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Inequality and distributional framework

Published : Monday, 27 June, 2022 at 12:00 AM  Count : 743
Mehdi Rahman

Production is a function, in theory, of land, labour, capital, technology, managerial interactions and many more. These are elaborately analysed in economic concepts. In this context, economic activities bring production.

Whatever production functions depict the concept, human is behind the production process. Production is the output of assembling of different segments. Each segment is controlled by a set of people. This is nothing but division of work in production process. Production process with division of work is the starting point to create inequality.

The system produces output with efficient way but all divisions are not same in degree of importance. There are different categories - physical labors, supervisors, support services, managerial team, and owner-directors.

The division is the natural process of production which cannot be avoided in any way. Production without division of work can generate output which is for subsistent living. This is informal economic activities - self production for self consumption.

Division of work leads to division of people, division of society, division of country and many more. The ultimate negative point is that it creates division of inequality. How it happens so is a question. Basically division of work is of different types, lower to upper. To go to upper division, there needs different criteria, opportunity out of different angles is one of them.

Division automatically creates inequality in income, it is a fundamental item. Income inequality leads to deprivation of creating wealth. Low income does not support to have wealth. Without wealth like home, different appliances, financial assets, people with limited income need to lead a life known as 'subsistence'.

Economics produces output and distributes a part thereof among human facilitators. The part is distributed in terms of division where people have made contributions in production process. There is a pyramid structure in this case - bottom, upper bottom, and middle, below top, top, and owners.

It is said distribution at every division is more or less is equally done. But people at bottom are many, leaving low pie to each. The lower the number at division is higher the pie. Inequality is created due to inequality in distribution. Economics is unable to distribute equally since division of work is not equally distributed.

Income is a source of savings, unspent income constitutes savings. This is used for investment purposes for generating income. In some cases, accumulated savings are used for purchases of non-current goods like home appliances, electronic gadgets, etc. But savings depend on how much income is earned.

People at lower division workers do not have adequate income to make savings after meeting all expenses. This results in substandard living. These make them substandard socially and mentally. There is a buzz in financial ecosystem - financial inclusion. These people de jure are financially included but de facto financially excluded since they only use wallets for transactional needs without adequate access to borrowing facilities.

Under expenditure method, national accounts consist of expenditure, investment, government expenditure and net export. Deduction of expenditure both public and private results in investment and net export. Positive figure indicates savings, and dissavings in case of negative position.

Likewise, individual income is a combination of expenditure, investment and borrowings. Savings are found by deduction of expenditure from income. This is equal to investment and borrowings.

Borrowings in negative figure mean receipts, and positive figure indicates payments. Dissavings are supported by negative figure of borrowings. In the monetary society, money is not output of production; rather it is created out of nothing. Money being medium of exchange creates division of work.

We have seen work distribution creates, at initial stage, inequality among people. Another inequality is found with regards to availability of loan facilities to make capitalization of future income at present time.

To answer the question, we need to know how loan is extended. There are two types of customers in banking system - corporate and individual. The later one may avail both business and consumer loans. Simple service-holder people seek consumer loans. Do they easily get? It is difficult to answer the question.

In practice, people of lower income bracket cannot avail the required loans since their income does not support to pay off the installments. Interesting point is that such problems are not faced by people working in banking system. They can easily capitalize their future income at present time.

However, people at non-banking sector can avail loans if proper collaterals are furnished to banks. It is not possible for them to arrange the same because collaterals depend on availability of ancestral property.

Distributional system is the effect of work division. Automatically the system brings results of uneven income distribution.

In addition to formal employment sectors, there are many non-formal employment sectors which are beset with discrimination in earnings. Same discrimination is also observed in self-employment, many of which have no recognition in the society. People of these categories are also victims in bracket of inequality.

Discussion of inequality gives focus on people living in between below and above subsistent levels. Then there comes a question, who are in non-inequality stages? This is a paradox because people at every division say they are deprived indicating unhappiness at their position.

Whatever unhappiness prevails, there needs reset among divisions of work with reduced inequality in income. In theory, it is easy to discuss the concept of inequality. It is a matter of discussion by many but these groups are not within the segment of inequality. There is a theoretical gap between economics and politics. Many issues are theoretically proved. But the path for implementation stage is not so smooth.

Primary distribution is not possible to make even under division of work. As such, redistribution is needed from haves to have-nots. This can only be possible through institutional supports under public policy framework. The supports need to be included in financial inclusion concept through which people can be emancipated from inequality trap.
The writer is a contributor

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