OpinionCapitalism and inequality

The blessing of wealth

Inequality in industrialised countries is lower than is often claimed. And a certain degree of it is actually necessary for more growth, and prosperity for all.

The blessing of wealth

The reaction to the selection of CDU/CSU ministers in the new coalition government was to be expected: „CEOs as ministers: The new cabinet promises politics of the rich – for the rich“, the business magazine Surplus wrote right away. When it comes to wealth and assets, they are often portrayed in this country as a negative side effect of capitalism. Even supposedly neutral organisations like the UN repeatedly warn in their World Social Report that inequality can be the source of global crises.

But what is overlooked is that it was self-generated wealth that virtually invented the industrial society, and helped broad segments of the population achieve great prosperity. Risk-taking entrepreneurs created innovations that led to job creation, wages that boosted consumption and market success, and further investments.

The wealth of individuals, as Swedish economist Daniel Waldenström points out, contributed to societal development. Through continual innovation, improvements in working conditions that led to greater productivity, the establishment of trade unions, and increased education, growth forces were strengthened, and a middle class could even emerge. „Wealth has helped us become wealthier“, he said in a lecture at the Ifo Institute. Moreover, the often unjustly criticised inequality today is „much less than many imagine.“

Collective memory

According to Ifo President Clemens Fuest, the prominence of „inequality“ in debates is due to the fact that this criticism is constantly repeated, and has become ingrained in collective memory. This is also related to the fact that in this country, there is often a pursuit of a socialist ideal of equality. However, as Waldenström pointed out, socialism itself has shown that it fails to lead people to prosperity. Rather, „it was the market economy that treated its citizens better than socialism.“ Capitalism has even managed to reduce global inequality by bringing greater prosperity to people worldwide.

Not a zero-sum game

Ultimately, according to Waldenström, the goal is to distribute wealth fairly without stifling the incentives for innovation and entrepreneurship. Entrepreneurial wealth should be tolerated. After all, societal prosperity did not arise from a zero-sum game, where wealth was simply taken from the rich and given to the poor, but because all citizens are able to build wealth. He also warns against excessively taxing businesses. Instead, he suggests focusing more directly on capital income rather than wealth and inheritance. It would be better to promote education, home ownership, and a capital-funded pension system. This would improve market processes and thus lead to more prosperity.

According to him, the recent rise in inequality in the US is also the result of increasing hidden unemployment, wrong political decisions, and too much political power in the hands of wealthy individuals. In short: More „Musk“ as an entrepreneur is good, but opening up politics to him is bad for society.