The World Economic Forum has identified rising inequality as a major risk to progress. This was highlighted in its release of “Outlook on the Global Agenda 2014” in November 2013. It is worrisome because when wealth captures government policymaking the rules are twisted to favour the rich – it poses a serious threat to democracy and well-being of the poor. It results in the erosion of democratic governance, disruption of social cohesion, and opportunities no more remain equal for all. The US Supreme Court Judge Louis Brandeis aptly sums up, ‘We may have democracy, or we may have wealth concentrated in the hands of the few, but we cannot have both.’
Trend of Growing Accumulation of Wealth in Few Hands
Since fall of the communist bloc in 1990 wealth has been increasingly concentrating with fewer people and global elites are increasingly becoming richer. Yet the vast majority of people around the world remain excluded from this prosperity. For instance, while stocks and corporate profits soar to new heights, wages as a percentage of gross domestic product (GDP) have stagnated.
Oxfam International’s briefing paper of Jan 20, 2014 (titled Working for the Few) highlighted the fact that the wealth of the 1% richest people in the world amounts to $110 trillion – it’s 65 times the total wealth of the bottom half. The wealth of the richest 1% increased from 44% in 2009 to 48% in 2014 while the worst-off 80% at the bottom currently own just 5.5%. If the trend continues the richest 1% would own more than 50% of the world’s wealth by 2016. In short, currently the total global wealth is almost evenly divided: around one half is with the richest 1% and the remaining half is shared by the rest 99%. Note further: 70% people live in countries where economic inequality has increased in the last 30 years; the richest 1% increased their share of income in 24 out of 26 countries between 1980 and 2012. Amazing, isn’t it?
The financial crises of 2008-09 failed to bring any fundamental change in the working of the financial world that would change the trend. In the US 95 percent of post-crisis recovery between 2009 and 2012 was captured by the wealthiest 1%, while the bottom 90% became poorer.
To give an indication of the scale of wealth concentration: In 2013 only 85 richest people had wealth equal to the combined wealth of the poorest 50%! Currently, only 80 richest people have as much wealth as the combined total of 50% of the poorest humanity. Between 2009 and 2014, these richest 80 doubled their wealth in cash terms. The combined wealth of Europe’s 10 richest people (€217bn) exceeds the total cost of stimulus (€200bn) measures across the European Union (EU) between 2008 and 2010. Furthermore, post-recovery austerity policies made life of poor harder, while making the rich even richer. Austerity has also adversely impacted life of the middle classes. The rich elite use their money for lobbying policymakers and funding election campaigns to further their interests. This further excludes the poor from the policy making circle.
This massive concentration of economic resources in the hands of fewer people presents a significant threat to inclusive political and economic systems. It destabilizes societies; people no more move forward together, they are increasingly separated by economic and political power, leading to increased social tensions and the risk of societal breakdown.
Moreover, it also dampens economic growth. It is, however, not inevitable and can and must be curtailed.
Rising Inequality in the UK
Reflecting the above statistics, in May 2014 reports came out that the richest 1% of Britons own the same amount of wealth as 54% of the population. The Sunday Times in the same month reported that the 1,000 richest people in the country had doubled their wealth in five years.
Now let’s focus on the poor – those who live below the breadline. Oxfam and Church Action on Poverty calculated that food poverty in 2013/14 increased by 54% compared to 2012/13. More than half a million children in the UK currently live in families unable to provide a minimally acceptable diet.
[Numbers in above 2 paragraphs come from Below the Breadline: The Relentless Rise of Food Poverty in Britain, June 2014]
Inequality in India
In the past decade, the number of billionaires in India increased from less than 6 to 61, concentrating roughly $250bn among a few dozen people in a country of 1.26 billion. Reflecting the concentration of wealth in the elite minority, their share increased from 1.8 percent in 2003 to 26 percent in 2008. Nothing much has changed since then.
About half of India’s billionaires acquired their wealth in sectors where profits depend upon access to scarce resources, possible exclusively through government permissions; for example, real estate, construction, mining, and telecommunications. In simple language, it points to their influence in policy- and decision-making circle through lobbying and corruption – it is the typical business-politician-bureaucrat nexus. The massive corruption scandals during the UPA regime prove the point.
It is also common knowledge that property development in India is the most opaque business, where enormous sums of illegal money exchange hands. Sonia’s son-in-law Robert Vadra (“Damad Ji” in Modi’s language!) tried his elite status for land deals and made fortune in a very short time, although now his activities are being investigated.
Now the flip side. India’s vast population of poor did not see fruits of economic gains in their life, while the corporate media joined the chorus of elite class and highlighted the increasing number of millionaires and billionaires as sign of development. The government spending for the poor and vulnerable groups in society remains remarkably low – India’s public spending on healthcare is just around 1% of GDP. A recently released report of the Asian Development Bank which ranked countries for their expenditure on poor and economically vulnerable groups ranked India 23 out of 35 countries in the region. Even among the 19 low- to middle-income countries, India was placed twelfth.
Corruption and loopholes in the laws enable the powerful elite class to evade taxes. It reduces available public funds; and shows up as reduced size of welfare programs for the poor. In India, even this fund is misappropriated by the implementing government officials and political middlemen. As a result, only a tiny fraction actually reaches the target beneficiaries. In this age of globalization, the ultra rich class also evades taxes through shell companies established in foreign countries.
Indirect taxation account for over 60% tax revenues; only the rest comes from direct taxation like income, profits, and capital gains. Clearly there is plenty of scope to plug loopholes for tax evasion.
How Pakistani Elites Enjoy Power and Make Rules to Benefit Them
Pakistan’s parliament comprises nation’s wealthiest elites, who make rules to serve their narrow interests, while paying lip service to interests of common man. It has a very small tax base: Of the 10 million people who qualify, only 2.5 million are actually registered to pay tax. With this tiny base, Pakistan’s tax revenue is among the lowest in the world; its tax to GDP ratio is lower than even Sierra Leone.
Taxpaying parliamentarians and political elites are a conspicuous minority. A 2010 review found its PM and ministers among the non-taxpayers in the year they contested election. Obviously, the lawmakers create rules that leave loopholes to make their tax exemptions legal. The rich and powerful landowners who dominate Parliament also avoid tax by exempting agriculture. This is clearly a powerful driver of inequality. In the 1990s, law made it difficult for the authorities to ask questions on money transferred from abroad, facilitating a parallel black money economy. Those who pay taxes are usually from the honest middle class.
Pakistan’s financial system is described by a retired tax administrator, Riyaz Hussain Naqvi: “This is a system of the elite, by the elite and for the elite… It is a skewed system in which the poor man subsidizes the rich man.”
He succinctly summed up how unjust rules made by powerful vested interests create and perpetuate poverty. It applies to all poor countries of the world.
Oxfam’s Suggestions to Reduce Inequality
Oxfam also proposed a 7 point plan to the governments:
- Clamp down on tax dodging by corporations and rich individuals.
- Invest in universal, free public services such as health and education.
- Share the tax burden fairly, shifting taxation from labour and consumption towards capital and wealth.
- Introduce minimum wages and move towards a living wage for all workers.
- Introduce equal pay legislation and promote economic policies to give women a fair deal.
- Ensure adequate safety-nets for the poorest, including a minimum-income guarantee.
- Agree a global goal to tackle inequality.
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