A world where all men are equal, where there is no hassle of making ‘more’ money, where Nehru and Gandhi’s vision of an egalitarian society is achieved, counter-intuitively enough first, cannot exist and second, should not exist.
First, consider an economy, free from the artificial control of pure socialism or communism, as is the case in almost every country today. Can now, equality be achieved in such a quasi free-market economy, which is regulated and taxed progressively, is the question. The answer to this can be understood by the PARETO EFFECT which states that 80% of the outcomes can be attributed to only 20% of the causes for a given event. As a corollary to this, 80% of the world’s wealth will always be in the hands of 20% of all the people of the world, as is seen in status quo.
This is because money begets money. As soon as someone earns ‘more’ money, it become increasingly easier for him to make further more and more money as compared to others. Take a hypothetical example: There are two farmers, A and B, each hoping to produce the same initial quantity of output, say 10kgs of wheat. The two of them directly compete in maximising their profits. Now because of whatever reason, say more initial effort by A or merely by sheer luck, at the end of the harvest season A and B have produced 10 and 8 kilograms respectively. Now, when they sell their output in the market, assuming at the same price, A is left with more revenue than B. This translates into A’s ability to buy better or more inputs and improve the quantity and/or quality of his output relative to B for the next harvest. This further means that A can be more competitive by lowering his prices because of a lowered cost of production or can simply sell more at the same price. Anyhow, he will end up being better off than B, even without the re-occurrence of the random factor that got him more than B initially. Through a number of such cycles, the gap between the welfare of both keeps increasing constantly at an increasing rate and A ends up being richer ultimately. Dig deeper, watch this video for more on the Pareto Effect: Video
Now, there are rags-to-riches stories and unprecedented failures among other capricious possibilities, but by extending this example to the macro-level, such peculiarities get averaged out. At the end you have an economy where 20% of the populace owns 80% of the total wealth, thereby ensuring that inequality will necessarily exist.
Second, since equality cannot be achieved in the above economy, should it then be imposed using constraints and establishment of socialist moulds? Again, no. Rational individuals seek to maximise their utility by using their income and minimise the effort required to get this income and utility. Consider an example: There are three students: X, Y and Z. In a test out of 10, they get 3,6 and 9 marks respectively. It is assumed that marks are directly proportional to the amount of effort put in- Z has put in maximum effort studying, and X, the least. After the test, their teacher tells them that to ensure that there is equality in the classroom, the average of the total scores of the three, will be awarded to each. So, in this case, X, Y and Z, all get 6 marks each. Is this fair? Further, in the next test, X is complacent with this free-ride, and does not put in any more effort than last time, since he will anyway get better marks than proportionate. Now even Y and Z do not want to put in the extra effort compared to X. They will still get the same marks as they will by putting in effort worth only 3 marks. In the next test, they score 3,3,3 respectively, getting 3 marks each. Therefore, the utility (marks) that each person now gets is reduced, even though they are now all equal. In essence, everyone loses. Similarly, in an economy, every worker will be worse off eventually and the economy will weaken.
In contrast to this, a sense of competition does a lot to augment the total utility generation. If in this example, it was told that whoever scores the lowest will fail, all three will work harder and harder since there is no predetermined pass-mark. They are not aiming to reach a particular level of utility, they are trying to outdo each other and thereby pushing the highest and total marks considerably higher. Also, is it not equality to treat everyone by the same yardstick? Would it have been fair for Z to get less marks than what he should have gotten, and for X to get more than what he should have gotten?
Lastly, it might be argued that some people are in fact, born with a silver spoon in their mouth, so their utility generated (income) is always going to be more than proportionate to the effort put in, since money begets money. While this is true, it raises an important moral question: Should parents be allowed to pass on the benefits of their lives’ toil, to their children? In fact, a major incentive for any parent to put this toil in the first place is to help their children attain certain benefits. If you remove this incentive, the parent wouldn’t want to toil as much as he would right now (again lowering the productivity of the economy) Also, a parent may take undertake effort and take his child to watch a film (utility) for instance. Can you mandate this parent to also take along a poor child from the street to watch this film, so that both the child and the poor kid are equal? No. Similarly, this parent also undertakes effort so as to leave a fortune for this child behind so that he can enjoy the utility off it. Can you now mandate this parent to part with this wealth equally for a poor kid from the street, so that both his child and the poor kid are equal. Again, no.
Equality as a notion has been glorified to be Utopian. In reality, it seems that inequality offers a more just, equal and productive trajectory. For the sake of equality, lets profess inequality!
(originally published in the ‘Magnum Opus’ section of Artha– The annual, Economics Society-SRCC’s magazine)
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