2008 5
Do we want there to be no rich people or no poor people?
Published by MartinVarsavsky.net in General with No Comments
I have been criticized many times in this blog for having had done well in life. Especially in my Spanish blog. Many readers know however that I grew up in a middle class family environment –the son of professors– and that I made my money by founding different companies. They also know that I started my companies by writing a business plan, searching for investors, recruiting a good management team, and executing out a strategy. So there are not many secrets about how I made my money in technology. Criticizing me for being rich in my blog. If it is done with humor, I leave it. If it is a direct insult, I don’t publish it. But the attitude of some readers towards my makes me wonder if people who hate successful people realize that what a society needs successful businesses in order not to eliminate poverty.
What do we want, a society without rich people or a society without poor people? To me the answer is clear. What we want is a society without poor people or, like my Argentinean friend Maximiliano Fernandez says, what a country has to aspire to is to have the “richest poor” people in the world. Why? Because if the poor people of, let’s say, Switzerland are the richest in the world –which they may very well be– then the rest of the Swiss will be even better off and all is well. And Switzerland is a good example because it has the richest poor people in the world, but it also has some of the richest people in the world. The same goes for Sweden, another country where the poor live well, but where there are also people, like the founder of IKEA, with huge fortunes almost unrivaled in the world.
Still unconvinced readers will ask me, “What’s going on in countries like Nigeria, in which almost everyone lives in misery, but some are billionaires?”. My answer is that my argument in defense of the rich is not valid in countries that live off of the exploitation of natural resources. In those cases, where it is common for a few to take control of everything, then the argument of some of my readers, that many are poor because a few are rich, is valid. So in those societies what is needed is strict policies of wealth distribution. But in information societies like the EU, USA and Japan of today, which live mainly off of the accumulation of knowledge, the formula that says that in order for there to be fewer poor people there have to be many business leaders competing for human resources and raising wages, is applicable. And those business leaders and entrepreneurs are generally rich.
Take the United States for example, the country with by far the most billionaires in the world. Interestingly enough, its Gini index (which measures a country’s inequality of wealth distribution) is not so much better than Nigeria’s. And yet the USA’s Human Development Index (HDI) is the 12th highest in the world, while Nigeria ranks near the bottom of the barrel at 158th. Perhaps Nigeria’s Gini coefficient is not much worse than the USA’s because so many people are poor, and its rich citizens are actually few and far in between. In contrast, the USA has hundreds of billionaires and thousands of millionaires in addition to a very large middle class. Hence, there is still inequality, but poor – better yet, non-rich – Americans are much better off than non-rich Nigerians.
What’s more, I don’t know of a single successful society, meaning a country whose poor are among the richest on the planet, that doesn’t also have very rich people. As for rich Americans, well let’s look at Larry Page and Sergey Brin, the co-founders of Google. Their combined net worth is over $22 billion, but think about how many jobs Google has created, and how much wealth it has brought, not only to its thousands upon thousands of employees, but to the computer industry in general, both in the USA and around the world. In contrast, Aliko Dangote, Nigeria’s richest citizen with a net worth of $3.3 billion, amassed his fortune by gaining a near monopoly on Nigeria’s commodities trade. Again: by taking control of natural resources. Dangote Group is not exactly a boon to Nigeria’s economy.
My conclusion is that when a country really mistreats its entrepreneurs it becomes impoverished. This doesn’t mean that we don’t have to implement progressive taxes –which I think are very good– or create an environment in which people that fall into adverse situations receive the help that they deserve to come out on top, and in which inequalities are reduced. But the solution is not to have fewer rich people, but to have fewer poor people.
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Jake Burdess on December 5, 2008 ·
Another common mistake seems to be in the way we think of ‘poor’ and ‘rich’ – the middle class is undoubtedly seen to be wealthy through the eyes of a homeless person, whereas the very same class may be seen to live in relative poverty by a billionaire.
As you say, Martin, the real ‘poverty-makers’ are unscrupulous businesspeople who seek simply to bleed resources that could be shared to some extent.
Of course we would like to rule out poverty, but then as I say, it’s all relative in the end – someone has to have less money than someone else, thus he is ‘poor’ and the other is ‘rich’…
Leandro Juarez on December 5, 2008 ·
Martin,
I have a theory at that respect.
It´s not a coincidence that you are criticized in Spain and Argentina. I also bet that you or any other rich people would be not well seen all along Latin America.
At the time of the colonization, Spain was strongly influenced by religion, something that was carried and transferred via evangelization. One of the most influential lines within the catholicism was the Jesuism, which was so taught that they some time later confronted with the Spanish Kingdom for some desagreements in the way of developing the later stages of colonization. One of the main Jesuistic believes is that poverty purifies the concience. As oppose, richness is not pure.
Not far away in time, the Argentine education has been very much influenced by religion. So that believe, that is somehow “politically” right was tought until Catholicism has fallen in disgrace because of many internal problems when facing serious facts:
– Lack of Modernization
– Corruption
– Permanent punishment to devotes
Kind regards,
Leandro
fico gómez on December 5, 2008 ·
I am spanish, and could not agree more with Mr. Varsavsky on the jelousy consideration of us latin people. I think it is tightly related to the fact that people (generaly speaking, and aware that it is unfair with few), are not willing to make the effort it is required to be succesfull in life. When someone manages to be succeed, then he/she makes the unsuccesfull look stupid or lazy, and that makes them feel bad abou themselves and about you.
