Last week the Economist ran an interesting online debate. The question was on whether the time has come to tax the rich more.
Perhaps owing to a somewhat idiosyncratic resentment towards what the Economist terms “undeserving rich”, like many other thousands of followers of this debate, my immediate knee-jerk reaction, given the dire state of economic conditions and public finances throughout the world, was to be inclined towards Professor Piketty’s arguments that was in favour of taxing the rich more. But as the debate progressed, I found my dogmatic conviction waning in no time. And by the end of the debate I was confused, to say the least.
Arguments on income disparity have been one of the most frequently used populist political tools throughout the world. And the Maldives certainly is no exception. During the political upheaval of the last four years, the phenomenon was particularly widespread. On the one hand Gayoom and his supporters espoused arguments attributing the country’s relatively high per capita income to the government’s policies. At the same time they were quick to vehemently brush aside any criticism by the then opposition MDP, on issues such as the high incidence of poverty and skewed income distribution, as an inevitable price the country had to pay for economic growth and entrepreneurial dynamism.
Much of the criticism during this period was buttressed on the findings of the first VPA of 1998 which put a staggering 45 percent of the population below the poverty line (based on a poverty line of Rf 15 per person per day). However, by the second VPA of 2004, the figure was down to 19 percent. The Gini coefficient – a measure of inequality in income distribution expressed as a ratio between 0-1, with lower values indicating more equal distribution – in the meantime, improved from 0.39 to 0.33 in Male and 0.40 to 0.36 in the atolls during the same period. Contrary to popular belief, this makes our Gini coefficient comparable even to developed countries like the UK and the US.
It has been four years since the second VPA was published. Gayoom’s extravagance and the populist backlash catapulted Mohamed Nasheed to the highest office in the country late last year. It is a little too early to say how President Nasheed’s government’s policies are going to shape, over the long term, the stubbornly perverse affairs of the malefactors of the great resort-wealth and the multifaceted dynamics of the question of inequality. However, with stories like that of the alleged failure of the government to safeguard the interests of 23,000 individual shareholders of MTDC rife, the early indications are that establishing dominion over the all-powerful, party-hopping robber barons are easier said than done.
Perhaps owing to a somewhat idiosyncratic resentment towards what the Economist terms “undeserving rich”, like many other thousands of followers of this debate, my immediate knee-jerk reaction, given the dire state of economic conditions and public finances throughout the world, was to be inclined towards Professor Piketty’s arguments that was in favour of taxing the rich more. But as the debate progressed, I found my dogmatic conviction waning in no time. And by the end of the debate I was confused, to say the least.
Arguments on income disparity have been one of the most frequently used populist political tools throughout the world. And the Maldives certainly is no exception. During the political upheaval of the last four years, the phenomenon was particularly widespread. On the one hand Gayoom and his supporters espoused arguments attributing the country’s relatively high per capita income to the government’s policies. At the same time they were quick to vehemently brush aside any criticism by the then opposition MDP, on issues such as the high incidence of poverty and skewed income distribution, as an inevitable price the country had to pay for economic growth and entrepreneurial dynamism.
Much of the criticism during this period was buttressed on the findings of the first VPA of 1998 which put a staggering 45 percent of the population below the poverty line (based on a poverty line of Rf 15 per person per day). However, by the second VPA of 2004, the figure was down to 19 percent. The Gini coefficient – a measure of inequality in income distribution expressed as a ratio between 0-1, with lower values indicating more equal distribution – in the meantime, improved from 0.39 to 0.33 in Male and 0.40 to 0.36 in the atolls during the same period. Contrary to popular belief, this makes our Gini coefficient comparable even to developed countries like the UK and the US.
It has been four years since the second VPA was published. Gayoom’s extravagance and the populist backlash catapulted Mohamed Nasheed to the highest office in the country late last year. It is a little too early to say how President Nasheed’s government’s policies are going to shape, over the long term, the stubbornly perverse affairs of the malefactors of the great resort-wealth and the multifaceted dynamics of the question of inequality. However, with stories like that of the alleged failure of the government to safeguard the interests of 23,000 individual shareholders of MTDC rife, the early indications are that establishing dominion over the all-powerful, party-hopping robber barons are easier said than done.
