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If the poor stop being poor, will the rich stop being rich?

2023-02-10T18:33:13.728Z


The economic growth of a country does not mean improvements in the quality of life of its entire population. The equitable distribution of wealth can lead to fairer and more effective situations


Manuel lives in Central America.

Thanks to his salary as a senior position in an agricultural company, he has a gardener, a cleaner and a nanny who take care of his two children hired at his house.

Manuel sees things this way: if his country were to become richer, the benefits of growth would probably have to be shared widely among the population, with improvements in the distribution of wealth and increases in the minimum wage.

Manuel should pay his domestic workers much more money.

Most likely, it would be impossible for him to keep them hired.

Manuel fears that his quality of life and that of his family will decrease.

Manuel's approach can be presented in the form of a question: Is the economic growth of a country a threat to the wealth of the rich in that country?

To try to answer the question, let's analyze the case of Chile, which seems to be becoming a rich country.

Klaus Schimdt-Hebbel's working paper for the Central Bank of Chile, titled

Economic Growth in Chile

, explains how Chile's economic growth was truly remarkable between 1985 and 1997: “After an average GDP growth equal to 1, 5% between 1970 and 1984, the country grew at an average of 7.6% between 1985 and 1997″.

Chile is today one of the 30 most unequal countries in the world, according to the Gini index

Indeed, and according to the Chilean Association of Tourism Companies (ACHET), today "Chile has managed to position itself as one of the richest countries in Latin America.

It is the fourth strongest economy in the region in terms of Gross Domestic Product and the third most developed country on the continent (after Canada and the United States)”.

Having said this, it should be noted that Chile is today one of the 30 most unequal countries in the world, according to the Gini index (an economic measure that measures the inequality —of income, normally— that exists between the citizens of a country).

In fact, according to the 2022 World Inequality Report, the richest 1% in Chile concentrates 49.6% of the country's total wealth (in the United States, the richest 1% concentrates 34.9%; in Spain , The 17%).

BBC News Mundo

confirms that "Chile is the country where the ultra-rich have the largest wealth in Latin America."

The example of Chile seems to confirm that the increase in the wealth of a country does not have to decrease the wealth of the rich in that country.

Perhaps the crux of the matter is in the distribution of wealth.

Indeed, economic growth can be accompanied by a distribution of that wealth among the population of that country.

Or not.

Returning to the case of Manuel, what would happen to Manuel if his country became richer and, furthermore, there was an improvement in the distribution of that wealth among the country's population?

Manuel would possibly have to give up part of his domestic staff.

But, in compensation, it is likely that he will have an important series of alternative services, such as a public health system and an education system of much higher quality.

Manuel's distribution of expenses would vary: he would spend less on certain luxuries and more on other benefits, probably more necessary and therefore more important.

After the economic growth of his country, Manuel's life would have a different quality, but not worse.

Economic growth does not necessarily mean improvements in the distribution of wealth.

But the distribution of wealth can lead to situations that are not only fairer (they benefit the entire population) but also more effective (they guarantee more important aspects, providing fundamental benefits to all citizens).

Miguel Forcat Luque

 is an economist from the Complutense University of Madrid and an official of the European Commission.

The article does not necessarily reflect the point of view of the institution for which he works. 

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Source: elparis

All news articles on 2023-02-10

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