How Income and Wealth Are 'Earned' Matters in Understanding Inequality Jason Clemens, Taylor Jackson and Megan O'Neill - Fraser Institute
go to original August 1, 2016

This video was the first message produced by the #Acción2015 movement calling on governments to take action against inequality in Mexico. (El Daily Post)

Individuals can earn income and accumulate wealth in a number of different ways. The first is by serving other people through the creation and provision of demanded goods or services at prices consumers are willing to pay. Individuals, entrepreneurs, and businesses that earn income and accumulate wealth by innovating and providing such goods and services benefit not only themselves and their businesses but also society more generally.

One example is Chip Wilson, founder of Lululemon, who has an estimated net worth of $2.2 billion. As an entrepreneur, Wilson took enormous risks to innovate and develop a line of products that consumers wanted and were willing to pay for. In doing so, he benefitted millions of customers by providing them with something they valued that didn’t exist before. He built a company from nothing to one that, in 2015, employed over 8,500 people with sales of roughly $1.8 billion.

There are, however, other methods by which to “earn” income and accumulate wealth that do not provide such social benefits. Individuals can earn great amounts of income and amass wealth by securing special privileges and protection from governments. Such activities are referred to as “crony­ism”; while generally legal, they almost always impose large costs on society for the benefit of a small group of individuals.

For example, Mexico’s Carlos Slim used special privileges granted by governments to reduce competition and thereby provide their businesses with monopoly powers. Specifically, the Mexican government placed barriers to competition in the telecommunications market, allowing Slim’s companies to charge consumers higher prices than would otherwise have been the case in a competitive market. It is these protections, rather than competitive success, that explain the extraordinary wealth of Carlos Slim.

Another way to “earn” income and amass wealth is through corruption. Unlike cronyism, corruption is generally regarded as an illegal activity. Like cronyism, it imposes enormous costs on the majority of citizens for the benefit of a few. In many cases, corruption involves outright theft from the population. An example discussed in the essay is Indonesia’s Suharto family, which reigned for decades, embezzling between US$15 billion and $35 billion in a relatively poor country.

... Understanding the source of income and wealth is a critical yet too often ignored component of the inequality debate. Similar levels of observed inequality can have markedly different sources and thus effects on society.

Read the full report at Fraser Institute

We invite you to add your charity or supporting organizations' news stories and coming events to PVAngels so we can share them with the world. Do it now!