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Unequal wealth distribution: The natural outcome in an industrial society
Articles- Jul 11,25
It is evident that distribution of wealth is a generic phenomenon, with no group or individual holding the reigns. It is as natural as democracy is, says R Jayaraman.
Almost every day, we see some report or the other on the wealth distribution in countries, how it is becoming more and more skewed, and how ‘millionaires, billionaires and other aires’ are becoming richer at the cost of the aam-aadmi. Humongous statistics are available to show that the rich are getting richer and the super-rich are hitting the skies. Our purpose here is not to get into the mathematics of how the rich are ‘leading a better life’, due to their riches getting richer. But, to look at the underlying ‘root causes’, if one were to use the fishbone diagram jargon made famous by the adherents of Total Quality Management (TQM).
First, let’s see who are these ‘rich’. By classification, the rich are those who have wealth measured by the only yardstick available – the US Dollar or $, for short. Other currencies get converted into the equivalent $, thereby losing out on their ‘richness’ to an extent. For example, the Pakistani rupee is now trading at almost 400 to the $. The plight of all those Pakistani billionaires in local currency can be understood when their wealth is reduced by an order of 400. Is this a real reduction? Or, as some may argue, the PPP measurement will still ensure that the factor is not 400 but something lower. Could be much lower. But, in the eyes of the world, PPP is mentioned only by those who find it favorable to do so.
Be that as it may, the wealth calculations are mostly driven by the value of the shares held by the holder in the stock markets. For example, take Mr. Mukesh Ambani, whose wealth is estimated of late at $ 119 billion. Of course, this estimate is dynamic in nature. According to the Forbes magazine, the 2025 figures place Elon Musk at the top, with $ 411 billion, followed by Larry Ellison at 256. Poor Mukesh Ambani is not even in the top 10 list. The Bloomberg places Elon at the top but with a slightly lower $ 362 billion. All these rankings consider a combination of shares value; value of other assets owned minus known and unknown liabilities. The metric or index is thus a combination of what is owned (fixed assets) and what is estimated to be owned (share holdings). The crux lies in the estimated to be owned category. This is the one that rates the value of owned assets at the current market price. And therein lies the rub. This value will shoot up in good times and drop down when things get tough.
The question then arises, how do we understand these numbers, how de we compare and evaluate within the billionaires’ groups and, last, but perhaps the most important one, how do we use this data to study unequal distribution of wealth? First, the market share component, which, perhaps, contributes the most to the index value. Share values go up and down as do the ’richness’. The other components are not as variable, as they include fixed assets, like, paintings, houses, cars (value of cars go down the day after you purchase them), etc.
The inequality is thus reflected in two ways – the liquidity level and the ownership level. At the liquidity level, the valuations are market based, and hence not realizable fully. No doubt, they can be realized from time to time, as long the ‘sell’ volumes are small compared with the potential. Nevertheless, in the long run, they are merely ‘paper assets’, and not cashable fully. God forbid if the value falls during the ownership. The value can be realized only when shares are sold in the market, and there are costs to such sales. The profit can be reinvested in fixed assets, which is a definite advantage for such billionaires. This is what we could call as ‘richness on call’.
The other is the fixed assets part. This is something tangible and visible to the ‘onlooker’, and, perhaps, leads to the maximum heartburn. As these assets increase in quantum, the rest of the society is affected, as the prices of day-to-day commodities and other long-term assets can also go up. However, this can have an upside too, since all these assets are purchased from the ‘onlookers’. Thus, in the process of the assets creation and acquisition, the ‘onlookers’ are also enriched.
To illustrate further, when a billionaire buys a house in the market, he pays the market price. The house is bought from an onlooker, and hence the onlooker profits from this transaction. The billionaire may not become richer by such transactions, as it is a transfer from one pocket to the other, but, the ‘onlookers’ certainly become richer. By a simple transfer, the inequality of wealth is brought down. As more and more such transfers happen, the inequality also tends to lessen. At a broader level, the transfers determine the kind of influence the billionaires club wields on the onlookers.
