The world we live in today has immense potential to create values for ourselves and live a good life.
We generally derive values in different forms of goods and services, such as food, medicine, consumer durables, education, entertainment, and safety, and so on and so forth.
We need wealth to avail goods and services. But then, is wealth fairly distributed among people? Not really.
The wealthiest 1% of the world’s population owns more than 50% of the world’s wealth, according a Credit Suisse report.
But if wealth is really not a zero-sum game and everyone can create as much as wealth they want, why this is an issue?
The issue lies with the irrational migration of wealth from the less-wealthy to the more-wealthy in exchange for a disproportionate value, which leads to concentration of wealth and eventually, income inequality. This is one of the reasons why rich get richer and poor get poorer.
Let’s talk about how we can address this issue and if there’s a solution.
Before we get into the world of wealth, let’s first understand a basic concept of economics – Opportunity cost.
Opportunity Cost
When you choose option A, you lose the opportunity that comes with with Option B, C and so on. Most of our daily decisions are being driven by this theory.
For instance, if you chose to watch a two-hour movie for pure entertainment, you miss an opportunity to read a book in that time or simply go out for an evening walk while listening to your favorite podcast.
The book and the walk might have been more valuable, but you chose the movie – for that specific 2 hours. Similar to time, opportunity cost applies to money too. If you have amount X allocated to a dine-out expense, you can spend that money in only one restaurant.
Every time, you pick something you drop something else.
Well, how does this lead to wealth concentration? Wealth is mostly transferred through a business transaction and let’s see how an ideal business transaction looks like.
Ideal Business Transaction
In an ideal scenario, a business transaction happens when there is a migration of value.
Advertisement
But this does not happen most of the times. Many businesses simply create demand for the sake of making money.
There are numerous goods and services that we don’t need but are made to believe we do. As we result, we consume them spending our money that could have been used for a better cause.
Therefore, the businesses are not just depriving its consumers of the value they are charging for but also eroding additional wealth of consumers through opportunity cost.
The wealth simply moves from the consumer to the business – without exchange of any value.
Now the question comes – why and how do these businesses exist in the first place?
Well, the answer is pure capitalism which has only one intent – profit. Profit at the cost of anything.
Gap in Value Exchange
A poor student who spends 5 hours a day in Facebook gets no real value other than some short-term dopamine.
However, Facebook makes money out of him being engaged at the platform for 5 long hours. The opportunity cost here is unimaginable.
If he would have opted for learning a skill in that time, every day and start earning money by working for that 5 hours, his likelihood of coming out of poverty increases multifold.
But the large tech giant will not make that happen and it’s not their responsibility as well. They are in business for making money and they are doing it utilizing all maximum potential.
There are millions of people out there who are spending numerous hours consuming things for instant gratification and losing way more benefits in the long term than they can imagine.
To put this into perspective, if your hourly rate is 1000 bucks and you choose to watch a 2-hour movie on Netflix every day, you outright lose 2000 bucks a day and 60,000 bucks a month.
And this is not all. If we consider the opportunity cost, you could have created or derived more value than a normal day which could worth more than 1000 bucks/hour – had you spent that time in even more productive way. That way, the loss of 60,000 may get even bigger.
Any-benefit Fallacy
“But Facebook helps me stay connected with people and I enjoy Netflix movies and sometimes learn from them. I find consuming these services as a benefit. What’s wrong using them?” – I see some of you saying this to yourself to justify your choice.
The issue with this thinking is the assumption that any benefit is good.
Cal Newport, in his book “Deep Work” calls this way of thinking the any-benefit mind-set, as it identifies any possible benefit as sufficient justification for using something.
“You’re justified in using a network tool if you can identify any possible benefit to its use, or anything you might possibly miss out on if you don’t use it. The problem with this approach, of course, is that it ignores all the negatives that come along with the tools in question. These services are engineered to be addictive —robbing time and attention from activities that more directly support your professional and personal goals”
Unfair Trade: One-way Migration of Wealth
Well, it’s easy to understand the time we generally waste in unrequired things day in and day out.
What we fail to understand is if the value is not being exchanged from the capitalist to the consumer, this leads to one-way migration of wealth.
The capitalists get the money and the consumer loses it which makes the former richer and the latter poorer.
But can we blame the capitalists, then? No!
Advertisement
We need to understand – for them to exist and keep their investors happy, they need to make money. A lot of it, actually. They have worked hard to build a company and they are entitled to the profit. There’s nothing wrong with that
The fundamental problem lies with the consumer who does not question – if they need the goods or service in the first place, and if they do, how much of it. They must further question what value they are getting in return for the money they pay.
So, as a consumer what you should do?
Simple. Get involved into fair trades that are win-win in real sense.
Let’s understand what it is.
Fair Trade – Two-way migration of wealth
Well, there are many trades that are fair, and the companies offer real value to their consumers.
If you go to a fruit vendor and buy a dozen of Bananas for 40 bucks, two things occur here. You value the bananas >= 40 bucks and so you happily pay the price, and the vendor values 40 bucks >= a dozen bananas, so he’s willing to sell them at that price.
This is real value exchange.
The innovative companies offer you way more value than you pay for.
Take Apple for instance. The lifetime value of an Apple machine is way more than the one-time price you pay for it. The efficiency you get by saving time and doing complex tasks easily over a period of years gives you true value of the money you paid to buy it.
This applies to products like Microsoft Office, Dropbox, and Google Suite etc.
I’m not against capitalism. I wholeheartedly support it. In fact, it’s capitalism that can make nations prosper. However, if the capitalism lacks morality, it creates more harm to masses while benefiting just a handful of people.
Adam Smith, the father of capitalism, who ushered the world towards globalization and free-market economy, spoke about capitalism and morality together and that too around 250 years ago.
This alone bespeaks the importance of having a high moral standards in a capitalist society – for the long-term sustainability of businesses and wealth creators.
Take Away
- You need wealth to live a good life and wealth comes from exchanging goods and services
- Not all goods and services are meant to deliver value, some are created just to make money at the expense of others losing value
- Always practice fair trades – where the true value you get is greater than or equal to the price you pay for
- You can grow your wealth consistently by wisely spending your time and money
- Capitalism is the path to prosperity only if it’s coupled with morality
Parth Choudhury 