Question

1. What can we do so that most people are not just a few benefit from the wealth generated by economic growth?
2. How to redesign policies to boost growth and inclusiveness and to ensure both fairness and efficiency?

Answer 1

Answer to Question 1 & 2)

Introduction

The key differences between a developed country and a developing one are often thought of as being the amount of growth or development or the amounts of capital that a country holds. However, in reality inclusiveness is an even important consideration when we look at how much a country has evolved over a period of time.

The key problem with developing or underdeveloped countries lies in the fact, that the wealth is distributed unevenly and few people hold most of the money whereas others have no control and live lives of extreme misery. The key difference between a developed and developing or underdeveloped country therefore is wealth distribution.

Economic policies if redesigned can help in promoting both growth and efficiency on one hand, and on the other help in promoting equality on the other.

Following are some of the key techniques in which we can use policies to increase economic growth & fairness on one hand and on the other move towards ensuring that all sections of the society grow.

1) Invest in Education: -

One of the key reasons for disparity in income and the skewedness of wealth towards the rich in developing and underdeveloped countries is that the amount of money spent on education is lacking.

When countries enable progressive techniques, education is and should be redesigned and all people should be allowed access to mandatory education which would help in getting employment opportunities for everyone so that the gap between the rich and poor can be minimized.

When education becomes available to all, countries progress towards creating a highly employable environment. When wages and lifestyle change, wealth creation tends to benefit everyone.

2) Strict Corporate Governance and Laws: -

Most developed countries have strict corporate rules which do not permit exploitation of the work force on one hand and on the other hand take strict note on violations of inclusiveness by corporate houses.

Even though strict corporate rules may feel as a problem for a few years, slowly and gradually companies have realized that enabling inclusiveness only enhances their potential and leads to higher growth trajectories for them.

Having strict rules thus promotes equal employment to all sections of the society and helps in increasing growth rate by higher participation on one hand and fairness to the general population on the other.

3) Elimination of Corruption: -

When we design our policies towards elements such as taxation or inclusiveness the concept of corruption indeed is a headache for governments. It is important for countries to eliminate their corruption levels to able to promote equity and fairness on one hand and on the other to ensure that wealth is not stagnant in a country or in the hands of a few.

Consider a country which has a high tax rate through which they would want to redistribute income to the poor in one form or the other. In this country the emergence of corruption would limit the total availability of capital and lead to leakages in which benefits may not reach the poor at all.

Thus, elimination of corruption is an important designing strategy which will help in achieving all our goals.

4) Progressive Tax Codes: -

It is a sad state that the tax rates for the rich have been readily declining despite the fact, that their income has continued to grow over the years. This trend is equally seen in developed and developing countries alike.

When governments do not have sufficient collection of tax for spending on public welfare, it is tough for them to ensure fairness.

In a country where the super-rich are taxed progressively, I do not believe that efficiency is at any risk. As long as companies or individuals making large sums of money are not brought under the advanced tax net, fairness and inclusiveness cannot take place.

4) Increasing Minimum Wages: -

Another technique to increasing fairness and inclusiveness lies in increasing the minimum wages in a country. It is often seen that workers only get a proportion of the value which they add to a product whereas companies build their fortunes and retain wealth which is then held by very few people.

By increasing the minimum wage, we attempt at providing the most vulnerable section of the society a chance at being treated fairly and this does not cause any hindrance with efficiency if adopted in the correct measure.

5) Encouraging Corporate Social Responsibility and allowing for Subsidies: -

Some countries have indeed started charging lesser taxes from companies that showcase their excellence in corporate social responsibility in which companies take up various initiatives such as education for the poor, building infrastructure, providing health care facilities etc.

Subsidies is another way in which the taxes created from progressive tax codes can directly be processed towards the vulnerable sections of the society.

This is seen as a redesigned way of taking taxes in which corporate houses are encouraged to manage the society in a better manner and in return, they are charged lesser taxes by the amount of such expenditures.

Conclusion: -

In an attempt to redesign policies, the gap in the amount of wealth held by the rich and poor is important. Once we have analysed this gap, we can use numerous tools of advance taxation and increased spending on infrastructure, education and other measures to enable efficiency on one hand and fairness on the other which will lead to economic growth in a way that wealth does not fall in the hands of a few people.

The amount and extent of redesign would vary from country to country however the core of it moves towards empowering the vulnerable sections of the society through education and redistributing income through subsidies or other benefits to the poor.

Please feel free to ask your doubts in the comments section if any.