Inequality leads to wasted resources

In this world, inequality is the order of the day; some people simply have more capital than others because that’s the way things are. Some people are more beautiful, intelligent, cunning, or generous than their peers.

And when you factor in the hereditary nature of culture, the fact that certain parts of the world are more peaceful, resource-rich or both, and that these differences compound over many lifetimes in self-reinforcing loops, you find massively unequal societies with two broadly discernible groups: the rich and the poor. 

The rich come to own everything, and the poor end up with either very little or nothing at all. 

Since the poor do not have any direct access to life’s essentials (food, shelter, energy), as these are all owned by the rich, they need to find work if they are to survive at all. Almost all their money goes towards securing the essentials, meaning that they live precariously, pay cheque to pay cheque.

If they cannot find work, then they’re out of luck and out on the streets.

The rich end up saving a lot of money because of their capital and because they collect money from those who own no capital at all, in a self-perpetuating downward spiral. The rich get richer while the poor get poorer…

But what actually happens when we have exaggerated levels of inequality? When a tiny proportion of the population owns everything while nearly everyone else owns nothing? How does this translate into destitution for the many?

For the poor to find work (and they have no choice but to work because nothing else will sustain them) they need to meet some sort of societal demand. There’s no point producing a car if no one has the money to buy it. But most of the money is hoarded by very few individuals at the top, locked away in bank accounts, stocks and shares, meaning that the drive to consume even basic necessities will be much lower.

Technology replaces workers

Owing to the onslaught of technology, which produces more things, better and cheaper, the need to rely on expensive workers is becoming outdated. Why pay for workers who demand health benefits, overtime pay, weekend breaks and human rights when you can just turn on machines that produce everything cheaper? It’s a no-brainer. As technology advances, the need for labour diminishes.

When there is a large pool of people looking for work, coupled with a small number of people who don’t want to buy many things and who don’t need the poor to make the few things they want, wages will inevitably be low. If the only way that the poor can survive is by being useful, then their diminishing utility (in the eyes of the rich) will ensure that they’re not adequately compensated and will struggle to survive.

There’s no point producing a car if no one has the money to buy it- Ivan Bartolo

If spending on everyday commodities is low, then the demand for saving will be high and the rich will funnel their money into purchasing assets that will ensure they will still be able to make money. And since land is the most valuable asset, because it is the source of everything that is valuable (natural resources, constructive ventures), the rich will buy up all the land and park all their money in it for a rainy day.

We all need a place to live, so we will have no choice but to rent land from landowners; the assets will be few and their price will increase.

Financial insecurity grows

While the rich park their money in basic assets like land to ensure that their money always flows, the poor won’t be able to save up enough to buy their own house. Remember, the poor are expendable; their wages are low. So, people are increasingly unable to become homeowners and need to take out mortgages and loans with increasingly high interest rates, which they will never be able to pay off. As inequality increases, wages shrink, property prices rise and financial instability increases for the poor.

Businesses still need to survive as the rich come to own all the money, so they do the clever thing: they focus on selling quality to the rich. Only those businesses that market their products or services to the rich are assured of a workable profit. And, so, as society becomes more unequal, we find the proliferation of more lavish goods and services.

Lest we think that inequality can be contained, we would do well to remember that, in a globally connected world, the ill-gotten gains of a dictator in Malta, say, can be stashed away in a secretive jurisdiction such as Dubai. The world as a whole suffers, as all the global money flows concentrate in specific locations because there will be a desire to pander to those who squirrel away all the money. This causes global inequality, as a few places prosper at the expense of the rest of the world. 

Government austerity measures

Governments face a conundrum when it comes to raising taxes to ensure the welfare of society; in an unequal society, the poor won’t have any taxable income, and the rich will hide their money in secretive offshore jurisdictions. As a result, governments cut spending to vital parts of society, causing even greater hardship for those without the means to provide for themselves.

These are some examples of how our current economic system is broken. We’re living in a society of extreme inequality and that is bad.

Ivan Bartolo is a member of parliament’s Social Affairs Committee and opposition spokesman on social and affordable accommodation, pensions and the fight against poverty.