Wednesday, October 22, 2014

WEALTH INEQUALITIES ARE NECESSARY

Last week someone posted on social media that the six richest men in East Africa own as much wealth as half the region’s population, about 66 million.

The post of course invited the knee jerk reaction of disgust at these men’s greed for owning so much when millions of East Africans are existing on a sub-human level.

There are right and wrong.

They are right to be disgusted because such wealth disparity is generally not healthy for economies. But they are wrong in venting against the said gentlemen, who in many ways it’s not their fault that they are where they are and the rest of us are where we are.

The richest men in the world, in our region, in our country are businessmen. Some workers may be paid highly, but a high salary does not equate to wealth. The rich are rich because they manipulate all or at least two of the factors of production – labour, land and capital. While the worker only has his labour which may not be entirely in his control.

Because the sum of the whole is greater than the sum of the individual parts, you can see why the businessman will always come out on top of the money sweepstakes.

The businessman’s ability or skill in manipulating these factors to serve more and more people is what makes him grow richer and richer with less and less effort. Somebody once said that turning $1m to $10m is work but turning $10m to $100m is inevitable.

Imagine how many hours in diligent service, study and sacrifice it would take a worker to double his salary from its present level?

We really are not in the same race.

"While creating the enabling environment for business to thrive, governments need to tax these businesses and use the money to improve general infrastructure so businesses can continue to expand and to improve on social services so the people can be better educated, given the probabilities the better educated one is the better paid they will be and healthier, more work days not interrupted by sick leave would lead to improved income....

The worker if he is lucky is increasing his income arithmetically while the businessman in relation to his skill would be increasing his wealth exponentially.

It is made worse by the fact that the bigger the businessman the more the need he will have to be involved with government, to influence policy. So again by aggregating resources he becomes someone government needs to pay attention to.

Governments only respond to numbers.
One lone man ranting at the corner of the street may only get detained for a few hours, but an angry businessman with thousands of workers, serving millions of clients and paying billions of shillings in taxes is another matter altogether.

The rich will get richer. Of course there will be those who fall off the gravy train every so often but as a class they will get richer. Which is not a bad thing in itself.

An economy is only as viable as its private sector. After all it’s the private sector that creates wealth, not governments.  So it’s in every well-meaning government’s interest to see that the business community thrives. Good governments do this by ensuring general security, macroeconomic stability and that contracts are upheld.

In the general population not everyone is an entrepreneur and less so those who will become spectacularly wealthy. Since the success of choosing winners has been patchy at best, it is important to create an environment where all those who may have an entrepreneurial inkling can try their hand and allow the cream can rise to the top.

The few who stick their necks out and win become rich.

What we need to guard against is that inequalities do not get too large as to destabilise the whole system.

That too is where governments come in. While creating the enabling environment for business to thrive, governments need to tax these businesses and use the money to improve general infrastructure so businesses can continue to expand and to improve on social services so the people can be better educated, given the probabilities the better educated one is the better paid they will be and healthier, more work days not interrupted by sick leave would lead to improved income.

With better incomes the workers may have a better chance of climbing the wealth ladder.
Growing wealth inequalities are an indictment on the government of the day, a reflection of its inability to distribute the benefits of rising wealth in the general economy.

So, that there are people making money in an economy legally is welcome and should be seen as a sign of hope for the rest, and not only because these trailblazers are showing what is possible in our context.

In fact while the tycoons will be a tiny proportion of the population we need to grow more fabulously wealthy people in order to get government to think more progressively. But that is a story for another day.