Evidently, trickle-down economics has failed to do what it was supposed to; as income and wealth inequality across the world has only widened. However, one cannot discount that at the same time, living standards for the poor and low-income groups have improved over time -evident by the decline in overall poverty.Efficient capital allocation and technological advancement have together changed the world in the last century or so. In this digital age, the process of inclusion - financial, information and knowledge sharing, etc,- has given more access to the marginalized.
However, the rise in inequality is expanding the yawning divide between the rich and the poor. The two global financial crises -2008 and 2020 have made it clear that the monetary and fiscal stimuli are helping the rich more. According to a research, since the start of the pandemic, 651 American billionaires have gained $1 trillion of wealth. At the same time, 20 million Americans are out of job and 8 million have fallen into poverty. Some economists are calling this a K-shaped recovery - where the rich are getting richer and poor only becoming poorer.
The story of the rest of the world is not different. There are talks of taxing the rich - higher income, wealth tax or a combination of both. But at the same time, rich are giving away large sums of wealth to the poor. For example, MacKenzie Scott (ex-wife of Amazon founder Jeff Bezos) who became the 18th richest person in the world after getting divorced from the richest man, has donated over $4 billion to food banks and emergency relief funds in just four months. There are lessons to be learnt for the affluent class of Pakistan.
The dedication of American rich to philanthropy is nothing new. In the 19th century, the then richest man of the world - Andrew Carnegie-spent the last leg of his useful life in giving back to the world what he gained from it. His is the quintessential rag-to-riches story with good old capitalism thrown in the mix. He was a ruthless capitalist. He created the steel empire by undercutting the competition and extracting juice from the labour without adequately compensating them.
The US was going through the industrial revolution and private sector players like Carnegie, Andrew Mellon, John Rockefeller and JP Morgan through cut throat competition (without any active state involvement) built the rail, steel, oil and financial sector foundations. America never looked back thereafter. There was no way the public sector could built that huge infrastructure by its own with this efficiency.
However, these great men recognized the responsibility of redistribution. Carnegie in an essay "The Gospel of Wealth" written in 1889 argued that wealthy men have the responsibility to use their wealth for better use of the society. "The man who dies thus rich disgraced" were his words. He was not a communist; he believed that capital allocation was necessaryfor profits. Else, that capital would soon become bankrupt. But at the same time, he argued that it was the responsibility of the rich to spend the accumulated wealth for the betterment of society.
In the modern world, Bill and Melinda Gates Foundation is a prime example of Carnegie legacy. The story of Microsoft is known to all. After becoming the richest man, Bill Gates changed his life orientation by spending more time to run his foundation. The Foundation is doing a great job in improving healthcare, environment and many other areas. Warren Buffet is not far behind in his efforts to give back to society. Mackenzie Scott is a new philanthropy star.
The understanding and responsibility of the rich to give back to society is not confined to America. One can find many examples around. In India, Wipro Chairman Azim Premji donated INR 7,904 Crore ($1.1 bn) during the COVID lockdown. Many other rich business tycoons and celebrities in India are following suit.
This context is developed to bring the subject to light here in Pakistan, especially, the wealthy and privileged. It is their moral and social responsibility to give back to the country from where they gained and grew. The argument becomes persuasive given that the proportion of indirect taxes in Pakistan is much higher than direct. The incidence of tax is higher on the lower income segments. The responsibility of state is to correct the taxation system by having higher taxes on rich. But it's a different debate. Here under the current structure, especially in the days of COVID-19, the rich need to chip in more where the state is failing miserably and which are the greatest of needs for this country - in education and healthcare.
Copyright Business Recorder, 2020