In recent years debates on growing income inequalities have become frequent. Recently Credit Suisse issued the 2015 report on global wealth, showing that the situation is only getting worse. Global economic inequalities are still growing and the gap between the rich and the poor has never been so high.
India is one of the most unequal societies, with 1% of the population now owning 53% of the wealth. If we look at the wealth owned by the top 10% of the country the percentage rises to 76.3%. Yet, half of the population barely owns anything, controlling 4.1% of the total Indian wealth. Taken alone, these figures are not shocking. Inequalities in India are no big news and are the result of several historical and structural factors.
What is big news is that years of high economic growth have not improved the situation. The trends coming out from the report show that over the last fifteen years most of the wealth generated went to the 1%, who got 61% and to the remaining 9% who got 20%. All the others, 90% of the population, grabbed only 19% of the pie. On top of that, the report shows that over the past decade the percentage of wealth owned by middle-class also declined while the number of millionaires has boomed.
So, what is the government doing about rising inequalities? It is clear that most of today’s problems have been inherited from past governments. Over the past fifteen years inequalities were able to boom unchallenged. Narendra Modi’s government has promised to fight inequalities in the country and had launched several programs to increase Indian manufacturing production, help farmers and to attract foreign direct investments. But are these policies enough? Creating jobs and increasing wealth is definitely important but it is questionable whether “increasing the pie” is sufficient to challenge structural problems faced by the rural and urban poor.
The rich are getting richer, the middle-class is weakening and the poor struggle to get along. Some would argue that this is just a phase of economic development, and that India is on its way to shared prosperity and affluence like many other high-growth countries in the past. It would be nice to believe that, but unfortunately solutions and patterns of the past do not necessarily follow in today’s economy. The existence of a global economic system changes many things, especially in regard to economic inequalities. Global problems often require global solutions.
According to the report, global inequalities are at a critical stage. Today the dollar millionaires’ club consists of 34 millions (0.7% of the global population) and owns 45.2% of the total wealth. Most of these millionaires are from the global North, but the millionaires of the global South are on the rise. For example, India can count on 180,000 millionaires compared to barely 50,000 in 2000.When adding the millionaires to the people earning more than $100.000 we get a total of 383 millions (8.1% of the global population). This group owns 84, 6% of the total global wealth. The remaining 92% has to settle with only 16.5%.
As the numbers suggest, Indian inequalities are not particularly different to global inequalities. But this is related to huge wealth disparities between countries, particularly between the North and the South. Inequalities within countries are different. Most of the European countries have much lower level of inequalities. For instance, in the United Kingdom and in Germany the 1% respectively owns “only” 23.2% and 29.5% of the total wealth.
When we compare India to other growing economies like China and Brazil the picture looks slightly different.
Chinese wealth inequalities have been growing over the past fifteen years, with the middle class shrinking and the millionaires rising. Yet, the numbers are not as critical as in India. In Brazil the situation is quite the opposite: inequalities are almost as high as in India but evidence shows that have been decreasing enormously over the past fifteen years. This has to do with a massive plan launched in the early 2000’s by former president Lula who used socialists and redistributive policies to fight poverty and corruption and reduce social unrest. The success was not immediate, but after some time important results materialized.
Apparently, China has started a similar plan in 2013 raising expenditure for social welfare and minimum wage, reforming the tax system, redistributing wealth more equally as well as sharpening the campaign against corruption. This reform came after a period of social unrest and protests for the urban-rural divide. We need time to judge the results, but we can expect that in a country like China is going to be easier than in other democracies to implement reforms.
In the past few months Modi traveled around the world to celebrate the success and the global opportunities created by Corporate India. But when is he going to settle down at home and launch a serious program to generate more wealth for everybody, like he promised? Unlike China, India is still a democracy and policy implementation takes a much longer time. He’d better not waste more time --people want to see that change he promised.