India’s economic problem

stem from Inequality

India are using thewrong word,and arereally
wor ried about poverty. Puta millionaire in
aroom with a billionaire, and no one will
Rajeev Dutt Misra complain about the inequal ity in that room.
But pu t astarving beggar
StevenPinker,Enlightenment growing economy, as pover ty reduces, inequality
Now, relates an old Russian tends to increase. (This is counter-intuitive, I k
joke about two peasants named now, so used are we to zero-sum thinking.) This
Boris and Igor. They are both is exactly what has hap pened in India since we
poor. Boris has a goat. Igor liberalised parts of our economy in 1991.
does not. Oneda)Igor is granted a wish by a Most people who complain about inequality in
visiting fairy. What will he wish for?
"I wish," he says, "that Boris goat should die."
The joke ends there, revealing as much
about h uman nature as abou t
economics.Consider the hree things that
happen if the fairy grants the wish. One,Boris
becomes poorer. Two, Igor stays poor.Three,
inequality reduces. Is any of them a good
outcome?
I feel exasperated when I hear intellectuals
and columnists talking about economic
inequality. Itis my contention that
India'sproblem is poverty -and that poverty and
inequality are two very different things that
often do not coincide.
To illustrate this,I sometimes ask
thisquestion: In which of the following
coun tries would you rather be poor: US or
Bangladesh? The obvious an swer isUS,where
thepoor are much better off than the poor of
Bangladesh . And yet,while Bangladesh has
greater povert) the US has higher inequality.
Indeed,take a look at the countries of the world
measured by the Gini Index,which isthat
standard metric used tomeasure i.nequalit)I
and youwill find that US, Hong Kong, Singapore
and the United King dom all have greater
inequality than Bangladesh, Libe.ria, Pakistan
and Sierra Leone, whicharemuch poorer. And
yet,while thepoor of Bangladesh would love to
migrate to unequal US, I don't hear of too many
people wishing to go in the opposite direction.
Indeed,peoplevote with their feet when it
comes to choosi.ng between poverty and
inequality. All of human history is a story of
migration from rural areas to cities-which have
greater inequality.
If poverty and inequality are so
different,why do people conflate the two? A key
reason is that we tend to th ink of the world in
zero-sum ways. For someone to win,someone
elsemust lose.If therich get richer, the poor
must be getting poorer, and the presence of
poverty must be proof of inequality.
But that's not how the world works.The pie
is not fixed. Econom ic growth isa positive-sum
game and leads to an e>1. )ansion of the pie,
and everybody benefits. Inabsolute terms,the
rich get riche1;and so do the poor, often enough
to come out of pov erty. And so, in any
in there,and thesituation ismorally
objectionable. It is the poverty that makes it
a problem, not the inequality.
You migh t th ink that this isjust semantics,
bu t words matter. Poverty andinequality are
differen t phenomena with opposite solu
tions.You can solve inequality by making
everyone equally poor. Or you could solve it
by redistributing from the rich to the poor, as
if the pie was fixed. The problem with this,
as any economist will tell you, is that there
is a h·ade-off between redistribu tion and
growth . All redistribution comes at the cost
of growing the pie -and only growth can
solve the problem of poverty in a coun try
like ours.

GLARING DISPARITY: Hong Kong, us, UK,

Singapore have greater inequal ity than
Bangladesh, Liberia and Pakistan, which are
much poorer

It has been estimated that in India, for every

1%
rise in GDP, two million people comeout of
poverty. That is ashuming statistic. When
millions of Indi· ans don't have enough money
to eat properly or sleep with a roof over their
heads, it is our moral im· perative to help
them rise out of poverty. The poli cies that
will ma ke this possible -allowing free
markets,incentivising investment and job
creation, removing state oppression -are
likely to lead to greater inequality. So what?
It is more urgent to make surethat every
Indian has enough tofulfil his basic needs
-what the philosopher Harry Frank furt, in
his fine book On Inequalit) called the Doc·
trine of Sufficiency.
The elitein theirair-conditioned drawing
rooms,
and those who live in rich countries, can follow
the fashions of the West and talk
compassionately about ineq uality. India
doesnot have that luxury.

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