Limitations of uneven distribution of income and wealth, Managerial Economics

Limitations of Uneven Distribution of Income and Wealth

Unlike the historical experience of the now developed countries, the rich in contemporary Third World Countries are not noted for the desire to save and invest substantial proportions of their income in the local economy.  Instead businessmen, politicians and other elites are known to squander much of their income on imported goods, luxury houses, foreign travel and investment in gold, jewellery and foreign banking countries.  Such savings and investments do not add to the National Productive resources.  Instead they represent substantial drains on these resources in that the income so derived is extracted from the sweat and toil of common uneducated unskilled labourers thus the rich do not necessarily save and invest a significantly large proportion of their income than the poor.

A growth strategy based on sizeable and growing income inequalities may in reality be nothing more than an opportunistic myth designed to perpetuate the vested interests and maintain "status quo" of the economic and political elite of the 3rd world, often at the expense of the great majority of the general population.

1)          The low income and low levels of living for the poor which are manifested in poor health, nutrition and education can lower their economic productivity and thereby lead directly and indirectly to a slower growing economy.  Therefore strategies to lift the living standard and incomes of say the bottom 40% would contribute not only to their material well being, but also to the productivity and income of the economy as a whole.

2)          Raising the income level of the poor will stimulate an overall increase in the demand for locally produced necessity products like food and clothing.  Rising demand for local goods provided a greater stimulus for local production i.e. stimulates local production, employment and investment.  This creates a broader popular participation in that growth.  The rich, on the other hand, tend to spend more of their additional income on imported luxuries.

3)          A more equitable distribution of income achieved through the reduction of mass poverty can stimulate healthy economic expansion by acting as a powerful material and psychological incentive to widespread public participation in the development process.  Wide income disparities and substantial absolute poverty on the other hand can act as a powerful and psychological disincentive to economic progress.  In the extreme, it may create conditions for its ultimate rejection by the masses of frustrated and politically exploitive people notably the educated.

Posted Date: 11/28/2012 6:09:08 AM | Location : United States







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