Pratap Bhanu Mehta presents a compelling argument in his latest piece. He challenges common perceptions about economic equality in India. Many public debates wrongly frame equality as harmful to growth. Mehta insists this framing protects oligarchic interests instead of addressing real issues.
Four Misconceptions About Equality
Mehta identifies four common sins associated with equality in Indian discourse. First, people often dismiss inequality as a distraction from poverty reduction. Second, many portray equality as entrepreneurship's enemy. Third, equality supposedly means greater state control. Fourth, talk of equality gets labeled as resentful socialist leveling.
These associations lack understanding of equality's practical benefits. Mehta argues equality actually supports the objectives that inequality claims to advance.
Poverty Reduction and Growth
The idea that poverty reduction rivals equality is laughable mystification. High inequality directly undermines poverty reduction efforts. It weakens growth elasticity of poverty. When income gains concentrate among few, aggregate growth delivers fewer absolute gains for the poor.
India's experience shows unequal societies underinvest in crucial public goods. Health, education, sanitation, and social protection suffer. Malnutrition, learning deficits, and wage stagnation persist despite decades of growth. This reveals structural limits of poverty reduction without distributional concerns.
Distribution affects investment too. Extreme wealth concentration depresses consumption and weakens investment demand. Equality often serves as growth's precondition. It enables broad-based growth with wage gains for the majority.
Brad DeLong's 20th-century economic history demonstrates this. In modern human-capital-intensive economies, high inequality impedes growth more than sustaining it.
Entrepreneurship and Innovation
The equality-entrepreneurship relationship is complex. Inequality might spur growth under some conditions, but this is contingent and fragile. India focuses understandably on state regulation hindering entrepreneurship. Yet wealth concentration damages entrepreneurial diffusion just as much.
Concentrated wealth enables political capture and regulatory bias. These favor incumbents and undercut new entrants effectively. Extreme inequality restricts who can afford risks. When credit, education, networks, and legal protection correlate with inherited wealth, entrepreneurship draws from a narrow social base.
More equal societies expand the entrepreneur pool. They lower entry barriers and reduce failure's catastrophic costs. High inequality also misallocates talent severely. Capable individuals enter rent-rich sectors like finance, lobbying, speculation, and regulatory arbitrage. They avoid productive innovation.
Inequality often protects rent-seeking incumbency, not entrepreneurship itself. Powerful players insulate themselves from competition. Behind state regulation's façade lies unequal capital distribution's deeper power. Inequality and state control are frequently symbiotic, not opposed.
State Control and Universalism
Equality does not logically entail bureaucratic micromanagement. High inequality often requires more discretionary state power, not less. Subsidies to capital, regulatory forbearance for large firms, selective tax enforcement, and ad-hoc bailouts demonstrate this.
Egalitarian strategies rooted in universalism offer alternatives. Universal basic services and public provisioning of health and education can reduce administrative discretion. They minimize political capture too. Universalism is often institutionally simpler and less corrupting. It contrasts with anxious inequality management through targeted patronage.
Social Trust and Resentment
The charge of resentful leveling down misunderstands causality. Egalitarian policies are not about pulling the top down. They prevent inequality from corroding social and economic conditions necessary for sustained prosperity.
High inequality erodes social trust. India faces less threat from egalitarian resentment than from concentrated capital. This capital nervously seeks to control society, fearing challenge from more capable or innovative individuals. If excessive regulation stems partly from low social trust, then inequality itself contributes to over-regulation.
20th-century economic history offers a crucial lesson. Equality is not an ethic of envy. It serves as social insurance for capitalism itself.
Red Herring in Public Debate
Mehta concludes that income inequality framing in public debate is a red herring. Associating all equality talk with resentment avoids serious questions about inequality's real effects. Few people resent wealthy individuals themselves. Political resentment against wealth is often exaggerated.
People worry instead about inequality's pragmatic consequences. They concern growth, entrepreneurship, social trust, and institutional integrity. Resentment rarely targets wealth per se. It focuses on wealth's translation into power forms that undermine political dignity and agency.
For a social contract to tolerate wealth inequality, it must ensure such inequality doesn't hollow out democratic citizenship. In India, oligarchic shaping of political agendas and public values distortion may threaten as seriously as populist overreach.
Policy responses remain complex. The growth-entrepreneurship-inequality relationship is contingent. Yet public discourse has degraded so much that elementary truths need restating. Equality need not impede growth or entrepreneurship.
Mehta suspects those silencing inequality talk in the poor's name actually seek oligarchy's protection. This perspective demands serious consideration in India's economic discussions.
