Looking beyond wealth redistribution and a lesson from Uganda
As a Gujarati, my parents once told me how Gujaratis and other Indians were expelled from Uganda. When I read up about the story recently, I could connect the dots with the talks on wealth redistribution in the Indian political sphere. This lesser-known story serves as a reminder of the risks involved in redistributing wealth and how things can go wrong.
In the 1970s, Idi Amin, the dictator of Uganda, had an epiphany. He wanted to rid his country of its Asian minority, predominantly of Indian and specifically Gujarati descent, whom he believed were hoarding wealth and exploiting the native population. He gave them 90 days to leave Uganda and warned that if they don’t leave, then they would be “sitting on fire”. At that time, the tax contribution of this group was close to 90% in Uganda.
Amin’s government seized the assets of Asian-owned businesses, forced them to leave their homes and properties behind, and even arrested those who refused to comply. The effects were devastating: thousands of Asians were forced to flee, leaving behind everything they had worked for.
But Amin’s plan backfired in a big way. Without the entrepreneurial spirit of the Asian minority, Uganda’s economy began to suffer. The government’s attempts to replace them with African entrepreneurs proved unsuccessful, as many Ugandans lacked the skills and experience needed to run successful businesses. As a result, the country became increasingly dependent on foreign aid and imports, further worsening its economic woes. Amin’s regime also became notorious for its brutality and human rights abuses, leading to widespread international condemnation and eventual collapse.
Today, Uganda is still grappling with the consequences of Amin’s policies. The country has made significant strides in recent years, but it continues to face significant challenges. The expulsion of Asians serves as a cautionary tale about the dangers of ill thought policies on wealth redistribution and xenophobia. The Asian minorities who had to leave flourished as a prosperous community in the UK, despite starting over from scratch.
Can monetary handouts truly address the issue of income inequality?
Unfortunately, these solutions fail to grasp the deeper reasons behind the divide. Furthermore, they may even create unintended consequences, such as discouraging individuals from pursuing their passions and instead focusing on accumulating wealth. For the average person, this disparity hits them in the eye when a luxury car drives down the same road where a homeless individual begs for scraps from passing cars. Instead of focusing solely on who has more wealth and who doesn’t, few ask the questions beyond the obvious monetary ones - what are the underlying causes of this divide?
The key to understanding wealth inequality lies beyond money itself.
Think about how wealth is actually created. Sure, skills and talent play a part, but successful entrepreneurs often have additional advantages – like special deals from the government, unique knowledge, or operating at such a scale that nobody can compete. These are like moats protecting a castle, and investors actually consider these “moats” when deciding where to put their money. This isn’t just true for the wealthy from businesses. Lawyers, actors, and many other professions can also build moats – connections, a trusted reputation, or specialized knowledge – that they can pass on to their children, giving them a significant head start in life.
While media portrayals often paint “moats” as villains, they’re not inherently bad. In fact, they can play a valuable role by encouraging investment in specific economic sectors. Patents, for example, offer exclusive rights for extended periods (often over a decade) to incentivize the high costs of research and development, particularly in fields like drug development.
However, the government has a critical role in ensuring these advantages are balanced. They need to strike a delicate balance: ensuring “moats” provide enough incentive for wealth creation and market entry, while preventing excessive concentration of power.
When examining why there is inequality, it’s crucial to also consider the role of skills, attitudes, and mindset or human capital. No two individuals are born equal, even within the same family. Differences in people’s skills and how those skills are valued by society will always exist. Governments can step in and break down these barriers. With the right tools, they can create a competitive environment that rewards groundbreaking ideas and sheer hard work.
But, why should “equal” be the goal in the first place?
We can’t completely wipe out inequality – it’s part of human nature. While we can definitely work to reduce the gap, aiming to get rid of it all might be akin to boiling the ocean. Here’s the thing: some level of difference actually motivates people to work hard and improve their situation. A better goal might be to raise the standard of living for the poor while providing ample opportunities for upward social mobility. This approach would ensure everyone has a fair shot at success, regardless of their starting point.
Also, aiming for absolute equality inevitably leads to populist moves like the Ugandan expulsion of Asian minorities that brings no benefit to anyone. Such efforts to redistribute wealth have consistently failed to alleviate poverty. After such redistribution efforts, the poor have routinely returned to their previous state because the key problems were not addressed.
Always keep in mind that while redistribution seems like a quick fix that appeals to our emotional side; it is rarely the solution. Fall back on the rational side, think about the second or third order reasons behind inequality and find long-term solutions.