November 08, 2010

At two ends of a popular polemic are two statements:
Wealth creates wealth.
Wealth perpetuates those who are already wealthy.
Both tend to be repeated as truisms which need no further consideration. Both have elements of truth, but neither reveals the full story.

Wealth creates wealth in a community only if its proceeds are invested in that community in proportion with the growth of that wealth. The much more common road has been to safeguard wealth by creating trusts and diversify wealth by investing in existing international ventures. If wealth has been achieved by buying low and selling high, odds are rather good that the buyer is not wealthy and is rather unlikely attain wealth by having bought high. Simultaneously, the action of having bought large amounts at low prices itself raises prices, frequently beyond what others might have been able to afford otherwise.

By the same token globalisation -- which is really the same process on a larger scale -- tends to divide countries into those which can pick and choose where to buy and how to allow domestic investment, and those which have no choice but to accept open markets for cash crops and open all their resources to foreign investment and foreign takeover. Here too, we are told that allowing domestic resources to be sold off is to the country's benefit. Wealth creates wealth: but only if that wealth is re-invested within the country. If it is removed overseas (and the removal cannot be balanced by equivalent international investment by locals), it benefits the country not at all.

Yet many countries fall in the middle: and this brings me to the second truism.

Wealth does perpetuate a wealthy class, but the gap can still be crossed through one's own abilities. Outside studying business management -- which seems increasingly to act like a union card for wealth entitlement -- wealth can still be built through innovation and enterprise, or even through thrift and wise management. It is difficult, especially if one no longer thinks in terms of generations of growth. It is almost impossible if one cannot disconnect needs from wants.

The eternal quest for the get-rich-quick is a lottery against time: if you catch exactly the right moment, you can make a killing on the real estate market or any other bubble -- but most won't.

(Or you can read the signs carefully and take full financial advantage of the misery of others. That, too, is a road to wealth. You can always justify it to yourself by arguing that if you don't do it, someone else will.)

It does not help that the new rules of building wealth have been written by those who are already wealthy, in such a way as to best preserve their own wealth. But even so: it is still possible.

Yet where the truism that wealth only perpetuates a wealthy class is repeated blindly: there is no reason even to try.

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