By- Geletaw Zeleke
editor- Magill Dyess
In this piece we will discuss the concept of redistribution of wealth using the following questions as the taking off point.
What is the meaning of the term Redistribution?
Is redistribution a Socialist economic doctrine?
Is redistribution a just practice in a Capitalist doctrine?
Where does Redistribution exist and how is it justified?
What are the types of Redistribution?
The Term Redistribution
What is the meaning of the term Redistribution?
For my discussion of the concept of Redistribution I thought it would be good to look at the formation of the word itself first. The term redistribution made of the dependent morpheme re- prefixed to the normative form of the word to distribute. The prefix re- telling of the repetition of the action and the word distribution referring to the transfer of wealth.
When wealth is set out to be redistributed it is recognized that it has previously been dolled out for a certain number of cycles. So the sense of the term redistribution has to be seen not only as a one time phenomenon but rather as of a cyclical and recurring action.
In a normal functioning society, wealth transfers from both high concentration to low concentration and low concentration to high concentration. In a redistributive capitalist society this is a non-stop phenomenon. Wealth flows from the rich to the poor by many mechanisms such as progressive taxation, social welfare and others. On the other hand wealth flows from the poor to the rich in the form of the regressive taxation like VAT (value additional tax) and other mechanisms.
Socialism and Redistribution
Is redistribution a Socialist doctrine?
Many people seem think that the concept of redistribution is the economic doctrine of Socialism. However, this understanding comes from the failure to realize the nature of redistribution. The socio- economic doctrine of typical socialism is fervently against the redistribution of wealth.
At its very beginnings Socialism was born from anger and a thirst for revenge from the past greed of capitalist. As we have learned from history capitalism caused socialism to emerge aggressively in some socialist countries. In the past greed capitalism embezzled income from the lowest economic strata of people and the elite were not willing to redistribute this wealth.
When the upset class took power from the elites they controlled the country’s wealth from within the government in the name of the public. The working class thought that the country’s wealth being owned by the majority would bring an end to economic stratus groups within the society. According to them, by doing this justice would prevail.
For this doctrine, justice could be achieved and individuals could be satisfied by abolishing riches and realizing equal income distribution. This doctrine advocated state control of all means of production as well as the distribution of goods in their minds putting an end to the need for equality.
The questions remained, however. Can individuals be satisfied if they earn the same wage; is the earning of equal income a just practice in itself? Was the motive of the oppressed workers jealousy of the rich or were they simply in need of fairness? Does socialism refuse to consider the state of individual nature?
Though socialism advocates equality the political system is highly centralized. The system doesn’t allow enough room for individual choice or ability. This system can not achieve distributive justice.
It is impractical to say that every person will have the same aptitude but providing equal opportunity is fair and just. Likewise a new economic doctrine of redistribution has to give equal opportunity for all but it is unjust to bind individual’s need to excel. Moreover, although the human being is a socially bound creature and individually separated or individual difference does exist and because of this we can not say that all human beings would be satisfied with an equal wage.
In human social life class is not viewed only by terms of economic status. Class also includes the status of high, middle and low rank military and civic organizations; there is also the status of high, middle and low rank in academia and the professional world which includes scientists, professors, doctors and others. In religious organizations there are hierarchies that carry with them social status as well. In general stratus groups are a natural phenomenon in a society’s life apart from the distinct group of economic stratus. Economic strata is one aspect of social life.
The solution to getting rid of injustice is not destroying classes but instead making a system which can respect and treat all class fairly.
Socialism sees economic strata as an unjust phenomenon in the society’s life. Therefore, in this doctrine, once they distribute wealth there is no need for redistribution because there is no economic class. They believe that if they destroy the economic ladder then individual souls will be satisfaction enough. The doctrine persists satisfied with being poor together lest any economic strata should arise within the society.
However, breaking the circulation of wealth from high concentration to low and vise versa inevitably kills the activation of the growth of the economy.
Growth is a natural phenomenon in all aspects of a human being’s life. Just as knowledge, skills and talents of human beings grow so to do their wants, needs and desires. This growth does not have the same rate and it is impossible to bind individuals to grow at the same pace. This practice exists outside of the state of human nature. Every person has his or her own qualities. Therefore any aspects of social or economic policies should be shaped to allow for these potentials.
