• Neil Ostwal

THE CONUNDRUM OF CAPITALISM

The internet is replete with posts criticizing the government for not doing enough for feeding migrant workers, not making any arrangements for their safe return, not paying cash subsidies to farmers, and much more. Among the critics, a long list of imminent bankers, corporate honchos, and celebrities have also featured prominently. They use the ethical barometer, calling it ‘inhuman’ to leave migrants to their helpless and miserable state. They call the ruling government, whether led by the BJP, Shiv Sena, or Congress, incompetent to deliver results. Granted, the response has been chaotic, uncoordinated, and lacking in direction at times, although the government was quick to react in the first place. The much-hyped 20 lakh crore stimulus package has also been almost universally criticized as too little too late.

But on deeply pondering over some of their comments, it is difficult to get over the irony of the entire idea that double-digit economic growth will miraculously transform India and virtually eliminate poverty. To be clear, this piece of opinion is neither singling anybody out nor generalizing about any particular class of society. In fact, I find myself to be very much a part of this irony.


WHAT IS THE GOVERNMENT AND WHAT IS ITS ROLE?

What is the government that we keep talking about? It is a body of elected individuals representing the people and acting on their behalf to ensure the orderly functioning of the economy and society. At the same time, the government also ensures national security, foreign relations, and maintenance of law and order among other functions. With that in mind, we move on to the next question.


WHERE DOES A GOVERNMENT GET ITS FUNDS FROM?

To put it simply, the government taxes the citizens to pool funds which it can spend on the above areas, ignoring the nuances of the budget for now. Other than the above, the government also spends money on infrastructure, education, healthcare, and many other domains. For the portion it is unable to raise through taxes, it borrows money, from both domestic and foreign institutions willing to lend to it. It is worthy to mention that the government does not create resources out of thin air. Most governments in India have also largely followed the redistributive justice theme, the essence of which is transferring money/resources from the richest to the poorest sections of society.


WHY CAN’T WE PRINT UNLIMITED MONEY TO ELIMINATE POVERTY?

Yes, money is printed by the Central Bank (RBI in the Indian context), but printing money and injecting it into the economy comes with an undesired consequence- inflation. Theoretically, a government could force the central bank to print unlimited money, which would result in hyperinflation, Zimbabwe distinctly stands out in memory for its disastrous adventure with printing unlimited money.


THE MIRACLE LPG REFORMS THAT TRANSFORMED INDIA

Having witnessed 3 decades of nearly uninterrupted GDP growth since the landmark 1991 reforms, rates exceeding 5% in most years are cited as a testimony of the miracle of privatization. Ministers boast of these numbers in interviews, but they never care to throw light on whether these staggering growth numbers have addressed income inequality at all. Most reports indicate that inequality has in-fact only worsened in recent decades.


THE TALE OF 2 INDIAS

The COVID-19 crisis has in-fact clearly portrayed that there are 2 Indias- one represented by the privileged 1% or so who have the luxury of good houses, financial savings, multiple assets, WiFi connections, and access to the latest electronics.

Their concerns more often than not center on some of these- house-maids not being available, emotional anxiety staying at home, the lack of a social life due to COVID, and Italian restaurants being inaccessible.






The other India, represented by an overwhelming majority including migrant laborers, farmers, construction workers, drivers, even the middle-class, grapples with other issues- starvation, joblessness, absence of financial savings, EMIs, risk of a million health issues other than COVID because of under-nutrition, occupational hazards, lack of hygiene and much more.


The explosion of growth since 1991 has in-fact brought prosperity to India represented by the 1%. Their incomes have multiplied, the services sector has flourished, the Sensex, which is a barometer of the top 30 listed companies in the country, has returned 15% CAGR since the 1990s. Gigantic malls, multiplexes, skyrocketing high-rises, and Netflix are a privilege of a select few. On the other hand, the share of agriculture in the GDP has declined unstoppably, agricultural growth has not exceeded 4% in most years since 1991.


IS PRIVATIZATION OR FDI A PANACEA

While even the relatively well-off talk about elimination of poverty by privatization, attracting foreign investment, developing domestic manufacturing, increasing farm productivity, and much more. The common argument is that these measures will create jobs required for the army of graduates flowing into the job market every year, in this country of 135 odd crores. However, while we must welcome the benefits with warmth, we should not ignore the fact that while creating jobs, these measures will also leave thousands of people jobless. The entry of a Walmart in physical retailing would effectively mean the end of the road for millions of kirana store owners who simply do not have the ability to compete with Walmart’s deep pockets. Amazon and Flipkart’s arrival has led to several brick & mortar store owners shutting shop because their price points and personal salesmanship are unable to counter the deep discounting and convenience that has fuelled the exponential rise of these e-commerce giants. Privatization of PSUs intends to foster competitiveness, but when weak PSUs are taken over by lean private entities, shedding of flab inevitably causes thousands of layoffs. While survival of the fittest in a competitive world is a reasonable argument, it contradicts the often talked about poverty elimination/ universal prosperity objective.


