Improving Wealth Redistribution

Teach-Girls-End-World-PovertyToday, we’re going to solve world poverty.

OK, that might be a bit ambitious for a blog post, but this is one subject where we ought to be a little overambitious. Just a little. I hope at this point I don’t have to tell you that there is a serious issue with wealth distribution in the world, a general lack of equality, and that neither of these are good.

Wealth distribution by percentile (click for larger image).

Wealth distribution by percentile (click for larger image).

When we notice how a very small percentage of the population controls an overwhelming majority of the world’s wealth, it’s pretty evident the situation is unfair. And that wouldn’t be so terrible, except that people from the lower echelons of society have very little opportunity of growth -after all, child born in The Projects is going to have a much harder time becoming wealthy than someone who is born into a wealthy family. Not only are people born poor, but the opportunities of improvement are severely limited.

It’s not like we’re advocating complete equality in wealth distribution -after all, the Soviets kinda, sorta, tried that and, well, there’s no Soviet Union anymore. What we need is a kind of “fair capitalism”; after all, it’s great to have free markets, buy the things you want -but we also have to make sure everyone can do that, too.

In the end, with a limited amount of wealth available in any society or in the world, the problem is that some people have too much of it, and other people have too little. Clearly, what we need to do is redistribute that wealth from those who have too much and give it to the people who need it more. You don’t need a huge yacht, right? We can argue about the best way of doing that, but if we want to achieve more fairness in the system, that has to be our ultimate goal.

Let’s start redistributing

OK, now that all the conservatives and their bankster handlers have walked off in a huff, let’s talk about wealth. What is the best way to redistribute wealth? Or, better yet, is there a way for us to design a system where income is distributed more fairly, and we don’t have CEO’s being paid millions of dollars, while entry-level employees are making just over $8 dollars an hour? Let’s try.

The thing about wealth is that it’s as an elusive concept as keeping it in your pocket is in real life. Wealth is the result of our work -whether collectively or individually- which leads to production and services. We measure the wealth of a given economic unit (say, country, region, or business) by how much it produces over a given period. If a business sells more of it’s products, it makes more money and is wealthier; if an employee works more hours, he makes more money and is wealthier.

The wealth

Essentially wealth is generated all the time, and is a function of productivity; the wealthiest countries are the most productive, while the poorest countries are the least. So actually, wealth is not finite (nor is it infinite…how about that for a brain twister?). There are finite resources, but the options of what we do with them are limited only by our capacity to transform them. Wealth is generated and consumed, and how “rich” you are depends on how much more you produce than how much you consume.

Conversely, how poor you are depends on how much more you consume than you produce. The problem is that productivity is not tied with how much effort you put into working, which is why some people can do back-breaking work but not produce as much as someone sitting comfortably in an office. For example, a family farm in Siberia harvesting wheat by hand produces a lot less food than a man driving a combine harvester through a field in Kansas. The product is exactly the same, but one produces more, makes more money and is richer because he applies technology to be more productive.

First you have to shovel off the snow before you even get to the frozen ground.

First you have to shovel off the snow before you even get to the frozen ground.

When we look at poor countries and the poor people who live there, we find that they do a lot of back-breaking manual labor. Which means they are by no means lazy. The problem is they don’t have access to technology that allows them to be more productive with the same or less effort. This could be because they are too poor to buy it in the first place, or because they haven’t been trained to use the technology, or other factors that are often beyond their control.

Reducing poverty

Now, obviously the solution is not to take away the combine harvester from the “rich” farmer in Kansas and give it to the “poor” farmer in Siberia. That just inverses the situation, but doesn’t change the fundamental problem of lack of equality. Essentially, this is the basic problem with wealth redistribution; it removes the means of production from the more productive and gives it to people who are less productive. The result is over-all loss of production, because either you are taking the harvester away from someone who knows how to use it and has the means to, and giving it to someone who doesn’t (this would be the Chinese Cultural Revolution); or you are taking away half of his wheat and giving it to the Siberian farmer who is no longer motivated to work, because he gets food for free, and can’t sell the product he’s producing anyway (this would be the current aid programs to Africa).

Not to be stereotypical about Russian cabbage, but they do harvest it mechanically.

Not to be stereotypical about Russian cabbage, but they do harvest it mechanically.

There is no reason that the Siberian farmer can’t learn how to use a combine harvester. The thing is, he needs his own fields, and his own harvester; not take them from someone else. The problem with the idea that wealth is finite is that it implies that people become rich by having more than their fair share of the wealth, at the expense of people who become poor as a result. This leads people to the idea that we should take from the rich to give to the poor, which will correct the problem of inequality. But, taking money from the rich doesn’t help the poor; instead, we need to give the tools to the poor that they need to become, well, not necessarily rich, but at least well-off.

But where are we going to get the money to buy the tools that the poor need? Probably from the rich.  It’s a lot easier for the Kansas farmer to set aside a little of his profits to buy a harvester than it is for the farmer in Siberia. But what we need to grasp here is that the lack of equality is not because some people are taking more than their fair share (though come clearly are, but it’s not the issue here), rather that some people need improved access to the means of production. In other words, correcting the problem inequality is not about taking from the haves and giving to the have-nots, but giving the have-nots the means to have.

Giving to the poor is more important than taking from the rich

For example, poor people are less likely to obtain a college degree or create a business. This is because they have less education opportunities. Taking money from well-off neighborhoods and giving it to them will not solve their problem if they continue to go to the same schools, and receive the same sub-standard education. We need to improve their education, which might or might not cost more.

Getting that message across is often difficult because it’s counterintuitive, and forces people to accept the paradox that you can’t solve poverty with money. But that’s OK; because if we really do care about helping the poor, then we’re going to take the time to understand their problems, and work on solutions that help them -and not just ones that we feel are right.

We probably can’t solve every problem of world poverty, but with a lot of effort, we can make a sizable dent. Are you up for the challenge?

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