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The wealth gap and inequality cannot be ‘fixed’

Johann Redelinghuys is previously founder and chairman of Heidrick & Struggles South Africa, now The Director of the Chairman's Institute and of Portfolio&Co

The World Economic Forum has identified wealth disparity as the “most probable menace to the global economy during the next decade”. World leaders from Barack Obama to Jacob Zuma and even the Pope, God bless him, have all picked up on the theme. Amidst all the poverty summits and anguished breast-beating, there seems to be little understanding that it is pointless because individual differences and inequality are clearly established elements in the natural order of things.

They are also the predictable outcomes of the capitalist economic system which most of the world now subscribes to.

We are told in a recent report by Oxfam, who have based their findings on numbers supplied by Credit Suisse’s 2013 Global Wealth Report, that the richest 85 people in the world are worth more than the poorest 3.5 billion. The lower half of the global population, the report says, possesses barely 1% of global wealth while the richest 10% of adults own 86% of it.

Why rich people are rich and poor people are poor is not rocket science. Rich people generally are smarter, think more clearly and invest more wisely; they manage their lives more profitably. There could have been inherited money or they may have had the entrepreneurial and leadership skills that have enabled them to prosper and build their fortunes. Perhaps they had unequal opportunities to start, but they have also used those opportunities very well. Some billionaires started from nothing but had the drive and the ambition to make good.

Not everyone has the drive or ambition or talent to get rich or even to maintain a comfortable standard of living. Just like we don’t all have great sporting talent or musical ability, or the looks and personality to be movie stars. We look around and see big natural differences and great inequality all round us. There are obviously major differences in intellect, and in physical ability, but we don’t fret about closing the IQ-gap, or the golf-handicap-gap. The world would be a different place if we could decrease the extremes at either end of the bell-curve and settle everyone in the middle. There would be no gap and everyone would be comfortably ‘average’.

Wasn’t that what communism was all about; common ownership of the means of production with everyone sharing in everything and an overthrow of capitalism? But we live mainly in capitalist societies, so why would we want to avoid the natural outcome of competition and individual wealth creation? Wasn’t it nice to hear Bono, the do-good man of Africa who must know a thing or two about third-world poverty, endorsing capitalism at the World Economic Forum? If capitalism is an economic system that enables individuals to own the means of production and encourages them to make profit, wouldn’t there obviously be the big differences and wealth gaps as a result?

The wealth-gap is now consuming leaders everywhere. Davos with all its heavy-hitting participants has come and gone and everyone was on to the issue. It was a key element of Obama’s speech and even the Pope sent an emissary to deliver a message of concern. Wealth angst was everywhere. Obama is heading to Europe shortly and will be visiting the pope where it is said “he looks forward to discussing with Pope Francis their shared commitment to fighting poverty and growing inequality”. It is always the rich people and the well-off countries that worry about being rich and well-off.

But can anything really be done about it? Could the rich be encouraged to limit their rich-making and could the poor be taught to live more wisely, thereby closing the gap? It is unlikely. We know that the rich are usually more generous and are often great benefactors of those less fortunate. Look at Bill Gates and Warren Buffet. Most really rich people in South Africa have foundations and participate actively in charitable giving. But hand-outs, welcome as they must be, don’t close any wealth gaps.

Bill Gates has made a startling prediction on this issue. Talking to Forbes Magazine’s editor Randall Lane recently, he said, “There will be almost no poor countries by 2035.” He doesn’t say exactly how this will happen, but it is encouraging that the world’s richest man can make such a confident prediction. If he is right, eradicating poverty would most likely be the result of changed systems and political philosophies inside the country rather than well-meaning individuals from powerful countries trying to fix things from the outside. UK Prime Minister David Cameron clearly believes this to be the case. Commenting at Davos, he described how the two Koreas with similar climates, resources and physical conditions have very different political philosophies and consequently live with very different levels of wealth.

Whenever the world tries to improve itself, it looks at the enviable model of the great middle class societies such a Scandinavia, and maybe Australia and Canada, hoping somehow that struggling third-world countries could also rise up and become more affluent capitalist democracies. The poor people in countries like Bangladesh and Rwanda would no doubt like that, but is there any concerned western leader who could make even the slightest difference for them? Poverty seems to be endemic in some societies. That great bastion of democratic capitalism, the United States has its own under-class of poor people despite the fact that they live in a country of apparently boundless opportunity. If the wealth gap cannot be closed in well-endowed America, what chance would there be for others?

It is right that we should be concerned about those less fortunate, but it seems to be futile to spend energy and commitment working to close the wealth gap. And it is not cynical to acknowledge that “the poor will always be with us”. What we do have to invest ourselves in, however, is closing the opportunity-gap, especially the gap in educational opportunity. Every child and growing person should have access to a good education. There should be sufficient opportunity for them to benefit from skills training and occupational coaching so that everyone will have the ability to earn a living.

What they do with it afterwards is up to them and will no doubt again depend on individual differences. Even with the ambitious resource of a sound education there will be those who make the most of it and will flourish, and there will, as always, be those who will not.

As the rich and powerful call up the cavalry to charge over the mountain of inequality, they should know that it is not going to work. It’s a dragon that cannot be slain. We should encourage them rather to use their fire-power to build opportunities and a decent education for all. DM


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