x Abu Dhabi, UAETuesday 16 January 2018

Perception a powerful force in world's growing inequality

Perceptions of inequality are a potent force, especially when corruption is involved, as we have seen lately in this region and also in London and India.

With the exception of the Indian prime minister Manmohan Singh and his acolytes, most of the world has been heartened to watch the mass anti-corruption rallies which have brought rickshaw drivers together with students from India's top institutes of technology.

This outburst of righteous indignation is the work of the 74-year-old campaigner Anna Hazare, who has been trying to organise a public fast to force the government to give real teeth to its anti-corruption bill. Mr Hazare, with his Gandhi-style cap and references to the Mahatma's struggle against British rule, has fired up a public disgusted with the large-scale graft threatening India's booming economy.

Mr Singh denounced the campaign on Wednesday as a "totally misconceived" attempt to blackmail parliament. But this has only spurred the protests, and forced the government to climb down and allow Mr Hazare to hold a 15-day fast in a New Delhi park.

One of the ironies of these events is that Mr Singh himself is known as a Mr Clean. After seven years in power, he is feted around the world as the man who opened up India to foreign investment and business competition, while still living modestly.

Mr Hazare's critics may be right that he is using undemocratic means, but Mr Singh and his government appear to be out of touch with public opinion, and in need of some extra-parliamentary pressure.

It is up to the Indians to resolve their corruption issues, but observers around the world can be happy to see a very different, and Indian, picture of mass protest: it is not the Arab revolts where young people were met with bullets and tanks when they demanded the overthrow of exhausted autocrats. Nor is it like the recent riots in England, where a class of young people, unemployable in a globalised economy, took to the streets in an orgy of looting.

At first sight India's spasm of anti-corruption protests seems to have nothing in common with the Arab street protests and the London riots. From the outside, the Indian middle classes, and their sons and daughters at university, seem to have got the winning ticket in life's lottery. Their horizons are wider and earning power greater than in any previous generation. The Indian economy has been growing at five per cent a year since the 1990s, which should provide plenty of opportunities.

But things do not look like that on the ground, of course. Since the recession of 2008, some economists have turned their attention to the neglected issue of inequality. Income inequality is rising all over the world, even in once egalitarian Sweden. It goes hand in hand with globalisation and seems to be an inevitable consequence of developing countries, such as China and India, raising their standard of living.

In a new study published by the journal Foreign Affairs, the World Bank economist Branko Milanovic concludes that the perception of inequality is an important factor in fomenting mass dissent, sometimes even more important than the statistical reality. And there is nothing that aggravates the perception of inequality more than the knowledge that corrupt officials or cronies are stealing the fruits of growth.

Mr Milanovic writes that at the start of the Arab protests, income inequality in Tunisia was at levels comparable with the US and not changing, while in Egypt it was falling, meaning that national wealth was actually being more evenly shared. "In both Egypt and Tunisia, the top of the income pyramid was composed of people who acquired their wealth through corruption. The jobless saw their problems as resulting directly from the way the rich amassed their fortunes," Dr Milanovic concludes.

The globalised economy, meanwhile, turns the middle classes into "frustrated achievers". However hard they work or study, there will always be people with faster cars and bigger homes. Though their lives are infinitely more comfortable than their parents', they will focus their anger on the corrupt rich who have amassed their wealth not through hard slog but by connections.

There have always been rich and poor, and there always will be. But some things have changed in the way the super-rich behave. They squander their wealth in public, and without shame; everyone gets to know about it, because of improved communication; and finally, the global super-elite are more divorced from their poor compatriots, since they can flit around the world in search of low-tax regimes.

The economist John Maynard Keynes in 1919 described the cheese-paring capitalists of the golden era of British capitalism as the polar opposite of today's bling merchants.

"The new rich of the 19th century were not brought up to large expenditures, and preferred the power which investment gave them to the pleasures of immediate consumption. If the rich had spent their new wealth on their own enjoyments, the world would long ago have found such a regime intolerable."

This view is now heard today. The billionaire American investor Warren Buffett, said to be the world's third richest man, wrote on Monday in The New York Times that people like him should pay more tax. But the fact is that whatever Mr Buffett says, wealth inequalities seem destined to increase.

Richard Florida, professor at the University of Toronto and an urban studies expert, warns that the riots and looting experienced by London this month are a sign of things to come. Such unrest is going to be a feature, not a bug, of the world's creative cities, where disparities of wealth are most extreme.

Given all of this, there is only one conclusion: The Indian anti-corruption protestors are right. Corruption is not just a minor criminal matter; it is something which can poison the electorate, having a psychological effect way beyond its direct economic damage.

So if political elites want stability, they have to police corruption with the utmost rigour. If not, the view will grow that the whole system is corrupt, from the generous tax rates offered to the rich to the petty bribes demanded by minor officials. And then comparisons with the Arab awakenings will not be so easily dismissed.