Sunday, May 08, 2016

Why persist with policies that have failed for 68 years?

The International Monetary Fund estimates that India's Gini coefficient has gone up from 45 in 1990 to 51 in 2013. The higher the value the more the inequality in income among the rich and the poor. To treat any problem the cause must be understood. " There are several possible explanations for growing income inequality - from the nature of technological progress to the lack of opportunities due to the caste system, to ineffective government programmes and lack of infrastructure that connects people in the interiors to markets," says an article. So, what to do about it? Technology cannot be halted, its progress is relentless. It is in the nature of human beings to want to create something new. Already scientists are predicting that robots will take over half the jobs in the next 30 years. Which means that inequality will only grow. Japan is set to open the first farm run almost exclusively by robots. Only 140 million out of 300 million were able to find jobs in India between 1991 and 2013. If robots are set to take over most jobs the situation can only get worse. It has become fashionable to blame the caste system for inequality, thereby shifting the blame on Hindu religion. We can argue that, with 50% reservation in higher education and government jobs, low caste status is actually a boon. Reservation in Tamil Nadu is at 69%. Recently, Jats in Haryana were included in reservation and then Patels were given 10% in Gujarat. If caste is a cause of inequality why is there so much demand to be classed as low caste? Government programs to reduce inequality means handouts. Apparently, countries in South America have been very successful in reducing inequality through redistribution. The Bolsa Familia program in Brazil has been lauded by the World Bank for reducing poverty. Commodity prices fell, inflation went up and the economy has gone into a severe recession. Socialist policies of Hugo Chavez in Venezuela have resulted in such severe crisis that there is no electricity in a country with the largest oil reserves in the world. So what is the answer? Unfortunately, people talk about inequality when they should be talking about poverty. There will always be people with exceptional abilities, such as Thomas Edison and James Watt, and if they are suppressed we will go back to living in caves. Redistribution is ineffective because of the leakage in the system. Even if done honestly, which is impossible in India, a lot of money will always be wasted in paying salaries of civil servants entrusted with the program. Faced with low growth countries are contemplating 'helicopter money' in which money will be distributed to poor people so that increased spending results in higher growth. India has already been practising the concept through various programs like the MGNREGA. They have not worked. At the risk of boring repetition, reducing population is the only answer. Reduce poverty and inequality will follow. Logical.

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