The Political Economy of Inequality, and Why Thomas Piketty is Wrong
The Political Economy of Inequality, and Why Thomas Piketty is Wrong
If you have not read Kurt Vonnegut’s Slaughterhouse Five, we urge you to drop everything you are doing and read it cover to cover. Before you do that, though, here’s an excerpt (it’s a little long, but bear with us):
“America is the wealthiest nation on Earth, but its people are mainly poor, and poor Americans are urged to hate themselves. To quote the American humorist Kin Hubbard, ‘It ain’t no disgrace to be poor, but it might as well be.’ It is in fact a crime for an American to be poor, even though America is a nation of poor. Every other nation has folk traditions of men who were poor but extremely wise and virtuous, and therefore more estimable than anyone with power and gold. No such tales are told by the American poor. They mock themselves and glorify their betters. The meanest eating or drinking establishment, owned by a man who is himself poor, is very likely to have a sign on its wall asking this cruel question: 'if you’re so smart, why ain’t you rich?' There will also be an American flag no larger than a child’s hand – glued to a lollipop stick and flying from the cash register.
Americans, like human beings everywhere, believe many things that are obviously untrue. Their most destructive untruth is that it is very easy for any American to make money. They will not acknowledge how in fact hard money is to come by, and, therefore, those who have no money blame and blame and blame themselves. This inward blame has been a treasure for the rich and powerful, who have had to do less for their poor, publicly and privately, than any other ruling class since, say Napoleonic times. Many novelties have come from America. The most startling of these, a thing without precedent, is a mass of undignified poor. They do not love one another because they do not love themselves.”
We were reminded of this mini treatise on American inequality because a new study from the World Inequality Lab — co-authored by French economist Thomas Piketty — finds that inequality in India is soaring and is among the highest in the world. The gap between the rich and the poor, the report says, is so wide that the distribution of income in India during the British Raj was better than in contemporary times.
Nitin Pai, co-founder and director of Takshashila, has a rather strong rebuttal to the study.
Nitin writes in a blog post for The Times of India:
“The period after 1991 — which Piketty condemns for rising inequality — is a historic one for India. Estimates vary but over 400 million Indians pulled themselves out of poverty in the past two decades. This is an achievement on a scale matched only by China. Compare this to the first three decades of independent India when the number of people living in poverty increased. There was lower inequality because people were equally poor. And compare this with the British Raj during which the population plunged into poverty and famine. Tens of millions of Indians died because of colonial policy. It is laughable to suggest that Indians today are worse off than during the colonial and socialist periods.”
Nitin asserts that the policy challenge for India is how to increase productivity — and, thus, incomes — in agriculture, low-skilled manufacturing and urban services.
“More than redistribution,” he says, “the answer is in skilling, transportation infrastructure and market development. I will not be surprised if national highways, trains, airports and a national common market (through GST) have done a lot more to raise incomes and reduce inequality than any redistribution scheme has.”
You can read Nitin’s thought-provoking piece here.
We Love ‘We, The Citizens’, But We Ain’t The Only Ones
“Anyone can make the simple complicated. Creativity is making the complicated simple.”
~ Charles Mingus, Jazz bassist and pianist
That is precisely the reason why we love We, The Citizens, the latest sleeper hit from the Takshashila stable. Written by Anupam Manur and Pranay Kotasthane and stunningly illustrated by Khyati Pathak, this new book is a great example of how to decode public policy in the Indian context. Khyati’s illustrations are contextually brilliant, and they provide just the right heft to the words of Anupam and Pranay.
We were not surprised, therefore, that The Hindu decided to interview the three of them for their Education section. The article says:
“The book makes an effort to present complicated ideas pictorially without being boring. Khyati, whose artwork has featured in children’s magazines Pluto and Cycle, and on comics platform Bakarmax, says the minimalistic style is key. “In the book, three main characters who represent common citizens are in dialogue with each other. The words and panels go hand in hand; often, a simple sentence is elaborated in the illustration,” she says. “We chose examples steeped in the Indian context to make it feel relatable to people from different backgrounds”.”
Read the full piece here.
Incidentally, you can meet the authors in Bangalore at this exclusive Atta Galatta event in Indiranagar on April 20. Book your tickets here.
Go Aussie, Go!
“With the global semiconductor supply chain under strain, India and Australia have a timely opportunity to strengthen their partnership in the critical sector”.
Thus begins the latest piece by Takshashila deputy director Pranay Kotasthane on a possible collaboration between the two countries. In an article he co-authored with Nadia Court, Pranay writes,
“Both recognise the strategic importance of developing domestic semiconductor capabilities. As Quad members, they are also a part of the Quad Semiconductor Supply Chain Initiative, which seeks to ‘map capacity, identify vulnerabilities, and bolster supply-chain security for semiconductors and their vital components’.”
Pranay and Nadia propose five practical ideas for bilateral cooperation in this critical sector.
First, joint commercial projects offer a pragmatic starting point.
Second, research collaboration will build a talent pipeline for the future.
Third, access to each other’s R&D infrastructure would aid rapid prototyping in both countries for companies that lack fabs.
Fourth, partnerships in outsourced assembly and test (OSAT) would support complementary initiatives and investment in either country.
Finally, facilitating talent mobility through preferential visas.
They write:
“We believe these five items are actionable without requiring significant investment or intra-government coordination. For some, templates already exist in other areas of cooperation. If these initiatives show promise, the two governments can collaborate on more complex areas, such as jointly funding a compound semiconductor fab, strengthening the global open-source hardware ecosystem, and signing patent protection treaties to enable joint silicon intellectual-property ownership.”
