Wealth Issue 2018: Essay

Despite the Paradox

TCA Srinivasa Raghavan is a senior journalist and columnist. He is the author of Dialogue of the Deaf: The Government and the RBI
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Don’t be fooled by the old German. Let’s celebrate wealth

Nothing could have spelt out the divergences in perceptions of wealth more clearly than the famous dialogue from the Hindi film Deewar. The bad guy tells the good guy, “I have buildings, cars, cash. What have you got?” And the good guy replies, “I have Mother.”

As definitions of wealth go, it is game, set and match to the good guy. Wealth, like beauty, lies in the eyes of the beholder. A single hen that yields four healthy eggs a day may well symbolise more wealth than 10 that yield eight unhealthy ones. Kautilya, India’s first economist, grasped this 200 years before the Christian era began. It can be anything, he said, like money, grains, precious metals, labour, forest produce, etcetera. ‘The acquisition of wealth is always beneficial if it is acquired for the sake of a good wife, a son or a friend, or for giving away charity,’ he wrote. To him, wealth was a means to insure against adversity, not something to be used as an instrument of coercion.

Very few listened to his advice. Over the centuries, wealth—the surplus over need—became exactly what he didn’t want it to be. Whether the coercion for which it was used was by physical tools or by other means like market forces, the effect was the same: wealth begat wealth. The more you had, the more you acquired, often without even trying because of the compounding effect and sometimes because you used it to acquire more.

This raises an important question for the modern era: is the notion of wealth today predominantly political or economic? When governments seek to tax wealth, are they acting as political or economic agents? Why has the term ‘wealthy’ become slightly pejorative?

There are no easy or simple answers because wealth has become a value-loaded term. To see the contrast, we need go no further than those two very close friends, Gandhiji and Ghanshyam Das Birla, the modern Krishna and Sudama. Birlaji was wealthy beyond dreams; Gandhiji left behind a pair of wooden slippers, broken spectacles and a few books. Yet he is revered and Birlaji is viewed with suspicion.

What divided them was not wealth, but the Indian view of wealth, which is hugely political. The notion that the Garibdas is good in the pure Kantian sense—nothing but goodwill is good—and the Sethji is a villain has gotten so deeply ingrained in us that we have forgotten that this is quite contrary to indigenous Indian thought systems.

This is not a place to go into what ancient Indian texts have said about wealth. Suffice it to say that none of them even remotely suggested that it was a bad thing. Rather, they all extolled its virtues and exhorted everyone to accumulate it and asked them not to expropriate others.

Ancient Hindus also had a very nuanced understanding of wealth, which they designated by a generic term, Lakshmi. She could take various forms. A person could be wealthy in any single form or a combination of different forms of wealth. There was never any direct or implied statement that to be wealthy was somehow bad.

That came much later, in the 19th century, from the West.

Two major Western streams of thought contributed to the prejudice against wealth. One was the post-Enlightenment 17th century European notion that the unit of social action was the individual, not the group—whichever group that might be—and that all individuals were equal. Although this was cloaked in moral sentiments, the essence of this was political, aimed at destroying the hegemony of the Catholic Church over society.

From this, Karl Marx developed his mid-19th century theories, a key pillar of which was that all individuals must have identical economic wealth. This subsequently took the meaningless but politically catchy form ‘From each according to his ability, to each according to his need.’ It became the central credo of the European Communist movement. Over the next half century, it became respectable to despise wealth.

Something like this also happened in America with some traces of Marxist thought. In 1899, an academic called Thorstein Veblen, who was part economist and part sociologist, published a highly perceptive, controversial and acclaimed book called The Theory of the Leisure Class, in which he basically implied that the wealthy were not nice people because they consumed a lot without producing anything.

But whereas Marx had said that the producing class, namely the proletariat, would revolt against the wealthy, Veblen said that it would join them by seeking to increase its consumption. In the event, this is what has happened. Americans don’t despise wealth but seek it. In China, in 1978, Deng Xiaoping said the same thing more pithily: the colour of the cat doesn’t matter as long as it catches mice. This has led the Chinese to behave exactly like Americans.

