Growth and inequality

Print edition : November 20, 2020

Prof. R. Radhakrishna. Photo: C.V. Subrahmanyam

This festschrift celebrates the work of Prof R. Radhakrishna in development economics through essays that deal with lopsided growth and its consequences, economic inequality and other challenges in achieving inclusive development.

Development as a major field of study in economics emerged essentially after the Second World War. Economists were always concerned with growth and were constantly examining conditions favouring it. For a while in the 19th century and into the 20th century, professional attention turned to the allocation of resources.

But after the Second World War, the emphasis shifted to growth for two major reasons.

The first was the ‘cold war’ between the Soviet Bloc and the ‘free world’ represented by the United States and other nations. The major part of the ‘free world’, however, consisted of ex-colonies characterised by low levels of income, allegedly because of the scarcity of capital.

‘Development’ as an economic category represented the attempt of the rich nations of the ‘free world’ to transfer resources to their weaker partners so that income and savings in the latter would grow.

Some growth did take place in the poor countries and it was hoped that as the cake became larger everyone would get a share of it.

However, very little of the benefits of growth percolated down to those who badly needed it. Development strategy, therefore, came to concentrate on ‘growth with redistribution’.
Also read: In defence of development economics

From the 1970s, there were attempts to locate the poor and to design strategies to assist them. This led to some positive results, but there were many administrative bottlenecks. Hence, attention turned to identifying a tolerable consumption level and the corresponding income.

The ‘poverty line’ thus emerged and those who came below it were to be assisted to move above it. In India, the slogan ‘Garibi hatao’, to eradicate poverty, became its political counterpart. After the spectacular victory of Indira Gandhi in the general election of 1971, which was fought on the slogan of poverty eradication, and the subsequent formulation of the Fifth Five-Year Plan to implement measures to eradicate poverty, a ‘growth-plus’ approach was accepted to achieve the objective.

During the Plan period, some reduction in poverty did take place, but it was overlooked that production was basically driven by existing income distribution, which, in turn, was a reflection of the ownership of resources. An increase in growth would have some impact on poverty reduction, with the poor having to remain satisfied with the crumbs that fall from the table.

From the early 1990s, growth once again became the focus of economic policy globally, and to get economic assistance from global agencies India had to fall in line, as reflected in the ‘reforms’ of 1991. From the early years of the new century growth did pick up, and strikingly too. However, inequalities also became glaring, leading to demonstrations in many countries against the hold of the ‘top 1 per cent’ on the economy and the economy’s direction.
Also read: Growth of inequality

Studies of the performance of the Indian economy since the ‘reforms’ show that growth has increased and poverty has reduced, but wealth and income inequalities have increased as well.

At the time of the drafting of the Eleventh Five-Year Plan, this set of issues engaged the attention of the planners, who decided to make growth ‘inclusive’, stating: “The target is not just faster growth but also inclusive growth, that is, a growth process which yields broad-based benefits and ensures equality of opportunity for all.”

Development essays

With this background we may turn to the book under review, especially its emphasis on inclusive development. The book consists of essays in honour of Prof. R. Radhakrishna, the distinguished Indian economist known for his prolific writings—five volumes of his papers have already been published —and recognised as an able academic administrator. The volume under review consists of 16 papers following an Introduction by the editors.

Two of the papers provide the historical setting. One goes back to the mid-19th century and then deals with the series of five-year plans with emphasis on poverty eradication and associated changes. With industrialisation there were notable technological changes that, in turn, led to a declining share of labour in the gross domestic product (GDP). Growth also led to increasing inequality in income distribution, along with an increase in child labour and the withdrawal of children from schools. With these and related changes, India came to occupy a very low rank in the United Nations’ Human Development Index.

The second paper goes into some more specifics of the neoliberal growth policy that has been pursued since 1991. Even after inclusive growth was accepted as the objective, direct taxes have not become more progressive; in fact, the average tax paid by the top income groups has been declining.

Executive salaries have been skyrocketing: in 2007, there were some 600 executives with a remuneration of more than Rs.1 crore. For another group there was an over 200 per cent increase in two years. Figures for the period between 1982-83 and 2013-14 show that India recorded the highest increase in the share of the top 1 per cent.

This tendency for incomes and wealth at the top to increase has had other consequences—a shift in consumption to goods and services required by that class. Corruption has also increased, with social and political consequences.
Also read: Rising incomes, falling wages

Another paper shows with empirical evidence that once growth is accepted as the main policy objective, it leads to many distortions as well, such as overlooking of ecological constraints, inter-generational and intragenerational equity and unlimited waste generation.

Another paper argues that if growth generates distortions, it is because adequate attention has not been paid to the required structural changes. For instance, consider the issue of land acquisition for putting up factories, constructing roads or for other purposes necessary for development. Farmers, particularly small and marginal ones, resist land acquisition because the land they own is their only means of subsistence. Although laws have been passed to resolve this issue, their implementation has often been tardy.

While the significance of inclusion has been recognised in terms of income, very little has been done as far as health is concerned. It has been noted that about half of the population suffers from some form of malnutrition and related health problems. Infant mortality levels continue to remain high, especially among Scheduled Castes and Scheduled Tribes.

Inequality

For quantitatively oriented readers, one of the chapters deals with the technical aspects of arriving at the poverty line, while another critically evaluates the controversies relating to the measurement of poverty and inequality.

Two papers examine the global dimensions of economic inequality. A paper makes the interesting point that the so-called waste economy too must be noted in connection with inclusiveness, as waste is possibly the fastest growing sector of the economy and clearing waste by municipalities provides employment to many, especially the socially excluded.

Together, the essays in this volume provide a fairly comprehensive account of the challenges in achieving inclusive development. A major omission is a discussion of the concept of ‘universal basic income’ that is being implemented in some of the more developed countries of the world.
Also read: The question of inequality

It may be argued that countries like ours cannot yet afford it. However, if incomes at the top can be permitted to grow as they have been, surely the implementation of universal basic income is not constrained by economic factors. The fact is that we do not take seriously the commitment that our Constitution proclaims: that the citizens, men and women equally, have the right to an adequate means of livelihood.

There is a larger issue too. Inclusive development depends, to a large extent, on the existence of a basically inclusive society. In this regard, India is far behind many countries that are trying out universal basic income. The insecurity that the Muslims feel is a case in point.

In fact, a universal basic income policy may lead to the minorities feeling more secure. It is good to be reminded that to be genuine and effective, development, like democracy, must be not only for the people, but also of the people and by the people.
Also read: Growth of inequality

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