17 comments:
there is always some one who gets the short end of the stick.
Income disparity remain unchanged, except for very few cases where govt staff wages have esky rocketed in recent years. People working in Private secotors in outer atolls especially, bring home much less income than those in Male' or govt staff. Well, its inevitable when almost 30-50% of the population live in one city and all the major commercial activities happen there! while resorts are owned happens to be same people, those who get fat salaries from parliament. Poor without any connection to a politician or any big shot (business) are left to struggle with daily life. In a profit driven economy, there will invariably be corruption, social stratification, income disparity and elits running the show.
The unfortunate income disparity in Maldives happened while the so called economists like Arif, Jaleel, Yameen were spending their weekends with resort owners.
Simple as that.
anon 3:02 - yes thats very true. all that these ppl did when they were in office were to collude with the rich to enrich themselves.
i dont know why the same rich people who took advantage of gayoom's government is able to do the same with the new government. I am talking about people like jabir. Jabir was one of the front line members of DRP. he was in that party for his busienss interests. He got all that he wanted (very unfairly of course) from the government because of his involvement with DRP. In Villivaru biyaadhoo case govt gave him kudaviligili saying that jabir's bid has been unfairly disqualified. If thats the case all those people who's bids were disqualified should receive an island as a compensation from the government. And then there is the undermining of the interests of over 20 thousand shareholders of MTDC. This happened in this government. why is Anni giving in to these people. Why is it so important for him to safe guard the interest of jabir and dhiyana. what I dont understand is why Anni is giving some public statement against dhiyaana every other day. this is all a game. they are all colluding in this. the rich will talk a lot. and they will do nothing, i repeat, absolutely nothing for the poor people of this country. thats all i have to say.
didi
Naimbe, I think you'll like this:
Wall street investment banking explained:
http://www.hilath.com/?p=174
Taxing the rich does not address the real problems of government interventionism. It is usually the case that when a regulation is made, it will be made in the favour of special interest groups (ie the one with the biggest lobby). The general public is left in the cold.
Taxes should be reduced to keep the government in check with regards to its spending spree. States never run out of ideas to spend.
Just to give an example here in Maldives. You will see all these politicians being sympathetic to the common fishermen of Maldives. Yet the legislation is that the entire tuna export is zoned and given to selected rich businessman. Ordinary folks can't even start an export business because that would be illegal. Yet NONE of the politicians that I know of calls for the repeal of this regulation.
No one agrees that there should be say 4 construction companies, or 5 clothing companies selected by governments via bids in this whole economy. So why tuna export? or any industry for that matter?
Then the question remains, what about welfare for the poor. If you are asked to pay 20/- out of every 100/- you earn to help the poor, who would you donate it to? The government or a charity such as RedCross?
The person commented above at 8.23 is contradicting himself. How he started it directly conflicts and is totally against how he ended the para.
In truth the role of the Government and also the role of the BIG businesses have to be within limits. None should beyond their size. And both are equally prone to corruption.
If they are both evils, the Government is certainly the lesser evil because (except for few cases in which the Government is hijacked by a group of family, like in the last 30 years), we can claim that Government belongs to everyone. In other words, with democratic decision making one guy like Qasim cannot get 4 fishing zones posing as different companies.
The starting point has to be declaration of all assets to the state.
Most advanced countries require that.
Only then can we address wealth disparity.
anon@5:36:
Tell me where I am contradicting.
"..the Government is certainly the lesser evil because (except for few cases in which the Government is hijacked by a group of family, like in the last 30 years), we can claim that Government belongs to everyone. In other words, with democratic decision making one guy like Qasim cannot get 4 fishing zones posing as different companies."