Wealth is a force for the good of society for a very simple reason: its absence, where everyone is poorer or poor, can’t by any stretch of imagination be considered a positive

Western Europeans, however, have remained caught in the moral trap of negative thoughts about wealth. The latest of the like is a French economist who has written a 600-page book about the accumulation and concentration of wealth in a few hands. His book, in a throwback to Marx’s Das Capital, is called Capital in the Twenty -First Century. Its theme is similar to that of Marx and Veblen. He has argued, with the use of masses of data, both historical and current, that the rate of return on capital in developed countries is persistently greater than the rate of economic growth. So, he infers that wealth inequality will increase. As this could cause social unrest, governments must redistribute wealth through a progressive global tax on wealth.

This idea has been grabbed for future use by political parties in democratic countries. Autocracies have ignored it. But former autocracies and military dictatorships like South Korea which have become democracies have adopted it as a kind of disk operating system. The call for a Universal Basic Income is a direct outcome of Piketty’s neo-Marxism.

Indian cultural and moral ethos and thought never regarded wealth in the hands of individuals as being ‘not good’. Yet, over the last 100 years, thanks to the Marx virus and Gandhiji’s peculiar extolling of poverty, the opposite has happened. Both in the moral universe and the earthly one, Indians have become anti-wealth to such an extent that the wealthy are now despised because they are wealthy.

At the core of the Indian paradox lies the political misinterpretation of the notion of democracy and its relationship with wealth. Whereas in other cultures democracy has come to mean the creation of opportunities for everyone to become richer, in India it has come to mean the exact opposite.

A combination of the Marxist-Leninist intellectual paradigm and the pressure of electoral compulsions has turned India into a society that approves of expropriation and allows the state to expropriate even those whose wealth is only relative. Nothing typifies this better than the only Budget speech Indira Gandhi delivered (in 1970). From then onwards, the Congress party became indistinguishable from the Communist Party of India, on whose support it depended for survival in power. This is what she said:

“…Without some restraint on urban land values and individual ownership of urban property, we cannot adequately develop housing and other amenities required to wrest the maximum benefits from the vast productive investments already made in our over- crowded towns and cities…. a balance has to be struck between outlays which may be immediately productive and those which are essential to create and sustain a social and political framework which is conducive to growth in the long run…If the requirements of growth are urgent, so is the need for some selective measures of social welfare. The fiscal system has also to serve the ends of greater equality of incomes, consumption and wealth, irrespective of any immediate need for resources…”

Just seven months earlier, she had expropriated the owners of India’s banks by nationalising them against advice to the contrary. She then went on to expropriate practically everyone else who the Congress labelled as ‘wealthy’. Income taxes were raised to extraordinarily high levels—the marginal rate went up to 97 per cent, and along with the incidence of wealth tax, over 100 per cent. Indirect taxes were also hiked, especially on things which the Government regarded as being luxuries or inessential, which was practically everything. It was a bloodbath.

The consequences for India of this politico-ideological view of wealth have been no less disastrous than those of 200 years of British rule. While the British transferred wealth out of India, the Congress went a step further—it prevented the very creation of wealth. According its nonsensical economics, economic growth happened because existing wealth was redistributed, not because new wealth was created and re- invested. By the end of the 1970s, even India’s so-called right wing parties like the Jana Sangh (now called the BJP) had broadly adopted this view.

This is the socio-political-economic cul de sac we are stuck in now. Unless we manage to find a way out of it, India will continue to conduct itself in a manner that not only the rest of the world cannot understand but which is also contradictory to its own interests.

Yet, today, it is technology—albeit of a different sort from what anyone had encountered before—that has made it possible for young men and women to become unimaginably wealthy when they are still young, often in their twenties and thirties. They have also, via their innovations, created millions of jobs that didn’t exist before. In a sense, what they have achieved is identical to what the first people who started farming did when they realised the potential of the earth. This is also identical to what happened more than 5,000 years later when James Watt discovered the potential of steam and Thomas Edison the potential of ether waves.

