Arshad Shaikh studies the latest World Inequality Report and tries to understand the reasons behind the growing income inequality across the world and our country and looks at the different ways to address this obstinate economic challenge.

The World Inequality Lab came out with their much awaited ‘World Inequality Report 2022’ (WIR) that submits the latest “data and analysis on global inequalities worldwide”. The report is authored by Lucas Chancel, Thomas Piketty, Emmanuel Saez and Gabriel Zucman. The data is based on the international work of 100 researchers over four years.

According to the WIR 2022, “The richest 10% of the global population take 52% of the global income, whereas the poorest half of the population earns 8.5% of it”. The disparity in wealth (savings, investments and assets) is even starker. “The poorest half of the global population barely owns any wealth at all, possessing just 2% of the total. In contrast, the richest 10% of the global population own 76% of all wealth”.

As Nobel Laureates Abhijit Banerjee and Esther Duflo assert in the Foreword to the report: “There is no prima facie evidence for the idea that fast growth demands or necessarily goes hand in hand with growing inequality. The reason why that was possible had a lot to do with policy – tax rates were high and there was an ideology that inequality needed to kept in check.”

Let us look at the major findings of the WIR 2022 and especially the numbers pertaining to India. Income and wealth inequality is one of the major negative externalities of neoliberalism (a political approach that favours free-market capitalism, de-regulation and reduction in government spending). The current conventional approach is to try and reduce this inequality through policy intervention. However, what is overlooked is the design of the financial system, which is the pivot around which the real economy rotates. An interest-based banking system is the elephant in the room that nobody likes to address.

KEY FINDINGS OF WIR 2022

Some of the key findings in the report are – The MENA (Middle East North Africa) is the most unequal region while Europe has the lowest inequality levels. The average income levels do not help decipher inequality. Some countries have very high rates of inequality (US, India, Russia) while Europe and China experienced lesser inequality. Contemporary global inequalities are close to early 20th century levels, at the peak of Western imperialism.

One interesting aspect is difference between the wealth of government and those in private hands. The growing privatisation of the public sector has reduced the share of governments to near negligible, a percentage that further deteriorated during the pandemic. The inequality plays out even more blatantly at the very top of the distribution with the top 1% taking 38% of all additional wealth accumulated since the mid-1990s, whereas the bottom 50% capturing just 2% of it. Gender inequalities are seen in most countries and progress on that front has been extremely slow.

The WIR 2022 also presents some policy recommendations to tackle the challenge of growing inequality. Their main suggestion is ‘tax the rich’ and that too in a progressive manner. The report (in the executive summary) concludes by saying: “Inequality is always political choice and learning from policies implemented in other countries or at other points of time is critical to design fairer development pathways.”

HOW DOES INDIA FAIR IN INEQUALITY?

The average income of the Indian working population is around Rs 2 lakhs (Rs 17,000/- a month). This does not seem unreasonable but as we know from statistics that average is not a good measure to check the variance within the data set. Digging further, we see that the bottom 50% earns only around Rs 50,000 (Rs 4,500 a month). In contrast, the top 10% hold 57% of the income and the top 1% holds 22% of the national income. India’s female labour share is 18%. The wealth numbers are more unequal compared to income. Average household wealth in India is equal to Rs 9.8 lakhs. However, the bottom 50% own almost nothing, with an average wealth of Rs 66,000 (6% of the total). The top 10% own Rs 63 lakhs (65% of the total) and 1% owns Rs 3.24 crores (33% of the total).

PROPOSALS TO REDUCE INEQUALITY

Experts correctly suggest that one of the many ways to reduce inequality is to increase female work participation. It was suggested that if women’s participation in the workforce matched that of men then the GDP growth rate of India would become 27%.

Another area that requires critical focus is agriculture. In the case of India, agriculture sector contributes to around 15% to 20% of the GDP but employs more than 42% of the population. Promotion of rural infrastructure, more accessible storage facilities, remunerative prices and non-exploitative credit facilities is required.

The workplace laws need to be changed. Minimum wages and universal basic income are some the ways to do that. However, over and above these reforms, important changes must be brought about in the financial system. An interest-based credit model and a fractional banking system that feeds the equity and bond markets with investments and trading through speculative instruments like derivatives [Collateralised Debt Obligations (CDOs) and Credit Default Swaps (CDSs)] leads to a situation where the market capitalisation of a few companies exceeding the GDP of entire countries. This inequality multiplier that is residing in the heart of the global economy needs to be reformed or purged. All else sounds marginal and peripheral.

THE ISLAMIC APPROACH TO INEQUALITY

There is a verse in the Qur’ān (13:26) which says: “Allah grants the provision to whomsoever He wills abundantly and grants others in strict measure. They exult in the life of the world, although compared with the Hereafter; the life of the world is no more than temporary enjoyment.”

This verse states that income inequality is in fact a fact of life. A person’s rizq (sustenance) is preordained and some may earn more than others. However, it is critical to understand that this economic and financial disparity cannot become an excuse for class struggle and pit the haves against the have-nots.

At the same time, wealth and power cannot become the sole criterion to judge people. It would be erroneous to conclude that the wealthy are the ‘blessed’ while the poor deserve to be ‘accursed’ and neglected. It is the integrity of the person, which counts. This world is temporary and the real and everlasting life is that which starts after one’s death.

Islam does not impede one from maximising one’s earnings, using the ‘lawful’ means as mandated by the Shari’ah. Nevertheless, all efforts must be made to reduce the gap between the rich and the poor. The Qur’ān (59:7) asserts: “What Allah has bestowed on His Messenger (and taken away) from the people of the townships,- belongs to Allah,- to His Messenger and to kindred and orphans, the needy and the wayfarer; in order that it may not (merely) make a circuit between the wealthy among you.” This Qur’ānic verse alludes to the welfare economics that the Islamic government is mandated to implement so that the money is not concentrated in the hands of a few but is circulated more equitably.

We agree with American Senator Bernie Sanders when he said: “A nation will not survive morally or economically, when so few have so much and so many have so little.”

We need to address inequality, at stake is not just our economy but civilization itself.

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