Are The Rich Getting Richer And Poor Getting Poorer? Term Paper Example
Resource distribution ought to be fair enough, so that everyone could afford what they wanted and would not have to beg or plead for to anyone. But sadly, the world is not a playground but a viscous planet where every town is “dog eat dog” and “every man for himself” is the constitution.
Some people have excess resources that are enough for them to live their lives several times without having to work for a minute and just eat. While some, in fact, the bigger portion barely has enough to fulfill their hunger.
And then there is a white and blue collared social group in the middle that has to pick out one thing as to whether eat better or to wear better or to have their children study better. Considering how things are going economic wise, soon enough this social group will perish and the lucky ones would promote to the rich class while the others will fall below the line.
This means that the already rich are getting richer whereas the poor are getting poorer by the minute. But are they really? Is it really so in today’s day and age? It can be argued that in today’s time of opportunity and equality, it seems more like hearsay that people are getting deprived of earning as much as they want or can. But below are some facts that build on the fact that the rich class really is getting richer, and poor class is getting poorer.
The times of early 1900 were great times for the industry as it finally found its way out of rigid minded bureaucracies and could now freely breathe the fresh air of creativity, efficiency and effectiveness to start with. Profit maximization was in the air, and the sole thing that corporations could want was to capture markets. Those were the times when people stopped getting treated as people and started to be viewed as a market.
A European economist named Ragnar Nurkse got well celebrated for his contributions to the field of economy and for the amount of literature that he added to it. He presented a theory which was then called “Ragnar Nurkse’s balanced growth theory.”
It was, at that time of great attraction to the industrialist and investor as it seemed to address pretty much all the issues faced by the business community in those times. According to this theory, the basic purpose of the government of any state should be to facilitate the private sector and to make new markets (Matsuyama, 1992).
The crux of the theory is that in underdeveloped countries where business is still off and on and investor is still doubtful about whether he should take the risk or not. State assets, them being revenues and resources must be invested in different industries at the same time so that every industry gets running.
This, according to Ragnar Nurkse would result in an even spread of progress throughout all the industries of that particular state. The aim of this theory, when read in details, however, has nothing to do with the development of the country has, but has everything to do with the market (Lewis, 2013).
It can be understood with the help of an example. When good A gets produced at the same time when B gets, then laborers of both the products get paid. Once paid, they will need to buy some products for sustaining their lives. Doing so makes them spend money and on what products? The same products of course as being produced by laborers in other industries.
This means that labor paid for one work pays for the labor of another and so on. This way, the main idea is to keep the people working for the industry that relies on their effort, in return for the fulfillment of their needs. It is a cyclical process in which industry sustains itself through the labor that works in it.
Another way to view it is through the diagram:
It implies that the industries start manufacturing products and in doing that they need raw material. The raw material is then made by another industry and hence a market for it gets produced. This cycle goes on and on until a whole chain is produced.
Ragnar Nurkse also considered his theory sound as according to him it would generate tremendous working positions and hence more people will earn to be able to spend, once again, make a larger market for producers to sell in.
Assumptions are that there are no self-distribution and self-supplier abilities of the industry, and the entire industry is interdependent for the supply of raw materials and to sell finished products through. This assumption took away; Ragnar Nurkse theory does not make much sense. The theory also assumes the state being entirely corporate pro without feeling obliged to fulfill the needs of poor through aid and alms.
The rich class of people is very small in terms of number of people but very huge in terms of wealth. In the United States alone, only 1 percent of people own almost half, 40 percent to be somewhat exact of the entire wealth there is in the United States and top 10 percent richest people own 90 percent of all that there is in the region.
And this does not include the wealth owned by America’s richest people in other parts of the world. Clearly as wealthy as they are, it is not that hard to imagine that they might own assets, corporations and other resources worth billions or even trillions.
A prime consideration is that of the human population. There are seven billion people in the world at the moment and counting. And with these many guts to fill, twice as many hands go to work daily. But the question arises, is there enough work for everybody?
The answer is no. unemployment is a huge disappointment for skilled people who do not get hired just because there is no need for them. Industry needs people to work for them, at the same time needs people to buy from them. Now as the last resort, even the skilled labor agrees on working at below the minimum wage so as to at least earn bread.
This leads to fallen wages, and the effect of this fall spreads world over as like other resources, now human beings can also be imported and exported based on industry requirements of cheaper labor.
What is apparent is that the middle-class people, over the past two decades have struggled to keep their social status intact with little or no success. Hundreds of thousands of people have been pulled out of their houses in result of foreclosures that took place during this time. These foreclosures took place as a result of nonpayment. After all, how could people have paid when they had no work? (Kotlikoff, 2014)
Had Ragnar Nurkse’s theory been sound enough, this would not have happened. With hundreds of thousands of houses made, manufacturing and sustaining demand would have been enough to keep equal as many people busy. But, the industry started to reduce the number of jobs to save on wages and left so many people unemployed.
Another thing that happened was that the industry of real estate grew a bit too much in comparison to its complementing industries and left a huge gap in between. Eventually, a time came when these people had ceiling above their head but had no work and source of income to pay for it.
Surprisingly though, during the time of the great recession when the growth of business was at its all time low and when there seemed nothing left in the global economy. The rich people grew even more and not by a small figure. During the times of recession, the wealth of the richest people in the United States grew substantially.
Here is an illustration as to why is the poorer class getting poorer.
As the domestic savings of a common working household is low, they cannot participate in investing in the industry in the form of equity. As the industry by all means needs money to operate, it takes debt from lending agencies like banks.
The industry then has to pay a huge amount of interest on the lent money thus adding to the cost of production. The consumer then has to bear the additional burden as the prices of items go higher and higher. The inflation increases a lot quicker than the wages, as has been the case over the past couple decades.
