Economic policies fail to address hunger, inequality

Just like hard-fought civilisational values of being ‘liberal’ and ‘secular’ in outlook (individuals and society) stand diminished in India (often such individuals are ridiculed as ‘libtards’ and ‘sickular’), the world of economics has a parallel phenomenon. For more than 40 years, ‘poverty’ and ‘inequality’ (some dub it ‘povertariansim’) have become dirty words, even when every economist knows income and wealth don’t trickle down or haven’t trickled down, the rising tide doesn’t necessarily lift all boats and high growth hasn’t ended poverty, hunger and inequality or would end anytime soon.

Had that not been the case, the United Nations, a comity of 193 nations, wouldn’t have launched its Sustainable Development Goals (SDGs) in 2015 even while claiming success of its Millennium Development Goals (MDGs). Very few are aware of the changes the UN brought in its development goals (the SDGs) in 2015. Three key ones relevant here are:

• The comity of nations acknowledged that despite reducing poverty by half by 2015, from the 1999 level, there were still 736 million people living on less than $1.90 a day in 2015.

• It realised that “inequality is a roadblock to progress” as it “deprives people of opportunity and subjects many to conditions of extreme poverty” and hence, introduced a new goal: Goal 10: Reduced Inequalities (missing from the MDGs).

• Third, it realised ‘growth’ in its traditional sense was not enough to eliminate poverty and inequalities. Hence, it separated the MDG’s Goal 1 which was “to eradicate extreme poverty and hunger” and added two separate goals in the SDGs instead: Goal 1: No Poverty; Goal 2: Zero Hunger.

The background is necessary to understand the significance of the works of Profs Thomas Piketty, Lucas Chancel, Emmanuel Saez and Gabriel Zucman and their latest findings, released by the World Inequality Lab on December 8, 2021 and titled “World Inequality Report 2022”.

Their latest findings make for a grim reading for most parts of the world in general and India in particular.

Inequality in India

Four key findings on India are as follows:

• Income inequality: India stands out as “a poor and very unequal country, with an affluent elite”. While the top 10% and top 1% hold 57% and 22% of total national income, respectively, the bottom 50% share has gone down to 13% in 2020. In 2021, the top 10% income share is estimated at 49%.

• Wealth Inequality: This is even worse. The bottom 50% owns “almost nothing” (6% of total wealth), the middle-class is relatively poor (29.5% of total wealth), while the top 10% and top 1% owned 65% and 33% of total wealth in 2021, respectively.

• Gender Inequality: The female labour income share is equal to 18% — significantly lower than the average in Asia (21%, excluding China). The value is one of the lowest in the world, slightly higher than then average share in West Asia (15%).

• Carbon Inequality: India is low carbon emitter with the average per capita consumption of 2 tCO2e (tonne of carbon dioxide equivalent) comparable with sub-Saharan African countries. The bottom 50%, middle 40% and top 10% consume 1,2 and 9 tCO2e/capita, respectively. The top 10% has the maximum carbon footprint.

Global Perspective

In the foreword of the World Inequality Lab’s report, Nobel laureates Abhijit Banerjee and Esther Duflo provide the global perspective to the rise in inequalities. They write: “In every large region of the world with the exception of Europe, the share of the bottom 50% in total earnings is less than 15% (less than 10 in Latin America, Sub-Saharan Africa and the MENAS region) while the share of the richest 10% is over 40% and in many of the regions, closer to 60%.

“But what is perhaps even more striking is what is happening to wealth. The share of the bottom 50% of the world in total global wealth is 2% by their estimates, while the share of the top 10% is 76%. Since wealth is a major source of future economic gains, and increasingly, of power and influence, this presages further increases in inequality. Indeed, at the heart of this explosion is the extreme concentration of the economic power in the hands of a very small minority of the super-rich.

“The wealth of the top 10% globally, which constitutes the middle class in rich countries and the merely rich in poor countries, is actually growing slower than the world average, but the top 1% is growing much faster: between 1995 and 2021, the top 1% captured 38% of the global increment in wealth, while the bottom 50% captured a frightening 2%. The share of wealth owned by the global top 0.1% rose from 7% to 11% over that period and global billionaire wealth soared. With the boom in the stock market, the picture does not seem to be getting better.”

That was not always so.

They point out that “the period from 1945 or 1950 till 1980, was a period of shrinking inequality in many parts of the world (US, UK, France, but also India and China)” and that was because “tax rates were high, and there was an ideology that inequality needed to be kept in check, which was shared between the corporate sector, civil society and the government”. Things began to change in 1970s with “the Reagan-Thatcher revolution (neoliberal economics) and it was the starting point of a dizzying rise in inequality within countries that continues to this day”. Until then, “policy kept inequality in check, and policy changes let it run amok”.

