The recent report on inequalities in wealth distribution in various countries, 'World Inequality Report 2022’, authored by Lucas Chancel and co-ordinated by renowned economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman, has been quoted to say that ‘India is among the most unequal countries in the world, with rising poverty and an 'affluent elite.' The summarised data is: the bottom 50 per cent of the country earns Rs 53,610 while the top 10 per cent earns Rs 11,66,520, over 20 times more. In India, the top 10 per cent and top 1 per cent hold 57 per cent and 22 per cent of the total national income, respectively, while the share of the bottom 50 per cent has gone down to 13 per cent.
Compare this with the data form the US in 2020. The bottom 50 per cent earns about $32,000 annually, on an average, and the top 5 per cent earns above $200,000. The gap appears to be around 6 times. But this could be much higher, if we take into account that the top 5 per cent, on an average earns, on a guesstimate, over $1,000,000 annually. In such a case the ratio becomes around 30, which is closer to the reality.
The story is the same all over the world. Income inequalities, which also reflect the assets ownership and wealth holding, are quite steep in the modern world, notwithstanding the huge advancements in health, wealth and ‘happiness’. It is a popular belief that modern nations are happier than their predecessors. This is primarily based on the material wealth, which is nothing but a measure of a capitalistic way of life. Why have the inequalities persisted in most parts of the world? Is there a fundamental issue with modern societies?
The industrial revolution, kicked off by James Watt around 1750 through the steam engine, has been the way adopted for ‘growth, bigger the better, more wealth for more people’ kind of slogans. Limitless growth has driven countries to create more and more wealth by deploying industry. Before the advent of the services sector, most countries had only two – agriculture and manufacturing/ industrial. Over time, share of agriculture declined steeply. Presently, in advanced economies, it is around 2 per cent or less. The rest is a combination of manufacturing and services.
Industry leads to unequal distribution of wealth, intrinsically. It leads to the creation of a few super wealthy individuals, and a lot of others who own much less. Only organised industry can meet the massive global demands for goods and services. Such organisations are pyramidically hierarchical, and salary and perks are also similarly distributed. The ratio between the highest and the lowest earner is often 50 to 200 times. This is inherent in industrial societies. Modern societies consist of organisations which are classified as manufacturing, and services (which includes trading, financial services, education, food and beverages vending etc).
The biggest money generators are manufacturing and financial services. All others earn less, and constitute a spectrum of earnings. At the lowest rung is agriculture. The bigger the population in agriculture, the larger the incomes gap. And that is precisely what has happened in India. More than 55 per cent of Indians are in this sector. The output from per unit of land is quite low compared with what can be earned from industry. Often the gap is as high as 10,000. Which means that the agricultural sector in an industrial society will only contribute to income inequalities. In light of this, one should not get surprised by the inequality in India.
In fact, there are largely three groups of income groups in any society. One, the top layer, could be up to 1 per cent, then the middle group followed by the last group. It is somewhat ironic that, in most advanced societies, the top group is always around 1 per cent. This is the result of a capitalistic way of life. The 2020 Credit Suisse Global Wealth report says that the top 1 per cent of households own 43 per cent of the wealth in the world, and the bottom 50 per cent owns 1 per cent of the wealth. One doesn’t have to be a rocket scientist to say that the bottom 50 per cent is from the agriculture sector. This is the tragedy of our times. In spite of the many advancements in science and technology, the wealthy have become wealthier, and the poor have either become poorer or stayed put. Why should this be so?
There are several reasons. The agricultural land productivity is low. Using more land cannot compensate for the inherently low productivity. There is no way of increasing this productivity, unless one uses some part of the land for industrial purposes. Hence, agricultural income has to be supplemented. And that supplement is a huge one. Second, the goods and services produced by the non agri sector are valued far more than agri products. For example, while the annual demand for wheat in the world is around 750 million tonnes, at a price of approximately Rs 25 per kg, this would be Rs 2.5 trillion. On the other hand, the world automobile sales is about 75 million, and, at an average price of $3,500 apiece, this would lead to a total sale value of $2.625 trillion USD. And the number of people involved in the production and sales of autos is a fraction of the persons involved in the production and distribution of 750 million tonnes of wheat. This is the disparity created by the industrial way of life. In view of the high degree of automation, computerisation, efficiencies of work, industrial earnings for outweigh that from agri. But the population involved in agri is much more than industry.
So, what is the remedy? Mass production is the enemy of equal distribution of wealth. Production has to be decentralised, and no factory should be allowed to grow beyond a certain maximum value of sales. This will happen when industry 4.0 is fully operational and 3D printing become ubiquitous. 3D printing, along with IOT, will enable distributed production, which means that local demands can be catered to by local producers who have small sized production facilities. This can become cost effective due to 3D and Industry 4.0. One hopes that the world will adopt to this way of production sooner than later.
Views are personal. The author is head of Capstone Project at the Bhavan's SPJIMR.
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