On Inequality – The world must fight inequality to safeguard ideals of democracy

Source: The post on Inequality is based on the article “The world must fight inequality to safeguard ideals of democracy” published in “Live mint” on 30th October 2023.

UPSC Syllabus Topic: GS Paper 3 Indian Economy –  Inclusive growth and issues arising from it.

News: The article discusses how recent crises have highlighted the growing instability in politics worldwide – due to populism, technological advances, and increasing inequality. It emphasizes the extreme wealth disparity and its damaging effects on democracy. It suggests economic interventions as potential solutions to mitigate inequality and preserve democratic values.

What is Inequality? 

Inequality is the state of not being equal, especially in terms of status, rights, and opportunities.

The various types of inequality are:

1.Economic Inequality: This refers to disparities in economic assets and income among individuals or groups.

Inequality of Outcomes: Here, individuals face differences in actual material wealth and living conditions. It includes variations in income, education, health, and other standards of living.

Inequality of Opportunity: Here, disparities arise from uncontrollable factors, such as ethnicity, family background, or gender.

2.Inequality of Rights: Some people lack legal and political power, leading to disparities in how they’re treated by legal systems or in their political influence.

3.Sen’s Capability Framework: Introduced by Amartya Sen, this perspective emphasizes well-being, focusing on personal freedoms and capabilities rather than just income.

What does data say about inequality? 

Data from 1995 to 2021 reveals significant disparities:

1) The world’s richest 1% accumulated 38% of the increase in global wealth.

2) In contrast, the bottom 50% only secured a mere 2% of this growth.

3) Global wealth grew at an annual rate of 3.2%. However, the wealth of the top 0.000001% surged by 9.3% annually.

What are the implications of Inequality? 

1) Democracy at Risk: Concentrated wealth can grant a few individuals, an excessive political power.  Billionaires can dominate public discourse by controlling major media platforms.

2) Global Power Dynamics: Wealthy nations, like the US, can impose decisions affecting countries far away. For instance, choices by the US significantly impact people in Burkina Faso, despite them having no say in US elections.

3) Technology and Wealth: The tech age has further empowered the ultra-rich. They can sway public opinion by controlling major digital platforms.

4) Historical Perspective: Future generations might condemn our tolerance of extreme inequality, just as we disapprove of past societies accepting slavery and feudalism.

What should be done? 

1) Taxing the Ultra-Rich: Significant taxes on the rich can help, especially if their relative standings among the wealthy remain unchanged.

2) Profit Caps and Patent Waivers: The goal is to design mechanisms that limit excess profits without hurting innovation and efficiency.

3) Commodity Tax Strategy: Use a commodity tax to cap the profit of a group of companies. This can increase competition within the group.
For instance, there are several companies that make smartphones. When their profits are capped, they will need to compete more with each other to sell their products. This means they might lower their prices or make better products to win customers.

Question for practice:

Discuss the relationship between the concentration of wealth in the tech-sector and its implications for global democracy.