Corrado Gini, an Italian statistician, developed a measure of income and wealth inequalities in societies, called the Gini coefficient. The higher the number, the more the inequality and vice versa. Such inequalities cannot easily reduce or be done away with; it is tough to put the Gini back in the bottle.
America has a wealth Gini coefficient of 85.4 according to the Inclusive Development Index devised by the WEF, indicating a high degree of inequality of wealth. It is, indisputably, the richest country in the world. On the other hand, an article in www.zerohedge.com states that ‘for countless Americans living in their vehicles has become a new normal’. Homelessness has risen in America. Despite rising wages and falling mortgage interest rates, Americans cannot afford homes in 70 per cent of the country. So many live in their vehicles!
The strange part of it is that it is illegal to feed a homeless person. It is illegal for homeless persons to sleep in public areas. Now, some states are considering prohibiting them from sleeping in their vehicles too. But hey, this is the richest country in the world.
Where is the money going, and why is the Gini so high?
Well, since the US Fed and other central banks started quantitative easing, the large companies in the US used the printed money for stock buybacks, which totalled $5 trillion since the 2008 crisis. Buybacks mean, of course, that stock prices rise and senior executives, with ESOPs, make lots of money… driving up the Gini.
Average CEO pay grew from 50 times average employee pay in 1982, to 144 times. Most CEO pay has a large component of variable pay, based upon increase in market capitalisation.
Aside from buybacks, a lot of money is going into defence expenditure which, by definition, is unproductive. Countries continue to produce weapons of increasingly terrifying (and remotely manoeuvred, not risking lives) power which would rarely be used (the US and Russia have enough nuclear bombs to destroy the world 100 times over, a complete waste of resources). Forget OPEC, the MIC (Military-Industrial-Complex) is the world’s biggest coterie with common interest of scaremongering the world into spending on weapons technology.
It is a similar story in India, on defence spending. An article by Angad Singh in ORF talks about the tough decisions for the new Defence Minister. The Ministry spends more on pensions, and on salaries, each year, than the allocation for capital expenditure (buying weapons). India is one of the world’s largest weapons buyers. It has agreed to buy five systems of Russia’s impressive S-400 anti-missile defence system, for which it is being pressured by the US to buy its own (albeit much inferior) system.
And our Gini wealth coefficient is also high at 83, for several reasons. First, because the ultra high net worth individuals (politicians, industrialists, businessmen, top professionals) use the loophole, deliberately kept for them, to declare tax-free agricultural income. It is laughable that they can deposit crores of rupees in cash as agri income, no questions asked, whilst individuals have been ‘generously’ allowed to withdraw up to four times/month their own tax-paid money, from their own savings accounts.
So, it is the Centre’s own fiscal policy that contributes to the high Gini.
Abraham Lincoln’s definition of democracy was ‘of the people, by the people and for the people’.
Today, it has morphed into ‘off the people, bye the people and floor the people’.
Unless PM Modi, in his second term, reverts to Lincoln’s true definition of democracy, severely punishes the looters, scamsters and defaulters and works with the judiciary to speed up the judicial process, the potential of India to become a super power will remain just that — a potential.
(The writer is India Head — Finance Asia/Haymarket. The views are personal.)