When we view wealth from the point of view of economics, we get a very different view than when we view it from the perspective of politics. In the former, wealth is an asset, while in the latter, it is a liability

The result is that in a complete vindication of the Hindu view of wealth, it is the knowledge economy—Saraswati— that has opened doors to the riches that men like Bill Gates, Jeff Bezos, Mark Zuckerberg, Jack Dorsey, Brian Apton and Jan Koum enjoy today. As each of them has said in their own different ways, the more you know, the wealthier you become.

The underlying basis for what these men have achieved is what EM Forster, in a completely different context, called ‘Only Connect’. All of them have used a late 20th century invention, the internet, to achieve connectivity of various sorts—sellers to buyers, lovers to each other, governments to (unwilling) citizens, teachers to students, editors to journalists, the pairings can be endless.

Just as people want to own gold, it seems they also want to connect. The mining of gold made millions happy and rich. It has been the same with those who have connected nearly five billion people to one another. One side-effect of this, from which India has benefited immensely, is the call centre business which enables the disembodied delivery of tradeable services. Infosys, Wipro, TCS, etcetera, are all its beneficiaries, and along with them a few million Indians who have invested in their stock.

That said it is not as if wealth does not have its negative aspects, perhaps the most pronounced of which is the tendency to exercise undue and excessive control over the power structure in a country. This happens, as Marx explained so brilliantly in his Capital trilogy, when the wealthy persuade lawmakers to make laws that favour them. Mostly, this takes the form of policies that are exclusionary in nature.

In order to minimise this and adopt more inclusive policies where while the rich get richer they do so at a slower pace, democratically elected governments have to depend on the poor who are larger in number than the wealthy.

So what we have got now is a reversion to type: Central governments depend, via coalitions, on mansabdars who now group themselves into political parties. In the old days, the power of a mansabdar was judged by the number of soldiers and horses he could offer. Today, it is the number of MPs or MLAs that a leader can offer in support to the largest party in the legislature. As in the old manasabdari system, where wealth was acquired via loot, now also success depends on the acquisition of wealth, usually stolen from tax revenues. The Keynes-induced urge amongst political parties to spend vast sums from the exchequer, ostensibly in the name of the poor and cheered on from the sidelines by well-meaning intellectuals, has become the exact equivalent of the jagirs that old emperors used to distribute in return for support.

But there is a big difference as well between then and now: whereas the land given out as jagirs was usually not productive—or even when it was, it was not well utilised land—today it is the productive classes from whom the government takes money and then spends. Productive wealth is being destroyed in the process. What’s worse, a goodly portion of this never reaches the intended beneficiaries and ends up instead in the pockets of the new mansabdars. Productive wealth is thus converted into unproductive wealth. This is one reason why despite a high savings rate, India fails to get better off—and this is why about a month ago Prime Minister Narendra Modi expressed his deep concern at a meeting of secretaries to the Government.

On balance, however, wealth is a force for the good of society for a very simple reason: its absence, where everyone is poorer or poor, can’t by any stretch of imagination be considered a positive. This was understood clearly till the 20th century when a combintion of Marx’s jaundiced views and the imperatives of electoral politics made ‘wealth’ a bad word. The paradox in this was that Marx had identified technology as the main villain because it enabled the capitalist, who was forever in search of profit and wealth, to displace labour.

It is, or should be, evident from the above that when we view wealth from the point of view of economics, we get a very different view than when we view it from the perspective of politics. In the former, wealth is an asset, while in the latter, it is a liability. But in itself, wealth although desirable, is neither good nor bad, neither benign nor malignant, neither kind nor cruel. Which view one favours depends on ideological persuasion. Therefore, in the end, only one fact is relevant while discussing wealth: its creation, even when it is highly concentrated in a few million hands, is still better than its non-creation. India needs to refer to its roots and celebrate wealth in its various forms instead of denigrating it because a dyspeptic old German misread its value 150 years ago.

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The Wealth Issue 2018: Complete list of Essays and Profiles