Vinoth Ramachandra

Archive for May 2014

The French economist Thomas Piketty’s monumental Capital in the Twenty-First Century is being widely acclaimed as a classic on par with Marx’s Capital and Keynes’ General Theory. Paul Krugman summarizes Piketty’s thesis thus: “The big idea of Capital in the Twenty-First Century is that we haven’t just gone back to nineteenth-century levels of income inequality [in the USA], we’re also on a path back to ‘patrimonial capitalism,’ in which the commanding heights of the economy are controlled not by talented individuals but by family dynasties.”

In a sense this is hardly new; indeed, it is what some of us lowly amateurs have been saying for years- that economic inequality is cumulative and “hereditary”, that the highest incomes are not earned but “fixed”, that democracy is being hijacked by the rich and super-rich (the famous “one per cent” highlighted by the Occupying movement in the USA), etc. What Piketty brings to the argument is the kind of sophisticated statistical analysis and detailed data-gathering (based largely on tax records) beloved of technical economists. Whether Piketty’s work will lead to any major shift in mainstream economists’ neglect of distribution in favour of “growth” remains to be seen.

Inequality kills. Adam Smith himself pointed out that the ability to appear in public without shame requires more in a wealthy society than an overall poor one: at a certain point, he suggested, a man needs a linen shirt to be respectably dressed. The whole idea of a standard of poverty unrelated to the incomes of others is false. Becoming relatively worse off can actually make a person absolutely worse off, in terms of opportunities and social standing.

Two of the most unequal societies in the world are Brazil and China. I had the privilege of spending almost three weeks in Brazil last month. Brazilians are a warm, hospitable and friendly people on the whole, but the contrasts in wealth can be quite overpowering. Much of this inequality goes back to the colonial annexation of vast areas of land and the steady influx of European settlers for most of the past four hundred years. But government policies have also contributed.

There is relatively little investment in primary and secondary education. Educated elites exert pressure to skew the educational budget in favour of universities. There are some excellent public universities where enrolment is free. But the exams are so competitive that only rich students from the best-equipped private schools and who have the advantage of the right social contacts are able to pass. This is what makes access to prestigious public universities difficult for Brazil’s poor and lower middle classes. The latter are the favourite clientele of private institutions of higher education. Instruction at these private institutions, to which the vast majority of university students now belong, is generally poor.

Brazil’s media is technically “free”, but in practice the major media companies are owned by well-heeled supporters of the establishment. So only one side of the news gets reported. It is left to the new social media to highlight discrepancies between the official version of events and the ground realities. In this soccer-crazy nation, there is widespread opposition to the hosting of the World Cup in Brazil next month. The government is spending over US $15 billion of public money in new soccer stadia and hotels for the World Cup, while public spending on education and healthcare withers. To forestall demonstrations on the streets, the government is considering bringing back anti-terrorist legislation from the days of military rule. If, however, these protests attract 5,000-10,000 people every time, then they will become too difficult to police.

I was told that while drinking alcohol is forbidden in Brazilian soccer stadiums, an exception will be made during the World Cup since Budweiser is one of the principal sponsors.

These major international sporting events are more about national propaganda and the corruption of corporate and political elites than it is about sport.

China’s 100 richest men are collectively worth over $300 billion, while an estimated 300m people in the country still live on less than $2 a day. In January 2014, Xu Zhiyong, a legal scholar and prominent human rights activist was jailed for four years by a Beijing court (in a closed-door trial) simply for calling on Chinese officials to declare their assets. This is the same Chinese government that is courted by Western multinationals and to which Britain’s David Cameron offered last November “a dialogue of respect” as well as long-term British visas to its business elites!

A two-year reporting effort led by the International Consortium of Investigative Journalists (ICIJ) has revealed that more than a dozen family members of China’s top political and military leaders are making use of offshore companies based in the British Virgin Islands. The documents also reveal the central role of major Western banks and accountancy firms, including PricewaterhouseCoopers, Credit Suisse and UBS in the offshore world, acting as middlemen in the establishing of such companies. Between $1 trillion and $4 trillion in untraced assets have left China since 2000, according to estimates.

The Chinese government has cracked down on citizens’ movements aimed at promoting transparency and accountability among the country’s elite. Foreign news sites that revealed details of offshore holdings by the relatives of China’s political leaders were blocked and internet service providers were ordered to target and report any users posting on the subject.

The connection between Picketty and Xu Zhiyong has not, to my knowledge, been drawn in the Western media. One is hailed as a rock-star economist, the other totally ignored.


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