Equality and Efficiency

Equality and Efficiency which form the base of economic theory rarely finds a mention in basic elementary education. The biggest reason for the growing despair, discontent and extreme activities like hate crime, terrorism and racial and communal clashes find its roots in the basic issue of equality v/s efficiency in the economy.

Before going to equality lets see how wiki describes inequality "Economic inequality refers to disparities in the distribution of economic assets and income. The term typically refers to inequality among individuals and groups within a society, but can also refer to inequality among nations. Economic Inequality generally refers to equality of outcome, and is related to the idea of equality of opportunity. It is a contested issue whether economic inequality is a positive or negative phenomenon, both on utilitarian and moral grounds.

Now lets consider whats equality and more specifically what's "equality of outcome" and "equality of opportunity". "Equality" or "Economic Equality" fails to find any specific meaning when 'Googled' is reminiscent of the fact how these words got distorted in our lust for money and power. Equality which ought to be the backbone of a welfare state is broken and the concept foregone.

Two basic theory of economic equality are Utilitarianism and Equality of Opportunity.

While one propagates greatest good for the greatest number, i.e. make the economic cake bigger so that the pie can be bigger. Other one propagates equality for opportunity for all.

The concept of a modern nation is based on neither. A person's birth determines his levels of advantage or disadvantage in life. A rich may have a clear advantage of better education, good health facilities, better sources of entertainment and enjoyment of civil and social rights even before he is born. This in turn ensures better employment and earning capacity and thus the vicious circle is complete when the advantage carries on to the next generation. This cycle is not broken unless there is there is a spate of bad luck or bad decision making on the part of the advantageous.

On the other side, a person born poor has low chances of surviving in infancy on account of malnutrition, hunger and non existent medicare. Education is non existent and very low or non existent level of income drive them to social ills like prostitution, begging, petty crimes and suicides.

Economists are divided in their opinion over the best course of action for equitable distribution and allocation of resources in the society. Most of them agree on private ownership of assets and state protection of ownership rights. Orderly transfer of assets / resources takes place in the market place through an orderly market mechanism. Those who start poor in this model are disadvantaged and have little room to moneauvre or step up the ladder. The other theory advocates excessive taxation of the rich and redistribute the collected taxes among the poor. They say tax them till they die, but ensure equitable distribution of resources. There are enough leakages in this system as costs of tax collection is very high and excessive taxes act as a demotivate for the rich to produce (which eventually would lead to lesser over all taxes) .

An alternate model is suggested by the machine loathe operator turned President Lulla of Brazil. He suggests in a society rich and poor can coexist and we can have public policy and regulations that are advantageous both to the rich and the poor. Rich need to be told that the market for their goods and services will expand if the poor gets money in his hand . The well being of poor and their uplift is advantageous for the poor as well as for the rich (who gains by having excess to a wider market). The poor need to be told that favorable policy for the rich is important as they are in a better position to utilize the resources optimally and generate employment opportunities for the poor. State will spend on the poor by taxing the rich and more taxes can only be collected and spent on pro poor schemes when the tax revenues. For incremental tax revenues a pro rich policy is required. Its not as myopic as giving away poors' agricultural land to the rich for constructing a shopping mall but if the bigger picture envisages employment in the mall for the poor and the government ensures through proper regulation for equitable transfer of resources and prevent future downturns in the market by reducing overcapacity and speculation everyone in the society will be better off. Well said President Lulla lets hope Mamta didi is listening.