Inequality in this world: What to do?

  • Articles
  • Jul 29,23
It is thus realised that ‘equality’ in many spheres of activities cannot be enforced, but can be enabled through mechanisms. To bring about greater income parity and to reduce the pay gaps in companies, R Jayaraman suggests creation of a ‘Income Equalisation Fund’ in every company.
Inequality in this world: What to do?

We often hear about the income inequalities in all parts of the world. ‘The rich are becoming richer and the poor are becoming poorer’, is a statement printed across newspapers, magazines, TV programs and the lot. Can we get to understand what this phenomenon is, and whether it is possible to have ‘equality’? When and under what conditions would ‘equality’ be possible? 

‘God made everyone equal under the eyes of the law’, ‘everyone is born equal’ etc are sentences which also are heard quite often. The truth is quite far away from these. Each person, nay, each living being, is unique, and no one is equal to another. Each person is made of a different set of characteristics – skin pigmentation, size of the eyes, hands, legs etc. Mentally too, each person has a certain ID, EQ, and no two IQs are the same. Even if there are two persons with the same IQ, they can still be quite different in terms of mental faculties, physical abilities, disabilities and so on. So, at any level, to talk of ‘equality’ is just spending time. 

However, in man made things, like wealth, healthcare, law, and other areas, it is possible to consider the concept of ‘equality’. Let’s take law. What does equality before law mean? Access to legal redress, ability to retain lawyers, be present at court hearings, pay fines, be lodged in a jail, avail of bail and parole, etc. In all these activities, while theoretically, every citizen of a country enjoys ‘equality’, this is mostly in the law books that contain the ‘guarantees’. For example, while everyone has equal access to the courts, many times, courts are in the nearest city, for which a person from rural areas has to travel several hundred kilometres, which cost may be beyond ones means. Similarly, access to lawyers, on paper, looks equal, but how much does anyone know how to select the best lawyer for the purpose at hand? Mostly word of mouth or some such medium is resorted to. 

Let’s take healthcare. The story here is no different. Healthcare costs, but insurance is available. However, each medical insurance policy comes with riders, and, unless one is fully aware of all the intricacies, one has to depend on helpful relatives or neighbours or friends to navigate towards the ‘right’ healthcare giver. So, how does ‘equality’ help in such situations. With enablers, one’s own ingenuity, keeping up with current state of things. For all of which, educational background is important. 

Is there equality in education? Once again, the scenario is the same. On paper, one can get access to education. But, as is well experienced, standards differ, rich children are able to afford private schools, while the poorer ones have to make do with municipal schools, which, in some places, are housed in old dilapidated buildings, or under the sun and the stars. 

What, then, is one to make of the ‘equality’ concept? Is it just a balloon, floated by certain opinion makers, social scientists, activists, communists? The most vociferous and active lot in this group are the communists, who have made huge advances in defining equality of all sorts, and governing countries with this concept. In such countries, equality often means government ownership, distribution of wealth as deemed fit by the government. The Soviet Union of yore, and the China of today are the exemplars. Both of them have made considerable progress in establishing the communist system in their respective nations, and also influenced many others across the globe to follow them. 

One can see the sway that Karl Marx, Lenin, Mao Ze Dong, Fidel Castro, Ho Chi Minh, and others of their ilk have had on countries like India, France, Vietnam. Equality has been equated to non-ownership of property, state ownership of all resources, distribution of these to all citizens on an ’equal’ basis, and a state administrative machinery which monitors the implementation of this ‘equality’. The world has largely rejected this type of state sponsored ‘equality’. The objection, although not stated in so many words, is, no one is either born or created equal. Each living being has a purpose to be born in this earth, and to go through the journey of life. Each being lives life on its own terms, and finds a way to negotiate life through many vicissitudes, whatever they may be. While interaction with state is a given in the modern world, unless one lives in the sea, like fishes, octopuses, and such, state-controlled life is neither desired nor practical. 

It is thus realised that ‘equality’ in many spheres of activities cannot be enforced, but can be enabled through mechanisms. Such mechanisms are either installed by the state, or private players, like NGOs, to make available ‘equalisers’, which can be made use of by citizens. But with the clear knowledge that the ‘equality’ could be, at best, ephemeral, and there will be many a slip, between the cup and the lip. Let’s now turn to one of the most interesting and debated ‘equalities’ of our times, that of income equality. 

Income inequality is perceived to be the difference between the monetary earnings of individuals. As needs no repetition, different persons earn varying amounts as incomes, over periods of time. The ‘inequality’ is essentially seen as an instrument of ‘discrimination’ or ‘differentiation’. How does income inequality arise? Mainly because the efforts – rewards mechanism is not uniform across the spectrum. For example, a Vice President in a company in the USA may be earning $ 200,000, while a same level VP in India may earn $ 100,000 when adjusted for the currency exchange rate. This is one type of inequality. In another case, the VP of a company earns $ 200,000, while the janitor in the same company earns $ 15,000. And the CEO of the same company may be earning $ 2 million. This is inequality of a different type. Can these gaps be bridged? Not, if you strictly go by the principle of pay for responsibility handled and benefits for the company from the employment. 

There could be other reasons as well. For example, the sales forces are paid commissions based on the sales volume and price generated. Production workers are paid extra for extra production volumes, or cost reductions. It is not possible to arrive at a general formula to ‘equate’ pay across positions in a company. Even if you ‘equate’, which is essentially justifying why the pay disparities will continue, and may widen in future, one cannot but observe that this system is never ever going to lead to ‘equality’. So, what is the way? 

This is where one needs to see how such ‘equality’ issues have been handled in other areas. Take the case of ‘reservations’ practised in India for many years. In order to give equal opportunities to the perceived deprivations to groups of people in the past, the Indian state has legislated ‘reservations’. Such ‘reservations’ have worked quite successfully, in that, many of the people who have availed of these facilities have bettered their lives. More recently, in many companies, ‘diversity’ is being ‘legislated’ through laws, for example, employment of women directors on boards, maternity leaves, employment of ‘persons with disability’, reservation of jobs for ‘sons of the soil’, and so on. These are efforts to bring a semblance of ‘equality’ in corporates. 

To bring about greater income parity, and to reduce the pay gaps in companies, I would suggest the creation of a ‘Income Equalisation Fund’ in every company. Employees in the company can contribute to this fund. However, the Company Law Board should also mandate that a contribution from the company’s profit before tax, of ONE percent of the EBIDTA, be paid into this account. The proceeds from the account will then be distributed to all the employees below a certain level where the incomes are ‘low’. To give an example, each person in the company who earns less than Rs 1 lakh per year, should be given a ‘Income Inequality Compensation’, of Rs 1 lakh from the fund. The actual amount will differ in each company, depending on the contributions into the fund, but the idea is to create a sense of ‘income equality’ through an appreciation of the ‘worth of all individuals to the company’.  A start can be made with the Indian IT, chemicals, pharma companies, where the profit margins can easily bear the contribution. 

It is hoped that the Company Law Board will think along these lines and introduce some measures, so that the income inequalities are addressed, before they lead to another ‘Bolshevik Revolution’. 

About the author:
R Jayaraman is the Head, Capstone Projects, at Bhavan's S P Jain Institute of Management & Research (SPJIMR). He has worked in several capacities, including Tata Steel, for over 30 years. He has authored over 60 papers in academic and techno economic journals in India and abroad. Jayaraman is a qualified and trained Malcolm Baldrige and EFQM Business Model Lead Assessor.

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