STRUCTURE OF A CAPITALIST MARKET

Most structures in a competitive market are built in a way that loosely follows the Pareto Principle. Out of a sample of 10 market participants, a few, (say 1 or 2) are dominant by a margin (these are the 20% that hold 80% of all resources), a lot many are mediocre and a few struggle so much that their survival is in question. While exact structures may vary depending on the industry or the domain being referred to, the theme remains constant.


-> A Classroom

A typical classroom of 10 students, would more likely than not comprise 1-2 brilliant minds, who emerge toppers, 5-6 other average students, whose scores are close to each other, and 1-3 laggards who find it difficult to get through. Structures might differ in terms of numerical composition, but the pattern remains true.


-> Smartphone Market

If we were to demonstrate this, we could take the smartphone market, where in recent times, a few players like Apple, Xiaomi, and Samsung have dominated. A host of others including the likes of LG, OnePlus, Oppo, Vivo follow in close competition, doing well enough to stay in the market but a significant distance away from becoming segment leaders. There are others such as Blackberry and HTC who are virtually non-existent in the existing market. It’s natural that the leaders have the most amount of cash for spending on R&D, and industry-leading innovations are more likely to be adopted by them first. For a OnePlus to rise and dethrone the leaders is possible but it is hardly a cakewalk, it would require a massive new technological innovation/breakthrough and the ability to keep the lead to reach and stay at the top.


->Indian Political Scenario

Let’s take another example, the Indian political scenario, wherein the Congress (INC) party had ruled India for most of its post-independence history. Naturally, being at the top meant it had a significant amount of political muscle accumulating over decades, including a huge network, grass-roots worker base, personality cult, following, and a loyal base. There are a host of other parties, strong in their regional bastions, such as the BSP, SP, RJD, JDU, AAP, who compete with each other, but emerging national winners remain a distant dream. There are others such as the CPI(M), who were once powerful but are slowly moving into an existential crisis of sorts. And in 1999 as well as 2014, on the back of a conducive political atmosphere, voter frustration, a massive campaign, and electoral promises, we saw the BJP dethrone the incumbent Congress and establish a new power center in India.


->Income distribution in an Economy

Lastly, the economy, where we have billion-dollar empires such as the Ambanis, Adanis, Birlas, Wadias, and Jindals. As per an August 2017 index (Bloomberg Billionaire Index), the top 20 Indian industrialists have a combined wealth of around $200 billion or roughly 10% of India’s $2+ trillion GDP. At the onset of 2017, India’s richest 1% held 58% of its wealth. This is followed by a huge middle and lower middle class and a percentage of people below the poverty line, these are the ones who struggle for survival. These include migrant workers, farmers, daily wagers, and people in the informal sector.



THE BIG PERIL OF CAPITALISM

When you bring in FDI and an MNC earns INR 20,000 crore in a year, 4,000, 6,000 crores or maybe even 10,000 crores is paid as employee salaries, raw material costs, taxes, regulatory compliance, and other expenses in India, all the other money is taken back as profits to the foreign owners’ pockets. When the elder Ambani raises his own desi behemoth in oil or data, most of the money flows to Mr. Ambani’s pockets. Either way, inequality is not addressed. It is only widened. The rich become richer and the poor become poorer. All this wealth is passed on through inheritance and when 5G arrives, the junior Ambanis shall be ready with a war chest of a few billion dollars to gobble all licenses and launch a 5G bonanza. Airtel and Vodafone would hang in and put up a fight. The small and medium telecom competitors do not stand a chance.

One would ideally expect market forces to correct this disequilibrium, but because of the presence of two forces namely-


1. Nepotism and

2. The concentration of power in the hands of a few;

achievement of equilibrium becomes virtually impossible in a competitive market. The MNC would use its clout in the government network to ensure laws hostile to its supremacy aren’t passed, the dictator will clamp down on any forces attempting to end his/her rule, and political heirs are decided on the basis of lineage rather than competence. Power will more likely than not remain concentrated in the hands of a few. Although ‘equality’ is talked about, it is seldom practiced.


