Are we asking the wrong questions about inequality?

Inequality has been on the rise in Bangladesh since the independence of the country. But it has reached an unprecedented level in recent years. Bangladesh produced a greater number of the ultra-rich than any other country in 2020. But such disparity is not something anomalous. 

In 1981, the top one percent of earners held 11.8 percent of the national income whereas the bottom 50 percent of earners held 20 percent of the national income. But in 2021, the top one percent holds 16.3 percent of the national income while the bottom 50 percent of earners possess only 17.1 percent. 

Discussions about inequality in the popular imagination are quite narrow and often viewed through a monochromatic lens: where inequality is always viewed as a social evil. The Business Standard sat down with Dr Sajjad Zohir, Executive Director of Economic Research Group (ERG), to discover the nuances that should be involved in the discussion of inequality. 

Dr Sajjad Zohir. Illustration: TBS

Inequality has been rising steadily in our country since our independence. But not a lot is understood about this phenomenon. Why do you think people understand so little about inequality?

The metrics we conventionally use for measuring inequality are not entirely reliable. Firstly, there is a lack of clarification about the definition of 'Bangladeshi.' We cannot measure citizens, expats and people with Bangladeshi ancestry living in other countries on the same scale. 

Secondly, some major problems arise when we collect data for measuring inequality. In the 1980s, the exact income statements of the ultra-rich were not really accessible. Meanwhile, currently, many people's incomes do not show up in their income statements at all. 

Therefore, the data we possess has a tendency of underrepresenting inequality. This is one of the reasons why inequality is often misunderstood. 

Why do you think inequality has risen in our country? 

There are two primary factors behind the rise of inequality. But first, we must understand that inequality is a byproduct of economic progress. 

In our current economic system, inequality is an inevitability. 

There are natural market mechanisms that help to reduce inequality. Wealthy people can invest their wealth in new financial ventures and create employment opportunities for others. On the other hand, they can spend their earnings to consume domestically produced goods and services. It motivates entrepreneurs to open new businesses which provide employment and earnings. 

But in Bangladesh, the ultra-wealthy population are not investing in our country or consuming our native goods or services in a large enough quantity. As a result, we have seen the rise of inequality and unemployment in our country. 

Bangladesh has also witnessed a surprising rise in the number of ultra-rich individuals in recent years. How do you see this phenomenon?

We have to understand that inequality exists in every country around the world. But successful countries have used inequality to propagate economic prosperity. 

There are many Bangladeshis who sit abroad and espouse ideologically dogmatic fiery rhetorics. But those rhetorics do not provide economic prosperity. 

I would rather take an ultra-wealthy person who either invests in our country or buys the goods of our country because that is how we have to create jobs and opportunities for social mobility and reduce inequality. 

What problems may arise from this growing inequality?

Inequality has been rising ever since we gained independence. But it has not worked as an obstacle for our social or economic progress. So it is unlikely to be a problem in the future. 

Of course, we want to provide the largest possible number of citizens with a better standard of living. So reducing inequality is important, but inequality will not cause any catastrophic problems for our country and society. 

I believe the urgency around inequality is often misplaced. It is the fate of our country, whenever we accumulate a bit of capital, some people object to that condition by citing rising inequality. 

How do you think inequality may be solved?

Again, inequality is a part of economic progress and it is not something you solve but rather manage carefully. The usual tactics of providing financial assistance and government handouts are inefficient and ineffective. 

We are still a country that relies on foreign donations to make up for the budget deficit. So, if the government provides loans, it may be construed as earning interest, which is not true. 

We should focus more on attracting investment and promoting our domestic goods and services to the ultra-rich, which will result in more employment and means of social mobility. Charity can also play a critical role in reducing inequality and improving the living standard of the poorest in society. 

But most of all, we should orient ourselves around the concept of inequality and we should start asking the right questions. That approach can result in effective policies which will increase economic prosperity for all.