Note – Excerpts from the speech of Vice-President.Contains good statements and statistics that can be used to accentuate your writing.
To enjoy the ‘freedom of,’ there is a requirement first for certain ‘freedom from’. To survive with dignity, humans require both ‘freedom from want’ and ‘freedom from fear’
Richest 1% in India owned nearly 60% of the country’s total wealth, with the top 20% commanding 80%. The bottom half of Indians by contrast, collectively own only 2% of the national wealth.
Rising inequality can lead to conflict, both at social and at national level and the growing threat of left extremism, which has been repeatedly acknowledged as the gravest security threat to Indian state, has its roots in economic deprivation and inequality in access to resources.
Freedom, in the dictionary meaning of the term, signifies ‘the power to act, speak and think freely’. It implies unhampered liberty to think freely, to question anything, to be able to speak frankly, to be free to explore boundaries.
Yet freedom or liberty in itself would be quite meaningless. To enjoy these ‘freedom of,’ there is a requirement first for certain ‘freedom from’.
In advance of the world’s financial and economic elite going to Davos for their annual meeting, the World Economic Forum publishes its Global Risks Report. The 2017 edition highlights some risks facing the global system and places the issue of income inequality as the number one risk because it is associated with a rise in populism and threatens the cohesiveness of countries. It describes the present as ‘a febrile time for the world.
It is therefore not surprising that reducing inequality is one of the UN Sustainable Development Goals.
A number of studies have come to the distressing conclusion that despite the increase in the number of people coming out of abject poverty, the majority of people on the planet today live in countries where economic disparities are bigger than they were a generation ago. Please consider the following:
- Including capital gains, the share of national income going to the richest 1% has doubled since 1980. Within it, the largest share going to the top 0.01% – some 16,000 families- who now control almost 5% of the global wealth.
- If we divide the whole income of the world into two halves, we find that the richest 8% get half, while the other half would be distributed in the remaining 92% of the population.
- In almost all countries, the mean wealth of the wealthiest 10% is more than 10 times the median wealth. For the wealthiest 1%, mean wealth exceeds 100 times the median wealth in many countries and can approach 1000 times the median in the most unequal nations.
- The richest 1% in India owned nearly 60% of the country’s total wealth, with the top 20% commanding 80%. The bottom half of Indians by contrast, collectively own only 2% of the national wealth.
While the economists may continue to debate the extent and causes of inequality, there can be little doubt about its implications for the political, social and economic fabric of society.
Some years earlier, Joseph Stiglitz had written about the price of inequality in the context of the United States. More recently, Kate Pickett and Richard Wilkinson have described the “pernicious effects that inequality has on societies and provide evidence for a strong correlation between higher levels of national inequality and a wide range of health and social problems.
Research has shown that in contrast to oligarchic regimes; democracies avoid serious political turbulence only so long as they ensure that the relative level of inequality between the rich and the poor does not become excessively large. Some studies have concluded that ethnic groups with incomes much lower than a country’s average per capita income are more likely to engage in civil war.
New protest movements have broken out around the world, many arguably rooted in the burgeoning inequality. The Occupy Movement and the Arab Spring were both fuelled by growing public despair at the sharp inequalities and growing unemployment and the perceived inability of the existing governance structures to redress the situation.
Inequality also breeds economic inefficiencies and limits productivity. Research by IMF has shown that income inequality slows growth, causes financial crisis and weakens demand. In a recent report, the Asian Development Bank has similarly argued that if emerging Asia’s income distribution had not worsened over the past 20 years, the region’s rapid growth would have lifted an additional 140 million people out of extreme poverty.
A conceptual framework is provided by Amartya Sen and some others who see human capabilities as the capacity and freedom to choose and to act; and calls for the opportunities that give individuals the freedom to pursue a life of their own choosing to be equalised.
We have to move beyond seeing corporate social activity and government welfare schemes as merely minimum relief for the misery of the masses aimed mostly at neutralising the more aggressive antagonism of those who have lost income and wealth or those whose upward mobility seems permanently blocked.
We need to ask ourselves some uncomfortable questions:
- Can we ignore the great inequity as merely a by-product of progress? (Can be asked by UPSC)
- Has the trickle-down model of growth failed us? (Can be asked by UPSC, already asked before)
- Have we paid too high a cost in terms of environmental damage for our material progress?(Can be asked by UPSC)
- Are conflicts and human suffering the new normal? To what extent are they induced by failed ventures in quest for unrealizable utopias? (Can be asked by UPSC)
- Can we just accept the growing insularity, intolerance and discrimination?