Last 30 years it was hijacked by family. Next 30 years by businessmen. Tell me a country where democratic decision making has not resulted in favoritism towards the special interest groups. Someone like Qasim cannot get 4 zones if there were no zones in the first place! The moment you create the zones, it will be given to the highest bidder (ie the richest guy), hence depriving the ordinary ppl of having even a chance. If there were no zones, and let everyone participate in the economy, then whoever attracts more customers will only grow.
anon@11:36:
Which advanced country require that? Yes if you declare all assets are owned by the state, then you might get full equality. All will be equally poor since you won't own any assets. Its called communism.
Meekaaku, you misunderstood me or I did not express myself clearly.
I did not mean all assets are owned by the state. What I meant was that the state records the wealth of all citizens. Declaring your assets to the state does not mean giving over your wealth to the state. It means just that - declare your wealth to the state.
In the UK the state knows the wealth of Sir Paul McCartney. In the United States the IRS knows the wealth of Bill Gates. In Australia the state knows the wealth of its citizens. It is so in India and Sri Lanka.
In the Maldives, the state does not know the wealth of Buruma Gasim or you or me.....
I am not advocating communism. I believe in free market capitalism. But for free market capitalism to thrive and enrich the community there has to be some amount of regulation.
How can you address income disparity if you do not know the income of the citizen?
And BTW, your blog is most enlightening and a favorite of mine and I am a great fan, regardless of being misunderstood.
anon@3:20:
Ok I misunderstood.
Still, where have I contradicted myself?
HERE ARE THE CONTRADICTIONS. LETS HIGHLIGHT SOME AT LEAST FOR SELF EDUCATION.
Taxing the rich does not address the real problems of government interventionism.
INTERVENTIONISM IS ABOUT GOV ENGAGING IN BUSINESS ACTIVITIES (IN PRACTICE OR BY MEANS OR REGULATION) THAT MAY RESULT IN HAVING TO COMPETE WITH PVT SECTOR.
TAXATION IS NOT AN INTERVENTION PER SE. BUT INTERVENTIONISM MAY BE AN UNINTENDED CONSEQUENCES OF HIGHER TAXATION.
SO THE WAY YOU LINKED THE TWO ISSUES IS CONTRADICTORY AND CONFUSING.
It is usually the case that when a regulation is made, it will be made in the favour of special interest groups (ie the one with the biggest lobby). The general public is left in the cold.
THATS CRONYISM AND HAPPENS IF THERE IS NO DEMOCRACY (AND THUS, NO RULE OF LAW)
Taxes should be reduced to keep the government in check with regards to its spending spree. States never run out of ideas to spend.
YOU MEAN LESS TAXES TO REDUCE THE ABILITY OF POLITICIANS TO SPEND? WOULDN'T THAT LEAVE CITIZENS AT THE MERCY OF RESORT OWNERS FOR MEDICAL BILLS AND EDUCATION. A FAMILIAR SITUATION IN MALDIVES.
Just to give an example here in Maldives. You will see all these politicians being sympathetic to the common fishermen of Maldives.
YES, ONLY WHEN CAMPAIGNING IN ISLANDS..
Yet the legislation is that the entire tuna export is zoned and given to selected rich businessman.
LEGISLATION TO FAVOR TO ONE GUY. UNLESS HE/SHE IS ABLE TO BUY AN THE MAJORITY IN THE PARLIAMENT, SUCH A THINK IS UNLIKELY IN A DEMOCRACY.
Ordinary folks can't even start an export business because that would be illegal. Yet NONE of the politicians that I know of calls for the repeal of this regulation.
NO COMMENT
No one agrees that there should be say 4 construction companies, or 5 clothing companies selected by governments via bids in this whole economy. So why tuna export? or any industry for that matter?
MAY BE 4 CONSTRUCTION COMPANIES CAN UTILIZE RESOURCES EFFICIENTLY. IT IS A QUESTION OF INDUSTRY STRUCTURE AND EFFICIENCY. BUT AGAIN, THAT HAS NOTHING TO DO WITH INCOME DISPARITY.
