The myth of the trickle-down policy

Contact Counsellor

Last Updated15/02/2022

Comments by economists about the budget explain the condition of the Indian economy.
They also reveal ideological divisions about how the health of an economy should be measured and the prescriptions to improve it.
There are no “populist hand-outs” nor have taxes on incomes and wealth increased.
There is agreement that investments in physical infrastructure will benefit the economy in the long run, and in the short run too, by creating more employment.
However, there is fear that the way the money will be used by the Centre will disempower the states further, just when they must do most of the heavy lifting on public welfare.
And, there is disappointment that allocations for health and social security remain grossly inadequate.

Large “wealth creators” are made free to create wealth for themselves — wealth which, supposedly, will trickle down to the masses.
Evidence from around the world is that the economic policy paradigm, of first increasing the overall size of the pie by reducing taxes at the top and then “redistributing” the wealth, has not delivered benefits to people.
Trickle-down has dried up while gushing up has increased, with policies to make it easy for investors to do their business of making more profits for themselves.
Gandhiji had declared that he was not against wealth creators.
He lauded wealth creation.
However, it must not be at the cost of workers and welfare.
Wealth creators must be trustees of the wealth they create, not its exclusive owners.

The Indian economy is suffering from a chronic “demand-side” problem that is becoming worse with misguided economic policies.
Young people who have been getting educated in larger numbers than before, even learning vocational skills, cannot find jobs.
They are dropping out of the job market seeing no hope in it.
The CMIE estimates that the number of persons of working age who have a job has decreased in the last five years from 43 per cent to 33 per cent in UP; from 49 to 30 per cent in Punjab; from 49 to 32 per cent in Goa; and from 40 to 30 per cent in Uttarakhand.
If people don’t earn, demand will not increase, and investments in businesses will not be attractive.
Moreover, frustrated youth are tinderboxes for social unrest.

In his book, Davos Man, Peter Goodman explains how the wealthiest people have influenced economic policies in democratic countries from the 1990s to make themselves wealthier.
Thomas Piketty has documented how wealth inequalities have increased alarmingly in Capital and Ideology.
Wealth has accumulated at the top, with regressive tax policies along with deregulation.
Government expenditure on social reforms has been crimped.
Piketty reveals how the most inclusive periods of economic growth — when a rising tide lifted all boats — have always coincided with periods of high taxation of wealth to fund public education, health, and social security.
He also reveals that when inequalities increase intolerably, governments divide to rule and persecution of minorities increases with politics of national identities.
Goodman says the “Davos Man” has propagated the “cosmic lie” that “cutting taxes and deregulating markets will not only produce extra riches for the most affluent but trickle benefits down to the lucky masses — something that has, in real life, happened zero times.”

The global economy must move on from hyper-financial, deregulated capitalism, which has given easy money too much freedom.
Neo-liberal Indian economists also frighten us with false binary choices: That we must carry on the way we are, or we will go back to the pre-1991 control era.
They must move out from their ideological ruts.
One, that until the economy grows there will be no resources to invest in human development — whereas China invested in human development before its economic take-off.
Two, that an unprepared industrial sector will thrive in global free trade — whereas the UK and US (and Japan and China too), grew their industrial sectors behind walls of protection, and then demanded that the rest open their markets to the might of their enterprises.

Political divisions by religion and caste are tearing India’s social fabric again.
The Indian economy must grow inclusively to repair it.
To grow, it must make up for shortfalls in human development, and build domestic industrial capabilities.
Until then, it will remain a colony for stronger countries to expand their enterprises with their intellectual property.
India will remain strategically vulnerable against its mighty neighbour across the border, which did not adopt Davos Man’s theories.
Indian policymakers must urgently discover India’s own, contextually appropriate model of development and shed defunct economic theories.