Who takes care of the vulnerable?
One of the defining debates of the 20th century has been the form of government that is best suited to bringing about prosperity, giving equal opportunity and reducing inequality. From totalitarianism, fascism, dictatorship, communism to finally socialism and free market capitalism, this decade has seen it all. The break-up of the Soviet Union in the 90s dealt a blow to Communism, thus paving the way for the two remaining forms of government left – free market capitalism (followed in very countries – Eg. Hong Kong, Singapore, Estonia, Chile, Australia) and mixed economies (capitalist economies with heavy government intervention – Eg. USA, UK, India, France, Italy, Greece, Spain and many more).
The essential debate that surrounds these forms of government is, ‘who will take care of the poor?’. Before the Industrial Revolution, everyone was poor, thus, the debate did not exist. However, as larger masses became richer with increasing productivity brought out by industrialization, they started thinking about the masses left behind. Poverty and destitution started becoming a larger concern. If industrialisation was not helping each member rise above the shackles of poverty, perhaps there would be another form of government that could help reduce these inequalities? To deal with these questions, Communism and Socialism came out. Yet, these forms of government only succeeded in making everyone poorer, rather than helping the poor overcome their state of poverty.
Capitalism has answers. The bottom 20% of the population living in a completely free market capitalist country contributes 3% to the country’s GDP and interestingly, the bottom 20% of the population living in a closed off economy also contributes 3% to their country’s GDP. However, the twist is: The per capita income of the bottom 20% in a capitalist country is a staggering $8,000 while the corresponding figure for a closed off economy is a mere $200 per annum.
Therefore, capitalism does help everyone get richer. But the question still remains: What happens to those who cannot compete in a capitalist economy? Destitute children, handicapped, the old with no savings? Classical liberal economists such as Milton Friedman have pointed out that private charities are the answer to this important question. There are two options to consider: One, the government taxes you at around 40% (including indirect taxes), takes your money and then uses this money for poverty alleviation (while also racking up a massive fiscal deficit due to the inefficiencies in the system) OR, the government taxes you at a mere 15%, thereby freeing up your money, which you may then donate to private charities that are far more accountable than the government. In India, the government has proved itself to be inept, wildly corrupt and terribly inefficient. High tax rates have also reduced the disposable income of the workers. However, the government does allow a tax deduction to those donating to registered non-profit organisations. Though this tax benefit is only 50% of the donated amount, it still presents an opportunity. Donating to a private accountable charity is a great way for each individual to give back to society. Channeling your money away from the government, and directly towards the needy, is the best way for each individual to give back to society.