Was the crisis a catalyst that helped the rich getting richer or did it actually minimize the gaps between the poor and the rich? What is going to happen to the size of the gap in the future?
The gap between the rich and the poor is slowly growing. This gap has been growing for a long period of time and nothing seems to be stopping it. Many economists that support the business cycle theory, which states that when rich families and organizations lose their wealth over time to new rising tycoon this new tycoon is a better fit for the times. This is because we live in a frequently-changing world in which new innovations and new markets are appearing all the time.
You need money to make money.
The tool for measuring “fairness” of the distribution of wealth is the “Gini coefficient“. This tool can point out how the wealth is divided by the general population. A coefficient of 100 would describe a situation in which one individual holds all the income of the country. Although this is only a theoretical value, there are some countries, especially monarchies and dictatorships that have high “Gini coefficients” such as Sierra Leone with a coefficient of 62.9. In the United States the “Gini coefficient” is 45.2 (2006); this is high compared to Great Britain, which has a coefficient of 34 (2005). While capitalistic, democratic countries are mostly in the middle of the range, the communist countries mostly get the lowest values possible. For example, the Czech Republic has a value of 26 due in part to the influence of the former communist regimes. This measurement tool reveals a high correlation between the form of government and fairness.
One major ingredient that helps the rich get richer is capital. You need money and a lot of it in order to invest in the stock market or in new projects. Most of the people lack the critical amount of money to invest or the proper motivation and vision which are required in order to invest their money and gain more than the normal interest rate over a long period of time. If we look at the cost of the human work force over the years, we will see that it is getting very expensive. But we will not stop consuming products just because they are expensive. If the human cost in production will get too high we will have to find new ways to lower the cost, especially by technological improvements. So in the future, robots and computer algorithms will take care of the production line and services. This progression may lead to a more equal society and a better distribution of wealth, but in order to keep human advancement we must reward individual that creates innovation and new technological improvements, or otherwise our society will look more and more like Communism, and Communism paralyzes any desire to innovate because people do not earn much from their hard work.
In conclusion, in my opinion the gap between poor and rich will keep growing, but at a slowing rate as more and more people invest their time in developing new frontiers.
Omri.
The CEO Game.
November 21st, 2009 at 10:55 am
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