Turning left is starting point of reducing inequality

The announcement right before Diwali of a vaccine that appears to work against the coronavirus (and another one from another company right after) suggests that this Diwali will truly carry us from a period of extraordinary darkness into the brightest light.

In addition to this “light at the end of the tunnel” that has run since about March this year, I believe there is another, much longer, period of darkness that will be turning as well. The coronavirus, in addition to killing nearly one and a half million people (and counting) and decimating economies, has also resulted in pushing the already untenable economic/ social inequality in every country off the scale.

This “pandemic” of inequality in the US (and other rich countries) started around the late 1970s, when strong growth began to push inequality higher as those that had resources were able to capitalise more effectively on the growth boom. Driven by Reagan’s infamous “trickle-down economics” starting in 1980, as the “greed is good” ethos took hold, inequality increased steadily, accelerating over subsequent decades till it reached horrifyingly levels by the time of the 2008-09 crisis. The “solution” put out by the US Fed and the Treasury to protect the economy—pushing interest rates to near-zero—resulted in a further dramatic increase in inequality, to near-stratospheric levels. By this time, of course, economic growth began to falter since the majority of people had less and less spending power.

Remarkably, it took till 2011 and Occupy Wall Street before regular Americans began to protest their circumstances, and, as is widely recognised, it was this sense of injustice that enabled Trump to become president.

Today, the coronavirus lockdowns have pushed millions of more people in every country in the world (including the US) into (or deeper into) poverty, as a result of which inequality has reached unacceptable proportions. And, just as the discovery of a “successful” vaccine is turning the cycle of the pandemic, the longer cycle of increasing inequality—which has been running for over 40 years now—also appears to be coming to an end.

Nothing goes in one direction forever, and, while it is well-nigh impossible to forecast an exact turning point, there are many straws in the wind suggesting that governments everywhere are being pushed (or encouraged, in some cases) to the left, which is the starting point of reducing inequality.

Biden’s victory in the US Presidential election is one such starting point, and whether the Democrats are able to capture the Senate in the Georgia run-offs or not will simply modulate the pace of change. In any event, there is already a greater focus on health, education and jobs for less privileged Americans. There is also an increasing focus on making structural changes in fiscal policy, with increased taxation of capital-based income. For the past decade or so, there have been efforts to close down—or, at least, reduce the importance of—tax havens; this will accelerate. Several Democrats, like Elizabeth Warren and Bernie Sanders, have been calling for more progressive taxation; and given the need to skew spending toward lower-income Americans, some version of this is on the cards in the (probably not too far) future. And, of course, there are continuing efforts in the US (and the EU) to compel technology giants to pay their fair share.

Importantly, whatever be the tempo of change, the continuing demographic changes in the US and, indeed, the impact of fairer government spending, suggests a possibility (at least) that, after four years of Biden, we would have eight years of Kamala Harris, and then, Alexandra Ocasio Cortez! This would be the best incarnation of the long cycle, turning the US of the future into more of a social democratic society than the failed hyper-capitalist one that it is today.

The shift-to-the-left cycle is turning in all countries, albeit with different time-lines. In poorer countries, like India, which are handicapped by limited resources and venal governments, the change may be slower, partly because as we pull out of the pandemic-induced slowdown, economic growth will be (relatively) high, which on its own will lead to increasing inequality. However, the new voices that are demanding a stronger focus on—again—employment, education and health will perforce drive politics meaningfully to the left.

The success of the Mahagatbandhan—in particular, the Left parties—in the Bihar election ensures that the people (at least in Bihar) will be central to government decision-making and expenditure. Significantly, the opposition MLAs are younger (average age 48 as compared to 52 for the assembly as a whole), committed and activist.

While the BJP government continues to blindly pursue its politics of division—the “love-jihad” laws, which are unconstitutional and will certainly be overturned, speak its attitude—it is clear that it will be surprised by this global wave of reducing inequality and the renewed rise of real people power in state after state.

The author is CEO, Mecklai Financial

www.mecklai.com