income inequality. The higher the Gini-coefficient the more unequal the income distribution. Hence a corrected measure of per capita income could be obtained by multiplying by one minus the Gini-coefficient (which is defined as lying between zero and one). Hence, the worse the income distribution (more inequality), the lower the corrected measure of per capita income.

Some data could help illustrate the degree of inequalities being discussed. In around 1700 the ratio of the richest to the poorest nation’s income was 3.1: 1 and in 1998 it had increased to 20:1. Even today, about 1.3 billion people live in absolute poverty at less than US $1 per day. In USA, the top 20 percent of the population holds 84 percent of wealth while the bottom 20 percent hold 0.1 percent of wealth. Indeed, the bottom 60 percent hold only 4.3 percent of total wealth. In India, the top 1 percent own 77 percent of the nation’s wealth while the poorest 50 percent hold only 1 percent of national wealth. According to Oxfam, the world’s richest 5 billionaires’ income was equal to the income of the poorest 50 percent of the global population. In 2021, the world’s top 20 percent earned 52 per cent of total income; the middle 40 percent earned 39.5 percent, while the bottom 20 percent earned only 8.5 percent. As far as global wealth is concerned, the richest 20 percent holds 75 percent of wealth, the middle 40 percent holds 22 percent, while the bottom 20 percent holds only 2 percent.

Relative inequality has other implications too. When the relative inequalities in wealth and income are large, there are issues of social and political stress that arise in society. These can be more complex if one factors in, issues of class, caste, gender, and the rural-urban divide. Astonishingly high differences between the super-rich elite and the mass of the population makes the state of affairs morally abhorrent. There are a number of other implications that arise out of it: imbalances in power, distributive justice, access to markets, infrastructure, and wider issues of environmental sustainability. If one takes the richest ten or twenty people in the world, their incomes are much larger than the GDP of many middle and low-income nations. Some recent trends have exhibited that the middle class has been shrinking in many nations through a combination of effects like the widespread shock of COVID, technological impact on work and livelihoods, and economic policies that make economic security like insurance, health care and education much more costly.

Political Power
It is useful to see what are the likely impacts of growing economic inequality. First of all, in any capitalist, market economy power grows not from the barrel of a gun, but from the quantum of an individual’s wealth. Individual wealth gives one access to all the guns one might need and aspire for. It can even influence and indirectly control the guns in the hands of the state – its administrative forces. Hence, the rich, and the super-rich elites, though few in numbers, exert phenomenal power through their wealth. Politicians bow down to them for funding political campaigns, media houses bow down to then for advertisement revenue, and no law is ever passed that fundamentally challenges the economic status-quo. Hence, as is evident, the elites exert extraordinary control over legislatures, as well as, courts of law. Their protection is guaranteed and any misdeeds in business are glossed over by the ‘competent authorities’. In such a world, for the many millions not in the top 10 percent of a nation’s income or wealth, find themselves at the mercy of the ‘whims’ of the law and the governing authorities. It is justice that is compromised through delays, miscarriages, and the absence of an effective voice of the ordinary people.

The access to justice becomes a function of power, and power becomes a function of the wealth one possesses. Laws concerning safety and security can become increasingly arbitrary with more powers given to law enforcement agencies, to act on the basis of suspicion alone, or political nudging, and not need the person arrested to be produced before a court for a very long time. Little wonder, ordinary people often take the law into their own hands and vigilantism increases as does random violence on the streets. The economic distance between the super-rich and the poor becomes so vast that the actions of the former appear surreal to the poor. Take the recent instance of a major billionaire’s son’s marriage in India. The cost was estimated to be around Rs 5800 crores according to one media report. Every media house carried exclusive stories and pictures and interviews of the event, every politician worth the name was there, every businessman, every star from the film industry, international stars and politicians, sportsmen and businessmen. It appeared the whole world of rich and powerful was there. India stopped as it were for a few days. The amount of influence the billionaire displayed was crude but frightening too. From power stems indirect political control. The super rich become the king-makers of a nation. Politicians are usually ready to do some of the dirty work that businesses might require, partly stifling competition, partly stifling dissent or scrutiny.

Institutions like large corporations, with their unrestrained search for profits, exert growing influences on public policy that prevents democratic institutions from facilitating the reorientation of policy towards the needs of the underprivileged. The failure of bridging the gap between the privileged and the under privileged is the story of underdevelopment in many nations. This situation however, is glossed over in rich countries when viewing development as only the growth in aggregate income of a nation. To that extent, democracy as a political system that extols the virtues of freedom, voice and equality turns out to be an ugly wart on a ruthless market economy. As capitalism matures, the sores of democracy become more and more visible. The current crisis, the world over, from the oldest to the largest democracies, to the growth of illiberal regimes, and the undoubted rise of authoritarianism and fascism are unmistakable signals of this decay. What was hidden behind a façade rapidly becomes overt and evident. Even the implicit social contract of giving some relief to the most deprived in terms of food, social security and unemployment insurance, is becoming eroded. The poor are supposed to look after themselves. Luck plays a big part in this world of deep uncertainty: hence the great resurgence of faith in gods and priests.

