Opinion

Three ways to reduce economic inequality

Sathya Raghu V Mokkapati | Updated on February 11, 2018 Published on February 11, 2018

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Ensuring greater work participation of women, boosting farm prospects and providing universal basic income can make a dent

How to fight inequality was one of the hot topics in Davos at the World Economic Forum Annual Meeting last month. It’s a timely topic, too. As Oxfam reported, the top one percent of the world increased their wealth by $762 billion while the bottom 50 per cent saw no growth, increasing the divide between social classes. This kind of economic inequality can result in unfair political institutions, unfair control by a few wealthy over others and unfair workers’ laws.

Solutions to reducing income inequality lie in three aspects: (1) investing in women; (2) investing in agriculture; and (3) reforming workplace laws.

Investing in women

Investing in women as important workers is necessary and urgent today to reduce inequality and increase nations’ gross domestic product (GDP). As IMF Chief Christine Lagarde recently said, if women’s participation in the workforce matched men’s, Japan could grow at 9 per cent per annum and India at 27 per cent. Focusing in further on India, McKinsey reported in August 2016 that women contribute only 17 per cent of India’s GDP, and estimates that India could add $700 billion to its GDP in 2025 by closing this gap.

Helping women stay active in the workplace while raising a family is key to achieving this growth. This means more family-friendly work policies, such as paid parental leave and creating an environment where kids are allowed in the workplace. It also means that more men should take equal responsibility in raising kids and managing household chores.

This should extend to the workplace and men in leadership roles should build a culture where there is more relevant empathy in the team members toward parents of all genders. When organisations at scale embrace it, diaper-changing tables will feature in men’s washrooms more frequently.

Investing in agriculture

As per the World Bank, agriculture can help reduce poverty for 80 per cent of the world’s poor who live in rural areas and work mainly in farming. It further states that 65 per cent of the poor working adults make a living through agriculture. More than one billion people have moved out of extreme poverty in recent decades, but 80 per cent of those that remain live in rural areas. Providing farmers with a bundle of services like access to seeds, plant nutrients and production practices are critical. But today, climate smartness and climate resilience also need a special focus.

We should focus on risk mitigation mechanisms like weather insurance and risk prevention mechanisms.

Reforming workplace laws

Reforms in workers’ laws can reduce inequalities. Minimum wages and universal basic income (UBI) are two of the popular ways to reform workplace laws. They both have the same aim — raising incomes of the least fortunate to reduce the income gap. These are imposed by law and paid by the employer. Sam Brokken from Belgium, who studied the impact of income inequalities on health, reported that when UK allowed the community to influence this policy, there were improved outcomes on reducing inequalities seen in over 400 councils. Minimum wages should have inflation adjustment and a premium for inequality reduction. This needs an annual reassessment and suitable correction.

But hiking minimum wages alone is won’t alter the root cause of inequality; poverty and fiscal expert Isabel Sawhill, co-director of the Center on Children and Families at the Brookings Institution, says that globalisation and technology create bigger wage premium for the top employees and stagnating wages for the bottom. UBI, supported by tech gurus like Mark Zukerburg and Elon Musk, envisions that everyone receives a monthly pay packet from the state that covers their basic needs — no strings attached. UBI through cash transfers ensures that the benefits of technology are felt by everyone. In Finland, 2,000 unemployed people across the country are being given universal basic income in the amount of €560 a month for two years.

In developing countries such as India, despite having hundreds of pro-poor schemes, the biggest question is whether such benefit is reaching the poor. But the real challenge will be in distinguishing the poor from non-poor, particularly when such data are questionable.

Let us not forget history. The Roman Empire was one of the richest on the planet, with wealth concentrated in the hands of a few senatorial elite and the rest were utterly poor. Warning signs of inequality were ignored and it resulted in civil war and the entire empire collapsed. Do we want that again? Let us collectively work towards making an equitable world.

The wrier is co-founder of Kheyti

Published on February 11, 2018
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