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What kind of income inequality should we resent and reduce? Reasonably, it is unnatural or abnormal or better known as human-made inequality. But are we concerned to contain the ever-increasing bytes of such income inequality? Astonishingly, human-made inequality bites most of us, but we are barely stung. However, the issue has occupied a place in discourse and national planning documents. Fortunately or unfortunately, a progress report is yet to be inked in with a passing score. The Seventh Five-Year Plan and the Eighth Five-Year plan disappoint us regarding the right strategies for fighting inequality. Fighting against income inequality is imperative as we desire peaceful co-existence, harmonious human relationships, and business sustainability.
Economic governance is, in practice, primarily shaped by the demands and expectations of the economically most influential groups. Since the government is democratically formed, it has the mandate to steer the economy according to the people's will. It is also accountable to the people for its deeds and decisions. As the market economy is in operation, it is quite logical and legitimate that the private sector would pervade almost all the sectors and subsectors, including each economy arena. But policy directives and regulations to safeguard public interest should come from the government. However, the government would not generally be the operator of any economic undertaking.
The market economy has been working, but the demand forces are much weaker than the supply forces. It is the underlying shortcoming behind effective and desired interplay of market forces, particularly on the demand side. If the private operators believe in, and practice democracy, they are ethically, politically, and legitimately obliged to meet the people's expectations from whom demand forces emanate. People's desires and demands are and should be voiced by the government through its vision, mission, strategies, policies, programmes, and regulations. Both commitment and compliance are also critically important.
The private sector entrepreneurs have a bundle of significant rights-the right to freely choose and do business within the legal framework; the right to get secure and business-friendly environment; the right to get level-playing field; the right to voice their problems and to seek remedies; the right to express opinions and suggestions for the economy and society; the right to make a reasonable profit and so on. But can they have any right to exploit managerial and non-managerial people under them? Can they deceive the people? Can they deprive the government of fair share of taxes? Can they engage in unethical practices in the name of business and competition? The answers are negative. We firmly believe that no good business person can behave like that.
Reportedly, Bangladesh's economy is, like some other countries (such as India, China, Vietnam and Malaysia), infected by inequality malaise. The government too admits that inequality has been increasing with the rise in GDP growth. As per Household Income and Expenditure Survey (HIES) 2016, the income ratio of top 5.0 per cent to bottom 5.0 per cent was 32 times in 2010, and it rose to 121 times in 2016. Gini coefficient (income)is approaching the extreme level of 0.50. The figures are based on averages but indicative. It is to be noted that a single measurement method can hardly convey us actual household to the household scenario. A gradual decline in income inequality should be coincident with persistent growth.
Income inequality is inevitable up to a specific range, and that is natural. Indeed, there is a boundary of inequality beyond which it appears as a threat disintegrating the population into several groups.
Degree of inequality beyond that natural level is unnatural or otherwise may be termed as man-made. This line of demarcation is to be drawn. Have we thought of such a need to decide? The authority of state governance ought to take steps to define the range. If we think of reducing inequality, we should first do some groundwork on inequality calculus.
We can be aware of the government role to reduce income inequality from Five Year Plans documents. Seventh Five-Year Plan (2016-2020) ended in June 2020. A little importance was paid to inequality reduction efforts in the Seventh Five Year Plan as evidenced in the textual narratives of the plan document stated below:
(a)It was difficult to certainly evaluate Sixth Plan's progress on inequality reduction due to lack of latest HIES data. It was assumed that inequality might not have been reduced but worsening would not occur.
(b) Available HIES data showed progress in stabilising consumption inequality, but income inequality increased in Bangladesh slightly.
(c) The Seventh plan core target' in the context of vision 2021' did not include the issue of inequality.
(d) The Seventh plan made a renewed commitment to reversing the pattern of a long-term increase in income inequality in Bangladesh.
(e) Target for income inequality (Section 4.2.5) in the plan was to reduce the Gini coefficient from 0.458 to 0.450.
Moreover, it also argued that assets and human capabilities had been unequally distributed historically, and this uneven ownership continues to contribute towards predetermined asymmetries in income distribution. Here comes the question: how much of such historical inequality is attributable to natural endowments? Only human-made inequality matters. This segregation, along with identification is essential for the establishment of equity and justice. Elimination of inequality is never possible in an absolute sense, but a gradual reduction of artificially-imposed inequality is possible or must be made possible.
Strategy making is the second biggest function of good governance and has to be backed by what forces we are preparing to combat to accomplish a specified mission. A strategy is an instrument of the highest potency. Observation is that the concept of a strategy is not only loosely or lightly defined but also confusing. Inequality fighting strategies may be broadly classified into two types- (i) Modification strategies and (ii) Inclusion Strategies. In designing type (i) strategies, the specific sources of inequality, origination needs to be identified, but the Seventh plan seems not to have focused on such way of exploration. The more frustrating news is that the long-cherished Eighth Five-Year Plan's strategic drive on inequality reduction is too weak. Even it has no employment generation target.
Some strategies for inequality reduction are observed in the Seventh Five Year Plan. These are human development strategy; a strategy of better access to credit; eliminating physical and social barriers; fiscal policy, i.e. increased public spending as pursued in Western Europe; progressive taxation; poverty reduction strategy, social protection scheme, and better governance. We would not know about the effectiveness of those strategies until new HIES is carried out. However, the Eighth plan recognises that the income Gini coefficient rose from 0.458 (2009-10) to 0.482 in 2016-17 (Figure 14.1 p.674). For the medium term, the 8FYP will increase current social protection allocation from 1.2 per cent of GDP to about 2.0 per cent of GDP by FY2025. This is not likely to have any significant reduction in income inequality.
It is to be mentioned that both poverty and inequality have already been adversely affected by the onslaught of Covid-19. However, some negative trends are available. Employment generation is one of the leading inclusion strategies. In the Seventh Five Year Plan, the government set the target of job creation of 10.29 million (including 0.20 million migrants) during FY 2016 to FY2020. It is learnt that only1.8 million jobs were created at the end of FY 2016-17 against the target of 3.9 million (i.e., about 46 per cent target met). As per Monthly Report on Fiscal Position October 2020, in FY20 actual tax revenue collection was 8.68 per cent of GDP against a 14.1 per cent target. Thus it is obvious that job creation and fiscal policy have had a little positive impact on the decline in the degree of inequality. Formal transfers through social protection play a marginal role.
We tend to justify our lapses or inactivity by referring to those of other countries. We also have a decision-making problem of prioritisation. We are a role model for poverty reduction faster, so we implicitly tell other countries to follow us. How do we behave with self-contradictions? Can we not be proactive in playing a role model for inequality reduction drive as we did to reduce our poverty rate? The Eighth Five-Year Plan's priority is, as the document says, to provide relief to the Covid-19 affected families. The thought is right. But can we overlook other critically important issues like inequality reduction? Perhaps, a plan cannot while a budget can. We should not forget that inequality breeds also in times of crisis.
To sum up, the most fundamental instrument to reduce human-made inequality is good governance that broadly contains, in its core, egalitarian philosophy and pragmatic principles, democratic values, and noble vision. Business is a noble occupation that is directly linked to human livelihood, growth, and economic development. The business community should cooperate with the government to underpin the growth economy with equity and justice. That is, we believe, possible even along the path of the revamped market economy. The intention may, to accomplish the desired purpose, incorporate necessary changes in any plan formulated.
Haradhan Sarker, PhD, is ex-Financial Analyst, Sonali Bank & retired Professor of Management.