Then the question remains, what about welfare for the poor. If you are asked to pay 20/- out of every 100/- you earn to help the poor, who would you donate it to? The government or a charity such as RedCross?
I WOULD CERTAINLY NOT GIVE THE 20 RF TO A BUSINESSMAN AS TAX RELIEF EXPECTING TO LIVE ON HIS GENEROSITY.
THAT SAID, YOU MADE GOOD POINTS.
I said taxation does not address the real problem of rich businesses getting rich via state's help (ie intervention). Not whethe tax was intervention or not.
>THATS CRONYISM AND HAPPENS IF THERE IS NO DEMOCRACY (AND THUS, NO RULE OF LAW)
Cronyism or not, it is in democracies as well that this happen. The very nature of democracy allows lobbying (not that lobbying in itself is bad). Hence there is tendency to favour particular groups. Eg: You will soon see that coming in relation to copyrights and patents too in Maldives.
>YOU MEAN LESS TAXES TO REDUCE THE ABILITY OF POLITICIANS TO SPEND? WOULDN'T THAT LEAVE CITIZENS AT THE MERCY OF RESORT OWNERS FOR MEDICAL BILLS AND EDUCATION. A FAMILIAR SITUATION IN MALDIVES.
And giving politicians more money does help? Politicians make political decisions with our money. Look how much money is wasted in various government projects, like million dollar harbours in small islands, all due to political reasons. Not for economic or humanity reasons. I would rather give the money to NGO/INGO.
>MAY BE 4 CONSTRUCTION COMPANIES CAN UTILIZE RESOURCES EFFICIENTLY. IT IS A QUESTION OF INDUSTRY STRUCTURE AND EFFICIENCY. BUT AGAIN, THAT HAS NOTHING TO DO WITH INCOME DISPARITY.
And who select the 4 companies? and on what basis?Give to the highest bidder (thereby enriching the rich again)? Efficiency of a company can only be judged by its performance in the market. Those who are not efficient do not survive. This has EVERYTHING to do with income disparity. How does giving an entire industry to selected companies beneficial to the ordinary folks? The state will be denying ordinary folks from participating in the economy (as profit earners). The only opportunity they will have is working for the state chosen business (as wage earners). Then no wonder wages are low while profits are high, because they would know the entire industry is theirs (split among the 4 ofcourse).
The way out of poverty is not continuous aid (though this does help too). It is education and empowerment. Empowering them to participate in the economy.
To paraphrase a common saying:
If you donate a fish to a man, you can feed him for a day. If you let him fish on equal terms, he can feed himself for a lifetime.
how in the world can free market capitalism thrive? Free market capitalism or profit system or whatever you may call it, does not and will not improve a society. For free market and competition to exist means, there is inevitable, income disparity, wastage, strategic corruption. Differential advantage is the key and within such a system there inherently will be wealth gaps. Its inevitable.
anon @ 12:49
Can you recommend an laternative system then?
I agree, free market system has its own weaknesses. But what we have to understand is, there are no alternative approaches. At least in the real world, no other system has proven to be superior than the free market system. You may take china's example, but again then China and India's economic growth sky rocketed after they opnend up their economies to some extent.
I agree Yusuf that it could be best within what is established so far. But can't we try a new system that no one has ever lived. Technologically we are so advanced and yet our social system 100s of years old.
Its time we change our social systems. Have you heard of the venus project? check it out on thevenusproject.com. Its a new social system which advocates resource based economy. All the resources of the earth is declared common heritage of all the people in the world. With technology we can create abundance in our life where we don't need steal, compete for labour etc. Every one would have access to everything...
I could not eloborate the system here and suggest to read on the venus project.
PS. when i say "we" im refering to all humans on this planet. oh i don't like people being separate given countries and artifial feeling of patriotism.. we got to take care of the whole community and it includes all humans and animals and plant life on earth.
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