by Umar Farooq
Rich people including the entrepreneurs and wealthy investors create the jobs that sustain everyone else by starting and directing America’s companies.
This statement is usually invoked to justify cutting taxes on entrepreneurs and investors. If only we reduce those taxes and regulations, the story goes, entrepreneurs and investors can be incented to build more companies and create more jobs. Entrepreneurs are an important part of the company-creation process. And so are investors, who risk capital in the hope of earning returns. But, ultimately, whether a new company continues growing and creates self-sustaining jobs is a function of the company’s customers’ ability and willingness to pay for the company’s products, not the entrepreneur or the investor capital.
It has become the new truth of the early 21st century that the western world we have known is fast losing its pre-eminence to be replaced by a new international system shaped either by the so-called BRICs, the “rest” or, more popularly by that very broadly defined geographical entity known as Asia. There is an irresistible “power shift” in the making from west to east.
“One sign of a shift in economic power is that investors expect trouble in rich countries but seem confident that crises in emerging markets will not recur. Many see the rich world as old, debt-ridden and out of ideas compared with the young, zestful and high-saving emerging markets. The truth is more complex. One reason why emerging-market companies are keen for a toehold in rich countries is that the business climate there is far friendlier than at home. But the recent succession of financial blow-ups in the rich world makes it seem more crisis-prone.” Economist
We are seeing this shift in power from west to east mainly because the jobs and wages were created in the East by Western entrepreneurs and rich investors. Eastern countries are considered far more dynamic with lower wages and higher profits potential. The investor gets the best returns on his investments almost anywhere apart from the West due to its high costs of living with rent, healthcare and student loan repayments. A high cost of living requires high wages. The hard work of the West produced profits that were taken by the wealthy and invested in the East. The balance of power shifted from West to East. The West started to worry about the powerful China Western investors had created by themselves. In the hollowed out and decaying West the populists started to rise and social unrest followed.
Bottom line is that a healthy economic ecosystem in which people especially the middle class have plenty of money to spend create jobs and bring prosperity to the society. We need to get the money off the wealthy before they can invest it further in the East and thus shift the balance of power even further away from the West.
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