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August 20, 2016

Redistribution and unequal societies


August 20, 2016

This is the year of the Olympics, and Brazil is the proud host of this event. It won this right in 2009 and Luiz Inacio Silva de Lula, Brazil’s popular president of the time, vowed to transform Rio de Janeiro (the city hosting Olympics) into the ‘world’s capital’ through heavy infrastructure investment.

The pride of winning the right to host the Olympics and the president’s triumphant declarations brought hope to the capital’s largest group of residents, its poor, who live in shanty towns (known as favelas).

The Olympics are taking place, and all expectations have bitten dust. The favelas still do not have any proper drainage or sewerage system. Crime and drug wars are rampant in these shanty towns, and suicides are on the rise. Only last month, the governor of Rio declared a public emergency because they had run out of money to provide even the very basic necessities to the city’s residents.

Athletes arriving at Rio’s airport were greeted with the stunning sight of city’s policemen and firemen holding placards reading ‘Welcome to Hell’. Why? Because they had not been paid their dues.

But where did all the money go? You guessed it: all the money was allocated to the preparation for the Olympics – and the aim to make the city look world class. But it came at a tremendous cost. And all this is happening at a time when the Brazilian economy is going through a recession that has severely tested its resources.

So we have a portrait of the losers in this race to showcase a city as ‘world class’ at taxpayers’ expense. But not everybody is a loser – as is always the case with government redistribution efforts through various means. There are winners too. And some of them have won big time. This redistribution could be direct (like in cash handouts) or indirect (as is the case in big-ticket items like infrastructure projects).

Ultimately we will find that, in most cases, the targeted beneficiaries didn’t realise much in terms of any substantial gains. It is, in fact, the non-targeted groups that invariably benefit the most. The story of Rio de Janeiro and its preparation for Olympics is a startling testament to this fact.

The whole plan to renovate Rio had an estimated price tag of $12 billion, the costliest in Olympic history. When Rio’s mayor laid out the plan in 2012, he explicitly stated that development would not be possible sans social integration. That is the reason development of favelas was such an important part of the plan.

Unfortunately, this remained confined to words. By now, it is apparent that whatever investment took place was concentrated on the wealthy neighbourhood of Barra de Tijjuca, which houses only a sliver (300,000) of Rio’s 12 million population. For example, a $3 billion public transport scheme (subway extension) is wholly concentrated on carrying individuals from the Barra area to other affluent beach neighbourhoods of Leblon and Ipanema.

But there’s another important part of the equation: a 92-year-old billionaire named Carlos Carvalho who owns 65 million square feet of property in Barra. For those readers who still can’t figure out the connection, here’s the simple version.

All the money spent on developing Barra will enhance the prices of property, thus benefiting property owners like Carvalho. If this were not enough, Carvalho owns the ‘Athletes’ Village’, the centrepiece of the Rio Olympics. In the process of building this wealthy showpiece, government gave him the right to convert it into luxury apartments once the Olympics are over.

And all this ‘development’ of Rio had the unmistakable imprint of the government in the form of subsidised loans, tax breaks and land transfers. Ultimately, it ended up benefiting people like Carvalho the most. In a nutshell, what happened is that the national taxpayer money (coming mostly from the middle and poor classes) ended up further enhancing the wealth of already rich people and affluent neighbourhoods. In the process, favelas were left to rot further. And all this courtesy of government-led redistribution.

What I wrote about Brazil can be applied to almost every country in the world. One of the most vivid and relevant examples of this kind of crass and disastrous redistribution efforts can be seen in our own country. People who have even a slight knowledge of our past will understand and acknowledge what this means.

But just to refresh memories, here’s a simple example of a tried and tested method of ensuring that the wrong person receives the taxpayer money. It is known as agricultural support pricing, a policy that has been practised here for many decades.

In government papers, the beneficiaries are the poor farmers who possess little amount of land. But in actual fact, the beneficiaries are the large landowners who pocket hefty amounts of taxpayer money, all in the name of redistribution to help poor farmers. The large landowners form a formidable group and are present in every major political party. They are the ones who propel the laws that benefit them through parliament, much like the sugar barons who pass policies that end up benefitting their sugar mills.

What I have described above reflects a broader problem. The problem, or rather the dilemma, is that the various forms of the governments of today’s world have become the most viable platforms for socio-economic differentiation and precursors to unequal societies through their ill-designed redistribution policies.

Realistically speaking, we will always have redistribution as long as we have any particular form of a government. The challenge is to make the redistribution fair and least costly to society. We have to remember that governments themselves evolved out of a need to have a group of decision-makers at the top that could level the playing field for all the participants within a society. But now, we are witnessing the abdication of that role in favour of benefitting certain classes of society. This is exactly what made men of thought like John Locke and Thomas Hobbes fear the monopoly of the government. The latter expressed his fears aptly in his famous book ‘Leviathan’.

All this is ironic too because governments, if willing, can be the most powerful weapon in terms of creating a society based on equal access to opportunities. I gave the example of the athletes’ village in Rio, which will later be converted into expensive condos. Contrast this to the British government, which reserved their athletes’ village for public housing once the London Olympics were over.

With regard to levelling the playing field for all, three of the most powerful tools to achieve this noble aim through government efforts come in the form of justice, education and healthcare.

If a society with equal opportunities for all is to be realised, then it will also need a change of mindset. This kind of mindset would realise that it’s not big-ticket items like metros and motorways that matter, but that the people who use these facilities have access to quality healthcare and education – and have equal access to justice.

The writer is a freelance contributor.

Email: [email protected]

Twitter: @ShahidMohmand79


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