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The Trickle down Effect: Fill the Coffers of the Rich
Vinod Anand | 11 Oct 2013

The Trickle down Effect: Fill the Coffers of the Rich (Vinod Anand) THE inter-linkages between economic growth and income distribution are crucial to assess the impact of policies on people.  Macro-economic measures like growth rate and the micro-economic measures like poverty levels, inequality ratios, and unemployment rates help us measure the impact. Such a combination generates two strategies; Emphasizing growth but weighing the growth performance by the distributional record and emphasizing changing poverty, inequality and unemployment as the principal indicators of development.  The first strategy is subject to the percolation or trickle down effect, according to which ‘countries with moderate to rapid rates of aggregate economic growth would succeed in upgrading the economic condition of significant numbers of their people’. The experience of different developing countries this trickle down effect presents a mixed scenario.  This theory has been seen to be valid due to different reasons in each case, for a number of developing countries for given time periods, especially between the fifties and early seventies. At the same time there have been a few exceptions where the trickle down theory failed. In the case of India, during 1960-1969 there was either no growth, or very low growth, and no trickle down at all.    In fact the trickle down fails essentially because of the dominance of the rent-seeking and other related activities of the State, and also because of many other bottlenecks in the whole percolating process like the lack of effective bureaucratic control, inefficient implementation of various out-reach programs, the lack of political will, and the lack of efficient and effective intermediaries.  This presentation tries to negate the trickle down effect of economic growth in its totality, especially in all man-made endeavours including growth, development, and not so much on the basis of any country-wise studies during given periods, as on the grounds of history, philosophy and logic. It would also be interesting to look at the inverse of the trickle down effect (called the trickle up effect), once again, in a general way and also analyze its validity, not necessarily in Economics, but in all walks of life.    Historically, the invalidity of the trickle down effect can be seen that the majority of the poor have never been richer, whereas the minority of the rich has always been richer. It can be seen that, throughout history, especially in feudal societies, which originated initially in Europe in the 8th century, and then spread all over, there have always been the highest stratum of a few rich people, the landlords securing and enjoying the riches at the cost of the poor, and preventing any trickle down and assure that the poor stay poor. In the process, the landlords become still richer to rule, dictate, and exploit.   Beyond Feudalism, even in Capitalism, contemporary and in earlier forms, brought about initially by the French Revolution of 1789, there was invariably no change in living standards of the poor; and later in the anti-capitalist Marxian systems, as manifested in Socialism, and characterized by the absence of private property, and motivated by class interests, the richer class somehow manipulated to prevent trickle down with the result that poor continued to be poor; and  finally in modern times, beginning from the Keynesian Revolution of the thirties, when the ultimate motto of a Welfare State with  demand-based Economics, protecting the rights of the working class, empowering the poor in various ways, and believing in human resource management, the fate of the poor is remained the same as it was centuries ago. The trickle-down did not work.  Therefore, throughout history, and more so during the present times, the motivating factor for the failure of the trickle down effect has been the vested interests and the survival instinct of the ruling classes, that always strive to raise their support and maintain and even enhance, their hold, and their political control and power over the masses.  The administrators have always been in full league with the ruling classes and create situations which, on the one hand, help the rulers to achieve their motives, and to give a dominant position to the administrators to wield massive administrative power, on the other.    In essence, there has always existed a strong nexus between the rulers and the administrators, and both always strive to exist for each other: rulers for their power and hold, and administrators for their supreme administrative authority.  All this is, exhibited through what we term as the ‘rent-seeking’ and ‘directly unproductive profit-seeking’ activities in the terminology of the ‘New Political Economy’.  These activities seriously hamper the growth process, and especially the trickle down, by dissipating the country’s resources and national income.  What is interesting is that unlike man-made and man-controlled scenarios and mechanisms, the trickle down effect seems to be highly valid in nature and its mysterious phenomena. The Law of Gravitation is one such example. However, man and man-made systems have always worked against Nature and its varied manifestations to achieve their own interests in the name of material progress, resulting in the erosion of natural resources and natural surroundings, to the extreme disadvantage of human existence itself. Going against Nature implies, among other things, the complete loss of its modus operandi like, the trickle down effect.  What is, therefore, more valid in all man-made systems is not the trickle down effect, but its inverse, the trickle up effect.    To conclude it is not the trickle down but the trickle up, which is the order of the day, especially in man-made systems.  The present-day experience has turned the earlier thesis of trickle down on its head, and supports the thesis of trickle up in all man-related contexts.  The success of modern economies is in fact the success of trickle-up, where a number of things, tangible and intangible, visible and invisible, move up the ladder, on a continuous basis, through different mechanisms, both market and non-market, to reach the top.  HYPERLINK "http://www.southasiapost.org/index.htm"      PAGE  PAGE 1