Rising Wealth and Declining Poverty!


It is not a mere coincidence that two reports from, seemingly, disconnected sources, have appeared in recent weeks. The first is: “The World’s Richest People” in the American magazine Forbes. Its list of 946 billionaires from all over the world contains 36 from India. There are 178 newcomers, including 19 Russians, 14 Indians, 13 Chinese and 10 Spaniards, besides the first billionaires from Cyprus, Oman, Romania and Serbia. The increase in the number of billionaires in India between 2005 and 2006 was almost 64 per cent while the increase at the global level was slightly more than 23.1 per cent. The Forbes report, acknowledging India’s progress in bringing forth billionaires has this to say: “After a 20-year reign, Japan is no longer Asia’s top spot for billionaires: India has 36, worth a total of $191 billion, followed by Japan with 24, worth a combined $64 billion.” Besides, “India’s rich are also marching toward the top of our rankings. Brothers Mukesh and Anil Ambani, who split up their family’s conglomerate in 2005, join Lakshmi Mittal, who heads the world’s 20 wealthiest. India now has three in the upper echelons, second only to the U.S.”

Obviously, this is a cause for celebration. Commenting on the Times of India’s New Year’s Day edition that had carried the logo ‘India Poised,’ The London Observer says: “It was a call to arms, India, the paper announced, was ‘on the brink of global success’ and it was up to readers to seize the moment and build their country into a superpower.”

Amelia Gentleman of the Observer is, however, not convinced. In fact, she is bewildered: “Travel a few miles outside the bubble of prosperity in Delhi or the financial capital, Mumbai, and this superpower mania can seem bewildering. Beyond the sleek glass-tower blocks that house call-centre offices on the outskirts of the city, and the extravagant, Florida-style apartment complexes (titled with imaginative dishonesty ‘Bayview Heights’ or ‘Heritage Luxury’), the new India suddenly disappears.

“Instead there is a vision of a more troubled India, where around 700 million people search a living out of agriculture and some 300 million battle to survive beneath the poverty line. Horse-drawn carts dodge trucks as they drive the wrong way down the national highway, overloaded with leaking sacks of grain. Visibly weak infant children break stones in the central reservation, helping to repair the road surface.”

Here comes the latest report from the Planning Commission, headed by Montek Singh Ahluwalia, a known champion of the ‘Trickle-down Strategy’. It is entitled ‘Poverty Estimates for 2004-05’. It underlines that the incidence of poverty in the country has been on the continuous decline. On the basis of one methodology the percentage of population below poverty line went down from 36 per cent in 1993-94 to 27.5 percent in 2004-05, while on the basis of another it declined from 26.1 per cent in 1999-2000 to 21.8 per cent in 2004-05.     

Thus it is asserted that India’s decision to integrate itself with the Washington consensus-based globalization was fully justified because the high tides have lifted up all the boats whether big or small. All have been benefiting from neo-liberal economic policies. The process of reducing economic inequalities in the society is on and, in the years and decades to come, poverty will be fully wiped out and all will be happy. What is required is patience and co-operation so that the magic of market is in full play. With the rising rate of economic growth, poverty will be pushed out of both the rural and urban areas.

In this connection, the Kuznets curve is recalled. This curve depicts the idea of Simon Kuznets that inequality is inevitable in the initial phases of what he termed ‘modern economic growth’, but do not forget that this is a transitional phase because as the growth rate begins to pick up, the incidence of inequality declines. Simon Kuznets enunciated this thesis in his presidential address, “Economic Growth and Income Inequality”, to the American Economic Association in 1954. His thesis that as per capita income increases during the initial phase of transition from agriculture-dominated economy to an industrial economy, income inequalities also go up, but, after some decades, the income inequalities begin declining if the rate of economic growth as depicted by per capita average income accelerates. This may be shown by a bell-shaped (or inverted U-shaped) curve, also known as Kuznets curve. This was the main ground for awarding him the Nobel Memorial Prize in Economics in 1971.To put it differently: Initially, at lower rates of economic growth, income distribution is skewed toward higher income levels, and inequality is high, but as the rate of economic growth accelerates, skewness gets reduced and income inequality is lower.

If what has been said above is true, the economic policies formulated by India’s national movement and followed by the Nehru-Indira Gandhi governments stand discredited. The champions of the Washington consensus-based globalization have been proved right. The trouble with this claim, however, is that it suffers from two major defects. First, the Kuznets curve or hypothesis lacks firm empirical substantiation and those taking it as a gospel truth forget that it was propounded when Cold War was in full swing. The purpose of Kuznets was to lift up the morale of the American Cold Warriors facing the ideological onslaughts from the Soviet camp as well as the protagonists of the New Deal and Keynesian economics. To quote Sam Pizzigati (see his book Greed and Good): ‘”Equity will follow growth,” Kuznets seemed to be saying to the Cold Warriors, “so there is little reason to worry about it.”’    

By the middle of the 1970s, the enthusiasm for “the great historical discovery” by Kuznets disappeared as one empirical work after another took away the bottom out of it. The racial clashes underlined that inequalities, instead of declining, had increased and manifested themselves glaringly in various forms. Arthur Okun, once a chief economic adviser to the President of the USA, underlined that poverty “remains the plight of a substantial group of Americans.”

Only recently, the Houston Chronicle (February 26) has carried a piece by Tony Pugh, which says: “The percentage of poor Americans who are living in severe poverty has reached 32-year high as the gulf between the nation’s “haves” and “have-nots” continue to widen.’ Further, an “analysis of the 2005 census figures, the latest available, found that nearly 16 million Americans are living in a deep or severe poverty.” And “the number of severely poor Americans grew by 26 per cent from 2000 to 2005. That’s 56 per cent faster than the overall poverty population grew in the same period.”

The second major defect concerns the computation of the incidence of poverty. The assertion that the percentage of the Indian population has been continuously declining since the 1990s (it is claimed to have gone down from 35 per cent in 1991 when Dr. Manmohan Singh initiated his economic reforms to 21 per cent just a year after becoming prime minister) has been questioned by a number of experts. They maintain that the computation of the incidence of poverty by the government is based on faulty methodology. Two well-known economists of the Columbia University have quite convincingly shown this. The latest version (Oct. 29, 2005) of the paper “How Not to Count the Poor” by Sanjay G. Reddy and Thomas W. Pogge states that the computation of incidence of poverty based on the World Bank methodology is neither meaningful nor reliable. In a paper “Counting the Poor: The Truth About World Poverty Statistics” (Socialist Register 2006), Reddy has asked for a look into the details of data collection and the computation work. He wants the UN to take over the work of guidance and supervision from the World Bank, which, as an active promoter of Washington consensus, has a vested interest in getting results that can serve its own ends.

Before we conclude, let us quote from what the prestigious journal The Nation (“The Spoils of Indian Democracy”) says: “It is not hard to understand the need to show that things are better than they really are. The sudden explosion of wealth among India’s upper classes, looked upon approvingly by the West, has created fresh anxieties. The divide between rich and poor in India is not a creation of the last decade, but the utter separation between winners and losers is, a condition in which it becomes both easy and necessary to point out all that shines brightly under the tropical sun. Yet the software parks and glass-and-steel office towers working round the clock are easily portrayed, what is less obvious is their relation to the parched soil of the farmlands, where 25,000 farmers have killed themselves in a decade. The feverish business speculation and late-night parties of what the Indian media call “page Three People” are no doubt colorful, exciting affairs, yet they go on at the same time as entire villages are submerged by damned rivers and new slums arise on the outskirts of Delhi, Mumbai and Bangalore.”         

      Girish Mishra
      E-mail: [email protected]

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