More over, activation activates a society’s life. Competition is a natural need of humans. Whenever competition is stymied innovation and development decrease. This is a further arena where socialism has failed.
Socialists seem to have attempted to get rid of unjust practices by employing unjust practices. The doctrine of Socialism does not worry much about the progress of individuals but instead concerns itself with adjusting its pace to meet the “majority”.
Socialism while it is fascinated in distributing wealth does not worry about the distribution of power and authority. The system is greedy in terms of power. Since power is highly centralized in this system it is difficult for the people to enjoy justice in their surroundings.
Since they advocate a one party system where power is highly concentrated, the issues of individual choice, human rights, religious rights and freedom of speech are constrained in the name of the majority. This shows that socialism is not concerned with general human development but rather it is a movement for the control of wealth.
As we mentioned the complex needs of society can not be addressed only by economic distribution. Human beings need political power and authority distribution in order to enjoy justice and democracy in their surroundings and in their day to day lives. Socialism naturally does not invest much trust in individual responsibility.
Capitalism and the Redistribution of Wealth
Is redistribution a just practice in a Capitalist doctrine?
In a conservative capitalists view redistribution of wealth is unjust further it is an act of stealing wealth from the rich. The typical capitalist believes that competition is a just enough practice. The philosophy encourages making a fast track for people to bolt ahead so that those who work hard will be successful. In this system those who do not have enough stamina to keep up or even enough energy to run at all will be the losers. Some might even be trampled by the traffic of the race but the doctrine does not concern itself with the process or its consequences. The only motivation is the success of winning the race and the reward of wealth that it brings with it.
The problem is when wealth does not get redistributed the gap between the rich and the poor grows. As time goes by this tendency even brings about a psychological gap between citizens and this trend can destroy the justice system as a whole.
Moreover, lower classes do not have enough money to warm their own or other markets since money is concentrated in some areas rather than dispersed. In this crisis money will be stagnant and this can bring about a country-wide depression. This kind of conservative capitalism can be called AB-type capitalism because it is a universal receiver.
There are individuals who do not have a talent for making money but they have made their country beautiful by the contribution of their own talents. Their low capacity for making money disqualifies them from participating in the race of the conservative capitalist doctrine of greed. Since in this doctrine money is the measurement of success and the value of humanity is low, progress is concentrated in smaller and smaller enclaves while ghetto’s and impoverished neighborhoods take up the majority of the country’s landscapes.
In both typical socialism and typical capitalism redistribution does not exist to its full capacity.
So, where does Redistribution really exist?
Redistributive capitalism fundamentally lies between the two extremes of socialism and capitalism. As we have seen both doctrines reject the idea of the distribution of wealth through the mechanisms of recirculation. This means that they do not believe in the principle of “give and take”. Redistributive capitalism however, believes in the redistribution of wealth from both sides or from the poor to the rich and vice versa.
In the doctrine of redistributive capitalism, as you might expect redistribution is seen as a just practice. In addition the value for humanity is higher than that of typical socialism or capitalism. There are some fundamentals considered to be the rationale to the distribution of wealth and redistributive capitalism.
In a redistributive capitalism milieu being rich is not an inherited position as much as it is a result of ability. Because of equal opportunity through out the system there is the chance to move from one class to another. In addition, the redistribution of wealth supports upward mobility of the working class. Therefore, for those who are interested in changing their status the door will be open by hard work and opportunities.
For typical socialism, the opportunity of changing economic strata is practically non-existent for the reason that the proverbial ladder of the economy is broken. In the capitalist doctrine, it is difficult to move to the middle class because the gap between the haves and the have-nots is exceedingly wide while opportunities are fewer. Redistributive capitalism however, provides a realistic prospect to working people of moving from one class to another.
How is Redistribution Justified?
1.) Growth to Development
Growth can not be sustained if it can not be converted into development at each interval or joint of its process. The significant difference between growth and development is that growth is a profit oriented process but development refers to the satisfaction of the growth. Through the cycle of redistribution countries can be developing.
One of the mechanisms to change growth to development is realizing redistribution. The ultimate goal of growth is not an increase in monetary value but it reaches beyond. Roads, schools, hospitals, and more need to be maintained and to follow in modernization. These assets are energy generators for firms. When hospitals and schools are built healthy and well trained man power is produced.
