The Covid-19 pandemic and the massive global economic disruption have left people wondering about the timing and the speed of economic recovery. One type of recovery frequently talked about is described by the letter, ‘K’. This description is new and relates to the possibility that once the dust settles on the pandemic, and economic activity begins to recover, the small set of ultra-rich people will get richer, while the remaining population will continue to slide in terms of income and well-being. This divergence is captured by the two angular arms of the letter, ‘K’. This simply implies that inequalities in income and wealth will increase, with many people plummeting down to poverty and joblessness. Inequality, per se, has been an accepted feature of a market-driven economy. Indeed, some amount of inequality is deemed desirable as it provides incentive for people to work harder to grow richer. It is also desirable to the extent that richer people are supposed to have more capacity to invest, thereby creating new jobs and incomes.
In the contemporary world, however, inequalities in wealth and income have grown to a scale where there are the haves, the have-nots, and the much-more-haves, sometimes referred to as the super-rich. A handful of super-rich people control enormous amounts of wealth, investments and political decisions made by governments. This power is germane to capitalism. However, it creates an economic problem. When a large part of the population has limited purchasing power and a few have more than enough, then investment scales become limited even when the large companies access global markets. An example will suffice. Google’s earnings depend on the fact that people have access to the internet and possess at least one internet-enabling device. Many people already have that, but certainly not everyone. Suppose Google, along with two or three other giant firms, provides internet-enabled services to three billion people. The remaining are on the other side of the tech-divide. The scale is usually enough for these few firms to earn enormous profits. It is irrelevant for them to know much about how the other half of the world lives. Their main source of continuing profits are astonishingly rapid innovations that change the services they offer through new devices and new applications.
Before the pandemic hit, the world was already an unequal place. For instance, in the United States of America, the top 10 per cent of the population held 77 per cent of total national wealth, while the bottom 50 per cent held 1.6 per cent. The workers’ share in national income declined from 64.5 per cent in 1974 to 56.8 per cent recently. According to Oxfam, in India, the top 1 per cent held 42.5 per cent of the national wealth in 2020, while the bottom 50 per cent of Indians owned only 2.8 per cent. In 2017, 73 per cent of the new wealth generated in the country that year went to the top 1 per cent. In 2000, India had only nine billionaires. By 2018, India had 119 billionaires. A female domestic worker in India will take 22,277 years to earn what the chief executive officer of a top technology firm earns in one year. For a minimum-wage Indian worker, it will take 941 years to earn the annual salary of a CEO of a top garment manufacturing company.
The pandemic has made things much worse everywhere. Millions of people have lost their jobs and sources of income. Millions of others have taken hefty pay cuts. And a million others are waiting on tenterhooks for a lay-off or business closure. On the other hand, giant firms like Apple, Microsoft, Walmart, YouTube, Netflix, Zoom, Johnson & Johnson, Merck, Pfizer, Amazon and Shopify have made billions during the pandemic because of a spurt in demand for their products or services. In the US, during the first six months of the pandemic, billionaires have added $845 billion to their wealth. On the other side, according to Forbes magazine, in the first three months, $6.5 trillion worth of household wealth was wiped out. During the pandemic, 45.5 million individuals filed for unemployment benefits in the US. In India the data are not so easily available. However, it is quite clear that big-tech has benefited hugely from the large market in India. It is also quite clear that Indian corporate giants have grown substantially during the pandemic.
The larger and longer implications of these trends, dramatically sharpened during the pandemic, are uncomfortable to say the least. India has a long and ugly history of gender, caste and communal inequalities, along with economic inequalities. There is enough research around the world to suggest that with the growth of economic inequalities in any society, the quality-of-life indicators decline: life expectancy, mathematical and literacy skills, infant mortality, crime and incarcerations, suicides and depression, crime against women, and substance abuse such as drugs and alcohol. The social fabric gets stretched and strained till something snaps.
A number of things happen as these trends of concentrating profits in the hands of fewer and fewer people get stronger. Governments, irrespective of their ideology or the extent of their popular support, become captives of large corporations, both national and multinational. In India, over the past nine months, the National Democratic Alliance government has moved away from its populist stand. Recent legislative enactments affecting farmers and workers reflect a clear swing in favour of large companies in the name of promoting rapid growth. To distract attention from this crisis of governance, governments turn to nationalism and tribalism. The world falls into an ‘us-versus-them’ divide, the enemy clearly defined and visibly present. The ‘us’, who are privy to the bonanza of growth and innovations, include not only the very rich; there is a place for the very intelligent too.
Until the last four or five decades, capitalism had grown in a way where repetitive work was the norm. One learned a skill and practised it for life, honing it along the way. One became a banker, stuck to the job, and ended a more efficient and experienced banker. Stability and ordered discipline were the needs of the economic system. Now, suddenly, everything has to change in the world as fast as possible, and change must be continuous. The core skill has shifted from run-the-world to change-the-world in a 180-degree turnaround. The new inequality of skills and the consequent inequalities of income and wealth render anyone who is not clever enough to continuously change useless, unproductive and unemployable. They are also told that their children cannot become clever enough. The decks are stacked against them from birth. They are the new outcasts, the new wasted lives. They include the poor and deprived, they also include many new entrants in the army of redundancy. This becomes a bitter, emotional, angry divide. The challenge of governance is to keep this useless class under control by technology-enabled round-the-clock surveillance, arbitrary violence, and endless misinformation about the world.
One would have expected that the Covid-19 challenge would be a common enemy of humankind and we would forge a joint effort to fight it. In the process we would have learnt to cooperate globally on a number of other pressing problems. On the contrary, we have all become little, isolated bubbles. Welcome to the brave new world of distrust, deprivation and disease. Whether all is well or not obviously depends on where exactly one is positioned on the angular sides of the letter, ‘K’.
The author is former professor of Economics, IIM Calcutta
