Why the Rich Need the Poor to be Richer

When Rolls Royce (motors) are announcing record profits and Tesco are loosing market share to Lidl, at the same time, you know there is a problem.

The problem is this – in this economic crisis the rich have got a lot richer and the poor (and most of the middle) have got poorer.  The wealth gap has grown.  It may not seem this way, but this is at least as much of a problem for the rich as it is for the poor.

The problem is that there is not enough money in circulation.  There is plenty in existence, but not enough of it is moving about in the right places and here is why:

If we share 10 million pounds, euros, yuan or dollars between 10 rich people they will be most likely to invest it in getting richer, which would be fine, except that they will probably invest it in things like, gold, bonds, property and hedge funds.  The problem with investing in these things is that the money is not doing anything really useful.  It is just sitting around speculating.  What our 10 rich people don’t invest they might choose to spend – on Rolls Royces, Superyachts or other luxury goods.

If we shared our 10 million with 10,000 poor people, 1000 each, they will spend it, on normal things like clothes, food and so on.

The difference is that our rich people cannot really consume much more of the normal stuff, food, clothes etc than anyone else, so their wealth goes either into creating marginal markets for luxury goods or taking the money out of circulation altogether, through investment.  Whereas our poor people and those in the middle create markets that are useful to normal people and sustain those kinds of businesses.

The problem for rich people is that as society becomes poorer relative to the rich and as the businesses that serve and employ normal people go bust, while at the same time businesses that serve the rich are flourishing.  Luxury goods start to have a magnetic effect on the market.  Luxury goods becomes the only thing to invest in and the only sector to find work, attracting a disproportionate share of human and financial capital.  At some point a top heavy market and society, that lacks solid foundations, is destabilized.

In 18th Century France this kind of wealth gap lead to the French revolution and in 20th century Europe a similar expansion of the wealth gap contributed to causing the Second World War.  Neither of these types of scenario are particularly desirable.

The point is that our businesses and our society depends on people.  Money is just a human invention designed to facilitate the exchange of energy of various sorts.  The evolution of society to a better, more peaceful, more fulfilling, more sustainable place for everyone is the objective, not simply the accumulation of wealth.

The solutions are fairly simple.  If you are rich enough to be investing in something (including a pension), see if you can shift some of your investment to small businesses and start ups offering mass market services.  The most effective solution to this economic crisis is entrepreneurialism and, right now, start up businesses are finding getting funding harder than ever.

If you work for or own a business that is profitable, see how you can increase the pay of your lowest paid workers.  We need to be spending money in ways that build the foundations of the economy, to stop it falling over, and it is normal working people who spend their money on the foundations of the economy.

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With love

nx

PS – Wishing a very happy birthday to my wonderful wife 🙂

Neil Crofts
authentic business
+34 646391384
neil@neilcrofts.com
www.neilcrofts.com
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About Neil Crofts

Writer, coach and consultant on authentic business and authentic leadership. Neil has inspired and motivated hundreds organisations and thousands of individuals to their highest potential. Neil has written three published books and numerous e-books. Neil is a coach, facilitator and consultant helping people and businesses find their authentic purpose and use it to inspire and motivate them to be everything that they can be. Neil has raced cars, been self-employed, run a company and sold it, been employed by large companies, experienced growth and contraction at the heart of the dotcom boom, tried changing companies from the inside and from the outside as European Head of Strategy at internet consultancy/rock band Razorfish. Neil has been independent for over 10 years and delivered his Authentic Leadership message to a diverse range of business audiences including people at BP, Shell, Microsoft, Kraft Foods, MSN, Jamie Oliver, South Gloucestershire Council, National Blood Transfusion Service, KaosPilots Business School, Fashion company By Malene Birger, German technology company Eleven.
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5 Responses to Why the Rich Need the Poor to be Richer

  1. Steve Prior says:

    Hi Neil
    You make a good point about the lack of money in circulation.

    This was very well understood by people like Henry George and Silvio Gesell. Unfortunately this is not understood by our political masters nor is it understood by most economists who tend to work on a model or theory which has never been proven.

    Silvio Gesell had a solution which has actually been tested and proven to work but it needs to be implemented in a very specific way. If you Google Silvio Gesell and Worgl, you should find plenty of references.

    You suggest the solution is simple. It would be if the structure and conditions allowed for it to happen but that’s where this starts getting a bit more complicated.

    The whole system of money and the way money gets created would need wholesale reform.

    For example, when a Bank considers whether to create a debt, they look at a number of criteria which includes a weighting based on what the loan is used for. A house which currently exists is weighted at 100% whereas a business loan is somewhat less than that.

    Unsurprisingly, this is the mechanism which inflates asset values and always causes a bubble followed (normally) by a collapse. I say normally as the UK is so deficient in new housing stock that prices haven’t collapsed as they have in the USA.

    Economists talk about the function of money as being; a medium of exchange, a unit of account; and a store of value without considering what this really means and how it forces us to behave in the way we do.

    This is a huge topic and one I have been looking at for the past four years. I do though think you are on the right tracks in suggesting that people with money start looking at investing in small businesses with potential mass market appeal.

    At some point, pension funds will be forced to consider where they put/invest their money because the returns they have been used to will no longer be there. Perhaps we will start to see some real innovation.

    We live in interesting times.

    Regards

    Steve

    • Neil Crofts says:

      As you say a few investments do not solve the underlying problems. We have to get away from money created as debt. The Worgl model was especially clever as the currency was preset to devalue over time motivating rapid spending.

      It is interesting that we talk about money supply, when actually flow is a far more relevant measure. A small amount of debt free money circulating rapidly is far more beneficial than lots of stagnant debt based money.

  2. Alex Taylor says:

    Without purpose, without direction, money accumulates like in a dam, but eventually it must flow somewhere. To invest locally or with the poor is not sufficient – this is a form of charity. There must be a defined purpose. Conveniently, helping people define this is your speciality 🙂

  3. Andrew Gray says:

    Great blog Neil. There is a lot of talk at the moment about inequality, but you have explained in a very practical way why, in hard economic terms, it it so damaging. My only concern with diverting money to people who are more likely to spent it is that that this does not cause more consummerism and consumption of limited resources, but I realise that is a secondary problem and can be overcome I am sure.

  4. Elie says:

    Hi Neil,

    You wrote “they will probably invest it in things like, gold, bonds, property”.
    Don’t you think when you invest in bonds you help a company to raise money for a specific project which will demand people to work on it and thus you are investing in people?
    As for property you are buying it from someone that will invest in the economy without counting on the registration taxes that go the government?

    Thanks,

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