For the full piece, head to this page.
The India-Taiwan Cooperation Question, and How To Answer It
Since India launched its Look East Policy in 1991, India and Taiwan have worked towards building a crucial bilateral partnership. On the technological front, Taiwan is a significant partner for India vis-a-vis the sharing of knowledge on the development of semiconductors, cybersecurity, and telecom infrastructure. On the economic front, Taiwan is becoming an important destination for Indian migrant workers looking for jobs in the agriculture and manufacturing sectors abroad. To this end, a labour migration and mobility Memorandum of Understanding (MoU) was signed on February 16 this year by heads of the India-Taipei Association and the Taipei Economic and Cultural Center, New Delhi. The MoU is intended to make it easier for Indian workers to find jobs in the manufacturing, construction, and agriculture sectors in Taiwan, thereby mitigating Taiwan’s labour shortage and India’s surplus labour problems.
Takshashila’s Anushka Saxena poses an important question in her latest piece for South Asian Voices: How will the two countries navigate their obvious cultural and political differences?
For example,
“Since the labour mobility MoU was signed, the India-Taiwan relationship has been controversial. This controversy erupted when, during a talk show interview, Taiwan’s Labor Minister Hsu Ming-chun said that the Ministry will first recruit Indian Christians from Northeast India, not only because they are more “adept” at manufacturing, construction, and farming, but also because “their skin colour and dietary habits are closer to ours [Taiwan’s].” Naturally, the statement invited backlash from the Indian community, and led Hsu to also issue an apology, all within a week’s time.”
Well, it’s complicated. Read Anushka’s full analysis here.
What’s China Up To At The Border, Again?
We have been updating our esteemed readers in this newsletter about the deep, meticulous research by Dr Y Nithiyanandanam, the head of our geospatial programme. He is back with a new investigation about the rise of dual-purpose settlements in Tibet.
Nithiya’s study identifies a trend in developing settlements along border areas, particularly near valuable resources. These settlements are designed to be resilient, all-weather structures, often serving military purposes. The new Chinese border settlements display distinct spatial patterns and architectural characteristics, distinguishing them from other types of natural settlements, and it appears to be a deliberate strategy to occupy all viable land, especially if it is flat, near water bodies or roads, and sometimes near historical monasteries for their influence on the area.
The full investigative report is here, but hey, we have been urging you to subscribe to what is easily India’s only such newsletter. Do it now!
Diamonds may be forever, but it is water we must put a price to
In Economics 101, our lecturers often give the example of how a man (it’s always a man) dying of thirst in a desert will always be willing to pay a greater price for water than diamonds. It’s obvious, isn’t it? After all, the marginal value of water in such a dire condition would be greater than for diamonds. The Diamond-Water Paradox, often a central theme in the first few chapters of a basic economics textbook, came to the fore recently with Bengaluru authorities imposing a price cap on tanker water that is supplied to lakhs of the city’s residents.
Nitin Pai, who otherwise remains unfazed, was, along with another colleague, Anupam Manur, definitely fazed.
In a column for Mint, he explains:
“An underpriced resource is over-consumed. That is what is happening across the country, where underpriced water and electricity are causing people to consume more than the optimum. It is not a surprise that we are going from water scarcity to water crisis. The current approach of underpricing water is no longer tenable for the water crises will only get worse in the coming years. Water can only be conserved when it is priced at marginal cost, at the most expensive litre of water produced to satisfy a given demand.”
For good measure, he adds:
“Water should be priced not because it will bring new sources of revenue to governments, but because it creates incentives for conservation. Tackling scarcity requires action at multiple fronts: increasing efficiency of use, promoting reuse, governing groundwater, harvesting rainwater, rehabilitating water bodies, building new infrastructure and so on. It is hard to implement these at the scale required because there are few incentives to do so. No government has the capacity to cajole or coerce everyone into action. Pricing provides a strong incentive for people to do the right things. There is no alternative.”
You can read his full piece here.
Our Favourite Podcasts of The Week
In this episode of All Things Policy, Anushka Saxena, Shreya Ramakrishnan, and Sridhar Krishna discuss how India's fertility rate has been going down steadily from 5.9 in the year 1960 to 2 in 2021 and what this means to every single Indian family.
Sachin Kalbag continues his Saving Mumbai series with a chat with the only athlete to have completed every single Tata Mumbai Marathon since its inception. Girish Mallya tells Sachin about all the problems that Mumbai’s pedestrians face, the policy issues, the politics behind it, but most importantly, what are some of the practical solutions. Sachin’s chat with Girish can be accessed here.
Next up is a Puliyabaazi chat between Pranay Kotasthane and Yusuf Unjhawala on US-India relations. What will India gain by forming a closer partnership with the US? Can the US be trusted as a partner? Will this jeopardise India’s relations with her historically important ally, Russia? Yusuf has a keen interest in defence and geopolitics and runs India's largest online discussion forum on defence and strategic affairs. Listen to the chat here.
And last, but not the least is this engaging and enlightening discussion between Professor Sudarshan Ramaswamy, Dean and Professor, Jindal School of Government and Public Policy, O.P. Jindal Global University, Prof. Anupam Manur, Assistant Professor at the Takshashila Institution and Dr Parth J Shah, Dean and FA Hayek Professor of Spontaneous Order, Indian School of Public Policy.
That’s all from us this week. See you next.