French economist Thomas Piketty warns us that inequality in the 21st century can be worse than it was in the 19th century. If it was better in the 20th century, it was due to the world wars and proactive government intervention following the Great Depression. What an irony! Unless we wish for World War III, the natural social trend would be to attack markets and capitalism as the culprit and adopt anti-market strategies that would result in a grave loss of economic efficiency and societal freedom sustained by market freedom. 

Contributing to inequality

So what does he prescribe? The simple answer is this: The state should undertake forceful regulation and measures to save markets and correct their faults. Just how tough should these measures be? He goes on to advocate ‘violent fights against tax havens and the rich’. It is precisely this sentiment that has led to his being ignored in policy circles, signifying the stranglehold that financial capitalism has over markets, governments and multilateral institutions. 

One fiscal solution Piketty suggested is to introduce a progressive wealth tax. Piketty argues that the major contributor to inequality is inherited wealth that is passed from one generation to the next. Piketty further argues that a consequence of the inequality is the stagnation of middle and lower middle class wages. However, the world’s richest man Bill Gates who is worth around $80 billion feels that the right solution is to distinguish between three kinds of billionaires—inheritance, philanthropist and entrepreneur. He prefers to introduce a progressive consumption tax. Wealth tax would create disincentives among entrepreneur billionaires and philanthropist billionaires to accumulate wealth. 

But the suggestion does not stop there. It extends to calling for an internationally enforced progressive wealth tax. It is doubtful that there will be sufficient political will in Europe, China and Japan for such a global governance proposal, not to mention lack of support from Brazil, Russia, India, China and South Africa (BRICS countries) whose political and economic elites are huge depositors in international tax havens. And what about the core issue regarding whether an international bureaucracy will perform the task of delivering global economic justice? How will the proceeds of the tax thus raised be distributed among nations—especially when all nations are beginning to eradicate absolute poverty and will probably do so by 2030? 

Should South Asia be concerned with poverty or inequality? We submit that it should be giving the topmost priority to the eradication of absolve poverty, creation of jobs and enhancement of productivity by emphasising entrepreneurship, innovation, technology and net national capital formation. Thus we should be paying full attention to how the wealthy use their wealth to enhance the country’s capital accumulation process. Towards this end, we need to put ample focus on financial and capital market development, especially the bond market, to make term development finance available. 

Initiatives for change

Furthermore, at the macro level, we need to enforce competition in all markets—labour, capital, land and technology. We need anti-monopoly laws and strong institutions to enforce competition and protect consumer sovereignty. We need to develop a managerial culture that promotes long-term thinking over short-term benefits by emphasising shareholder value over stakeholder value. We need an industrial relations act that eradicates politicisation of labour unions in favour of genuine collective bargaining for the benefit of the working class. We need much improved corporate governance that genuinely subscribes to accountability, transparency and meritorious competition. 

Last but not least, we need to wage war on corruption and black money with a very sound and strong judicial system in order to tackle the issue of wealth inequality in South Asia. We have been speaking of good governance for far too long without giving equal weight to legal reforms to punish culprits. It needs to be emphasised here that the best approach to dealing with wealth inequality is for the state to give strategic importance to developing and promoting entrepreneurship.

There should be an understanding that the left unity is an idea today, rather than a guiding goal of emancipation. The democratic left parties and trade unions are at war with their own interest in their inability to form a common front based on common ideological ground. They have been unable to carry forward the core agenda by getting involved in issues such as economic reform, reservation and labour laws. And this is anything but a new phenomenon. In this disruptive phase of modernity that is a direct outcome of ‘late-stage capitalism’, it is important for any political force to relate its programme to mass aspirations. Technology is a great enabler, and it also helps in a big way to remove the fog from what is preached and practised.

The people have a weak memory, but it is not that ‘memories march’ is an unknown phenomenon in our part of the world too. The left should take a stand on a strategic alliance or key economic policies in tandem with its plans for its immediate future. It is very much entitled today to engage in introspection regarding its functional patterns before making a substantial claim to retrieving its lost charm. Ironically, the pitiful ‘late-stage capitalism’ should help it!  

Rana is a former finance minister; Thakur is a public policy professional and columnist based in New Delhi