The Economic Divide in India

In the debate on Economic Inequality, I often find myself siding with the well off section of the society even though I myself belong to the middle class which does not belong to any of the two extremes. A quintessential middle class person lives with two simple emotions - the aspiration of graduating to the upper class and the fear of never having to slide down. Both the emotions have one common behavioral - keeps the middle class working hard and away from any sense of complacency.

Lets come back to the inequality debate - my siding with the well off section in this debate has earned me the reputation of being a die hard capitalist among my friends and I do agree to being a capitalist. I believe it to be the best system within a democratic set up. The whole logic behind the same is simple - achieving economic equality is never going to be possible. It is beyond even the most utopian of beliefs that everyone in a society should or could have the same or say even remotely similar economic status. Communists have tried to achieve this and have failed miserably everywhere across the world. The few nations which continue to be communists have a much deeper social angst brewing below the seemingly shining skyscrapers as individuals are denied freedom of expression and their own choice of lifestyle. The argument to cerate a society where everyone has access to at least the basic necessities such as food cloth and shelter still holds water and should be the guiding force of any democratic society. The key question is how to achieve that.

My answer to the question is that one has to create wealth before thinking about distributing it and that is bound to create inequality or rather steep inequality in the short to medium term. Bear in mind the short to medium terms being referred to here is in the context of a country's transformation and therefore cant be compared with our oft used short to medium term jargon in corporate world.

If one tries to redistribute the existing wealth, which is what India tried till 1991and continues to do so every once in a while even now, it only leads to transfer of wealth from the honest and law abiding rich to the corrupt and law damning robber barons. Our shameful failure as an economic state in 1991 was nothing but a testament to the failure of this approach of redistribution.

Now to create wealth, one can argue that state is the most responsible and trustworthy of all to be entrusted with this task. That's exactly what the idea on which communism is based on. We have seen communist states falling miserably one after the other. The Soviet Union failed and disintegrated and some of the other remaining communist nations of today are more or less anarchy's run by the dictators with the exception of China. China too has adopted a deep rooted capitalist economic philosophy within a communist political structure. It's worked well so far but how far it would remain a success is yet to be seen as strains of people's continued oppression are becoming more and more visible.

Therefore to me, the only way is to let the individuals pursue their own economic interests within a liberal and just legal set up. This would invariably favor those who already have capital and those who can access capital but their individual wealth eventually adds up to the collective wealth of the nation and creates a trickle down effect for those at the lower end of the ladder. Even if one was to argue that the rich would never want to let the trickle down effect set in so that they can have the luxury of many people available to be exploited. This indeed is true to an extent and thats where a sound, fair and liberal policy framework comes in place to ensure that the benefits of wealth created are distributed in the form of creating the right set of rural infrastructure, a strong foundation of universal primary education and healthcare services. Afterall the government needs money to do that and these taxed are going to come in only if you have wealthy people to pay taxes. The idea is to create an environment where those who have capital or have access to capital or have the entrepreneurial grit can realize their true potential and create wealth. A fair taxation system and judicious use of those revenues is whats going to crate rural infrastructure so that rural people have an attractive option in villages and do not migrate to the cities in huge numbers.

In the end, no matter one fact has stood and would stand the test of time - in any country, top 10% of the population in terms of economic status would always succeed no matter what goverment does. The Bottom 10% similarly would always fail and need welfare support. Its the 80% in the middle who define the economic destiny of a country. Their destiny is better served if the top 10% are left to create wealth and the trickle down effect would set in.