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Why care about inequality?

LiveMint logoLiveMint 26-03-2017 Vivek Dehejia

Why care about inequality? Unlike our friends on the left, who take it for granted that inequality of outcome, rather than of opportunity, is ipso facto undesirable, for those of us who place ourselves on the classical liberal or libertarian end of the spectrum, this is a serious and important question which does not have obvious and easy answers. It helps to start from first principles.

Thus, if unequal outcomes across individuals are the result of individual effort, or the differences in individual endowments, and, crucially, if these differential outcomes arise through competition on a level playing field in which the rules are fair and transparent and the same for everyone, there should be no prima facie case to be concerned about inequality of outcome, assuming equality of opportunity and access have been ensured. Thus, in the classical world of atomistic competition of economics textbooks, the laissez faire outcome is not only efficient (which can be proved mathematically, in the absence of market failures), but, for classical liberals and libertarians, it is also equitable, fair and just.

Leave this fictitious textbook world, however, and the tale becomes twisted. Thus, in the real world, accumulated inequalities of outcomes can, and do, become embedded in inequalities of opportunity and access.

So, a Sidwell- and Harvard-educated patrician whose family sailed on the Mayflower in 1620 (such people do exist—one went to school with a cousin of mine and is a famous economics professor) automatically starts out at an advantage compared to someone with public school and college credentials from the blighted inner cities.

Crucially, this advantage is not reflective purely of differences in effort or natural endowment, but of inequality occluded over centuries. The game is simply not played on a level playing field to start with, and so we cannot blithely assert that differences in outcomes are ethically irrelevant and can safely be ignored.

A perceptive former student of mine once said, aptly, that the classical liberal postulate, that only equality of opportunity matters and inequality of outcome may be ignored, really only applies to frontier societies, in which it may safely be assumed that everyone is starting, roughly, on an even playing field. Elsewhere, the assumption, and the ethics which flow from it, are treacherous.

Yet a different perspective arises if we change the unit of analysis. Thus, classical political theory focuses on inequality at the level of the individual person (or, perhaps, of the individual household, which is already a fudge), but suppose we shift our attention to units of governance? Thus, if we consider the planet as a whole, we observe staggering inequalities among nations.

In the absence of a world government, such inequalities must, perforce, be accepted, although they may not be deemed morally neutral. Thus, for instance, the fact that India today is poorer than Great Britain is not merely an ethically irrelevant accident of history, but reflective of the history of war, colonization, loot, plunder, enforced mass starvation, and so forth.

Move down to the level of the nation-state, which, starting with the Treaty of Westphalia (1648), has been the basic political construct of our modern world, and we may observe similar inequalities, not just amongst individuals, but amongst sub-national units of governance, such as states or provinces. Peel away a further layer, and one will discover inequalities at the sub-sub-national level, such as districts in India, counties in the US, and so forth. Indeed, in the case of India, in particular, Praveen Chakravarty and I have documented such pervasive inequalities in a series of writings, including in this newspaper. These inequalities, too, are not merely accidental, but reflect differences of history, geography, even climate. Thus, for instance, a body of research suggests that regions of India ruled by “native princes” have fared better, even into the present, than regions ruled directly by British colonial authorities.

Likewise, even earlier in history, peninsular India was spared the impact of land-based invasions, and still today, peninsular India is much more prosperous than the landlocked hinterland of north India, which suffered repeated depredations over the centuries.

Whatever the reasons, and they are not fully understood, present-day India, in particular, is characterized by large and skyrocketing inequalities at the state and district levels—in marked contrast to other federal economic and political unions, where such inequalities have become attenuated over time.

While we can engage in endless philosophical rambling on whether we ought to care about inter-personal inequality, it is self-evident, in the context of a federal union, that large and rising inter-state inequality is relevant, at a minimum, in a political economy sense, if not necessarily in a wider ethical sense. That is, the ties that bind an economic and political union together may begin to fray if income and other gaps grow out of control.

We need urgently to turn our attention to widening income gaps at the regional level in India, as these will surely begin to colour the political economy of the federation in years to come.

Every fortnight, In The Margins explores the intersection of economics, politics and public policy to help cast light on current affairs. Read Vivek’s Mint columns at www.livemint.com/vivekdehejia

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