Commentary

Poor Don’t Fret about Income Inequality

Equality of opportunity remains a dream in most developing countries

The global slump in stock markets this summer has wiped out trillions of dollars of wealth. Wealthy stockholders have been hardest-hit, so world income inequality has fallen dramatically.

And yet, the poor of the world aren’t celebrating.

Why not? For years, rising disparities in income have worried analysts across the world. The New York Times editorializes with great concern over U.S. Census Bureau findings that the wages of the wealthy in America seem to be rising faster than those of the poor.

Asian politicians worry that fast growth and rising income inequality will worsen social tensions. In India, 300 million people remain poor even as a few have entered Forbes magazine’s list of global billionaires.

A recent study of the Asian Development Bank, “Inequality in Asia,” finds that Nepal and China have witnessed the continent’s greatest rise in inequalities. Ifzal Ali, chief economist of the ADB, says that that rising inequality in Asia could disrupt social cohesion and spark civil war.

The slump in the stock market provides a natural experiment to test this thesis. By mid-August, the richest five Indians combined had lost over $10 billion. Losses of all Indian shareholders totaled $52 billion, almost equal to the gross domestic product of Bangladesh. Not even the most Draconian taxes could have reduced wealth as much.

But are poor Indians are celebrating? Has the fall in inequality soothed social tensions and softened Indian Maoists or made militants in Kashmir any less militant?

The slump on Wall Street has reduced inequalities between the United States and Africa. Have Africans become happier, or less inclined to civil conflict?

To even suggest this would be farcical. Yet that concept is entrenched in much analysis.

Many analysts think society is happier when inequalities fall and unhappier when inequalities rise. The truth is more complex. In an economic recession, profits fall much faster than wages, so equality improves. But the poor don’t enjoy recessions, because they don’t want to lose their jobs. They prefer an economic boom, when profits rise faster than wages, even though inequalities also increase.

In India, states like Bihar and Orissa are dirt poor while Maharashtra and Goa are rich. But while economists fret about the disparity, the poor people of Bihar and Orissa don’t. They know their travails are caused not by rich people in other states but by local landlords, mobsters and politicians. Poor people worry about inequality when the local dominant classes keep them down. But they have no wish to impoverish industrialists in rich states; they merely want to become rich themselves. Booming stock markets bring jobs and investment, so poor people welcome them.

What the poor want is an opportunity to rise. Many urban Indians have access to education, electricity and telecom and have gained greatly. But hundreds of millions languish in villages without decent schools, health centers, roads, electricity or telephones. They have no easy access to courts or good governance.

Absenteeism averages 25 percent for teachers in India and is even higher for health personnel. It is highest in remote rural areas: no city teacher wants to be posted there. Literacy is 65 percent, and half of those who complete school are functionally illiterate. Four of five children are anemic. Millions of miles of dirt roads are built by rural employment programs and washed out by the next monsoon. Electricity supply is nonexistent, or so fitful that rural Internet kiosks are powered by solar panels.

After decades of independence and billions of dollars of foreign aid, equality of opportunity remains a dream in most developing countries. The fault lies with both governments and aid agencies, and has little to do with the rise of industrialists or computer software companies.

The ADB review is absolutely right to conclude that Asian governments should do more to improve equality of opportunity. The shocking denial of access to basic facilities at the village level institutionalizes inequality of opportunity and prevents the poor from rising. In urban areas, opportunity has increased over the decades, and social and income mobility have improved. But facilities in villages — and some urban slums — are so pathetic that these places become poverty traps.

I am outraged that 300 million Indians remain poor. I am outraged, not that a few Indians have become billionaires but that many more have not, for want of equality of opportunity. Like people all over the world, my countrymen and I don’t want to see the wealthy wiped out. We just want to get a little wealthier ourselves.

Swaminathan S. Anklesaria Aiyar is a research fellow of the Center for Global Liberty and Prosperity at the Cato Institute.