Letter to BS: Inequality can have serious inefficiency consequences

Pranab Bardhan's essays are an excellent analysis of inequality

I refer to the three erudite articles written by the famous economist Pranab Bardhan: “Does inequality matter when poverty is falling?”, “Equality-efficiency trade-off”, and “A link among inequality, conflict and cooperation” (September 4, 5 and 6 respectively). 

For an analysis of the relationship between wide inequality in the economy and economic development and various other factors, his articles are simply scintillating. His conclusion that the conditions of the poor may be improving but those of the rich are improving much more is correct. He has busted the theory of “tolerating even a large dose of inequality if it improves the aggregate economic performance”. He has disagreed with the so-called trickle-down theory. He says that inequality has encouraged excessive risk taking in the financial sector. Finally, inequality can have serious inefficiency consequences. All these theories are unexceptionable. Had he written about India specifically, he would have also added how the growth of the super-rich distorts administration when politicians and bureaucrats are simply bought up.

His writing is comparable with that of Thomas Piketty who published Capital in the Twenty-First Century in 2013. Piketty has given a solution, namely, high progressive tax, a re-distributive mechanism and investment in education. Right or wrong, these are of course, a prescription for developed countries only. 

Unfortunately, Bardhan has not indicated any solution. He has not said how inequality can be minimised without compromising on production. To that extent, his essays are just an excellent analysis of inequality but they are not useful to us for practical purpose.

Sukumar Mukhopadhyay, via email

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