Human capital inequality is what India needs to be most concerned about right now.
Let me be clear from the outset that I share Piketty’s concerns about the potential damage of high inequality. This is something India should be concerned about, especially given the signs of rising inequality that we have seen. (There are uncertainties about the inequality measures from standard sources for India; if anything, we are probably underestimating the rise in inequality.)
But "inequality" is a big word. Policy has to focus on the most important sources of inequality in the context at hand. Piketty’s book is mainly about what can be termed "high-end inequality" – notably the top 1 per cent in the rich world. And the book is mostly about a specific source of that inequality: the rising concentration of non-human wealth – Piketty’s "capital" in his title, comprises physical capital, financial capital and real property. This is returning the US to levels of inequality not seen since the first few decades of the 20th century.
As best I can determine from the data available, the proportion of America’s population living below India’s poverty line was roughly as high then as it is in India today. The period 1850-1929 saw the poverty rate fall by some 20 percentage points. The US saw great progress against such extreme poverty in this period despite rising inequality.
This is not to say that rising inequality is justified as long as poverty is falling. There are other costs of inequality. But at least India does not have America’s twin problems today of sharply rising inequality coming with little or no progress against poverty.
Third, the distribution of human capital is hugely relevant to India, but plays little role in Piketty’s analysis for the rich world. High returns to India’s very unequally distributed human capital are undoubtedly putting upward pressure on inequality. Human underdevelopment linked to poverty represents lost economic opportunities for India’s poor, who can have little real hope of sharing in the new sources of wealth. And it breeds an inequitable growth process.
While India has seen higher growth rates since the early 1990s, and poverty rates have thankfully been falling, the antecedent inequalities (especially in schooling) have meant that the country’s poor have shared less in that growth than they could have. While the country has made progress against poverty, better policies, including policies to address the inequalities in human development, would have assured greater progress.
The inadequate schooling and healthcare available to India’s poor is socially and economically disabling – creating a loss of freedom to fulfil a great many people’s potential in life. It limits employment opportunities beyond traditional subsistence farming, impedes physical and social mobility, weakens democracy and renders a person more vulnerable to subordination to the will of others and exploitation in all domains of economic life. Women are especially disadvantaged.
This is hardly news. Thankfully, there has been progress, especially in the form of higher primary school participation rates among poor children. However, their participation drops off quickly at higher levels and poor quality schooling remains a problem in much of the country (as the Probe Reports have demonstrated). And poor people across India tend to have poor healthcare and poor water and sanitation services.
India’s future social policieswilldetermine how equitable the country’s future growth will be. Consider the US again. From the 19th century, America was especially good at fostering high quality public education for all, which was a key foundation for its equitable growth until the latter part of the 20th century. Here there is another (more positive) lesson from American experience.
The writer is professor of economics at Georgetown University, Washington DC, and president-elect of the Society for the Study of Economic Inequality