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Very early in life, almost every human being learns about serious inequality that exists around us, all over. There are few who have everything, lot more then they need. On the other hand there are homeless people who have nothing, even the basic needs like food. This makes them think about, how this inequality can be abolished or at least reduced? Two opposite streams of thought may take origin from here. One is that there must or should be a way to end this through power. Since, governments are considered the center of all power, this thought leads to look over to the governments for solutions.
One thinks, governments should be able to create societies in which everyone is equal (Socialism and Communism). If Socialism is not good, then, even in free market societies, governments should be able to do something like mandating minimum wage laws, to guarantee, at least an acceptable standard of living to everyone. It seems very logical and fair that everyone working full time, must be able to maintain a minimum standard of living. After all, in most cases, when it comes to make living, one person is usually not merely one person. The wage earners are often supporting a family which means kids, old and sick, and even spouses.
On the other hand, the other stream of thought says, economic and financial wellbeing cannot be established and maintained through power and authority, in an artificial way. Many attempts to do that have failed in past. The most distinct example, ever, of rapid economic growth and ever growing and strengthening middle class came from American history. The world’s largest and most affluent middle class was created by free markets, not by government regulations. Although, thriving U.S. economy, later on, got very much ruined by ever increasing government regulations and mandates.
These are the problems with artificial equality. Wealth and success are the most basic incentives that derive competition and continuous desire to improve. Artificial equality takes away these basic motives. When everyone is essentially equal there is not reward for hard work, extra effort, creativity, innovation, pioneering the job creating businesses and contributing more to the society. So, most people become lazy. When at work, they are just passing the time. Their only motivation is to get the paycheck, at the end of the pay period, just like everyone else. Why should I kill myself, when I am being treated and rewarded just like everyone else?
On the other hand, the entrepreneurs work in a totally different fashion. They are motivated to be successful and create wealth through their ventures. They try to be creative and innovative, so that they can beat their competition. They try to provide best value to their customers, in order to survive and thrive in tough business environments. In turn, these businesses create good paying jobs. More successful the business is, better it serves the owners, employees, customers and communities. In return, every one of them contributes in the success of business.
Although, a Capitalist society creates lots of jobs, wealth and money, it does not exactly create equality. Some people may make lot more than the others, who seem to be still poor and living under poverty. As a matter of fact, Capitalism work on the reality of inequality. People make money on the bases of their productivity and value of services they provide. More productivity, more money, more wealth and more rewards, is the principle which makes Capitalism superior over other economic ideologies. It is the higher rewards and returns which makes people invent, create and innovate. This, in turn, keeps progress and growth alive. Immense progress since industrial revolution, is a big example of it.
This obvious inequality, makes many people think that there must be something inherently wrong with Capitalism. They believe that there should be some way to fix this problem. This makes the hearts of many sympathetic scholars ache. Repeatedly capitalism is blamed as an unfair system which favors some and neglects the others. It makes rich, richer and poor, poorer. Capitalism is also commonly believed as a conspiracy of wealthy class against the lower class, to maintain its status quo and keep poor people under its domination.
Therefore, the so called reformers propose different measures to fix this problem. For example to tax, the rich people higher and then redistribute that money to poor through government welfare programs. This redistribution of wealth is being tried in almost all capitalist countries, for a while. Compared to full blown Socialism, it has achieved some success. But, contrary to the belief of some, it has failed to achieve the desired results. The reasons are obvious. Higher taxation rates, drain money from economy. Money which can be used by businesses for investments, to buy inventory and services and hire more people. This reduces the profit margins and negatively effects the compensations paid to the staff.
Other commonly proposed legislation to fix the inequality issue, in Capitalism, is minimum wage. It is thought that by mandating businesses to pay at least a minimum rate, can help improve the standards of living of lowest paid people. This is a failed proposition, too. What happens is, if business calculates that the productivity of hired individuals will be less than the minimum wage, then, they just refrain from hiring. In this way many people who could have got employed, even though on less then minimum wage, never get the job.
Hence, common sense and historical evidence strongly suggest that the open, free and unregulated markets are best solution to tackle the issues of poverty and unemployment. Financial and economic equality of all human beings has never been achieved in human history and is impossible. Fortunately or unfortunately, whatever the way you look at it, economies in real world do not work that way. Real world works better on the principles of competition, productivity, success, and rewards based on productivity and value of services provided. This does not lead to equality. But, it definitely helps to improve the lives of almost everyone involved, by increasing the net productivity and wealth generation.