Widening Gap between the Rich and the Poor: Why?

The gap that is causing some flurry in some quarters is the one between the poor and the rich. Everyone is wondering, year in year out, how come it is widening in spite of all the high- sounding political, financial and modern theories.

Capitalism and consumption

More than ever, our capitalist system is depending on consumption. Or let’s be more pragmatic: all people need the basics — food, clothes and houses. A few of us have discovered that golden goose formula, so cajoling others to work for them would lead to richness; they invent and commercialise those basic goods, and even unnecessary ones. We can’t blame the rich, they have the right to live the way they like; they put in their finance, their mental energy and time to invent new consumables, and the takers are plentiful. Of course the profits are determined by them. How about making the poor work for x rupees and then pocket 5x profits? Vehement protest by the poor won’t do, as the rich may decide to dismantle their business and move out, pocket all the money and enjoy the rest of life on a riviera? But this could be a long, boring life. Like the poor, the rich also are human, with the same mentality and aspirations; they want to become richer. So their slogan is to keep the business going, give work to the poor and increase the profit and power on the way.

Enter the politician

Then enters another breed of human: the politician. True to his initial ideal and good faith he wants to solve the plight of the downtrodden, where his vote catching strategy lies; he promises them heaven on earth. On being elected he discovers the crunch: the string of the purse is in the hands of the rich. He has a lot of compromise to make. He asks them not to worry. He will modify the laws to provide the rich with better tax relief, or wealth exemption taxes – provided they do their best, and keep to the tacit understanding of building new industries and provide the poor with work.

Meanwhile as the latter have no plan or know-how to start their own businesses, the rich realize that they are becoming an important trump card on the national scene. They cooperate with the political class, set new records and enrich the nation.

Gradually the poor realize that the boss is getting richer while they are getting peanuts from the profit they help to generate. They are slogging and are the ones who are in the field, unlike the bosses. The politicians are caught in the middle of that tug of war – between the votes of the poor and the gold of the rich. The latter are happy and go along for some time. Then one good day they wake up from their slumber and ponder: how about forming a cartel and start brandishing their powerful financial monopoly and might? After all, like the politician, they also would like the sensation of being powerful.

Money and power are very good aphrodisiac bedfellows. All this shakes the politician awake, as he finally realizes that he has been taken for a ride; the rich have stopped playing level and have broken the rules. They invest less, and squeeze the poor from afar, just to let them know that they, the rich, are the real boss of the country and their lobby must not be taken for granted. Of course, there are a few who have the interest of the nation and the poor at heart — but that’s rare.

Slavery has been abolished; but psychological and voluntary slavery still survives;- if the poor do not have enough money or bread, surely they will have to queue up willingly to get work at the enterprises run by the rich. They have no choice. The rich know that; and the politician knows that too. The latter just hopes that the poor would start thinking differently.

In the UK: Tax cuts for the rich

The British “proletariat” also are feeling the crunch. It looks like a moral outrage for a government to grant tax reduction to the wealthy, in a move to encourage trickle-down economics, a practice encouraged by the more rightist party, with the hope that everyone would be the winner. However Ha-Joon Chang, an economist at Cambridge, feels that this practice in the UK is not living up to its promise.

In the most pro-rich countries there has been a slowing down of the economy.

In the UK upward income distribution since 1980 has seen the share of the top 1% rise from 5% of the national income to 10%. Yet the annual growth rate of 2.5%, between 1960 to 1980, has fallen to 1.8% between 1980 and 2013. Whereas in the 1960s and 70s about 22% of the investments were by the rich, nowadays it has slumped to about 18% of GDP. So the rich realize that their bargaining power is stronger; they sort of blackmail the government for more tax cuts.

That had been the effect of Thatcher and her liberalism, followed by Gordon Brown who agreed to a “light touch regulation”, giving the rich still more room to push for greater perks. This led to the leftist London Progressive Journal in 2008 to pique: “New Labour is the bastard child of Thatcherism. Blair, Brown and Mandelson inherited from the evil witch the belief that the market (capitalism) was god and that the rich are the wealth creators we must all bow down to.” Then followed the economic downturn of 2008; and since then a new economic order is crying out that the rich is getting richer and the poor poorer.

Long ago the IMF was less concerned about social inequality; but it is gradually realizing that above a certain level such social inequality becomes a burden to society; in the poor section of society there are talented people, but as they cannot move up the social ladder it is society that suffers. Yet rightist governments still want to push with trickle down economics, even suggesting a no-inheritance tax for the rich! But some economists are concerned because this policy is gradually failing. And Ha-Joon Chang is of the view that the rich lobby is too strong; there is too much power at stake and no one is willing to change the rules of the game. Too bad, the poor will have to trot along for a long time to come.

GDP or GWB?

So far the only way to compare or contrast human progress in our modern society was to look at the per capita. However, that yardstick is becoming obsolete. “The care of human life and happiness… is the only legitimate object of good government” — for the past 200 years the Americans have been trying to live by this ideal, as enunciated by their third President Thomas Jefferson. It is only in 2011 that some governments, as in the UK, decided to move away from the concept of per capita and come up with different criteria to promote the people’s welfare. The concept of “continuous measurement of national well-being” is receiving due consideration, and First World countries are taking the cue. Even the then conservative opposition leader David Cameron realized that “it’s time we admitted there’s more to life than money, and it is time we focused not just on GDP, but on General Well-Being: GWB.” It took the politicians centuries to realize that money is not everything!

As usual, it is easier to preach than to practice. Cameron’s five years in office saw little in that direction. More and more government is thinking or endeavouring to focus less and less on family incomes only. It is being realized that “family relationships, community life and youth employment” matter most. The feel-good factors must be promoted; a government must be able to provide professional help where there is family conflict, and for children in difficulties. Child mental health services must be modernized; priority for “personal, social and health education need to be statutory and taught by well-trained staff”. Though “treasury rules demand that policies must be judged by how much people would be willing to pay for the benefits they bring” yet it is being realized that such policies must also be based on their effects on happiness. In 2014, both a high-profile, independent assessment and the World Happiness Report espoused that view.

In Mauritius we still go for the per capita yardstick, and we are doing our best to cross the $10,000 bar. We are yet to include happiness in our formula. We have made progress since independence; the poor, the rich and the politician have contributed. But the gap keeps widening. Why?

  • Published in print edition on 2 October 2015

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