3.5.6 Sharing Wealth, and the Impact of Inequality
The activity of wealth creation, as described earlier (3.2.1), leads to funds being made available as the income from the sale of goods and services exceeds the cost of the supplies consumed. These funds can be shared amongst the participants in the activity and those who support it: workers, managers and shareholders; some funds are used for financial management: repaying debt and making new investments.
In recent years, the weakening of trade unions and the speeding up of financial transactions have led to a short-term view being taken by directors and senior managers, and to a dramatic rise in inequality – which has become a political issue (6.7.2).
The process of allocating funds is a primary exercise of economic power, as described below:
- A board of directors typically decides what payments will be made to workers, managers and shareholders – the participants in wealth-creation (18.104.22.168).
- Imbalances in the power wielded by these participants have led to marked changes in the shares of wealth received by each, and increased inequality: the rise of ‘the 1%’ (22.214.171.124).
- There are economic arguments for rebalancing the negotiations in the sharing of wealth (126.96.36.199).
- The whole economy benefits if the share of wealth accruing to employees is increased. This is described as ‘middle-out’ economics, which can be contrasted with the failure of ‘trickle-down’ policies (188.8.131.52).
- An economy also benefits if more wealth is reinvested to improve productivity and create growth (184.108.40.206), but investment has slowed in recent years.