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Rich man, poor man

NEW books by two economists have generated much attention during the past weeks.

One is by the Frenchman Thomas Piketty, professor at the Paris School of Economics (Capital in the Twenty-First Century); the other by the retired Stellenbosch economics professor Sampie Terreblanche (Lost in Transformation).

It is remarkable how much the two share a basic message. That message, simply put, is that capitalism is responsible for the growing gap between rich and poor.

The traditional capitalist theory – also known as “trickle-down economics” – is that when the economy grows (when, in other words, the cake becomes bigger), the rich will indeed grow richer, but a certain amount of this will trickle down to the poor, who will also benefit.

This theory is to a large extent borne out by economic history. In contrast to what Karl Marx prophesied – that the rich will get richer and the poor even poorer, leading to a violent upheaval – many poor people in the capitalist West moved into middle class status some time after the Industrial Revolution.

Piketty acknowledges this, although he ascribes the upliftment of the poor to the unexpected influence of two world wars and the Great Depression of the 1930s.

However, about the time that Margaret Thatcher and Ronald Reagan came into power in Britain and America, this trend was reversed. Inherited wealth means that richer individuals do not have to work for their affluence.

In fact, he writes, the growth of this kind of capital exceeds the growth rate of the economy, resulting in a widening gap between rich and poor.

He also rails against the – in his opinion – undeserved huge incomes of captains of industry. Their income is not determined by their productivity, he says, but by the power of their positions.

And therefore, the income of the richest 1% is rising, despite the economic crisis, while that of 99% left over is diminishing.

Tax them till they groan

In contrast to Marx, Piketty is not calling for the poor and oppressed to rise and man the barricades. No, he says, tax the rich till they groan.

Terreblanche has a similar message, although it is understandably more focused on the situation in South Africa. Like Piketty, he blames the plight of the poor on capitalism.

More importantly, he accuses the ANC of selling out. In the years before 1994, the ANC was co-opted by the big South African capitalists and the Americans to abandon the poor and enrich themselves.

What binds both together is that they are unashamedly left-wing. Both have clearly been influenced by Marx, even though they do not share his solution of violent revolution and Lenin’s subsequent elaboration of Marxist theory into the dictatorship of the proletariat.

Regular readers of my column - if they exist - will know that I am not uncritical of capitalist ideology. I severely dislike all ideologies, defined as thought systems which prescribe how one should view reality, instead of helping to explain how things really are.

So please do not expect of me to defend the right of the ultra-rich to wallow in their opulence while others, who have had no chance to equip themselves for the modern world, starve. Simply use your common sense.

That common sense dictates that a too large gap between the haves and have-nots is not healthy for any society. One can, of course, approach the matter from a moral direction and point out that even the Bible and the Quran warn against exploitation of the poor.

But there are numerous economic studies which quite unequivocally show that there is a correlation between economic growth and a certain measure of economic equality.

It stands to reason, as is explained by a beautiful anecdote. Somewhere during the 1920s or 1930s, motor car mogul Henry Ford started paying his workers well. When other car manufacturers complained that he was poaching their workers, his answer was: “I want every Ford worker to be able to buy a Ford motor car.”

In other words, enabling the poor to move into middle class status means that they will start spending on motor cars, television sets, computers, fridges, etc. And that means the economy will grow and jobs created, thereby improving social (and political!) stability.

In a word, Piketty and Terreblanche are correct in their diagnosis of the problem. Their cure, however, is problematical. The answer does not lie in the breakdown of capitalism.

In Europe, public opinion against the irresponsible “banksters” and other super-rich is becoming a powerful tool. For instance, the evil of paying managers large bonuses simply for doing their work has acquired such a bad name that many of these people are nowadays named and shamed. In certain instances, the bonuses were paid back.

In the end, I am wary of too much state intervention in society, not only in economic life. What is needed is a change of culture – and that can only come from below, not from the top. In other words, from you and me.

If we do not turn things around, Marx’s wish of a violent revolution may devour us all, rich and poor alike.

 - Fin24

* Leopold Scholtz is an independent political analyst who lives in Europe. Views expressed are his own.


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