Friday, 1 November 2019

Suggestions to improve economic equality

At the outset, we need to remember that by robbing the rich and giving the poor the economic value added as a whole is zero and the society as a whole is not going to get any better. (the same problems are going to persist!) We need to understand and appreciate the fact that redistribution of income generating ability is much more important than redistribution of income itself.

The poor have a higher marginal propensity to consume than the rich. So any cash transfers they receive, they spend immediately on their basic needs and it is back to ground zero again. So at least in the longer run the objective of governments should be to augment the income generating ability of the depleted sections of the society. And the objective of the recipient public must be to give up short term benefits in the longer run interests of everyone.

An ideal society would be the one where the people's dependence on government benefits and subsidies is reduced to zero and people voluntarily refuse subsidies and benefits. That would be a dream come true for every economy!

In this article, I am going to make a few suggestions to remove economic inequality. Some of these suggestions may reflect the views expressed in/by authors, books, newspapers, magazines etc that I read including authors like Prof. Joe Stiglitz, Prof. Raghuram Rajan, Prof. Aswath Damodaran, The Economic Times, The Hindu, Mint, Project Syndicate etc. 

1.Differential and broad based taxation system: The most important and effective way of addressing economic inequality is by having a differential and broad-based taxation system. The underlying philosophy is to have a system where you have differential tax rates for different levels of income.
Most countries do have differential taxation system and those which do not will have to move towards this system in the longer run.
At least, the majority of the rich realize their responsibility towards the poor. Any instances of regulatory arbitrage or outright fraud will be addressed within the legal system and it is not appropriate to stereotype people on the basis of income/wealth levels. 
At the same time, tax payers have every right to expect accountability and know where their money is being spent. 

2. Fool proof distribution systems: We need fool proof and transparent distribution systems. People at the highest levels of public office may have great intentions but their ideas and actions need to get transformed to economic welfare at the ground level. To be fair to the public office bearers, many good measures do benefit the people at the lower economic levels but there are vast sections that are omitted due to both qualitative and quantitative deficiencies.
Over a period of time, the objective should be to improve the income levels and living standards of people. Improvement in living standards is only possible when the dependence on subsidies and benefits is reduced and more funds are allocated to development expenditure which has more long lasting benefits.

3. Cutting down on duplication and free loading: When there is a scramble between subsidies and development expenditure every penny is important. Economies that find ways to spend more on development expenditure and cut down on wasteful expenditure are going to prosper in the long run.
For generations, there are societies and families who have benefitted from government schemes and subsidies and their economic levels are much better than many other sections of the society.
It is high time to segregate government benefits on the basis of the recipient's economic levels. Politicians are scared of excluding the higher income groups from subsidies and benefits for electoral reasons. People have to voluntarily give up any government benefits or subsidies when not required.

4.  Use of technology: There is a greater need for integration between policy administration and technology. Using quantum computing, data security systems and data warehouses, it is possible to issue an all purpose unique identification number for all citizens of a country and the progress of every citizen starting from birth to death can be recorded and tracked. Effective and efficient control measures can be put in place to make the administrative infrastructure more dynamic. In terms of investment, this would be a lumpy one time cash outflow and the follow up cash out flows are going to be much smaller but the benefits are going to be huge. 

5. Integration between private and multiple public welfare schemes: As stated earlier, there is a scramble between subsidies and development expenditure - every penny saved is going to help public welfare. Different forms of democracy have different political-party setups and in democracies where there are different political parties in power at the state and centre, there is a chance for duplication.
Each party tries to take credit for the benefit offered to the people but no body thinks of duplication.
There is a need to streamline welfare benefits and schemes and cut down on redundancy. 
Second, many big corporate houses take an active role in corporate social responsibility activities. Whatever is the reason, private corporations function more profitably and efficiently when compared to many public systems. In geographies, where corporates are socially active we do not need government schemes. That would be wasteful expenditure again  and in such areas governments can limit themselves to supervision of welfare actvities. 

6. Education: The importance of education does not have to be overstressed. In his book, The Third Pillar Dr. Raghuram Rajan describes how the founding fathers of the United States (including Thomas Jefferson) have stressed on the need for education and making every community part of the education ecosystem. Although the United States has its fair share of problems today, she is still among the economic leaders of the world. Better education is necessary for people's participation in a market economy. The success or failure of market economies is dependent on the education and skill levels of their populace.

7. Power hungry politicians and corruption in public works: In many parts of the world, the rivalry between political parties is so bad that people are ready to kill each other for power. To stay in power, they need to earn through illegal means or else the opponent is going to kill you!
Everyone needs to understand that political rivalries are only ideological and as a nation we are all one. In fact, Dr. Rajan envisions that two hundred years from today there may be a borderless world! People need to learn to co-exist and work together.
In many emerging economies, corruption in public works is so common place that it is ingrained in to people's psyche. (may be we need to have an official Corruption to GDP ratio!) Wherever, possible all big ticket payments have to be executed in electronic mode.

8. Broad based growth, job training and creation and equality in opportunity: Growth has to be broad based and every one has to be given equal opportunity. If growth is not broad based, then over a period of time people are going to get more restless and this may have volatile consequences.

The problem of economic inequality is present everywhere in the world irrespective of the size and state of the economy. Economic inequality feeds into political inequality and both reinforce each other. 

We need to be aware of our rights and responsibilities - together we need to work towards a more equitable society. 

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