Still it is just my view,
regards and love to you all
Pete Rogerson on December 5, 2008 ·
Your entry made me think of the influence Irish entrepreneurs have had on Ireland. Individuals like Denis O’Brien and Sean Quinn have both become Billionaires through their business activities, but they’ve also contributed significantly to the general economic good in Ireland. They’ve literally helped build up their country – creating jobs and businesses and attracting investment and opportunities.
Ramiro on December 5, 2008 ·
It’s a fair argument, but the opposite is just as true. Basically, that of egalitarianism. There are sound reasons for egalitarianism. Read this book: If you are an egalitarian, how come you’re so rich? By Oxford philosopher Jerry Cohen. There’s the egalitarian argument.
Julio Fraire on December 5, 2008 ·
I think Latin America is somewhere between your two extreme examples. Our dependency on natural resources is evolving to a more industrial economy. However, we are far from becoming a knowledge-based society. Wealth distribution is still, well, undistributed and our poor people are still really poor.
What do you think are the factors that influence the adoption of knowledge-based activities into our economies/markets?
What do you think about the link between technology development and knowledge-based economies and how do latin american markets influence local technology development?
In my opinion, the answers of these questions might help making more rich people 😉
Jack on December 5, 2008 ·
Perhaps it’s a matter of semantics, but I disagree with your conclusion: “the solution is not to have fewer rich people, but to have fewer poor people.”
The problem I see is the possible confusion of the objective with the way to achieve it. If you’d stated “The goal is not to have fewer rich people, but to have fewer poor,” I’d have to agree 100%.
You see, we won’t make the world a better place by going around eliminating poor people, which might be implied by your conclusion.
Indeed, I believe, that inspite of the corrupt ones which come with the package, the world would be better off by having more rich people because of the fact that weath tends to filter down, which explains why the well-off contries which you cite have a much higher standard of living for everyone, including their poorer citizens.
Thierry on December 5, 2008 ·
Martin,
Countries with vast natural resources are not doomed to vastly unfair wealth distribution. In fact, Norway is a lonely but potent counter-example, having both vast natural resources and a fairly egalitarian mindset and society.
So the issue in my mind is more about governance than natural resources. Could democracy and fair (well, fairer) wealth distribution go hand in hand?
Martin Varsavsky on December 5, 2008 ·
@ Jack:
I think you are confusing eliminating poverty, which is what I am writing about, with eliminating poor people, which is of course what I am not talking about.
LetFelipeBack on December 5, 2008 ·
The reason why U.S. has a Gini index simmilar to Nigeria is because its billionaires are about 20 times richer than Nigeria’s billionaire. Even though american society seems more egalitarian than nigerian society, even though it seems that having more billionaires the wealth is more equally distributed, the cold statistics show how the wealth is distributed in a similar manner in both countries. As much wealth a google has created and for as many people, that still doesn’t make it immoral that both founders have such fortunes equivalent to thirty times the wealth of the ‘owner’ all the commodity trade of such a natural resources rich nation as Nigeria is.
The Gini index is a very objective measurement and the USA score embarrasingly low. There is no way of extracting a positive reading of such fact.
David Loughry on December 5, 2008 ·
This post and the comments are PRE-INTERNET THINKING. There are fundamental opportunities the Internet presents which we are largely failing to exploit. I’ve developed a new growth model which better leverages networks. The FON network would be a great place to use it or experiment with it. Here’s a link to a post which explains more (my name in this comment also links to the post):
David Loughry on December 5, 2008 ·
NOTE: The HTML in my comment #12 didn’t come through, so I’m doing it again. Sorry.
With all due respect to the Martin and the comments so far, this is PRE-INTERNET THINKING. I’ve only realized this myself recently, so I didn’t really get it either for a long time. The web is a different animal, and we’re all just figuring it out. There are fundamental opportunities the Internet presents which we are largely failing to exploit. I’ve developed a new growth model which better leverages networks and the Internet. The FON network would be a great place to use it or experiment with it. I’d love to work with FON as they try it out. For an introduction, click my name above to go right to it. It’s on the ProxThink River blog (http://proxthinkriver.com), and you can search or look for “Letter of Introduction for ProxThink.” The main ProxThink website is http://proxthink.com.
Thanks!
Tomas Krag on December 6, 2008 ·
I can’t quite decide whether i agree with your overall conclusion, but i do disagree vehemently with your argumentation. The wealth of the founder of IKEA is irrelevant, the fact being that Sweden is on a respectable 3rd place i n the UN Gini index, as well as being well-placed in the human development index.
It may be true that all successful countries have incredibly rich people, but so do (by your own admission) a number of unsuccessful countries. By saying that your rule of thumb doesn’t apply in countries where wealth is amassed due to exploitation of resources, you are honouring a long-time tradition of economists, who build a model, then discount all cases that disagree with their model.
I would counter-argue that there is a huge correlation between being highly-ranked in the Gini index and highly-ranked in the Human Development Index, and that the US, not Nigeria is the exception to the rule. And egalitarianism, as proven by the scandinavian example is the way to eliminate poverty.
As I started of saying, in fact i think there’s some truth to both these arguments, i.e. strengthening the ability for entrepreneurs to accumulate wealth to a certain degree is important, but egalitarianism as a goal is at least as important.
Of course the correllation between HDI and Gini is somewhat strengthened by the fact that HDI is a composite figure which includes the Gini index, but i’ll defend myself with the argument that you brought up these 2 figures, not I 😉
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FFD on December 5, 2008 ·
A common mistake seems to be the assumption that there is a fixed pot of money, and the amount in this pot just needs to be allocated within a society… If this were true, rich people would indeed cause poverty. But as we know, there is no fixed pot of money. It grows or shrinks continuously…