It is all too easy to fall into the politics of envy, or be thought of doing the same when thinking about whether the rich are just a little bit too rich. It could be thought of as “banker bashing”, but despite the huge bonuses that bankers earn, it isn’t that. It is not about any particular segment of the rich, or superrich, but the apparently increasing gap between the income that the rich have and the poor have.
It is not something that has suddenly come about either – it has nothing to do with the current (or recent) recession – it has been happening over a long period of time. And it is not just the radical left who are pointing out that there is a problem with increasing income inequality – even those who pray at the alter of capitalism are getting a little concerned about what is happening. As an example, read this.
The more paranoid believe that with an increasing gap between the rich and poor is the risk of increased violence as the poor decide to do a little wealth redistribution on an informal basis. There’s an element of truth to that, and perhaps that is sufficient to look at doing something about income inequality by itself.
But there is a reason for looking at income inequality that is less selfish – it is merely the right thing to do. To some extent we have lost sight of what an economy is for; we are familiar with the system that seems to have won out as the means of effectively running an economy – the mixed economy where entrepreneurs make as much money as possible and the government interferes to alleviate the excesses of the entrepreneur. Or at least some of them.
What is an economy for ? If we go back to the distant past and look at the origins of government we find that many people were organised into clans or tribes. The ties between members of a tribe were much the same as between members of a family. In the better tribes, people would often sacrifice some of their income to assist other members. This was not always those members of the tribe that were less fortunate, but would also include those who had tasks that kept them busy and away from direct food production – the soldiers that protected the farmers, the scientists who researched ways of making farming better (iron plows didn’t invent themselves), etc.
In simplistic terms an economy is there to provide food, drink, shelter, etc. to all of the people in a country. Perhaps that does not include ‘extras’ such as TVs, cars, fancy clothes, holidays in the sun, etc., but to a certain extent the wealth of a country should be shared amongst the population. Not necessarily equally mind – the hard worker deserves more ‘stuff’ than the lazy person, but too unequal is just as bad.
We choose to implement our economies using a slightly toned down version of the free market economy. It seems to be the most effective at creating wealth, but it does have a tendency to distribute that wealth very poorly. Left alone, such a system tends to concentrate wealth in the hands of the few. Which simplistically is roughly what we are seeing.
The traditional approach to this, is for the government to tax the rich to distribute to the poor. That still happens, but apparently not effectively enough. The argument from those who create wealth is that too much taxation destroys the incentive to create wealth. There is a certain amount of truth in that, although the more dedicated entrepreneurs are not so interested in the money they make as the “score” in the “game” of making wealth. There is no reason why they cannot include how many hospitals they fund as part of their “score”.
Notice that we label entrepreneurs as ‘creators of wealth’ above ? We need to get away from that as it’s wrong. Even in the primary economy where raw materials are produced ready for other industries to use, the entrepreneur does not create wealth. He or she organises the real wealth creators (the workers) and makes arrangements whereby their labour is made more effective at creating wealth – such as investing in automation in a coal mine so each miner is more productive. As the organiser of workers, the entrepreneur deserves a significant reward for his or her efforts, and so do the investors. But the workers also deserve a share of the spoils.
There are those who would argue that the workers take their reward in terms of a salary. Not much of a reward though is it ? Especially with all the entrepreneurs trying to keep their salary costs down. And besides, entrepreneurs also often take a salary (and usually not a small one either). If you look at the entrepreneur’s salary, it is essentially a means of keeping body and soul together in advance of the profits he or she expects to make later. Why shouldn’t workers also expect the same sort of reward ?
The traditional view is that the entrepreneur needs to be rewarded for the risks that he or she takes, but doesn’t the worker taking a risk when he or she works for a company ? He risks that he will be fairly treated by the management; she risks her future in the hope that the company will survive long enough to give her a job for as long as she wants. Not as much risk perhaps, but some risk deserves some of the profits.
The sad thing about all the fuss about banker’s bonuses is that we’re criticising them for doing the right thing – if the wrong way. They are sharing the profits of the company with the workers, but in a very unequal way. The “stars” of banking are being paid vast bonuses whereas the ordinary workers are getting little or no reward. This is in support of a common misconception – that the top people in any profession can accomplish what they do on their own.
There are very few professionals who manage that – or anywhere near it. Take for example an office cleaner. The cleaner cleans the office of the professional, so that he or she has more time to make money – after all very few people are prepared to work in an office that never gets cleaned, and will eventually clean it themselves taking time that could be better spent in other activities. The cleaner is employed to free the professional to specialise in the work they do.
Shouldn’t that professional share their wealth with the cleaner? The cleaner’s work has allowed that professional to make more money than they would otherwise make. And this argument goes further – nobody creates wealth without the help of others.
There aren’t any answers here – I don’t know of a solution to this problem, but it is a problem that needs to be solved.