The need to consume the goods is always there, but there is not enough money for the people buy their required items. So, they use credit for doing so which is another way of saying that “I will pay you back next month, either in cash or hours of work.” With this credit, again is associated interest that has to be paid for the next loan to be received. Payment of interest and capital once again leaves the household with a very nominal saving to purchase goods and the cycle keeps on repeating and worsens after each cycle for the borrower. This is also known as the viscous cycle.
The viscous cycle of the economy is widely discussed and argued upon in the recent age and time. The reason is that people are now gaining conscious that they are getting a fairly small piece of the pie as compared to the rich class that has always been and is still enjoying high amounts of income and wealth. The realization is also seen being reflected on the television and other forms of media. It is often used in a humorous manner, but nothing associated with this fact in real life is funny (Nolan, 2014).
But, the richer people always have the advantage of being able to either lend money or to use their own money for operations. Both, when the industry seeks money for operational purposes and when the people seek loans to buy their livelihood items, it is the rich class that benefits from the interest.
Rich lenders always get their money back along with profits because of pledged properties and because of the fact that a working class individual cannot run away from work even if he does from paying back. He gets charged from his wage. Even if the poor people lend money, they do so through banks that take more than half of the profits, once again these are organizations owned by the very rich class of people.
Through policy making, profit sharing mechanism has changed a lot in favor of the rich class of people. Economists consider the industry as a machine that generates profits. The sole cost associated with the product for them in the non-human cost, i.e. that of materials and machines. All the rest is profit; now it has to be divided between the owner and the worker.
At the end of the first decade of the 21st century, the percentage of profits gathered by the top 1% was 8 percent of the lot which has now gotten 20%. This means that out of all the profit generated, one-fifth goes to only the 1 percent sitting on the top. Only 10% of the profit reaches the lower 75% of people. This is a clear illustration of how the income of the rich and poor classes has increased and decreased respectively.
The theory of Ragnar Nurkse’s as a representation of economic prosperity is illustrated as below:
According to this model, when prices of commodities included both the raw materials and good declines, number of inputs will be available for the industry to use. This comes from the demand-supply principle that implies that at a low price, items are in abundance while at a high price they are scarce.
With large quantity of inputs, the industry will be able to produce bulk goods using enormous number of labor that gets employed, as a result. Their services will be used and will be paid for by the industry. At such a large scale, the ideal condition of economies of scale will be achieved according to which, when goods are produced in a huge quantity, their per-unit cost decreases substantially without having to reduce the variable cost.
Once again the demand and supply principle comes to play as the products are in abundance, lower will their prices be. The labor that made these products got paid for their effort and are now able to buy these items at low prices from the market. The overall reduction of cost reduced the prices of commodities, and the cycle keeps on. This is also known as the virtuous cycle (Lieberman, 2004).
However, the virtuous cycle of the economy is pretty much a utopian concept as several things have to be kept constant, and several suppositions have to be made in order for this cycle to be proven valid. Foremost of that being the absence of monopolizing and self-sufficiency of the industry that breaks the chain and keeps the profits, and all the cash flows revolving in a closed circle.
Another very strong argument in favor of rich people getting richer is that the state often times fails to address monetary related issues of the public. Anthropologists are rich people who dedicate a portion of their wealth for the sake of helping the poor out of their misery that is on to them either in the form of debt, poor living standard or ailment (Jeffery, 2006).
Recommendations and Conclusion
It is recommendable that the human being must not be considered as mere factor of production. Land, the place where business activity takes place, the capital that is used for carrying out the day to day activities of business, the enterprise or the organization that is made to run the business are alright but treating human being as a resource is not helpful for the worker sake. As it gives the industry a right to reduce its cost of human factor just like it can reduce the cost of other factors mentioned.
It is recommendable that the human being must not be considered as the market. Though they are, it is a sound reality. But the payment for the work of employees must be for the work itself and not for the purpose that he is enabled to now buy the product for double the price he got for making it.
It is recommendable that the state works on the model of private sector, where public is dealt with as customers, and the purpose of the government is to deliver services. Private sector is a lot more efficient and ties its aim that is profit making with the provision of quality service or product to the market. As per the New Public Management principals, states can tie their goal with service delivery to the public.
Profits are proportionally shared between the worker and the owner. This means that when prices of items go high, of course, the profits do too. Then at that time, the wages of workers must also proportionally increase. So that they are wages are able to meet head on with the inflation.
Conclusively, it is an unarguable fact that the rich class of people is getting richer but it is not as such a separate plot or a global game but just a humanly nature to first increase and then sustain wealth. Sadly, the only way to sustain wealth is to keep on increasing it. A mindset is to get richer and richer, and every person regardless of whether he or she is a commoner or a huge industrialist is following it.
Finger hence cannot be pointed towards the elite class of people as they too are representative sample of the same population as the poor people are. The economic structures made by the bodies like IMF, World Bank, and even the UN are such that they have very little relaxation for the poor. And as much as they encourage, rather appreciate the poor people’s efforts to work their way out of poverty, they do not by any means support charities and alms.
Kotlikoff, L. (5/15/2014). Will The Rich Always Get Richer?. Retrieved 25th March 2015, from http://www.forbes.com/sites/kotlikoff/2014/05/15/will-the-rich-always-get-richer/
Jeffery, C. (June 2006). A Look at the Numbers: How the Rich Get Richer. Retrieved 25th March 2015, from http://www.motherjones.com/politics/2006/05/look-numbers-how- rich-get-richer
Matsuyama, K. (1992). The market size, entrepreneurship, and the big push.Journal of the Japanese and International Economies, 6(4), 347-364.
Lewis, W. A. (2013). Theory of economic growth (Vol. 7). Routledge.
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