Some developed countries might have slowed or stopped development because they haven’t utilized the redistribution of wealth to catalyze their economy.
2.) Building Trust and Peace
In a given capitalist country in and among various economic strata, redistribution is the cement to building relationships of trust and peace. The poor support rich firms when they weaken or become bankrupt in the form of regressive taxation together with their humanistic contributions of knowledge or skill. When these rich firms ripen or when the poor get in trouble then wealth can be transferred so that the poor can become energized or revitalized. These relationships build trust and peace among citizens and can build nationalism as well. Redistribution is a guarantee to economic classes supporting each other.
In a capitalist society all economic strata are interdependent from each other although their existence is dependent on one another. The word rich or poor are relative terms. This relativity demonstrates to each class the reasons for their existence.
Redistribution gives long life to their interdependence. The more the society redistributes their wealth at the appropriate time and in the appropriate way the more their lives grow longer and more stable.
Poor people see the rich as economically responsible leaders. Those people who have the talent to make businesses through their innovative works have to be appreciated by the society. These people just because they are very rich can not wear 100 coats at once. Some of them live ordinary lives. I once heard the story of a wealthy man who lived a modest life, less even than that of the average citizen. He was always thinking of ways he could serve others. He took responsibility for himself by serving society. Wealthy people know that the more wealth they accumulate and the richer they become the more responsibilities they have. They are responsible for managing their wealth in order to benefit themselves and to benefit their country.
In a redistributive capitalist doctrine the rich are seen as a kind of social capital. The wealth of rich peoples is put to work to provide services to the poor and working class. On the other hand for the growth of science and technology economic power has to be concentrated. To attain better lives protecting and subsidizing private firms is of great importance.
5.) Money Belongs to the Government
When we talk about wealth we usually measure it in terms of money. Money is the property of the society but individuals have the right to mange it in the ways they see fit.
This idea is well illustrated by using a simple example. Think of the wealthiest person in your country. Let’s say this person is Mr. X and Mr. X wants to burn 60,000,000 dollars to make his 60th birthday special. He wants to do this because to show how much he truly is the wealthiest person in his country. In this case Mr. X will be acting criminally, despite his stupidity, because he has broken the law. The logic is that although he has the right to manage his money in circulation but he can not destroy it. When he burns or damages his money that money will be out of circulation and because of this the society will lose its value or worth. Mr. X could spend his 60 million dollars for his birthday and no one would have the right to audit him but he could not burn his 60 million dollars.
Since money is naturally the property of the government the government can print it, devalue or revalue it, or the government can make tax laws for regressive or progressive taxation. This does not mean that the government is violating property rights. Properties are protected in a democratic society. Everyone has the right to manage and use his or her own wealth.
6.) People have a stake in private firms
One of the rationales of redistribution of wealth is that either directly or indirectly people have a stake in private firms. No firm can become the wealthiest without the contribution of the workers. Workers will sometimes contribute their time, energy and knowledge. Money can not replace these contributions. Government gives loans to firms, people and government protect them and so on. All these contributions are considered to be a stake or retributive investment.
Types of Redistribution of Wealth
As we mentioned before the government can plan either regressive or progressive taxation to transfer wealth from one concentration to another. Such plans can include changes in systems or reform in social institutions. Changes in the market structure, the production system, minimum wage, allocation of public funds, monetary policies, and so on are considered to be the tools for planned redistribution of wealth.
In the redistributive capitalism milieu compassion and fairness are expected to become traditions of society. Those individuals or institutions who own wealth will not only contribute to the lower classes in their times of need nor when their firms bear fruit will they expect formal taxation from the government but rather by their own initiatives they will transfer wealth voluntarily. For example in the form of charities, scholarships, community development activities, and so on such practice is voluntary wealth transfer. The lower classes also support their firms by giving financial and non-financial support without the help of the government.
3.) Loan and Revolving loan
This type of redistribution of wealth takes place at a community or other micro level in the society where wealth can revolve within the community and groups in the form of loans. Firms or governments can also lend money or property to a given association or community and that wealth can revolve within the communities allowing community members to enhance their economic empowerment.
4.) Job opportunities and promotion
One of the methods of redistribution of wealth is creating job opportunities.