Can India arrest income inequality?

Ramgopal Agarwala | Updated on July 26, 2020

Title: Capital and Ideology Author: Thomas Piketty Publisher: Belknap Press Price: ₹2,499

Thomas Piketty’s prescriptions are too radical. Dattopant Thengadi’s vision is more useful for us

In 2014, Thomas Piketty’s book Capital in the Twenty-First Century came out in English. I read it with interest and found it to be a magnificent book in terms of evolution of inequality, particularly in the western world. The way Piketty put the famous Kuznet’s curve in place was amazing, as was his detailed description of Malthus’ thesis and its weaknesses. However, after rightly criticising the temptation of economists to find the laws of economic history, he ended up by offering one: by formulating the law of r>g, where the rate of return on capital (r) is assumed to exceed rate of growth of the economy (g). He implied with this that continuing increase in income inequality may well be in our future.

Rise of inequality

Piketty’s new book Capital and Ideology, published in English in 2020 (it originally came out in 2019) is as erudite as its predecessor, but refreshingly different in conclusions. He makes a magisterial review of how inequality was justified over centuries in various societies (particularly in the western world) and how a reaction and reversal came when the degree of inequality reached levels unacceptable to the masses and the opinion-makers. He also makes the effort to collect data on inequalities on income and wealth in various societies, including the non-western world. While admitting to the weaknesses of the available data, he makes a clear case of how inequalities have been increasing dramatically over the last 40 years all over the world.

The US is the worst performer in the western world, where the share of the top 10 per cent in national income increased from about 33 per cent in 1980 to about 49 per cent in 2018. India, which is by its Constitution a socialist republic but has been following the US-led Washington Consensus since 1991, performed even worse: the share of national income accruing to the top 10 per cent increased from 32 per cent in 1980 to about 55 per cent in 2018. It is interesting that China, a supposedly Communist country, also performed poorly in this regard. Its degree of inequality increased sharply, with the income-share of the top 10 per cent increasing from about 22 per cent in 1980 to 42 per cent in 2018 — however, it was marginally better than Russia (from 21 per cent in 1980 to 45 per cent in 2018).

Seeds of change

Given the grotesque increase in inequality in India, one would, in the light of history unveiled by Piketty, expect a reaction. But things move slowly in India, and there is as yet no Piketty or Stiglitz or Bernie Sanders here. However, there are some rumblings of discomfort, aggravated by Covid-19. If there is indeed an intellectual and political movement in this direction, it may find some ready support among the masses.

If there is any such movement in India, can it draw support from Piketty’s study and his proposals?

Unfortunately, Piketty seems to go too far in his recommendation for a participatory socialism. His recommendation has two main pillars: “first, authentic power sharing and voting rights within firms as steps beyond co-management and self-management and toward true social ownership; and second, a strongly progressive tax on property, the proceeds of which would finance capital grants to every young adult, thereby instituting a system of provisional ownership and permanent circulation of wealth.”

He also recommends a highly progressive income tax which will finance just access to all for health and education. India does not seem to be ready for such radical proposals.

But Piketty does provide some good raw materials which may be helpful for Indian intellectuals who may want to correct the gross inequalities today. He deals extensively with German and Nordic systems, which have kept inequality low, provided for labour participation in management of businesses and ensured equitable access to all for health, education and social security while doing spectacularly well in improving productivity and incomes. He also puts forth the Swedish case as an example of how things can change rapidly if there is an intellectual and political consensus for a change: the Swedish society which was one of the most unequal before it became in 2011 one of the most equalitarian with the rise of Social Democrats.

Can there be any such change in India in the near future? Historically, the Congress and Communist parties have spoken for socialism. But both are spent forces today for various reasons. For the foreseeable future, the BJP and the RSS may well rule the roost. However, we can find some support for socialistic thinking in some RSS leaders. One such person is Dattopant Thengadi, whose 100th birth anniversary is being celebrated this year by the RSS and the BJP leaders. He was an ardent advocate for the participation of labour in company management. His formulation was: ‘Industrialise the nation, nationalise the labour, labourise the industry’.

These slogans by Bharatiya Mazdoor Sangh gave an apt answer to the slogan ‘Nationalisation of all industries’ by the Communists. The BMS’ idea of ‘labourisation’ of industries promoted an idea where workers would collectively own and manage industrial units. Considering labour as capital, and with a proper valuation of work done, workers should be given a share in profit, participation in management and some ownership.

If the Nordic model can be combined with the ideas of Thengadi and with the Prime Minister’s ideas on using yoga for behavioural change, we may well have a winning formula which can replace the 1991 spirit and the Washington Consensus, and help us design a new paradigm for a new India that will enable us to achieve the five goals of development — prosperity, strength, inclusiveness, cleanliness, and honesty with happiness. With such a formula in place, India can well become by 2047 a model state or jagadguru, and fulfil the Prime Minister’s vision of making the 21st Century India’s century.

The writer is chairman of Pahle India Foundation and former distinguished fellow, NITI Aayog. Views are personal

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Published on July 26, 2020
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