It’s a Rich man’s world

Can a compassionate form of capitalism take root in a milieu of pervasive disparities in income and wealth?

N Chandra Mohan Delhi

With the Indian economy booming and the stock markets touching great heights, the focus of much popular attention is on the number of billionaires and the fat packages of CEOs or MBA graduates in the country. Considerable media space is devoted to whether Mukesh Ambani, CEO of Reliance Industries, has now overtaken Bill Gates in net worth or whether small towns, too, have a large share of billionaires as do the metropolises. This excessive preoccupation with the pursuit of Lakshmi (the Hindu goddess of wealth) appears to be the zeitgeist of our times.

The transition to such a state of affairs dates to the reform era of the 1990s, when economic activity was deregulated, decontrolled and delicensed from its statist past. In a society that for long frowned upon the acquisition of riches as unethical, this era unleashed entrepreneurial energy, as people from even ordinary middle-class backgrounds became rich through their ideas or mere happenstance. And they did so ethically. The rise of Narayana Murthy, Azim Premji, among many others, clearly, has been a transforming moment for such a society towards a more materialistic orientation.

Narayana Murthy is a first-generation entrepreneur who transformed Infosys into a global software brand in a highly volatile industry. He has become an icon for hundreds of wannabe technocrat entrepreneurs here who have no inheritance to fall back upon except their skills and knowledge. If their quest to make it big can be satisfied with adherence to the highest standards of corporate governance and ethics, Murthy's example will not have been in vain. But the big question is whether it is indeed possible for others to emulate his example and become rich, ethically, in this country.

For starters, consider the booming stock market, whose invisible hand is primarily responsible for the current hoopla over the rise of billionaires. How many, in a billion-strong nation, really have the means to make investments in the bourses? According to the Securities and Exchange Board of India (SEBI), just 40-odd million or four per cent of Indians have invested in equity. This means that 96 per cent of the populace is only a spectator to the ongoing rally that raises Mukesh Ambani or Narayana Murthy's net worth by crores of rupees every other day but barely touches theirs!

Clearly, it is an unequal world of massive disparities even in an era of reform. Actually, matters are much worse if a measure of inequality called the Gini index is used for stock ownership. This index typically lies between 0 and 1: a Gini of 0 means perfect equality while that of 1 indicates perfect inequality. India's Gini index on stock ownership was, in fact, as high as 0.99 in 1991 and remained at this level even a decade later, according to Arjun Jayadev, Sripad Motiram and Vamsi Vakulabharanam's work on wealth disparities recently published in the Economic and Political Weekly.

Such trends are related to growing disparities in income. Professor Abhijit Banerjee of MIT and Thomas Piketty, Directeur d'études at Ecole des Hautes Etudes en Sciences Sociales, Campus Paris-Jourdan, France, using more direct measures like income tax returns, conclusively established that the very rich in India or the top 0.01 per cent of the population got richer faster than everyone else during the 1990s. For a sense of perspective, in the 1950s, the average income of the top 0.01 per cent of the population was about 150-200 times larger than the average income of the population. In the 1980s, this difference fell to 50 times. But then rose again in the 1990s to 150-200 times.

Reflecting the widespread perception that gains during the reforms era were disproportionately going to the rich, Prime Minister Manmohan Singh exhorted leading apex business chambers to “resist excessive remuneration to promoters and senior executives” adding that “rising income and wealth inequalities, if not matched by a corresponding rise of incomes across the nation, can lead to social unrest”. Singh's concern was that India's widening disparities of late was following the US pattern where CEO remuneration widened to 411-times the median income of a typical worker.

This growing divergence between the rich and the rest, much in the spirit of the Biblical axiom that 'whom that hath shall have', is perhaps the biggest barrier to the rest becoming richer ethically. If only the rich have the means to get richer through their investments in stock markets and other forms of wealth creation, how then can a hundred Murthys bloom in a milieu of pervasive income and wealth disparities? Or is it the case (as is indeed likely) that Murthy's rising was too much of a singularity — as India's software success occurred despite the government — to meaningfully serve as an exemplar for Indian society?

What then about the fortunate MBA graduates, especially from the prestigious Indian Institutes of Management? Does such an education guarantee burgeoning salary packages, regardless of the handicap of class and caste? Certainly, it would appear so to starry-eyed advocates who believe that the globalised economy is a knowledge-driven economy where skills and education matter and is rewarded handsomely. While it is, no doubt, true that salary packages of business graduates from top-end management schools have been exploding, not all MBAs are so fortunate in the country.

Not so long ago, a news report mentioned that MBAs and engineers figured among the 10,000-odd unemployed young men who applied for two posts of peons advertised by the State Election Commission of Delhi and Chandigarh! Obviously, they were desperate enough to offer their services to work for a job requiring a minimum qualification of class VIII and paying only Rs 5,500 per month. The MBA as a peon only gets a pittance while a person with similar qualifications in the corporate sector draws a starting package of Rs 50,000 with perks.

Why do workers with similar credentials earn different wages? This is where the insights of Nobel laureate Professor Kenneth Arrow and Ron Borzekowski are extremely fascinating. In their research of the US labour market, they observed that it's not what you know but whom you know that perhaps explains a good part of the variations in wages for workers with similar qualifications. The fact that having 'pull' is important has been generally recognised but has not been conclusively demonstrated. The MBAs who applied for the peon's job didn't have the contacts to swing a better one in India Inc.

How then can a hundred Murthys bloom? Murthy, for his part, believes that to ensure that more and more people get rich ethically means to make sure that everybody likes capitalism; that if capitalism is to be liked by everybody, then it has to be more compassionate in character. It is true that a more compassionate economy can reconcile two different criteria of being fair and efficient. But history till now has shown that though capitalism may be the most efficient, it is not the most fair or just system. The big question is how can a more compassionate form of capitalism take root in a milieu of pervasive disparities in income and wealth?

The writer is a Delhi-based commentator on business and economic affairs