Who Plundered What And How Much – The Politics Of Inequality

by Ruwantissa Abeyratne

Private capital tends to become concentrated in few hands… The result …is an oligarchy of private capital the enormous power of which cannot be effectively checked even by a democratically organized political society.- Albert Einstein

( March 11, 2015, Montreal, Sri Lanka Guardian) From the look of it and from media reports coming in, the Government of Sri Lanka  has now the daunting  task of determining whether allegations –  that some persons made a lot of money illegally and at the expense of the people  during the previous regime – are true and if so who plundered what and how much.  If money was plundered, apparently they are sitting as capital invested somewhere, according to reports.

Apart from the portentous vulgarity and criminality of corruption and unjust enrichment, this phenomenon, which is not uncommon in some other parts of the world as well, brings to bear the inevitable issue of inequality in society and the crisscrossing of issues straddling the world which is swept under the carpet by those with self serving interests.

What is plundered is plundered.  However, there are two measures that could be taken: recover the plunder; and put a stop to future plundering.

Since the alleged scope and magnitude of the plunder has seemingly never been experienced before in Sri Lanka, once has to wonder whether this is a global political phenomenon steeped in the  history of the world.  Thomas Piketty, in  his now famous book  “Capital in the Twenty First Century” says: “The history of the distribution of wealth has always been political, and it cannot be reduced to purely economic mechanisms. In particular, the reduction of inequality that took place in most developed countries between 1910 and 1950 was above all the consequence of war and of policies adopted to cope with the shocks of war.  Similarly, the resurgence of inequality after 1980 is due largely to the political shifts of the past several decades, especially in regard to taxation and finance.  The history of inequality is shaped by the way economic, social and political actors view what is just and what is not as well as the relative power of those actors and the collective choices that result. It is the joint product of all actors combined”.

Arguably, the most disturbing statement in the book is that there is no natural, spontaneous process to prevent destabilizing and  inegalitarian forces from prevailing permanently.  Since the phenomenon of increasing inequality through corruption would not go away naturally, it would be for the government to take steps to put a permanent stop to it.

According to Piketty, here’s how it works for the plunderer.  Capital, plundered or otherwise, is governed by the simple equation r > g where r stands for the average annual rate of return on capital, including profits, dividends, interest, rents and other income from capital, expressed as a percentage of its  total value, and g stands for the rate of growth of the economy, that is, the annual increase in income or output. Therefore if the rate of growth of the Sri Lankan economy is 7% (the figure for 2013) and the rate of returns on capital of plunderer is greater than 7%, the plunderer keeps getting richer and richer.  This widens the divergence and increases the inequality gap.

Another book that extends this phenomenon to another dimension is Naomi Klein’s “This Changes Everything“.  Although the book is about climate change and the impasse the world has reached in not being able to tackle the problem head on due to various reasons, Klein brings to bear a point that well fits in with the politics of inequality and the role played by a limited political elite wielding virtually unlimited power and control over the economyby blocking important measures that would otherwise act to the benefit of humanity.  Klein says:  “We have not done the things that are necessary…because those things fundamentally conflict with deregulated capitalism, the reigning ideology for the entire period we have been struggling to find a way out of the crisis.  We are stuck because the actions that would give us the best chance of averting catastrophe – and would benefit the vast majority – are extremely threatening to an elite minority that has a stranglehold over our economy, our political process, and most of our major media outlets”.   This statement is as true for inequality as it is to addressing climate change.

My take is that there are two broad philosophical approaches the Government of Sri Lanka can take to address the issue of inequality.  The first is to ensure equal access to education, not merely in theory but in practice where  the young of all regions or provinces  of the country receive education, particularly in science and  technology, language, economics, law and politics so that could compete on a level playing field. The second is to eschew a misconceived policy that is prevalent in the world which says “the government should get out of the way and let private enterprise take over”.  The government has to be innovative in funding innovation that paves the way for private enterprise to take over implementation of the innovative process. Although private enterprise is essential for a robust economy and must not be stultified by excessive nationalistic public control, the role of the government as a  stabilizer is essential to ensure convergence and the reduction of inequality.

In this context,  perhaps the best argument has been forwarded by Mariana Mazzucato who holds the Chair in the Economics of Innovation at the University of Sussex.  In her article “The Innovative State” published in Foreign Affairs (January/February 2015) Professor Mazzucato says: “in countries that owe their growth to innovation, the State has historically served, not as a meddler in the private sector, but as a key partner of it – and often a more daring one, willing to take risks that businesses won’t.  Across the entire innovation chain, from basic research to commercialization, governments have stepped up with needed investment that the private sector has been too scared to provide.    The spending has proved transformative, creating entirely new markets and sectors including the internet, nanotechnology, biotechnology and clean energy”.

Of course, one size does not fit all and the principles referred to in this article should be taken in their broadest sense to fit the Sri Lankan context.  However one fact is incontrovertible – that the wisdom of these principles cannot be discarded and one cannot go deeper into them without deep reflection, which    is a task for the Government.   The author’s position is that of  Albert Einstein who said: “Everything should be made as simple as possible, but not simpler”.