Thursday, 26 May, 2022
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Dear Oxfam, stop looking for inequality in India, go back to distributing blankets

Oxfam India's 2022 report titled makes sweeping recommendations to fight 'extreme inequality', including reintroducing a ‘wealth tax’. Oxfam, leave economics alone.

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In its 2022 supplement report titled ‘Inequality Kills’, the Oxfam India made some sweeping recommendations to fight what it described as “extreme inequality” in the country. It suggested reintroducing a ‘wealth tax’, a temporary ‘1 per cent surcharge’ on the richest 10 per cent population, social security provisions for informal sector workers, and reversing privatisation.

Some 25 years ago, I lived in London. I remember that at odd places on different streets, there would be Oxfam outlets where earnest individuals would collect old clothes for distribution among the poor. A worthy Dharmic and Christian act, if I may say so, even at the risk of offending the woke secular sensibilities of people at Oxfam.

Dear Oxfam, I strongly recommend that you go back to your business of distributing “old clothes to the poor”. Stop issuing reports on economics, income, wealth and so on. These are subjects that you are clearly unacquainted with. There is no point in making comical fools of yourselves. This will only end up hurting the very desirable old clothes business. Additionally, I would also request you to stay away from making sweeping generalisations about India, again a subject which your staff seem to be massively ignorant about. Silence about India would suit you best.

There is a discipline called Positive Economics that you would do well to learn about. This discipline tries to describe signals, behaviour and incentives as they exist in the real world, not as they would exist in the utopian world of Normative Economics. Here are some elementary Positive Economics propositions that I make:

Proposition 1: Oxfam needs poverty. If there were no poverty in the world, there would be no need for Oxfam.

Proposition 2:  Since you need poverty, you and your staff have an incentive to perpetuate poverty in the world, doesn’t matter what your normative moral motivations are. Poverty provides your staff with secure employment. In recent times, poverty has also provided you with warm sanctimonious good feelings even as you spout inane, banal, trite and quite frankly foolish things while demonstrating your lofty concerns for the poor.

Proposition 3: Irrespective of the motives or ethics involved, you are likely to produce reports and recommendations that would meet the goal enunciated in Proposition 2, namely, the perpetuation of poverty.

Proposition 4: The enormously silly recommendations made in the 2022 report on India, if followed by governments around the world, will definitely result in poverty being perpetuated. This report is a brilliant example of how you are trying its best to ensure that you continue to exist and prosper for years to come, because I am sure that you are convinced that many countries will adopt your misguided poverty-inducing ideas.

Also read: Has India fulfilled its moral responsibility? The answers to this question are troubling

Difference between welfare and envy

Here’s how this difference can be explained. If my wealth goes up from 1,000 to 1,100, I will be quite happy. I might even add that during the times of a great killer pandemic, we are even willing to accept that our wealth went down to 900 and at least the diminution stopped there. We are not as stupid as we might appear to be on Oxfam laptops. Frankly, I don’t care if my friends Bezos-Ambani-Adani-Zuckerberg see their wealth increase from 100 billion to 150 billion. Judeo-Christian teachings as well as the precepts of Sanatana Dharma tell me that I should not envy those who have been blessed by providence with greater wealth.

I wonder why you, Oxfam, feel the need to excite and encourage the Iago within each of us. Is it because you and your staff are consumed by the green-eyed monster? The Sanskrit word for envy is “matsarya”. We are told that it is an evil that can consume a human being. The Tamil “poramai” makes it clear that the purpose of envy is to have you focus wickedly on the other, instead of dealing with self-improvement. In Kannada, we are emphatic that envy causes stomach acid. Perhaps you and your staff need some antacid tablets. Good for health and might get you closer to the divine, rather than the demon within your brains. I am referring to brains based on the assumption that you do not believe in souls or atmans.

Leaving aside for the moment the spiritual corrosion caused by envy, let us revert to the discipline of Positive Economics. The fact of the matter is that making Bezos-Ambani-Adani-Zuckerberg poorer is not going to make me richer. In fact, if our governments follow your misguided policies and start rapaciously taxing the rich, it is not just the rich who will be poorer. All of us will be poorer because economic growth will stutter and job-creation will stumble.

Let me give you a concrete example of the cost of driving away businesspersons. Many decades ago, Aditya Birla was persecuted by envious persons in his native Calcutta (now Kolkata). Birla went on to set up successful businesses in Thailand, Indonesia, and Egypt. The losers were aspiring workers in West Bengal. Of course, some clever Marxists in Kolkata might have made the case that it was proper for Bengali workers to sacrifice their jobs in favour of Thais, Indonesians and Egyptians as this demonstrated international revolutionary proletarian consciousness.

My good friend Gurcharan Das frequently refers to the dictum enunciated by the great Chanakya some 2,300 years ago. The sovereign should be content with taxing one-sixth of the income of citizens. Anything higher than that will be detrimental to the welfare of the country, its citizenry and even its ruler. Advised by your woke secular friends in India, you are of course likely to dismiss Chanakya as a ‘bigoted, Hindu fascist’. Arguments that applying words like fascism, which emanate from the West in the twentieth century to an Indic thinker of the fourth century BCE are patently fatuous and disingenuous, may not meet your approval.

