India, US face hurdles in channeling hatred of rich
- By Pranab Bardhan
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Shanghai Daily, December 8, 2011
In India, as in other fast-growing economies, scarce public resources, such as land, minerals, oil and gas, and telecommunication spectrum, have shot up in market value recently, generating extremely high unearned income for the politically well-connected.
In the US, the deregulation of the financial sector over the last few decades, and the accompanying rise of dubious financial instruments, destabilized the real economy while doing little to improve productivity. The result, as everyone knows, was exorbitant financial gain for a select few, followed by large losses that were paid for by the many.
The US and Indian examples suggest that, in democratic societies, groups that promote social discrimination grow politically weaker over time. Economic inequality, on the other hand, is perpetuated through the politically powerful and well-funded lobbies of the rich.
The trend is reinforced as elections become more expensive in both countries, leaving politicians increasingly dependent on contributions from wealthy donors who demand policies that are favorable to their interests.
This implies that anti-discrimination and egalitarian movements need to broaden their focus to include electoral reform, better financial regulation, transparent privatization, and, above all, an overhaul of the education system to ensure high-quality schools for the poor and pre-school nutrition and health care. In addition, massive investment in both countries' creaking physical infrastructure would create jobs for some workers and improve the productivity of others.
The advantages of improving education, creating more jobs, and increasing productivity seem clear. The question, then, remains why India and the US neglect both education for the poor and infrastructure. The answer lies partly in the fact that the rich in both countries are ceasing to use many public services. They send their children to elite private schools, are treated in expensive private hospitals, and live in gated communities where security and other services are provided privately.
Moreover, big companies nowadays have their own power plants, private roads, and many internal services as well. As the rich secede from the public infrastructure upon which the rest of society depends, it has become increasingly challenging to tax them in order to pay for services that they do not want or need. Meanwhile the pre-existing countervailing institutions (like labor unions) for the workers get eroded by new technology and globalization.
In India, greater social equality has meant that small numbers of hitherto subordinate social groups have begun to enter the political and economic elite. Once there, however, rather than trying to change conditions for the poor, they adopt the values of the elite while manipulating the symbols of identity politics - a tactic that still attracts votes. (Democratic South Africa shows how difficult it is to make a dent in economic apartheid).
Both India and the US have responded to unrest over rising economic inequality with a kind of reactive populism. In India, this takes the form of loan waivers for distressed farmers (which weaken the banks); price controls for water, electricity, and public transport (which wreck government budgets and undermine the prospect of long-term investment in those areas); and more subsidized food in the corrupt and inefficient public distribution system. Meanwhile, in the US, populist right-wing movements prefer tax cuts to long-term investment in infrastructure. At the other end of the political spectrum, anti-state anarchists cannot help in building institutions that will sustain pro-poor investments.
The world's two largest democracies face a grave economic challenge. They must find a way to channel the rising anger caused by economic inequality into productive investments that make the rich feel that they have a stake in ameliorating conditions for the poor. If India and the US move towards overcoming the most pervasive inequality of all, they will reinvigorate their democracies - and their economies.
Pranab Bardhan is professor of economics, University of California at Berkeley and the author, most recently, of "Awakening Giants, Feet of Clay: Assessing the Rise of China and India. "Copyright: Project Syndicate, 2011. www.project-syndicate.org/
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