3.5.6 How Wealth is Shared
The whole economy would benefit if decisions on how wealth is shared were rebalanced to reduce income inequality and increase investment
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 are shared:
● The workers and the management expect to be paid.
● The shareholders expect a return on their investment.
● Those who have lent money expect debt repayments.
● Governments expect tax payments.
● Some funds may be used for business development.
The process of deciding how wealth is shared is an exercise of economic power, as described in the following sub-sections:
● The power to distribute wealth is unbalanced (3.5.6.1). A board of directors makes many of the decisions, but wages for the workforce are usually determined by the labour market.
● Imbalances in the power wielded by the decision makers have led to marked changes in the distribution of wealth, and to increased inequality: the rise of ‘the 1%’ (3.5.6.2).
● The sharing process would be more acceptable with workforce involvement, for example by representation on boards of directors and profit-sharing (3.5.6.3).
● The whole economy would benefit if a greater share of wealth were to go to those on middle incomes. This is described as ‘middle-out’ economics, which can be contrasted with the failure of ‘trickle-down’ policies (3.5.6.4).
● An economy also benefits if more wealth is reinvested to improve productivity and create growth (3.5.6.5), but investment has slowed in recent years.
Businesses take most of the decisions about how wealth is shared, but politicians also play a part – as discussed later. Governments can affect the distribution of wealth by taking decisions on taxes, benefits and investment grants (6.7.1); they also have an incentive to reduce inequality (6.7.2).
This page is intended to form part of Edition 4 of the Patterns of Power series of books. An archived copy of it is held at https://www.patternsofpower.org/edition04/356c.htm.