$24-million question Do we need the rich in order for society to prosper?
By Thomas Kostigen, MarketWatch
Last Update: 7:20 PM ET Sep 18, 2007
SANTA MONICA, Calif. (MarketWatch) -- Are rich people necessary to a society's prosperity? That is the question posed by Hunter Lewis, co-founder of the well-respected investment firm Cambridge Associates, in his new book whose subtitle is "Great Economic Arguments and How They Reflect Our Personal Values."
The question is an interesting one in today's society where executive compensation is a lightning rod of controversy and the wealth gap between rich and poor people is widening to historic levels.
Lewis doesn't pose a simple nor simplistic argument. He addresses the various agents in the marketplace and assigns value. That is what a good economist would do. He also steps back and posits repositioning those various roles. For example, allowing philanthropy to take over many of the roles the government affords society such as social services, health and education.
There is an underlying thesis that the market knows best and that capitalism produces the best results for society; that is a given. It isn't that Lewis ignores other forms of political philosophy or government -- he addresses these divergent points of view as well. It's just that the capitalist argument wins. Which is better, a society where the rich exploit the poor or a society where the government seizes property?
Neither system is good. But the latter possibility holds such disincentives that it wreaks havoc on the future of the system and on society itself. This example, of course, was borne out by the Soviet Union.
Lewis doesn't take the arguments to such well-worn turf, however. He examines motives and the roles governments and banks should play in wealth distribution. This is much more refreshing terrain. It should be noted that Lewis produces a series of theses, as the subtitle suggests, for the reader. Yet, his most compelling argument has to do with the tax system. Essentially he theorizes that a shrunken tax system that creates incentives for the rich to do good with their money would produce social value in the places we need it most.
How about a simple income tax with bump ups for the rich whereby they could elect to pay these taxes or donate them fully to nonprofit organizations? Or how about an estate tax that goes entirely to nonprofits?
The idea of enlarging the nonprofit sector, which accounts for about eight percent of the U.S. economy, is an admirable one. But there, too, questions abound. There is the most obvious one: Wouldn't this just create another form of bureaucracy as these organizations became fat, just like government?
Marketplace for philanthropy
What is interesting about this concept, however, is that it creates a marketplace for good causes. And that is distinctly different from the monopoly government holds over funding the common good. With various organizations a market is created and capitalism succeeds on the belief that the best and the brightest win. That, indeed, could be good for society.
Still, it will take a field of willful participants -- most importantly, the rich themselves.
Or does it?
That is the question the book asks with no easy or ready answer. But on the book's Web site, I did find some answers from a small poll there.
The first question is "Are the rich necessary?" The results: More than twice as many said "Yes."
The second question is "Are the rich compatible with Democracy?"
The results: A little more than twice as many said "Yes."
The third question is: "Must we accept so much inequality?" The results: A little more than half said "No."
And the last question is "Does the profit system glorify greed?" The results: "Yes" won by about a 50% margin.
Disclaimer: I don't know how valid the results are in terms of diversity of people, etc. Still, the poll's question's are worth considering, just like the main question Lewis' book poses.
I believe the rich, just like any other agent of society, are in fact necessary to its prosperity. The real question is "how much." End of Story