Politics

Challenging the Winner-Take-All World

By Ryan McGreal
Published December 06, 2006

Reuters reported yesterday that two percent of adults on earth now control more than half of the world's wealth.

Anthony Shorrocks, director of the World Institute for Development Economics Research, the UN development research institute that published the study, noted, "We've estimated that the richest two percent of adults own more than half of global wealth, while the bottom half own one percent."

Let the free marketeers rain their vitriol on me, but it is utterly inexcusable that 130 million people own more than the other 6.5 billion people. This goes beyond marxism, beyond democratic socialism, beyond any esoteric debate about relative values, and lands with a hideous clunk at the foundation of human ethics.

I'm not arguing that there should be no difference in wealth between the richest and the poorest. The world will probably never work that way.

When I left school, I was dirt poor and worked a succession of shitty jobs for little money. I don't begrudge that in the least; it was a good learning experience for me, I met some wonderful friends, and I discovered that there are other goals in life than a higher income or net wealth; goals to which I'd rather aspire.

Similarly, I don't have a problem with someone being paid well for doing valuable work. The problem is not that some people have more money, but that the skew is so exponential.

A Winner-Take-All World

A mid-nineties book called The Winner-Take-All Society, by Robert Frank and Philip Cook, argues that in what the authors call "winner-take-all" markets, very small differences in ability or performance translate into huge differences in renumeration. Think of a top-tier athlete who makes ten times as much as the next player.

The authors make a case that many globalized markets - for example, the markets to hire corporate executives, who rank among the world's richest people - are now "winner take all" markets.

Unfortunately, the winner-take-all society has very little left over for those 98 percent of people who are not winners; and it drops off exponentially as we move down the percentiles.

Writing about wealth creation and executive renumeration, hacker/entrepreneur evangelist Paul Graham writes, "I have no trouble imagining that one person could be 100 times as productive as another." He argues that inequality is actually a good sign, because it is evidence of an entrepreneurial culture in which people have incentives to develop new ideas and exploit market opportunities.

Entrepreneurs and Labourers

Maybe. However, Graham's vision of the economy as a heady brew of creative entrepreneurs seething to produce the next big thing is not widely applicable. Most people are not hackers, never will be hackers, and do not need to be hackers. There's a simple reason for this: most of the work that needs to be done in the world is not hacking.

Graham idolizes the Silicon Valley culture of innovation and risk-taking, but neglects to point out that across the valley, immigrant workers are struggling to keep their heads above water, making less than enough money to pay for basic expenses like food and shelter, no matter how hard they work to assemble the physical components on which he builds his valuable software.

What promise does the romance of wealth creation - entrepreneurship, smart investing, executive positions - hold for those people? For most, none at all.

What most people really need is safe communities, decent public transportation, good public schools, access to health services, the ability to take a day off work to care for a sick child without being fired, and an income that is adequate to meet their basic needs.

The winner-take-all model actively mitigates against this reasonable and achievable goal.

Avarice and Cronyism

In any case, the winner-take-all model has some serious problems. For one, the system of accountability for executives, unlike that of athletes, is anything but objective and transparent.

The avarice and cronyism of these celebrity executives amidst falling wages and outsourcing represents a real drain of wealth out of the hands of workers. It undercuts Graham's claim that in today's economy, the super-rich no longer get their wealth by expropriating it.

For another, the socioeconomic dynamics of extreme wealth and poverty are self-reinforcing. Heroic, by-the-bootstraps anecdotes aside, most people who grow up poor will never be able to get rich, and people who are born rich need to be spectacularly incompetent not to remain wealthy through adulthood.

In any case, the answer for poor communities is not to skim out those very few natural, highly ambitious entrepreneurs that appear from time to time. This does nothing to help the communities they leave behind. The answer is to find ways that poor communities have enough wealth, enough physical, social, and economic connective tissue to function as safe, healthy environments for their residents.

The market may be the best engine of wealth creation, but it will never provide healthy communities by itself.

Not Inevitable

Ultimately, the extreme and steadily increasing disparity in wealth is not an inevitable outcome of market forces.

Many countries, using a judicious mix of market, tax, and regulatory incentives and disincentives, have managed to create economies that produce plenty of wealth, support a wealthy overclass, and still have enough wealth left over to maintain decent, humane minimum standards for everyone else.

This, perhaps counterintuitively, actually increases overall productivity growth since well-fed, well-educated, healthy people tend to be better thinkers and workers. I'm thinking specifically of countries like Switzerland, Finland, and Sweden, which have managed to do this without stifling profitable investment or producing a 'welfare culture' of dependency and entitlement.

This is not a matter of capitalism versus socialism, or freedom versus coercion, or any of the other abstract metaphors used to block functioning democracy. Stripped of ideology, it's nothing more than people in communities working together where it makes sense to establish a baseline of civility and compassion in which everyone has a chance to enjoy a humane life.

Ryan McGreal, the editor of Raise the Hammer, lives in Hamilton with his family and works as a programmer, writer and consultant. Ryan volunteers with Hamilton Light Rail, a citizen group dedicated to bringing light rail transit to Hamilton. Ryan writes a city affairs column in Hamilton Magazine, and several of his articles have been published in the Hamilton Spectator. He also maintains a personal website and has been known to post passing thoughts on Twitter @RyanMcGreal. Recently, he took the plunge and finally joined Facebook.

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By Bob (registered) | Posted December 08, 2006 at 18:00:02

Your article ignores some basic facts, like why do immigrant workers choose to go to silicon valley for jobs that you describe as less than adequate. Perhaps the weather instead of wealth is of more interest to them. They could easily go to Texas or Arizona and find assembly line work with much more affordable housing conditions. Not everyone cares about their net worth.....

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