Economic well-being key to social stability

Subir Roy

Senior Economic Analyst

INDIA has fared rather poorly in two recent global reports — UN World Happiness Report and World Inequality Report, both for 2022. It is one of the unhappiest countries in the world (ranking 136 out of 146) and one with a very high degree of income and wealth inequality (ranking 97 out of 107 in income inequality). The latter is a list in reverse order, that is low inequality score fetches a high rank.

Is there any link between the two — happiness or its absence and wealth and income inequality? Can we argue that extreme income inequality produces social unhappiness? If this be so, then it becomes imperative for public policy to discourage extreme income inequality. Thereafter, the question arises as to what are the best ways to reduce income inequality.

But first let us look at the countries which have fared well in terms of both happiness and economic equality. There is considerable overlap between the lists of top 15 countries. These are Finland, Iceland, Denmark, Norway, Sweden, the Netherlands, Ireland and Australia. They all belong to northern Europe (except Australia, though culturally and historically, it is similar), and a predominant number are from the Scandinavian region. Most importantly, these countries are all known for their record of good governance.

So a short and quick answer can be: to be a happy society, avoid the social tensions that result from extreme income disparities and live and govern yourself the way the Scandinavians do.

Now let us get to some policy specifics. The Nordic countries all have extremely high levels of social security that not only covers health and education but a lot more. They are served by extremely efficient public transport systems and have an elaborate system of energy distribution which enables residents to keep themselves warm in the extreme cold weather for a good part of the year.

But what is perhaps even more important is the nature of their labour markets which are not just functional but robustly so. This means that firms and businesses follow a hire-and-fire policy. When a worker is not needed, he is asked to go, while being well paid off according to an elaborate well laid down procedure for separation.

But critically, what does a worker do when he is laid off because he does not have the necessary skills to be able to work the new technology that has come in and which in the first place may have led to his loss of job?

The system pays for his retraining. There is a rigorous process in place for retraining under which the state pays the costs of retraining so that workers can acquire new skills and thereby be able to get back to work by re-entering the labour market. What is more, during the period of retraining, the worker does not have to fend for himself but is paid unemployment benefits.

This is in stark contrast to the situation in place in southern Europe in countries like Italy where there is little labour market flexibility. Business owners are unable to do away with workers who have outdated skills which are of no use with the introduction of new manufacturing technology. It is therefore not surprising that Italy does not figure in either of the lists for the top 15 in happiness and low inequality.

The Indian system does not approximate to either of these European models. Through the post-Independence decades, India slowly sought to move towards giving its workers trade union rights which made it difficult for business owners to dismiss those who were no longer needed.

Then a big break came with the introduction of the present dispensation. The several new labour codes which are in the process of being introduced will give greater flexibility to business owners and so in the process can over time contribute to greater productivity in business operations. But there has been simultaneous no process in play to raise the level of social security that is available.

It is beyond argument that for an economy to grow and function more efficiently, it should be easy for businesses to introduce new technology and simultaneously there is need for labour market flexibility. A worker who knows how to operate a lathe machine has to step aside for another who can operate a robotised machine tool. But he and his family cannot starve while he undergoes a process of retraining.

It is also beyond argument that the strict process of protecting workers’ rights which the Indian trade unions have worked for over decades, derived from what is called the Soviet model, has no place in today’s day and age. In terms of economic policy, what the country needs to do is gradually move towards the Scandinavian model so that there is growing peace and prosperity in India with the rise in incomes and lessening of social tensions which result from income disparities.

But this is not all. The Scandinavian societies are homogeneous and free of sectarian social tensions. What is more, there is a strong sense of social responsibility which prompts these countries to immediately opt for taking in refugees who are the victims of ethnic conflict, say like the Rohingyas who have been driven out of their homes in Myanmar.

India has a diverse society with the presence of many castes and different religions. Official policy needs to work against those who have a political agenda to further their cause by exacerbating social divisions.

Thus the need for India today in order to increase the happiness quotient of its people is to follow the economic policies of the Scandinavian countries marked by elaborate social security and job market flexibility. This will raise incomes and reduce social tensions that result from income disparities.

It is also necessary to discourage inter-caste tensions and strife between followers of different faiths. When there is progress along these lines, economic inequality will go down and society as a whole will be happier. Then India’s position on both the lists that we mentioned at the beginning of this article will improve.  

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