For inclusive capitalism

Pareto's perceptive observation that 20 per cent of the populace gets to corner 80 per cent of the resources and 80 per cent of the populace has to make do with the rest 20 per cent has had resonance in almost every walk of life, so much so that it has become a convenient, but arguably flawed, statistical tool of analysis — a sample size of 20 per cent is enough to be able to pronounce on the quality and response of the entire populace. Now his theory is holding out lessons for the gung-ho capitalistic nations as well.

The plight of the bottom-of-the-pile 150 million Americans is highlighted by the fact that just 400 wealthy Americans have greater combined net worth than the former. And the revelation that one per cent of Americans possess more wealth than 90 per cent of the American populace is bound to make Pareto enthusiasts say ‘he-said-so-didn't-he?' in excited triumphalist unison.

That 25 executives in the US, most of them belonging to the financial services industry, took home more salary than their companies paid by way of federal corporate taxes for 2010, as brought out by a study by the Institute for Policy Studies, is a sad commentary on the rewards system obtaining in that country besides pointing to the blasé and unrepentant attitude of the financial system, whose brinkmanship was primarily responsible for the 2008 financial crisis.

CONCENTRATION OF PURCHASING POWER

Economic activity gets a boost when the income pie is evenly distributed, not in the pristine Marxist sense of from one's ability to one's needs, but in the fair sense of rewards being in proportion to what one brings to the table or workplace.

It is in this context that Infosys founder, Mr Narayana Murthy's fervent appeal, a couple of years ago, from the CII pulpit to industrialists to ensure that the salary differential between the highest paid and the lowest paid employee in the same organisation should not be more than 15 times, resonates. A billion dollars in the hands of 10,000 people can propel an economy from its comatose state and keep it going.

GROWTH PROCESS

Instead of then gloating over islands of prosperity, which we often do in India as well by drooling over dollar billionaires in this country, the accent must be on inclusive growth, because in the absence of purchasing power in the hands of the masses, goods would remain unsold and services unused.

We might not have many assets to show for the vast sums spent on MGNREGA schemes, but at least that is putting money in people's purses, though the indulgence shown is alleged to be causing scarcity of farm and other labour for more productive purposes and raising the cost of production and inflation.

The point is excessive cash in the hands of a few takes to speculative and other non-productive activities with alacrity, whereas the same cash if dispersed creates purchasing power crucial to all-round growth.

The trickle down theory was rubbished most picturesquely by the former US ambassador to India, John Kenneth Galbraith, as amounting to overfeeding the horse with grains, so sparrows can eat the undigested remnants of the grains.

It can work only when the excessive money in the hands of few is invested in productive activities that have potential to create multiplier effects rather than being stashed away in clandestine bank accounts.

(The author is a Delhi-based chartered accountant.)

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