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Inequality becomes disruptive

C Gopinath | Updated on October 25, 2021

China’s shift to ‘common prosperity’ is a right policy move

The wealthy in the US are said to have increased their net worth by 70 per cent during the pandemic. One site that watches these trends, inequality.org, has calculated that the wealthy 1 per cent of the US population now has more wealth than the entire middle class (60 per cent of the population) put together.

Does that create a problem? Not necessarily. In a capitalist society, where the focus is on individual freedoms and personal wealth accumulation, extremely rich people like Bezos, Musk, Gates and Buffett are celebrated. They have made their fortunes by sheer dint of personal effort working within the same rules as everybody else. They become idols to be emulated.

Then, society has to work hard to ensure that everybody is following the same rules. In a series of cases that are being heard at a federal court in Massachusetts, wealthy and influential parents are being charged with using their money to secure admission through donations, false test results and credentials, to top universities in the country for their wards. Prosecutors carefully built the case by securing the cooperation of a key figure, an education consultant, who was the intermediary in the fraud. Of 57 charged, 47 have pleaded guilty and sentenced to fines and/or imprisonment. Such efforts can build confidence that the rich and famous cannot live by different rules.

Better resources

But is that always true? They have access to better investment advice, and tax consultants who know how to shelter the money and make it grow. Although the rules may be the same for all, they know how to take advantage of them. Since the wealthy make most of their money through investments, efforts are now under consideration to tax increases in wealth and bring in an element of distributive justice.

What happens in a communist society where equality is a pillar on which the ideology is built? China is only politically communist while economically capitalist so it presents an interesting case for comparison. One of its post-liberalisation leaders is reported to have said famously that it is glorious to be rich. The consistent economic growth of about 10 per cent across two decades lifted millions out of poverty while the few, as always, grabbed the new opportunities resulting in widening inequality.

There are almost 700 billionaires in China, according to wealth watchers like the Forbes magazine. Yet, the old communist ideals seem to linger on. Thus, Xi Jinping has recently launched a programme that is being termed ‘common prosperity’ with the reported objective of ensuring a few do not benefit at the expense of many. Some of the recent tightening of regulations in the private tutoring, video games and technology/e-commerce sectors are said to be a part of the objective.

Xi perhaps rightly recognises that it is time for a mid-course correction in a society that has not completely shed its communist ways. Inequality would not be easily tolerated in a society that expects the government to look after them. The economic slowdown due to the pandemic and supply-chain blockages may also be the right time to make the regulatory changes aimed at curbing excess wealth without it being seen as the cause for the slowdown. Celebrities are also being targeted for their conspicuous consumption which suggests that it is not just an economic but also a social issue.

Globally, inequality.org says that the richest 1 per cent have about 43 per cent of wealth and about 20 per cent of income. The ideology of most nations fall in between the capitalistic and communistic ideologies of the US and China respectively. So attitudes to wealth will vary. Yet, the governments need to keep a keen eye out for how access to opportunity and enforcement of regulations are perceived within their country.

Psychology research shows that happiness levels are lower in years when there is greater income inequality and this relationship is explained by perceived unfairness and lack of trust. If the poor but ambitious feel restrained from pursuing their legitimate interests, that is the basis for social movements that challenge authority.

The writer is an emeritus professor at Suffolk University, Boston.

Published on October 25, 2021

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