Growth should take the poor into account
June 15, 2021
Since some of the rich and western countries printed the surplus money to help declining economies hit by pandemic, it has added to the net worth of ultra-rich. — Devinder Sharma
Ever since the first wave of Covid-19 pushed countries into a lockdown, the central banks, mainly in the rich countries, printed $9 trillion of surplus money. Well, the underlying objective was to infuse this surplus money into the pandemic-hit economies, which had been left gasping for breath.
According to economist Ruchir Sharma, Chief Global Strategist at the Morgan Stanley Investment Management, this pandemic stimulus in turn made the rich add on to their wealth. “Much of that stimulus had gone into financial markets and from there into the net worth of ultra-rich,” he wrote (Financial Times, May 16). The total wealth of the super rich has increased in the same period to somewhere between $ 5 trillion to $ 13 trillion. No wonder, markets are awash with money, while countries are struggling to pull the economy out of slump.
The sad irony is that what appears to be an ingenious way to indirectly transfer wealth from public coffers into the pockets of the ultra-rich happened at a time when Brookings estimated that an additional 144 million people globally, in 2020, slipped below the stringently kept poverty line. Using the World Bank and IMF poverty estimates, the calculations show that India has surpassed Nigeria when it comes to having the largest population of people living in extreme poverty. India added another 85 million poor to its existing huge numbers that have somehow been surviving below the poverty line. The devastating second wave of Covid-19 may leave a still bigger dent in poverty estimates.
But perhaps what we do not realise is that all it requires to eradicate extreme poverty from the globe is $100 billion, a tiny fraction of the pandemic stimulus that was pumped in to revive the global economy and instead ended up rewarding the billionaires by helping them to amass more wealth. This is not the first time that such astonishing amounts of surplus money have been pumped indirectly into the hands of the super rich. For quite a number of years, central banks in rich countries have been printing surplus money. However, what remains unexplained is how come there is all the money for the rich, but the world is still unable to find enough money to fight poverty.
If only a fraction of the pandemic stimulus had gone to where it was needed — to remove poverty, the world would have been a much better place to live in.
Meanwhile, the pandemic has further widened income inequality, taking it to obnoxious levels. In America, the Institute for Policy Study says the combined wealth of its billionaires increased by 44.6 per cent during the pandemic. During the same period, an estimated 80 million people lost their jobs. In any case, the top 50 super rich in America hold as much wealth as the bottom 165 million. In India, the income inequality is no less glaring. Just to give you an idea, the average farm income as worked out by the 2013 National Sample Survey Office (NSSO) report, for roughly 50 per cent of the population dependent largely on farming, stands at a paltry Rs 6,426 per month (roughly half of it coming from non-farm activities). That is why protesting farmers have been demanding an assured income by way of an assured price for their produce.
Compare this with what an Oxfam’s ‘Inequality Virus Report’ brings out. The combined wealth of India’s billionaires has risen by 35 per cent during the pandemic, and to explain how the increase would translate in simple terms, the report states that the rise in wealth of just top 11 billionaires alone is enough to pay for MNREGA work for ten years. In any case, the top 1 per cent holds four times the wealth that the bottom 953 million has.
To understand how an increase in income works wonders for the poor, look at the outcome of this experiment on the feasibility of universal basic income. Two years before the pandemic struck, in early 2018, Foundation for Social Change, a charitable organisation, along with the University of British Columbia in Canada, gave $7,500 Canadian dollars (or US $6,206) to 50 homeless families in the Vancouver region. A year later, during which time the charity kept a tab on how the money was being utilised, the results that emerged were not only astounding, but equally encouraging. More or less, the same results have been achieved in almost similar kind of studies conducted elsewhere.
Contrary to the public perception wherein it is generally believed that the poor don’t know how to handle money, the results clearly brought out how wisely they made use of the limited financial support, spending it on necessities like food, clothes, housing and other utilities. According to news reports, while the consumption of basic food needs went up by 37 per cent, the poor had actually cut down on drug and alcohol by 39 per cent. By moving fast into housing, these homeless actually worked to ensure a roof over their head. What the study, therefore, conclusively established is the significance of roti, kapda and makaan for the poor households everywhere in the world, and their strenuous efforts to work towards attaining it. In other words, such petty cash transfers have the potential to uplift the poor from the clutches of poverty.
Instead, we see more money being routed to the rich by way of tax concessions, economic stimulus packages, bank write-offs, bailouts and massive subsidies in the name of incentives for growth to bolster corporation profits with the faulty assumption that some of it will trickle down to the poor and needy. When it comes to giving poor their share, the argument is that by giving surplus money directly into the hands of the poor, everyone will have more to spend, and that will lead to higher inflation.
The economic growth model, therefore, has been very cleverly designed to help widen income inequality, and make the fat cows still fatter. The poor are expected to fend for themselves.
The author is Food & Agriculture Specialist.