You seem to be in the habit of providing homilies to Indians, who you think don’t know any better. Let me assure you that Indians of my generation actually do know better. We know better because we were for decade after decade bruised, battered and wounded by high taxes and by a political dispensation that used envy as one of its principal levers.

The Japanese State encouraged Zaibatsu like Mitsubishi and Hitachi. The Korean State supported Chaebols like Samsung and Hyundai. The politicians of Independent India ranted and railed against the Tatas and Birlas, just like you rail against Bezos-Ambani-Adani-Zuckerberg. We were subjected to high income taxes, wealth taxes, gift taxes and estate duties. We have endured 97 per cent marginal tax rates. You are perhaps not aware of one of the speeches made by a finance minister of ours who finally over-ruled his bureaucrats (who were advised by the Oxfam equivalents of that time) and abolished estate duty.

The minister said on the floor of Parliament that the revenues collected by the Estate Duty Department did not even cover the expenses of that worthy department. The primary activity of this department of our sovereign state seems to have been harassment and persecution of widows and orphans. I am paraphrasing the minister’s words. These are not my words. So, you and your staff can safely shred your files on India. We tragically know better. From a position of being at the same level as Korea, we are now 80 per cent poorer than them. This came from listening to the Oxfam lookalikes of earlier decades.

Also read: Poverty or inequality: What is more important for India and Indian economists

India can learn from its history

Our problem has nothing to do with inequalities. Our problem is the low level of total wealth. We have to pursue artha, as our ancients have advised us and the whole country has to get richer. Targeting the few rich people will not only not help the poor, it will actually hurt all of us, including the poor. We are an old country. In the past when one king raised taxes too much, it was quite common for farmers and merchants to move to the neighbouring kingdom where the monarch was more reasonable.

We need to pay attention to our history. Our policies need to encourage the retention of talent, energy, entrepreneurship and human capital. Your recipe represents exactly the opposite. The sovereign needs to see rich, prosperous, risk-taking, enterprising Vaishyas as national assets and as partners in the road to the greater prosperity of the whole country. And it is my hope that our rulers of today will throw your report into a waste basket and pursue the goal of the country’s prosperity without succumbing to the diseases of envy and mediocrity.

Increasing tax rates frequently, refusing to gracefully accept judicial verdicts that go against the tax department and changing tax laws, sometimes even retrospectively, whimsically altering settled matters and loudly proclaiming a false narrative that the lives of the poor can be transformed by impoverishing the rich — we have unfortunately witnessed these patterns of behaviour on the part of our State. So what you are recommending is in many ways old wine from our perspective. Let me assure you that it is very sour old wine.

It is only a complete ignorance of India’s recent history that would lead to the fatuous suggestion being made for the introduction of a wealth tax. Let me make some predictions in the spirit of Positive Economics. As soon as a wealth tax is introduced, Indian promoters will start suppressing the share prices of their companies. The income tax department will then sue the promoters and demand a wealth tax not on the price as of 31 March, but based on the notional value that the department attributes. This will lead to endless litigation, most of which the tax department will lose. Incidentally, a lot of retail middle class investors will also lose as a result of depressed share prices. Our burgeoning capital markets of the last three decades may be the irreparably damaged.

Valuations of private companies will of course lead to further litigations. The two businesses which will have double digit growth in India will be accounting services and legal services. Making and selling other products and services will become less and less attractive. As far as the recent unicorns are concerned, we can be sure that as soon as any companies raise money at a high valuation, the tax department will send out notices claiming wealth tax for the values. If the share prices drop, the department will still demand its pound of flesh based on the purely notional historical value. Investors and entrepreneurs will have to pay tax on wealth that they don’t have.

My next prediction is that the investors and entrepreneurs behind the unicorns will leave Bengaluru in droves and move to Singapore and Dubai. This loss of talent will cost the country a great deal. When a French monarch repealed the edict of Nantes, industrious, hardworking and wealthy huguenots left France. Netherlands and England gained from the talent influx. France possibly never fully recovered from the human capital loss. As night follows day, a wealth tax will cause a similar and possibly catastrophic human capital migration from India. Oxfam being an international organisation may not care as to where talent is located. We, on the other hand, have a vested interest in retaining and nurturing our talent base within our country.

I am told that some self-important woke gazillionaires have actually put out a public document that they want to pay more taxes. I have never heard of greater humbug. Nothing prevents these worthies from paying more taxes. I am yet to come across an Income Tax officer who will not accept more taxes. Let these folks pay. Why do they want to destroy the incentives and distort the economic signals for others who are building businesses, creating jobs and playing the game of creating wide prosperity rather than reaching for the mirage of ephemeral redistribution of poverty, which will remain as wealth-creation is effectively discouraged?

You will doubtless find my advice unpalatable, gratuitous and overbearing. But I can assure you that I am not wrong. Do get back to collecting old clothes and distributing them. And leave economics alone. And leave poor countries alone.

Jaithirth Rao is a retired businessperson who lives in Mumbai. Views are personal.

This article has been updated to include additions.

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