With the world coming out of the pandemic crisis, they emphasise on doing “something now, before the cumulative concentration of economic (and other) power in the hands of a smaller and smaller minority makes it impossible to fight back...”

What they didn’t talk about is that neoliberal economics has brought another major change — undermining economic logic and evidence in economic policy making.

From Nobel laureates Stiglitz and Krugman to scores of other economists have pointed out over the years how neoliberalism has spun absurd economic theories sans economic logic and evidence in the past 40 years and more: growth in income and wealth at the top trickles down to the bottom; cutting tax for the rich benefits the non-rich; fiscal austerity and liquidity infusion are answers to economic recession; rise in wages leads to fall in employment etc.

Ironically, this year’s Nobel in economics went to Prof David Card for a study (along with Prof Alan Krueger who become assistant secretary of Treasury under US President Obama) which had demolished the neoliberal concept that rise in wages leads to fall in employment way back in early 1990s. Their findings came to public notice only in October 2021 with his Nobel.

Here is the abstract of that study, in its entirety, that should be made compulsory reading for economics students.

It reads: “On April 1, 1992, New Jersey's minimum wage rose from $4.25 to $5.05 per hour. To evaluate the impact of the law we surveyed 410 fast-food restaurants in New Jersey and eastern Pennsylvania before and after the rise. Comparisons of employment growth at stores in New Jersey and Pennsylvania (where the minimum wage was constant) provide simple estimates of the effect of higher minimum wage. We also compare employment changes at stores in New Jersey that were initially paying high wages (above $5) to the changes at lower-wage stores. We find no indication that the rise in minimum wage reduced employment.”

Apart from inequalities in income and wealth there are two other major challenges that the pandemic crisis has thrown up: rising poverty and hunger.

The Pandemic and Global Poverty

In their estimates in June 2021, a group of World Bank economists said the pandemic led to 97 million more people being in poverty in 2020, “a historically unprecedented increase in global poverty”. They predicted declines in poverty in high- and middle-income countries (HIC, UMIC, LMIC), particularly countries in South Asia (SAR) and East Asia & Pacific (EAP). In contrast, they predicted further rise in low-income countries (LIC), and countries in Sub-Saharan Africa (SSA) are expected to see further increases in poverty in 2021.

Although India is a lower-middle income country (LMIC), its fortune is very different from its peers in the group that the economists generalised. The Pew Research Institute said in March 2021 (before the second wave hit India) that “the number of people who are poor in India (with income of $2 or less a day) is estimated to have increased by 75 million because of Covid-19 recession and its middle class shrunk by 32 million in 2020. In short, India contributed to “60% of the global retreat in the number of people in the middle-income tier (defined here as people with incomes of $10.01-$20 a day)” in 2020.

The 2021 estimates are going to be on similar lines because the second wave of the pandemic in April-May 2021 was far more devastating, killing more and infecting more. Apart from the debilitating healthcare expenditure — which sends 60 million Indians into poverty every year in normal times, as per the Ayushman Bharat (PM-JAY) document of 2018 — that the second wave entailed, the death of earning members and the second round of the lockdown-induced job and business loses would drive many more millions into poverty.

The Pandemic and Global Hunger

That hunger has emerged as another big challenge now than any time in the recent past is obvious from the Global Hunger Index of 2021.

The very first sentence of its summary says: “The 2021 Global Hunger Index (GHI) points to a dire hunger situation in a world coping with multiple crises. Progress toward Zero Hunger by 2030, already far too slow, is showing signs of stagnating or even being reversed.

India’s rank in the GHI slipped from 94th in 2020 to 101st in 2021, among 116 countries. More worryingly, in the GHI scores (0 for no hunger, 100 for maximum hunger) for 2021, India’s at 27.5 is far higher than countries like Rwanda (26.4), Pakistan (24.7), Nepal and Bangladesh (19.1) and Myanmar (17.5). Long-term data (for years 2000, 2006, 2012 and 2021) provided by this report shows reduction in hunger in India is stalling after 2012, rather than growing faster as these countries have witnessed.

Two conclusions can be drawn from the above facts and evidence.

One, growing poverty, hunger and inequality needs urgent and holistic policy responses.

Two, all economic policies should be evidence-based and backed by economic logic. Personal and private convictions and faith have no place in public policymaking.