- Have we made sufficient investments in improving our human capital and public goods, like education and health-care?(Can be asked by UPSC)
Faced with growing global violence, poverty, and injustice, it may be difficult to retain hope for an equitable future. Yet, if the reality of global inequality inspires what Antonio Gramsci called “pessimism of the intellect,” work must nevertheless begin with what he termed “optimism of the will”—the undaunted commitment that drives radical change.
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Steve Ovett, the famous British middle-distance athlete, won the 800-metres gold medal at the Moscow Olympics of 1980. Just a few days later, he was about to win a 5,000-metres race at London’s Crystal Palace. Known for his burst of acceleration on the home stretch, he had supreme confidence in his ability to out-sprint rivals. With the final 100 metres remaining,
[wptelegram-join-channel link=”https://t.me/s/upsctree” text=”Join @upsctree on Telegram”]Ovett waved to the crowd and raised a hand in triumph. But he had celebrated a bit too early. At the finishing line, Ireland’s John Treacy edged past Ovett. For those few moments, Ovett had lost his sense of reality and ignored the possibility of a negative event.
This analogy works well for the India story and our policy failures , including during the ongoing covid pandemic. While we have never been as well prepared or had significant successes in terms of growth stability as Ovett did in his illustrious running career, we tend to celebrate too early. Indeed, we have done so many times before.
It is as if we’re convinced that India is destined for greater heights, come what may, and so we never run through the finish line. Do we and our policymakers suffer from a collective optimism bias, which, as the Nobel Prize winner Daniel Kahneman once wrote, “may well be the most significant of the cognitive biases”? The optimism bias arises from mistaken beliefs which form expectations that are better than the reality. It makes us underestimate chances of a negative outcome and ignore warnings repeatedly.
The Indian economy had a dream run for five years from 2003-04 to 2007-08, with an average annual growth rate of around 9%. Many believed that India was on its way to clocking consistent double-digit growth and comparisons with China were rife. It was conveniently overlooked that this output expansion had come mainly came from a few sectors: automobiles, telecom and business services.
Indians were made to believe that we could sprint without high-quality education, healthcare, infrastructure or banking sectors, which form the backbone of any stable economy. The plan was to build them as we went along, but then in the euphoria of short-term success, it got lost.
India’s exports of goods grew from $20 billion in 1990-91 to over $310 billion in 2019-20. Looking at these absolute figures it would seem as if India has arrived on the world stage. However, India’s share of global trade has moved up only marginally. Even now, the country accounts for less than 2% of the world’s goods exports.
More importantly, hidden behind this performance was the role played by one sector that should have never made it to India’s list of exports—refined petroleum. The share of refined petroleum exports in India’s goods exports increased from 1.4% in 1996-97 to over 18% in 2011-12.
An import-intensive sector with low labour intensity, exports of refined petroleum zoomed because of the then policy regime of a retail price ceiling on petroleum products in the domestic market. While we have done well in the export of services, our share is still less than 4% of world exports.
India seemed to emerge from the 2008 global financial crisis relatively unscathed. But, a temporary demand push had played a role in the revival—the incomes of many households, both rural and urban, had shot up. Fiscal stimulus to the rural economy and implementation of the Sixth Pay Commission scales had led to the salaries of around 20% of organized-sector employees jumping up. We celebrated, but once again, neither did we resolve the crisis brewing elsewhere in India’s banking sector, nor did we improve our capacity for healthcare or quality education.
Employment saw little economy-wide growth in our boom years. Manufacturing jobs, if anything, shrank. But we continued to celebrate. Youth flocked to low-productivity service-sector jobs, such as those in hotels and restaurants, security and other services. The dependence on such jobs on one hand and high-skilled services on the other was bound to make Indian society more unequal.
And then, there is agriculture, an elephant in the room. If and when farm-sector reforms get implemented, celebrations would once again be premature. The vast majority of India’s farmers have small plots of land, and though these farms are at least as productive as larger ones, net absolute incomes from small plots can only be meagre.
A further rise in farm productivity and consequent increase in supply, if not matched by a demand rise, especially with access to export markets, would result in downward pressure on market prices for farm produce and a further decline in the net incomes of small farmers.
We should learn from what John Treacy did right. He didn’t give up, and pushed for the finish line like it was his only chance at winning. Treacy had years of long-distance practice. The same goes for our economy. A long grind is required to build up its base before we can win and celebrate. And Ovett did not blame anyone for his loss. We play the blame game. Everyone else, right from China and the US to ‘greedy corporates’, seems to be responsible for our failures.
We have lowered absolute poverty levels and had technology-based successes like Aadhaar and digital access to public services. But there are no short cuts to good quality and adequate healthcare and education services. We must remain optimistic but stay firmly away from the optimism bias.
In the end, it is not about how we start, but how we finish. The disastrous second wave of covid and our inability to manage it is a ghastly reminder of this fact.