Ashoka Mody and Michael Walton — Story of a fraying capitalism - it is not an accident, Piketty says, that many will be left behind even as others become richer

India’s capitalist dynamic — as in other emerging economies — is different from that in the richer countries that Piketty focuses on. Yet, the lessons Piketty offers should ring a cautionary bell. Indeed, even more so than in the rich countries, India could find itself in a low growth, high inequality and high insecurity trap. These are the real fears that bubble under the theatrics and ugliness of the ongoing political debate.

Piketty is not an anti-capitalist. He sees capitalism as central to the innovation and entrepreneurial risk-taking needed for economic growth. But, using conventional tools of economic analysis, he warns that there is no automatic, ultimately benign, broad sharing of income and wealth over the development process. Rather, greater inequality — which perpetuates itself over generations — is the more likely outcome. And deepening inequality can fray capitalism’s virtues....

The US was historically different from Europe, with a much lower role for inherited wealth. But in recent decades, it has been a leader in rising income inequality, owing to a combination of soaring salaries for “supermanagers” and rising returns on capital for the richest. These large incomes are being turned into inherited wealth, generating entrenched privilege as in Europe at the beginning of the last century. All the while, for those at the bottom of the rung, it is becoming increasingly difficult to climb the economic and social ladder. As wealth and politics reinforce each other, equality of opportunity is a fading myth. India is at risk of forging a potentially more pernicious form of rentier capitalism. Growth in the past few decades has brought gains to most, including the poor. But there is unmistakable evidence of rising concentration of income and wealth at the very top. Piketty and Abhijit Banerjee of the Massachusetts Institute of Technology find that the share in taxable income of the very-very rich (the top 0.01 per cent) was about 2 per cent in 1999. That brought the concentration of wealth back almost to the levels prevailing in the 1920s, the era when the maharajas cornered income and wealth.

Indian billionaires as the new maharajas, presumably whose rule will be validated by economists as the new pandit class and the so-called free market as the new ritual.

Not in paradigm, but a good analysis of the particular issues India faces as a society given its culture and institutional arrangements

It is possible to imagine technical solutions to pull out of this trap with sound regulation, effective taxation and smarter delivery of social services. But that will require a different politics and a different bureaucracy. None of the major political platforms, caught up in their own pettiness, have the vision to deal with these challenges.

Bruegel
Story of a fraying capitalism - it is not an accident, Piketty says, that many will be left behind even as others become richer
Ashoka Mody and Michael Walton
(h/t Mark Thoma at Economist's View)

See also, My experiments with truth in the Indian capital markets, by C. B. Bhave at Ajay Shah's Blog.

It appears to me that our resistance to change is on account of our being a risk averse society. We are quick to agree that the existing state of affairs in a given area is no good, but each suggestion for change meets with such a multitude of objections that the status quo appears to be the best option. We need to develop tolerance for failure. By trying to keep away from failure, we miss out on valuable learning. We overdo this to an extent that we lose faith in ourselves. We persuade others as well to lose faith in us.