In political conversations, wealth creation is conflated with wealth accumulation, preservation and aggrandizement. They are not the same; all of the above are not virtues either. Most wealth accumulation is good for the accumulator but what good it does to society depends on its usage. All wealthy people are not wealth creators; nor is all wealth socially desirable. Wealth creation happens when the wealth works as a force multiplier in a positive manner in creating wealth for others. It is created by innovation, entrepreneurship and invention.
If wealth is earned and invested in stocks and other insurances, it is, at best, a case of wealth being used as savings, which is the lifeline of investment. If ethics are not followed, workmen not treated fairly or well, the impact of wealth is suboptimal. Wealthy Indians are not very different from their wealthy brethren elsewhere, save for their easier access to bank loans and their reluctance to share their wealth, as is evident from their low contribution to charities. Most “Bollygarchs” — to borrow the term from the author and journalist, James Crabtree — created their wealth not by innovation, entrepreneurship or because of better risk-taking ability.
Most wealthy people have the advantage of inheritance. Their wealth got leveraged because of monopolies created and supported by the government. The continuation of the licence-permit raj was at their behest too. Crony capitalism and rent-seeking behaviour were protected and promoted. From society’s point of view, the type of wealth created is important. When created by leveraging on cheap loans from government-owned banks and characterized by one-time settlement, the impact of such wealth creation is worth examination. But if wealth is earned for oneself and stacked away in family trusts and investments, what meaning does such wealth hold for society? When Mahatma Gandhi said business houses are trustees of wealth, he meant the wealth that will be churned for society’s benefit. He never thought that conspiratorial linkage would hollow out the system, with around 75 per cent of the wealth belonging to 10 per cent of people.
Another myth says that the trickle-down effect would reach others in the bottom half to improve their position. But the trickle-down effect has turned out to be a sour dream. The ecosystem of business consists of increasing number of consumers ready to buy with better incomes. The wealthy find it worthwhile to produce and sell when there is increasing demand. A secondary effect of pursuing their objective is the creation of jobs and the payment of taxes. These collateral positives notwithstanding, eventually the balance sheet takes over. Since the stock market rewards better profitability, the wealthy prioritize the benefit of cost-cutting and reducing manpower to increase profitability. This is how big businesses increased their net worth during the pandemic, not by expanding sales or product innovation. There is nothing benign about this wealth creation; the system is complicit in it.
The behavioural economist, Dan Ariely, had once run an interesting experiment. People thought income distribution in the United States of America from the bottom to the top quintile were 2.9 per cent, 6.4 per cent, 12 per cent, 20.2 per cent and 58.3 per cent. The actual figures were 0.1 per cent, 0.2 per cent, 3.9 per cent, 11.3 per cent and 84.4 per cent. People do not like such searing inequality even if they don’t believe that complete equality is possible. Once the dimensions of such inequality are understood, they would prove to be divisive and corrosive for society: high inequality is anti-growth and such societies are more prone to trust deficit and violence. Opposition to growth strategies crop up once the realization dawns on people that growth dividends are being scooped up by a miniscule group. Finally, when higher consumption does not materialize, they face the classic dilemma — whom are they going to produce for? Politicians may be happy collecting campaign contribution or higher taxes but the sources dry up for both in the end. Disenchantment follows despite governments holding up the chimera of redistribution.
Instead of selling the pipe dream of redistribution or putting hope in an automatic trickle down effect, policies should create real wealth creators — innovators, technology pioneers, entrepreneurs and not oligarchic cabals.
Satya Narayan Mohanty is former secretary, GOI