Saturday, August 29, 2009

Inequality 1: Rich Getting Richer is Good

Most people shudder at the thought that the "rich are getting richer" because the next phrase or sentece will be, "and the poor getting poorer". While concern for inequality in society is understandable, it should not be used as a reason or excuse to pull down the super-rich via high taxes and multiple regulations, so that the government will have more money to subsidize and uplift the poor.

By being super-rich, they immeidately pull up many people out of poverty. Compare a middle-income person who earns $1,000 a month, and a super-rich man who earns $1 million a month. In Philippine context, the former will be driving his own car and will have one house helper and would probably be renting a house. The latter will have 3 or more big houses and each house will have several employees (cleaners, cook, gardeners, electrician, etc.), will have a fleet of cars and have several drivers and mechanics, will have one or more big corporations hiring several thousands of staff and personnel.

While remaining poor for several generations in a clan is a bad thing, poverty for some is self-inflicted like the lazy, irresponsible and dishonest. They may be hard workers but if they are also party hard too often (say they work 6 days a week but they also drink and party 6 or 7 nights a week) and do not save enough for the rainy days, then poverty is the logical consequence.

Societies will be better off if inequality among people is respected. There is no limit to what the super-efficient, highly ambitious and hard working people can do. And there is also no limit or bottom to the poverty and misery of the incorregible irresponsible, zero ambition and lazy people.

Thus, instead of demonizing the super-rich, societies should respect and encourage more people to become super-rich.

What government should do is to simplify business regulations, drastically reduce business bureaucracies, open up the market to more foreign competition, reduce or control local oligarchy due to protectionism against foreign competition, promulgate the rule of law.

Meanwhile, Forbes magazine  released early this week its "The Philippines' 40 richest"

Name Net Worth ($ mill) Age

1 Henry Sy 3,800 84
2 Lucio Tan 1,700 75
3 Jaime Zobel de Ayala 1,200 75
4 Andrew Tan 850 57
5 John Gokongwei 720 82
6 Tony Tan Caktiong 710 59
7 Eduardo Cojuangco Jr. 660 74
8 Enrique Razon Jr. 620 49
9 Manuel Villar 530 59
10 George Ty 515 76

This report was picked up by some Philippine broadsheets, like this report,

"RP's richest getting richer"
The Philippine Star, August 29, 2009

On the above list of 10 richest Filipinos, 3 of them can be suspected of having gotten very rich because of politics. Cojuangco got very rich during the Marcos administration and was able to sustain his wealth in the succeeding administrations. He heads a big political party while 2 of his sons are Congressmen. Villar is a politician, was former House Speaker and former Senate President, now still a Senator running for President in May 2010 elections. While Razon is closely connected with past and current administrations.

All the other 7 super-rich Filipinos made money out of entrepreneurship. Of course, in an environment of heavy government regulation and intervention, it is impossible for any entrepreneur to become very big unless they have to play some politics. But such practice is kept to the minimum as the bigger part of work is on consolidating and expanding their businesses.

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