The former Microsoft boss’s faith in the system that gave him all the money he now
spends to fight inequality is perhaps instinctive. But there is ample evidence now
that inequality is inbuilt in the capitalist system.
The 2014 annual letter of the Bill & Melinda Gates Foundation,
titled 3 myths that block progress for the poor, opens
thus:
“By almost any measure, the world is better than it has ever
been. People are living longer, healthier lives. Many nations that were aid
recipients are now self-sufficient. You might think that such striking progress
would be widely celebrated, but in fact, Melinda and I are struck by how many
people think the world is getting worse. The belief that the world can’t solve
extreme poverty and disease isn’t just mistaken. It is harmful.”
Citing figures of growth in per capita income of developing
countries, Bill Gates goes on to claim that the percentage of very poor people
has dropped by more than half since 1990. “The global picture of poverty has
been completely redrawn in my lifetime,” he says, before moving on to underline
the importance of foreign aid.
Gates runs the world’s largest private foundation that
employs more than 2000 people and has spent nearly $30 billion in grants since
1997 in more than 100 countries “to reduce inequities around the world”. Theirs
is a rare example of high philanthropy that has touched and changed thousands
of lives.
But last week’s annual letter painted a very misleading picture.
Predicting that there would be almost no poor countries left by 2035, Gates
accepted that inequality would still be a problem – “there will be poor people
in every region” – only to seek solace in the fact that “most of them (the
poor) will live in countries that are self-sufficient”.
How does that help the poor, or the foundation’s goal of
reducing inequality? How does living in a country where per capita income is on
the higher side of some poverty index due to massive earnings by a tiny
minority help the majority who are not even making just enough? Or is it only
about periodically redefining what is ‘just enough’ and pulling down the
poverty line like our Planning Commission has been up to?
Even globally, there is nothing to suggest that the world is
getting less unequal. National incomes are certainly growing in most parts of
the globe. But a comparison of the growth graphs of seven countries – India,
Egypt, Brazil, Mexico, China, Germany and United states – based on World Bank data shows no sign of
convergence in the last decade. The gaps are constant or
growing.
It is now getting clearer than ever that inequality – global
and national – is inbuilt in the economic system the world follows and the likes
of Gates champion. In his new book -- Capital
in the Twenty-First Century (due in English next month) --
Thomas Piketty of Paris School of Economics looks into inequality as the ratio
between the rate of return on capital and annual total income flow. A higher ratio
means greater inequality.
Barring a six-decade-long exception between 1914 and 1973
marked by the physical loss of assets in the two world wars, the great
depression and a strong labour movement, the rate of return of capital has
always been higher than the overall growth rate (see graph above).
In a review of Piketty’s book, Branko
Milanovic of the World Bank wrote: “The process generates a changing functional
distribution of income in favor of capital and, if capital incomes are more
concentrated than incomes from labor (a rather uncontroversial fact), personal income
distribution will also get more unequal—which indeed is what we have witnessed
in the past 30 years.”
In short, money begets money begets more money. And the
rich-poor divide keeps widening. One does not need to look beyond the USA, the
high stage of capitalism, to bear out the trend. Frank Lysy, ex-chief economist
and director of a World Bank agency, explains how:
“The rich have done very well since the 1980s and the start
of the Reagan Revolution. Even following
the 2008 economic and financial collapse…the top 0.01% in 2010 earned 333% more
in real terms than what they earned in 1980... They were doing much better in
2007 before the 2008 economic collapse, when their income was 570% above what
it had been in 1980 in real terms.”
In contrast ((see graph above), the bottom 90% found their income to be 5% below what it was in
1980. It is not even the rich but only the super rich, points out Lysy, who
have really benefited in this post-Reagan economic system. The income of the less-than-super-rich, the 9%
below the top 1%, rose by only 35% over this thirty year period.
And yet, Gates wants us to believe that “almost all
countries will be what we now call lower-middle income or richer” in another two
decades as “their labor forces, buoyed by expanded education, will attract new
investments”.
Maybe Gates is right after all. There is no return on
capital without investment. For the global rich to get richer, poor countries
must get investment ready. And as the local rich get richer facilitating and
managing those investments, per capita income of poor countries will rise above
the poverty mark.
As for foreign aid, Gates is right again. It is necessary for
saving lives and helping the poor nations get self-sufficient. Maybe that is
why rich countries have doubled the amount of their aid budget as
loans over the past decade reaching $16bn in 2011,
while aid loans from multilateral development banks amounted to $42bn – twice
as high as in 1995.
In a report last month, Eurodad said
developing countries face interest payments of almost €600m a year on such loans
to Europe, warning that the shift to loans from grants could threaten the
success of debt relief initiatives.
Gates’ faith in the system that has rewarded him with all
the money he now spends to fight inequality is moving. But for him to win the battle,
that system in all its benevolence has to bridle itself. How about, as Piketty fancies,
confiscatory taxes?
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