Access to Public Services and Infrastructure
One of the biggest implications of economic inequality lies in the unequal access to infrastructure and basic capability-building services like health and education. In the case of education, access of the poor to even primary education becomes problematic. Whatever access is made available through inadequate public investments, the quality of education imparted there is of pathetically low quality. When it comes to school education and higher education the divergence in quality (and costs) between the average institution and the elite institutions is remarkably sharp. A nation can have some colleges and universities where the quality is so poor that its graduates are treated as unemployable by all employers. Leave alone any technical skills, the students are bereft of an average level of verbal and written communication abilities. It is not so for the rich and powerful. Their children go to much better schools and often study in the best international universities. This helps to strengthen the inequality in educational attainments, and hence the type of jobs held, careers pursued and lifetime incomes earned.

A similar story holds for health in both preventive and curative services. The poor have little access and whatever access is available, the quality is extremely poor. On the other hand, there is likely to be a variety of top-class services available where the rich can go to, but at a dreadfully high cost, which only a few can afford. Not only that, for the rich, the entire world’s services are available to choose from. While one can go without adequate education and settle for a low quality of career and life, as far as health is concerned, when some ailments strike (independent of the economic status of the stricken) which are severe and complicated, and treatment is beyond the reach of the poor, it becomes a matter of life and death.

Public transportation is yet another area of infrastructure where the deep marks of inequality are evident. The quality of public transportation in terms of buses, or trains are of poor quality. The rich depend on cars and aircrafts for mobility. The same divide is seen for hotels and restaurants. Other infrastructure such as financial services, access to cultural pursuits like sports, arts and culture all have the same problem of access; constraints coming in terms of the all too visible cash nexus. The dichotomy of quality is all too pervasive.

Finally, access to urban spaces and amenities suffer from the marks of inequality too. Posh neighbour-hoods are exclusive as are gated communities where the affluent stay. Other spaces exhibit the opposite picture: ugly slums and dense ghettos. Increasingly, in the metro areas, especially the ones which are newly developing, urban spaces are segregated visibly. The shops, the garbage, the condition of the roads all look different. Associated urban municipal needs like quality hygiene and sanitation are also marked by steep differences in quality and costs. Safe drinking water, an essential commodity,has become something which one must pay a price to access. The well-to-do hardly drink anything but bottled water. The quality of municipal water is suspect in terms of quality.

Access to Productive Resources
Even if one ignores the quality of living and the opportunities for livelihood options, any survival strategy adopted by the poor would require access to some productive resources over and above labour power. This is especially so in the face of acute unemployment. These resources typically would be land or credit. Productive land is held as a highly sought-after asset, whether agricultural land, urban commercial land, or land for industrial clusters. The wealthy, more often than not, hold a fair amount of land in their asset portfolios. Access to productive land becomes very expensive with the large mass of poor people demanding a piece of land to own or lease. Prices go sky high and even if anyone can afford a piece of land, making a living out of it becomes well-nigh impossible. Unless, of course, one can obtain credit to finance the operations. However, borrowing money for the poor is a very difficult task as they have little or no collaterals to offer. Hence, they must pay very high (often usurious) rates of interest for the purpose. It does not matter if they go to the money lender or the local bank or a non-government organisation. If they default, they can be debarred from credit lines for a long period of time. Or, in the case of money lenders, they lose their (often undervalued) personal collaterals. The rich do default, often supposedly willfully, but they can play the system through litigation, or through the political strings of different corporate entities. Different entities are often created to ensure a new conduit for obtaining formal credit. They can also borrow abroad. Inequality spills into each and every market. The deeper the inequality, the more marked the visible schism in access and outcomes across the economy. And more the inequalities become reinforced.

The Environment
Economic inequality also has an effect on the natural environment and inter-generational inequality. It is evident that those who are at the bottom of the economic pyramid would have access to few economic resources, and that they would have to depend on nature’s free ecological services for survival. The stress on nature could be extreme: over-harvesting of exhaustible resources, over drawing of water, over-use of fertilisers and pesticides and over-farming of land that quickly destroy the fertility of the top soil. The urgency to stay alive shapes this behaviour. On the other hand, the rich, at the other end of the wealth spectrum, can afford to waste resources through poor management and mindless over-consumption. Their per capita access to resources is so vast, that even if they waste resources through negligence and unaimed opulence, there would be enough left over for their next two or three generations to squander. Therefore, inequality does slow down any pathway to sustainable development. Even in the case of climate change, the slowness of the responses has been the result of the great inequalities between nations that have brought out differences in national positions, as to who bears the cost of the transition to a low carbon economy.

Capitalism, Inequality and Deprivation
The current trends of rising inequalities are germane to capitalism as an economic system. As long as private property is the foundation of the production process, inequalities are bound to grow. The power of those who are wealthy will prevent any serious redistribution measures that might alleviate the degree of skewness in income and wealth distributions–for instance through a well-designed wealth tax, and a steeply progressive personal income tax. The privilege and power that inequality nurtures can be reinforced by technological change that replaces labour by capital. The latest spurt of technologies, loosely described as Artificial Intelligence, contribute much to job losses and shrinking of the share of workers’ incomes in the national pie. Nowhere in the world, there is anything being seriously done to reduce these inequalities. The quality of life of the ordinary citizen deteriorates and uncertainty increases. All the while the two existential threats of artificial intelligence and climate change loom darkly on the horizon.

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Frontier
Vol 57, No. 15 - 18, Oct 5 - Nov 2, 2024