We need strong public policy to combat inequality

In his best-selling book The Affluent Society, published in 1958, John Kenneth Galbraith had observed: “Few things are more evident in modern social history than the decline of interest in inequality as an economic issue. While it continues to have a large ritualistic role in the conventional wisdom of conservatives and liberals, inequality has ceased to preoccupy men’s minds”. Galbraith was writing in the afterglow of World War II, when economic reconstruction was in full swing, and a generalised acceptance of Keynesian precepts had already brought about a steady rise in the living standards of the average American.

It is possible to hold the view, more than six decades after Galbraith’s claim, that the idea of inequality is today at the centre of the socio-political concerns in all countries of the world, bar none. Among professional economists, and social scientists generally, the seminal contributions in the past half century of John Rawls, Anthony Atkinson, Amartya Sen, Thomas Piketty, and many other stellar names, have again brought back into focus the foundational importance of equality and distributive justice. Joseph Stiglitz has been hammering away at the pernicious clout of the top 1% of the American population that takes nearly a quarter of the nation’s income. In terms of wealth, the top 1% controls as much as 40%. The Indian numbers tell an uncannily similar story. The richest 1% accounts for about 23% of income and presides over about 40% of the nation’s wealth.

Intellectual concerns on equality and justice have of course caught serious imagination of humans from times immemorial. In his Nicomachean Ethics, written around 350 BCE, Aristotle had proclaimed: “Justice is equality, as all men believe it to be, quite apart from any argument”. Ironically, Aristotle, as well as his mentor Plato, believed that a just distribution is in general an unequal one.

Possibly the greatest thinker who ever expounded on this theme was Jean-Jacques Rousseau, the philosopher of Enlightenment, who wrote, in 1754, his Discourse on the Origin and Foundations of Inequality among Men. In it he stated that there are two sorts of inequality in the human species: “The first I call natural or physical because it is established by nature, and consists of differences in age, health, strength of the body and qualities of the mind and soul; the second we might call moral or political inequality because it derives from a sort of convention, and is established, or at least authorized, by the consent of men. This latter inequality consists of the different privileges which some enjoy to the prejudice of others – such as their being richer, more honoured, more powerful than others, and even getting themselves obeyed by others”.

Rousseau was among the foremost intellectual progenitors of the French Revolution. Some of its leaders, including Robespierre, regarded themselves to be his ardent followers. Rousseau was, of course, a trenchant critic of the modern unequal society. The clarion call of the French Revolution, Liberty, Equality, Fraternity, acknowledged the primacy of equality in the new order that was being fought for. Ironically, Rousseau had written that he had “the greatest aversion to revolutions” and “always insisted on the preservation of existing institutions”.

The founders of classical economics--Adam Smith, David Ricardo and Jean-Baptiste Say, in particular - were principally concerned with the efficient working of the market system. The market is at the core of the modern capitalist system. The key proposition of Adam Smith in his Wealth of Nations, 1776, was to make a persuasive case for laissez faire. The idea was that if all atomistic economic agents pursue their self-interest without any let or hindrance, then the end result for the economy at large would be harmony. Smith believed that an “invisible hand” would ensure this.

The important point to note is that the classical economic writers were principally concerned with the efficiency aspect of the market system and despite some well-developed formulations on factor incomes, the idea of equity got short shrift. The concern for a more equitable distribution of income arose in the writings of radical socialist authors such as Saint-Simon and Robert Owen, culminating in the revolutionary tracts of Marx and Engels. The gradual rise in the living standards of the working class in the late nineteenth century of course came about largely on the strength of epochal technological breakthroughs, but it owed not a little to the extensive spread of socialist ideas.

Recent empirical explorations of Piketty show that there has been a steady rise in inequalities of income and wealth in the period following the end of the First World War in the major capitalist countries of the world. There have been phases when the rise of inequality has been briefly arrested, but the trend has been towards one of steady concentration.

One might presume that Marx might have been a votary of complete equality of income and wealth, but paradoxically that was not the case. He well understood the diversities in human attributes, circumstances and capabilities. Marx believed that after communism reaches a mature stage it would be futile to insist on equal incomes. He argued that one should then adopt the precept: “From each according to his ability, to each according to his needs”. Yet, till one reaches the ideal world, strong public policy to combat inequality has to be the need of the hour.

This article is authored by Pulin B Nayak, former professor, Delhi School of Economics.