Capitalism and Income inequality

Since the beginning of human civilisation, people have been exchanging simple commodities.
It began with the method of the Barter. In 1531 Antwerp had the first stock exchange.
Development of printing press and human colonization forever changed the history of
mankind. Capitalism is there since the 17th century. In Europe, traders used to buy goods
from eastern countries and sell them to other countries on huge profits. Adam Smith, who is
known as the father of capitalism, in his book Wealth of Nations, argued that free,
unregulated economic competition would maximize profits and innovation, create a division
of labour, and make prices reasonable.
The world is full of inequality. Ethnic, gender, political and economic disparities exist. The
economic inequalities are there since medieval times where kings and emperors used to enjoy
the surplus wealth and workers did not. With the industrial revolution, the economic
disparity between countries increased. Globalization and foreign trade are accelerating it.

Noam Chomsky father of modern linguistics states "A basic principle of modern state
capitalism is that costs and risks are socialized to the extent possible, while profit privatized."
In 2017, the world's 50% of the wealth was with top 1% population. According to Credit
Suisse’s Global Wealth Databook 2014, the bottom 10% of Indian society owns merely 0.2%
of national wealth, while the top 10% holds a whopping 77% of the wealth share. Since 2000,
the rich 10% have become steadily wealthier. Recently OXFAM report takes centre stage in
the World economic forum where it gives a reality check of the inequality that stands in the
country. The report shows that in India top 1% of the population holds 42.5% of the national
wealth, whereas the bottom 50% holds as little as 2.8%. It also states that 6 of every 10
Indian is surviving on a daily wage of 3$ and 20cents. The wealth of India has increased by
$625.5Billion, from 2018 to 2019. Of this increase, the wealth of the top 1% has increased by
46% and just 3% increase for the bottom 50%. One of the richest men on earth Bill gates
states "Yes, some level of inequality is built on to the capitalism... It is inherent to the system.
The question is, what level of inequality is acceptable? And when does inequality start doing
more harm than good?"

An interesting study conducted by world bank on "How much richer is the richest 20% in
each country than the poorest 20%?". The results were quite fascinating. Countries at the
bottom of the list like Japan, Sweden, Denmark had half the times of inequality than the
countries on the top of the list like Singapore, USA and UK. Problems with social gradients
such as homicide rate, imprisonment, violence, infant mortality, mental illness, low math and
literacy scores of kids have a strong correlation with the level of income inequality. When we
look at the same factors between countries on per capita GDP scale, there is no correlation at
all. It gives rise to a paradox. Between our society’s income means nothing but, it’s
something important within societies. Within societies, we are looking at relative income and
the size of the gaps between us. Another difference is how countries like Japan and Sweden
gets their greater equality. Sweden has a huge difference in earnings and it uses high taxation
and generous benefits to narrow the gap. Japan, on the other hand, has a lesser difference in
earnings before taxes. We can conclude that it does not matter how we get our greater
equality as long as we get close to it somehow.
There is a skill-based technological transition that is causing a rise in inequality. During
industrial revolution the jobs changed from farming to manufacturing. Jobs now produced are
more technology-based, and usually need new skills. It was easier before to upskill compared
to now. Educated and skilled workers are doing great while others are left behind. For skilled
workers technology has become a compliment but a replacement for unskilled workers. Only
the low skill (less paid) and high skill (highly paid) jobs are left. The medium scale and
medium pay jobs are getting automated. There is less income for people with fewer skills.
Also, there is less influence of labour unions so the minimum wage is not getting increased
significantly. The tax policies are in favour of the wealthy and are not as progressive.
Oxfam report states that if we improve the tax policies and increase the tax paid by richest in
India by just 0.5% on their wealth over the next decade then that money would create 117
million jobs in the sectors such as elderly and childcare, education and health. In January
2019 in Senator Elizabeth Warren proposed Wealth tax. We mostly pay tax when we earn
money or make payment and there is no tax on the wealth. Warren proposed a tax on wealth
if it is above $50milllion. If this law got implemented in the US then in the year 2016 itself it
could have raised about $200Billion.
Technology has surely created more jobs than it has taken. It has also given many innovative
solutions to critical problems like communication, transport and health. Technology
advancements are growing exponentially. We are using more and more software and are
automating almost all manual low skill tasks. We have to use technology to improve
education quality and make future generation job-ready.