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Mar 11, 2015

Oxfam's 'Even it up' report a must read lesson on Inequality

Rahul Bose

Over the past few decades, for a stark reminder of the global gulf between the rich and the poor a visit to any country in the third world has sufficed. India is one of the most striking examples. Here we have our least fortunate living with resources less than those available to dwellers in sub-Saharan Africa, and our wealthiest in the list of the world’s top 100 billionaires.

A glance at the skyline of my home town, Mumbai, amplifies this into a hyper reality. Glass walled skyscrapers with duplex flats, tennis courts, gymnasia, gardens and spas, stand uneasily in the middle of hundreds of shanties where clean drinking water and sanitation are a distant dream. But this piece is not an analysis of India and the social, cultural and political tensions that are being brought to a boil through this increasing inequality.

It is about inequality across the globe, why it harms both, the rich and the poor, and finally what can be done to cool this social cauldron. As an Oxfam global ambassador I closely read Oxfam International’s Global (financial and wealth) Inequality Campaign Report that was released in December.

It is a highly readable, accessible document without demanding any great erudition in economics from the reader. Doubtless it will trigger debate from economic thinkers on both sides of the argument, but a lot of what it said made for engrossing reading.

It unequivocally states that across the world the gap between the rich and the poor is widening. The richest 85 people on the planet own as much as the poorest half of humanity.

In India for example, inequality levels are at their highest since independence. Today 1% of the world’s population control 46% of its wealth. The question you might be asking (like I did on reading the report) is, so what? As long as the poor become more prosperous, what does it matter if the rich get wealthier? And it’s a mathematical fact that if rich and poor grow at the same rate, the rich will outstrip the gains made by the poor, so why the alarm? More pertinently, why should increasing inequality be bad news, or, as a converse, why should decreasing inequality be good news? Let’s look at India. The Oxfam report contends that if India arrests the rise of inequality it will erase extreme poverty for 90 million people in about five years. If it brings inequality down by 36% it's a near certainty extreme poverty would be a thing of the past.This leads to the obvious question : how?

Before we get to the how, Oxfam takes a look at the ‘what?’ What causes extreme inequality? The report contends there are two major factors : 'market fundamentalism and the capture of power and politics by the elites'. It goes on to elaborate, ‘as Thomas Piketty demonstrated in ‘Capital in the Twenty First century’, without government intervention, the market economy tends to concentrate wealth in the hands of a small minority, causing inequality to rise. Despite the fact market fundamentalism played a strong role in causing the recent global economic crisis, it remains the dominant ideological worldview and continues to drive inequality’. The report cites the case of Russia where income inequality increased 100% from 1991 to 2011 after economic ‘reforms’ centred around deregulation and liberalisation. The other major cause of inequality 'is the influence and interests of economic and political elites. Elites in rich and poor countries alike use their heightened political influence to curry government favours – tax exemptions, sweetheart contracts, land concessions and subsidies – while blocking policies that may strengthen the rights of the many'. Examples cited are Carlos Slim amassing wealth by securing exclusive rights over Mexico’s telecom sector on its privatisation in the 1990s and privatisation in Russiia and Ukraine after the fall of communism making political insiders into billionaires overnight.

In answer to how reducing inequality leads to reduction of poverty and an increase in broad based economic growth, the report asks, amongst other things, 'to expand public services in health, education, social protection and policies targeted towards women'.

It is instructive to read and learn how Thailand’s universal health coverage scheme (by raising funds through general taxation) reduced the money Thais in the poorest segment of the population spent on healthcare by half in the first year itself, and how China, South Africa and Mexico have appreciably increased public investment in healthcare. In another instance the report speaks of how Brazil considerably increased access to quality education for those at the lowest strata of wealth, such that its poorest 20% of children spend eight years in school instead of the four years they previously used to. On social protection it says, 'social protection provides money or in-kind benefits such as child benefits, old age pensions, unemployment protection. Social protection puts income into the pockets of those who need it most, mitigating the effects of inequality'. For me, one of the report's most interesting conclusions is that a large number of economic inequality-reducing policies like free public services or a minimum wage also reduce gender inequality. It's instructive to learn that in  South Africa a new child support grant for the primary caregivers of young children from poor households takes into account the policy’s impact on women. In Quebec more state subsidies for childcare have helped an additional 70,000 more mothers to get employed with the taxes from them comfortably paying for the cost of the programme. For a layperson, this linkage is especially interesting in the Indian context given how historically too little has been done to empower women through the reduction of economic inequality.

From all of this and more in the report, it is clear extreme and ever increasing global inequality hampers economic growth, social mobility and judicious policy making. It contends great inequality across the globe encourages crime and discourages the naturally gifted. The good news is there is a groundswell of voices to tackle this drastic inequality, from billionaires like Bill Gates to heads of institutions like the IMF and the World Bank, from women’s organisations to faith leaders. People who have understood that the grim portends of things to come stem from our mistakes in the past. Mistakes that Warren Buffett chillingly summarizes, ‘There’s been class warfare going on for the last 20 years and my class has won.’

 

 

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