As the billionaires keep transferring more and more, more of the onlookers get enriched and, periodically, some of them get into the billionaire’s club. Can it be argued that the billionaires all act together, by becoming an oligopoly, to either suppress, cheat or otherwise damage the onlookers? Any damage to the onlookers will surely have an adverse effect on the BC (Billionaires Club). Why? Because, onlookers will then fight amongst each other to pull down the prices of the services offered in the transfer process, and, over time, the quality will deteriorate. This will lead to lower profits, which then pulls down the ‘richness’ level of the BC.
So, what’s the mechanism that has been in operation since the dawn of the industrial way of life since the 1850’s? It is one of transfer, where money and other instruments move back and forth between the two complementary parties – the BC and the onlookers. Does this lead to unequal distribution? Indeed, yes. But then, the onlookers cannot claim to have been denied anything. Since there are transfers taking place all the time, they need to get into one or many of these and enrich themselves. Are there barricades present in the way for this to happen? Yes, competition will bring that dimension in. Such a competition arises naturally, as there are many more onlookers per BC member. Just imagine, there are some 500 BC members studied by Bloomberg, Forbes, Fortune etc. Add another 500, who they may have missed. Now, with a population of about 6.5 billion all over the earth, the ratio is 6.5 million per BC member.
In the year 2024, the combined net worth of the top 500 BC members was estimated at $ 10 trillion. Thus, each onlooker can aspire to partake from each member of the BC at the rate of about $ 1.4 million per onlooker. No doubt, this math is at the aggregate level, but, assuming that each BC member has a disposable income of at least 10% of their net worth, each onlooker can hope to earn a part of that at the rate of $ 140,000 per onlooker. Greater the net worth of the BC’s, greater is the potential for earning by onlookers. It is another fact that much of the wealth of the BC members has been created by the contributions made by the onlookers themselves. Thus, there is an element of circularity in the Bloomberg and other such indices.
Finally, let’s look at the reason why many economists and others raise a stink about why the huge amount of wealth in a few hands is harmful for society as a whole. Because BC members can form an oligopoly, or, in the worst-case scenario, a single BC member can influence outcomes all the time or even for part of the time. This powerful influence can change the course or dictate the course of history. Such and other arguments are not well founded. For every George Soros, we have a Bill Gates or an Ambani or an Adani, who do a lot of good.
The wealth inequality is a natural outcome of economic activities by not only the BC members, but members of the onlookers group also. The influence wielded by anyone, whether BC member or onlooker, can be due to various reasons, not only due to money power. Medha Patkar was poor, so was Dr BR Ambedkar. So was PM Modi. The power to influence also leads to transfers, which lead to redistribution of wealth, which , after processing in commercial activities, generates more economic value, which then goes back to not only BC members, but also to many onlookers, who move from the ‘poor’ category to the ‘middle class’ category, and so on, progressively.
Thus, it is evident that distribution of wealth is a generic phenomenon, with no group or individual holding the reigns. It is as natural as democracy is. Unless one favors mandated distribution of wealth, collective ownership and such other undemocratic concepts, there is nothing wrong in a lop-sided distribution wealth. It is a result of economic activities, and is a continuum, not discrete.
About the author:
R Jayaraman is the Head, Capstone Projects, at Bhavan's S P Jain Institute of Management & Research (SPJIMR). He has worked in several capacities, including Tata Steel, for over 30 years. He has authored over 60 papers in academic and techno economic journals in India and abroad. Jayaraman is a qualified and trained Malcolm Baldrige and EFQM Business Model Lead Assessor.
Image Courtesy: Freepik.com
R Jayaraman
Billionaires Club
Mukesh Ambani
Forbes magazine
Elon Musk
Larry Ellison
Bloomberg
unequal distribution of wealth
inequality
Bhavan's S P Jain Institute of Management & Research
Total Quality Management
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