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Seah Caiying

Singapore

Income Inequality a social vice?

March 22, 2016

What is democracy? It is a beautiful philosophy that gifts the people with the tools to achieve equality. It is, however, not a preacher of equality as the end goal. But more often than not, democrats conflict the two, choosing to adopt the idea that democracy in essence is to have equality throughout the nation. It led to the deafening cries of presidential candidates, capitalizing on this supposed loophole to appeal to the sympathies of the general populace. Bernie Sanders made “Let me tell you something about our country that the billionaire class doesn't want you to know” his main battle cry, emphasizing that that the top 0.1% of Americans have almost as much wealth as the bottom 90%. His promise for increased progressive taxation to distribute more wealth to the lower strata of society sounds appealing, as do the many mainstream Robin Hood theories. But if we were to inspect such thinking a little more closely, we cannot help but catch the uncanny resemblance between this way of thinking, and Marx’s.
 
Therein lies the problem. Oftentimes a democratic society frowns upon rising income inequality, swayed by angst-filled people without a job and homeless gypsies who, when juxtaposed to rich businessmen, serve as a gruesome reminder of a burgeoning problem in society. But if we think a little harder, we must come to realize that income inequality is simply a product of a capitalist system, one that democrats themselves value.
 
The capitalist system is premised upon the democratic political belief of laissez-faire, meaning: freedom; freedom to innovate, to create, to upgrade, and in the process, gain wealth. Since we cannot expect every single human being to have the same levels of intelligence, the same access to the same amount of resources, the same ambitious gene to revolutionize, it is only a matter of time that the capitalist system produces individuals with varying levels of success. That is where income inequality is derived from, where people who know how to capitalize on opportunities presented to them; people who know how to make smart business decisions; people who invest time and effort into perfecting a skill, emerge victorious with large amount of wealth. Conversely, those who are too afraid to step out of their comfort zone; those who consciously choose to quit after failing once or twice; those who refuse to learn from past mistakes and plunge straight into a business venture impulsively without considering the benefits, will find themselves unable to make it big. But even despite such “flaws” with capitalism, democrats still appreciate the beauty of it because it is predicated upon the very idea of freedom and ability to take charge of ones future. Therefore if it makes sense for the capitalist system to remain, then it must also make sense for income inequality to be accepted as a norm, and in fact almost seen as desirable.
 
This is because on the very first level, income inequality is what motivates people to work in the very first place. The thesis of this argument is simple – if people realize that their effort determines where they are placed on the income spectrum, then they are more likely to step out of their comfort zone and work harder. We assume people to be rational and fueled by self-interest, thus we can logically deduce that they are more likely to work twice as hard to achieve what they desire. For example, a student will actively choose to listen attentively in class and find out how to apply concepts learnt in examinations if he knows good grades count towards a better future; a worker will try his best to turn in quality work if he knows it would secure him a higher paycheck. On the comparative, countries which cultivated a supplicant class of people who habitually raise their palms for help from the government are having trouble growing their economy. The Organisation for Economic Cooperation and Development (OECD) found that Sweden’s student performance has declined in all key domains of literacy, numeracy and science, because high taxes necessary to equalize income across high and low skilled occupations in a welfare state did not provide sufficient incentive for learning and working hard. Indeed, if everyone is equal, no one will ever be exceptional. We are removing the environmental condition necessary for human condition to thrive in – competition. Without income inequality, we can hardly generate any growth.
 
Building on that same line of logic, income inequality is the catalyst for expansion into new industries, diversifying the economy. When people see that other people are succeeding in one field, earning higher income than themselves, it provides a natural incentive for them to venture into that same industry too, especially when the industry is relatively new and profit is huge. Back when Apple was first introduced into the market, it dominated the scene and created a monopoly, but not for long. Apple’s success paved the way for more companies to invest on smartphones, such as Samsung. As a consequence, previously thought to be luxury goods are now far more accessible to the common man. An example would be plasma televisions, which now can be seen on the shelves of almost everyone’s homes. What this signifies is an overall improvement in the quality of life of the average man, where he or she has access to many more lifestyle choices than before.
 
There are those who argue that even if income inequality in theory is beneficial, it isn’t in real life, because oftentimes wealth becomes concentrated in the top strata of society, where the widening gap between the rich and the poor is turning into a gaping chasm. Self-interested rich companies care much more about profit and hence exploit cheap labour overseas, contributing to unemployment locally. The poor thus finds themselves with no way out of the poverty cycle. The response to this argument is 3-fold.
 
Firstly, the characterization of income inequality being very large is flawed, even in places like America, because it does not take into consideration the existing social safety nets that governments put into place. Government subsidies, middle class tax cuts, national health insurance schemes are all examples of safety nets put into place by the government that lessons the burden of the people. Having a low income therefore doesn't necessarily equate to one having a low quality of life. Conversely, progressive taxation also ensures that those with higher income contribute their fair share to society for further construction of social infrastructure, helping to boost the entire economy as a whole.
 
Secondly, even if we agree that government safety nets and policies are insufficient and companies are only ever profit driven, them outsourcing and turning to cheaper labour is the reason as to why they can afford the number of employees they have currently. For example, Nike employs 40 times more manufacturing workers in Vietnam then Americans. But without the efficiencies of outsourcing, Nike would not have the capital to employ as many Americans as it has now.
 
But thirdly, as Barack Obama himself once said, “the best way to spread the wealth around is to leave it in the hands of the wealthy”. More often than not, only a small portion of their wealth is used for personal consumption, and the rest is used for investment. American business magnate Warren Buffet is a classic example. His investments in textile company Berkshire Hathaway and Chinese car battery company BYD had earned him significant returns of 1,745,300% and 671% respectively, and these are just 2 of his many investments. In turn, the investments wealthy people make provide companies with the capital and resources to research and develop, upgrading themselves and thereby employ even more people. Such a benefit is always far better achieved than placing money in the hands of a confiscatory government. Politicians, at the end of the day, are not businessmen.
 
Even when they don't invest, wealthy individuals donate. This is why we see the rise of philanthropists in the likes of Bill Gates, Li Ka Shing and Mark Zuckerberg, for they strongly feel an even greater obligation to give back to society, having been blessed with so much more. On the contrary, a realm with income equality will see the dilution of the virtues of giving back to society. People will less likely be able to see the need to give back since everyone around them are as well off, if not even more well off, than them. This is the pivotal role wealthy people play, something income equality will undermine and ultimately destroy the entire capitalist system.
 
Lastly, while we can concede that the poor often find themselves entrenched in the poverty cycle, the solution is not to eradicate income inequality, but to eradicate systemic problems inherent within the government’s policies, such as banning racist treatment of a black community and giving them the tools needed to ascend the social ladder – education.
 
Income inequality started out as a natural product of capitalism, but it has morphed into something of greater value. It has become the very premise for a healthy capitalist system. To remove income inequality by firstly deploying Robin Hood tactics and then engaging a welfare system is magnanimous in nature, but self-destructive in reality, because it calls for the practice of Marxism to be upheld. If capitalism is truly supported not only in ideology but also in practice, then we need to be ready to embrace the effects of it with a critical mind, understanding that intuitively “negative” outcomes can actually be a blessing in disguise.

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