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Tuesday, January 24, 2017

HOW DO WE ADDRESS THE WEALTH IN EQUALITY IN THE WORLD

International aid agency Oxfam, last week revealed that the eight wealthiest people in the world own as much as the poorest half of the world’s population put together. Oxfam, used this as an indicator of how wide the wealth inequalities are, how unsustainable the current situation is and how it could lead to increased crime, conflict and widespread instability.

Among their suggestions to end the current situation is to put a stop to the illicit flow of finances especially by powerful multinationals, which is helping companies evade taxes, denying the poor the social services and infrastructure improvements that would allow them climb the social ladder.

"It is morally wrong for a few people to amass so much wealth while billions of people live in abject poverty. However bridging the divide will not come through moral suasion or even threats of doom...

The key to addressing the issue will lie in understanding how the wealth is created and why it is not “trickling” down to the masses.

The wealthiest people are so because they are providing a good or service that is considered valuable to the market.  Considered valuable because you may debate the value of diamonds or financial services or Whatsapp but the market votes with its wallet.

Contrary to what we think of the wealthiest as the most selfish and most self-centred people, none of them would have made the money they make if they tried to go it alone. On the contrary they brought people together, linked up with other organisations and networks to exploit an opportunity or unlock value in a situation.

It’s a long story but the origin of all wealth is knowledge. Mr A is wealthier or earns more than Mr B because Mr A knows something that Mr B does not.

So from the above the wealthy are so because they are more collaborative than the poor and that they know something that poor do not know.

Another thing is that the true wealthy are not burning the midnight oil counting their billions, plotting how to grow more. At some point wealth creation takes on a life of its own and even if some of these tycoons wanted to stop they would just keep on making money as a function of the good or service their companies continue to provide to the market.

Bill Gates for instance has donated $28b  -- or the total GDP of the Uganda, of his wealth to fight disease and alleviate poverty around the world, but his wealth continues to growth as Microsoft, where most of his net worth is derived continues to grow. IN fact he is richer today than he was when he started giving away his money!

Wealth builds on itself so the accumulation of wealth is not necessarily a function of greed.
So to pull more and more people out of poverty we need to increase their knowledge and the wealth will follow.

That is where government's come in – and where Oxfam is correct to appeal to them to redress the situation.

If there is inequality anywhere in the world it is an indictment on the respective governments more than anyone. It means either they are not creating an environment for enough wealth to be created to go around or/and they are not distributing the wealth properly once it is created.

Kenya’s founding President Jomo Kenyatta famously admonished his Tanzanian counterpart Julius Nyerere for pushing socialism by asking “What do you want to share? Poverty?”

"The point is wealth has to be created first before we can start raising general living standards or bridging wealthy inequalities. Governments enable wealth creation by easing the process of doing business in their respective countries by improving physical infrastructure, promoting the rule of law and investing in its human resource...

The better they are at doing the above the wealthier the country is.

By taxing the wealth creators the government is then able to continue improving the environment but most especially improving the quality of their people.

Thankfully we have seen this process happen in our life time. The people who had the head start at independence are those who went to school, the higher the better. But to benefit from this they had to live past their infancy, better health care improved their chances of doingthis. We take it for granted but the immunisation regimen we got as kids made the difference between life or death for easily half of us alive today.

Which brings us back to why governments are responsible for wealth inequalities.

"If government cannot collect tax and even that, that it collects is not utilised properly, it denies millions – especially those at the bottom of the food chain quality education and health care that would improve their chances of better incomes in future...

Government fail out of sheer incompetence, different priorities or corruption.

That is on a national scale.

On a global scale what is also true is that many of these huge companies have been able to leverage their power to influence policy towards maximisation of their profit. So for instance the movement of capital and not people has been freed for most of the world.

What that means is that the owners of capital have huge bargaining power in dealing with labour.

They can move their operations to where labour costs are low, while labour cannot easily move to places where wages are higher – in fact they are actively resisted.


But that is a discussion for another day.

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