Redistribution does not lead to inclusive growth.

An article by Prof Ricardo Hausmann of Harvard University defines differences between ' redistribution ' and ' inclusion ' in economic policies and the consequences thereof. His article has special relevance because he was Minister of Planning in Venezuela from 1992 to 1993, well before the disastrous socialism of Hugo Chavez that has bankrupted the country with the highest reserves of oil in the world. The country had to import crude from Algeria and Russia because the oil company, PDVSA has been looted for years by Chavez to pay for handouts. An earlier article by Prof Hausmann details how the government of Venezuela has defaulted on payments for import of food, pharmaceutical products and automobile parts so that there are shortages of every consumer product, leading to the highest inflation in the world. With falling oil prices the situation has become critical. At the level of companies there is a great difference in income distribution because productivity varies between firms so that there is great difference between income of individual companies. This is especially marked in developing countries because," Poor countries lack the means to connect all places to all inputs. They are faced with the choice of connecting a few places to most inputs and getting high productivity there, or putting some of the inputs in all places and getting very little productivity growth everywhere. That is why development tends to be unequal." These inputs include " raw materials and machines, which can be shipped around, but also specialized labour skills, infrastructure, and rules which cannot be moved easily and hence need to be specially collocated." Hence, he says," Given productivity constraints, redistribution is only palliative, not curative." To reduce inequality in income inclusion is much more effective. Inclusion is achieved through " endowing people with skills, and connecting them to the inputs and networks that can make them productive." This means good quality education for every child, vocation training to upgrade skills, superb infrastructure at low charges and equal access to resources. Unfortunately our politicians practice redistribution under the guise of inclusive growth. The Congress stayed in power for 10 years through such deception but lost when fiscal deficit zoomed, leading to double digit inflation, hurting the very poor who were supposed to benefit from the handouts. The Right to Education Act is responsible for the closure of private schools in slums where residents shun useless government teachers. Inclusive growth leads to equitable distribution of income but takes time whereas redistribution is immediate. That is why politicians conflate the two.