Jul 29, 2012

Free People are not Equal

Economic inequality is one of the most popular issues in our political and economic discourses. With the ‘Occupy Wall Street’ movement around the world, the debate has resurfaced in the global scenario too. In our context, totalitarianism is sought after for the sake of equality. The issue, no matter how well-intended, begs for a different perspective.

Opportunities against outcome

Equality of opportunity is indeed a prerequisite for a free society and the government can play a crucial role. Ensuring rule of law, property rights for every class of people and equal access to economic activities are things a government can do to achieve a prosperous society.

On the other hand, equality of outcome sought through government actions is not only antithetical to a free society but also counter- productive to economic growth. Many intellectuals and politicians advocating equality tend to ignore that free people are not equal and equal people are not free.

In a free society, economic outcome largely depends on the talent, intelligence and preferences of an individual. Some people may prefer to work harder and choose a less luxurious lifestyle, whereas some may want a lesser paying endeavour and put more preference on luxury. Some may choose the safety of a regular job with a secure income while  some may wish to take risks and start their own venture. Moreover, what a person earns is determined by the value society is ready to pay for the services he or she offers.

So should it come as a surprise that some street vendors are earning better than a teacher or a clerk? Entrepreneurs, no matter how small, generally earn better than a jobholder but the extra income is usually a compensation for the risk they take and better value they are creating through their services.

Equality versus growth

For a poor country like Nepal, the importance of economic growth is unquestionable. Higher economic growth would mean lower mortality rates, better living standards and longer lives. Countless revolutions have occurred already in the name of bettering people’s lives. Agendas of increasing government control over the economy and lives of people in the name of equality have been in the forefront of these revolutions, which may explain why we have not achieved expected economic growth so far.

Economic freedom, which is a precondition for growth, has largely been ignored in favour of cheap populist agendas like government providing food, shelter, education, health, employment, entertainment and what not. Studies have shown that economic growth and economic equality cannot go hand in hand. This tendency is shown by the increasing inequality in the rapidly growing economies like China and India too. Although lack of equal opportunities in all segments of population contributes more in increasing inequality, economic growth has a part to play in the phenomenon.

On the other hand, re-distributive efforts by the government tends to retard economic growth, making everyone equally poor. The ineffectiveness of government efforts to alleviate poverty is highlighted by the fact that foreign employment has lifted more people out of poverty in less than a decade than the populist government programmes in the past half a century.

Freedom and equality

Huge inequality in a society can be disastrous. High income inequalities encourage rent-seeking behaviour and social unrest. Crony capitalism, which has been flourishing rapidly in Nepal, is a prom-inent contributor in increasing inequality. One of the major causes of crony capitalism is the provision that allows government’s extend-ed intervention in the economy.

Regardless of their objectives, such interventions create the avenues for crony capitalism, which in turn contributes to increasing inequalities in the society.

Hence, our obsession with inequality is going to be counter-productive in the long run, even if our actions are well-intended. It is necessary to bear in mind that society trying to put equality before economic growth will end up keeping everyone equally poor, whereas putting economic freedom first will result in greater growth and equality.

-Surath Giri
(Published on The Himalayan Times - Perspectives of 29th July 2012.)