GROWING DIVIDE BETWEEN THE RICH AND THE POOR – Since the banking crisis of 2008 the world has been gripped in a recession and yet despite the average income earner suffering at the hands of increasing austerity measures the wealthy have seen their net worth increase by as much at 18 per cent per annum.
There is little doubt that the growing divide between the rich and the poor is widening and many experts believe that over the next decade this divide will grow exponentially.
The Gini Coefficient measures the inequality of income and it calculated where 0 means that everyone has the same income and 1 dictates that the rich have all of the income.
Currently the Gini Coefficient is used in 22 countries in order to measure the wealth gap and in the last two decades alone 17 of the 22 countries have produced data that clearly shows the rich and poor divide is growing at an alarming rate and in the United State alone that gap grew from 0.32 to a staggering 0.38.
It would appear from the data that the banking crisis had two distinct effects; firstly it made the poor markedly poorer and secondly boosted the wealth of the rich considerably. But how is this possible; surely the rich, with all their investments in banking would have felt the effects of the crash the most.
The truth is that poor people are rarely in a position to invest. When the do invest they often place their money in stocks and bonds that are bank owned; it seems like the safest type of investment.
The rich on the other hand are able to afford to spread their investments across a wider investment network; thereby creating a diverse investment portfolio whereby when one stock experiences a downturn other stocks will take up the losses and secure their wealth.
Investing is highly complex and to do well you need an in-depth knowledge of how the stocks and share work and sufficient capital in order to ‘hedge’ your bets. It’s a little like betting on two or three horses in the same race with the high risk producing a greater return in the event of a win and hoping that the other horses at least place in order to cover the initial bet.
Governments, around the world, also attribute to the rich becoming wealthier. In the last 30 years in the UK the British Government has decreased high-end taxation for the rich from 70% to approximately 40% today and yet taxation for the poor has risen.
Historically the rich are able to avoid paying much of the tax that the poor simply cannot avoid and this has become apparent with the growing number of reports on how the likes of large corporations, such as Google, Amazon and Starbucks have managed to avoid paying tax through legal loopholes.
The perception, for most of the poor or working class, is that the rich should be taxed more in order to allow Government to reduce taxation for those with less income. This economic model however does not produce the desired effect. Often companies and the wealthy leave countries with high taxation or where government imposed minimum wage are too high.
This effect can be seen when we look at how developing countries, such as the Philippines, Thailand, India and China have experienced a surge in employment due to Western companies moving their manufacturing operations in order to avoid high levels of pay and excessive taxation.
We often moan about the amount of good produced overseas, notably from China, but Western society has developed to a point where most corporations are unable to produce a product in their home countries at a price that consumers are willing to pay. This is attributable to the growing interference from Government legislation and the rise of the Unions.
You might think that in times of a recession companies that produce luxury goods, such as Rolls Royce, would have a difficult time generating sales and yet since the 2008 banking crisis the number of Rolls Royce sales have increased exponentially year on year.
Will the divide between the rich and the poor widen? According to some leading experts by 2050 the planet will have a population of approximately 9 billion people. Currently the ratio of poor and rich is approximately 20/80; that is 20% of the world’s population control 80% of the global wealth. By 2050 this is expected to widen to due to the populace growth in developing countries; that is it is expected that of the 2 billion extra people some 1.9 billion will be born in developing counties thus expanding the rich and poor divide even further.
Some developing countries are moving the wealth in a different direction. If you look closely at China their developing economy is out-performing almost every Western economy and the International Monetary Fund (IMF) in 2011 predicted that China will overtake the U.S economy and dominate global consumption by 2016 and by 2030 be responsible for between 45 and 50% of Global GDP.
Let’s go back to the perception of taxing the rich more. Should the rich once again face higher taxation as it did three decades ago in order to spread the wealth?
You need to look carefully at what taxation produces; which is simply a way for Governments to raise funds in order to pay for public sector services and funds to help other developing nations through foreign aid.
The issue with Governments is that they are historically wasteful. You only have to look at the economies in the UK and the U.S and see the massive deficits these countries have. Currently the U.S has a deficit of approximate $16 trillion – do you know of any corporation on the planet that could survive with such an enormous debt?
The truth is that the rich create wealth that benefits the poor by providing jobs. If the poor are to see levels of taxation drop then Governments must use taxation in order to create jobs and reduce the burden of welfare on the taxpayer. As jobs are created taxation levels can be reduced but only when the economic deficit has been either paid off or reduced to a significant and very manageable level.
Currently the UK and most of the EU is gripped by austerity measures and yet when the working classes look at the rich they find it almost impossible to believe or understand how they are able to shrug off the recession and the austerity measures it has produced. Again, while the wealthy are not totally immune from economic trends they are in a position to significantly reduce the adverse effects and in most cases actually benefit from them.
Taxing the rich is not the answer to the economic problems of the poor. We seem to have forgotten the rules of free enterprise and the ethos that hard work, coupled with risk, can pay dividends. This turn of attitude has lead the poor to believe that success is only available to the already successful and therefore rely increasingly on Government assistance, through welfare, in order to sustain their existence.
In my view we need a change in attitude and instead of looking upon the rich as being decadent, soulless and greedy we should look upon them as a shining star of inspiration in that if they can create something from the formulation of an idea then so can we.
Do you think the rich should be taxed more or do the poor need better educating so that they too can aspire and ultimately create wealth for other through employment? Leave your comments below.