For 8 out of 10 farmers or construction workers, their sons/daughters will never make it big, because despite having the same average brain as Junior Ambani, their ‘war-chest’ has savings of Rs. 300 accumulated over 2 years, unlike Mr. Ambani’s billion-dollar goldmine. Every now and then, there will emerge a prodigy like Satya Nadella who will reach the top through diligence or a Sachin Bansal who will create a giant through a revolutionary idea, or a Modi whose masterful oratory will take him to the top. But once at the top, the cycle is likely to continue. Many, though not all, in power would use all means at their disposal, in some cases even illegal, to hold their grip on power.


SUMMARIZING THE PERILS OF CAPITALISM

Capitalism teaches us to have a never-ending appetite. Capitalism teaches us that the fittest survive, but the privilege of power also teaches us that just because the fittest is successful, they have a license to waste resources which might be crucial to the survival of other humans, species, or future generations. While most of Africa suffers in starvation because of denial of necessities, the people who have resources and power concentrated in their hands splurge on luxuries. Again, there are a lot of exceptions, but if that was not the general trend, stark inequality wouldn’t be real.

Capitalism teaches us to win but the hunger for more makes us forget to give back and live humbly. It fails to teach us that the poor man’s son could have survived if he had access to the pasta that we threw in the bin because it was slightly bland. A capitalist system wherein everybody had the morals to ensure that the next generation started off at the same level, without the benefit of inheritance would indeed be an ideal one. You earn strictly through merit, enjoy the fruits yourself, and let the next generation start-off on an equal footing without any additional war-chest. But that is against human nature, driven by greed for more. Nobody will ever say no to inherited wealth unless you live in the era of the Mahabharata.



WHAT ABOUT COMMUNISM?


For those hoping this is a Leftist propaganda page, I make it clear that I am not proposing Communism as an answer to the conundrum. Based on my limited understanding, a Communist system tries to inculcate forced discipline hoping that people will work with their highest productivity in spite of no material gains because resources are owned by society. It again goes against basic human nature of greed, by assuming humans have the highest morals and will not forcefully/illegally hold more resources than required. In reality, we have seen a completely different result of its implementation across the globe.


THE MIDDLE PATH- INDIAN SCENARIO

Coming back to the Indian scenario, no matter how much employment you generate or FDI you bring in, the easiest solution to this income gap is redistribution, which is taxing the rich at higher rates so that the excessive wealth can be distributed among the poor. This is the exact thing the rich resent, it is their hard work (and in a lot of cases- inheritance) after all, and who is the government to force them to part with it? When capital gains are levied on share sale the stock market tanks, reflecting the thumbs down that the elite gives to such moves. When the government cannot raise taxes, it resorts to debt, which again is punished by investors and rating agencies alike (‘fiscal indiscipline’ in financial jargon).

The Social Democracy model followed by the Nordic countries deserves a worthy mention here as these are some of the most prosperous, equal, and wealthy countries on the planet. But their per capita carbon footprint tells a different story of the environmental impact that development has brought. It should also be noted that the demography and size of those countries are not comparable to India.



THE ETHICAL DILEMMA

It is indeed a controversial and debatable ethical question whether the $45 billion empire should be allowed to grow to $60 billion the next year, while some 4 year old starves to death because his father was a migrant worker and failed to secure a meal for 2 consecutive days. The government did not have the resources to feed such poor, because it couldn’t raise taxes (fearing elitist backlash) or debt (fearing a rating downgrade). And I haven’t even mentioned the environmental impact of consumerist, industrialized economies looking to blindly produce more. The glamorous double-digit growth we strive for, imposes unimaginable environmental costs, and our reluctance about sustainability shows that we are remorselessly willing to pay that cost for growth. That discussion for another day.

Higher taxes on the super-rich and the re-introduction of wealth tax (for inheritance) are two administrative moves that should be considered given the ethical background. While poverty elimination and inequality are utopian dreams, we can take steps in that direction by strengthening the intent of redistributive justice and rigorous implementation. But the sad reality is investors and entrepreneurs will go away. Even if they don’t go away, they’ll create entities in the Cayman Islands and Mauritius to ensure they never part with their money. Tax authorities will try hard to nab violators, but criminals always have a way out. Because growing to $55 billion instead of $60 billion is simply unacceptable to them, even if it saves the 4-year-old! No system, Communist or Capitalist can ensure equality, till the intent to provide a fair platform emanates from those in Power. Only if there is an overwhelming consensus to limit the concentration of power and allow healthy competition to thrive can the ideal of Equality and Poverty Elimination be achieved. But will those in Power ever let that happen?

4 comments

8879916235

Mumbai

©2019 All Rights Reserved