Class and Inequalities: Can we bridge the gap between the rich and poor?

The world is filled with inequalities. There is the double divide: a big gap between rich and poor nations, and a big gap between the rich and poor within countries. In the centre are the global middle class.

In my essay, I will observe both Smithian and Marxist ideals and inquire of there really is a solution to reducing the world’s inequalities by merging their ideas.

Smith believed that people should be allowed to pursue their own personal, sometimes selfish, gains, individual rights and freedoms. These freedoms will lead to greater wealth. The “invisible hand” of the market will turn ambition into the greatest good for the greatest number.

Marx however, believed that communism, a system of common ownership for the common good, was the way to go.

As we have studied, intense competition created by capitalism drives the capitalist owners to exploit their workers by getting the most work while keeping wage to a bare subsistence level. This creates a gulf in the rich and poor. Communism also will not work to solve the problem of in inequalities; the Soviet Union has split into Russia and other new republics; China, Vietnam and Cuba remain communist but are open to foreign capitalist investment.

Is there an ideal hybrid method of bridging Smithian and Marxist ideas to create a utopian state?

A key step is to limit the power of the government and to encourage privatization. The previous US president Bill Clinton and former Brazil president Fernando Cardoso endorsed policies for sustainable development, in which a smaller but active government promotes trade, while also protecting the rights of workers and assist those who have not reaped the benefits of globalization. This approach sounds ideal but both these countries are now in recession.

Another example is Sweden’s capitalist welfare system. Sweden’s social democrats had maintained a free market. Property rights and the rule of law facilitated economic growth. Between 1870 and 1970 Sweden had the second highest economic growth in the world, second only to Japan. However, during the 1960s, a large scale expansion of the welfare state occurred. Income taxes increased, and the public sector grew. The larger role of the government slowed down entrepreneurship. Sweden has gone from being the fourth richest country in the world in 1970 to being the fourteenth richest in 2002 (Sanandaji, 2005). By adopting communist traits so as to bridge the gap between the rich and poor, the country has instead destroyed the foundation for economic growth and personal accountability.

There seems to be no optimal hybrid. Perhaps, as Marx thought, capitalism must emerge first, so that communism can harness its productive might (Sernau, 2006). But this has yet to occur in any country. And what happens in reality always turns out much different from what seems ideal, so no one knows for sure if it will work.

References

Sernau, Scott, 2006, Global Problems: The Search for Equity, Peace and Sustainability, Pearson Education

Sanandaji, Nima, June 8 2005, Sweden, Capitalism, and the Welfare State, http://www.lewrockwell.com/orig6/sanandaji1.html