Answer to Question #130015 in Economics of Enterprise for anns

Question

which economic policies have made the poor poorer and rich richer?

Answer 1

There are several economic policies that have made the rich richer and the poor poorer. Most of these economic policies cause this scenario by widening the wealth gab/economic inequality between the rich and the poor. Some policies include the following:

Regressive taxation - the tax rate decreases as the amount subject to taxation increases. This means the poor, whose incomes are low, are taxed high than the rich, whose incomes are high. The income inequality gap between the rich and the poor therefore widens as the rich enjoys tax advantage; much of the income of the rich enjoys a tax shield yet the poor suffers no tax advantage despite being already economically disadvantaged.

Tax cuts and Subsidies on basic services by government - when the government subsidizes basic services and goods, for example, primary education and foodstuffs, the poor will at least be able to meet the basic requirements of life. However, the rich people who were already able to meet the basics will have more free income to advance and change their life styles. This means that, as the poor are just assisted to at least afford the basics in life, the rich are given an opportunity to change life styles and luxury life. The income gap between the rich and the poor widens.

Privatization - this policy seeks to empower local people in an economy. However, people who are already economically advantaged are the only who will manage to absorb the opportunities; to invest in privatized industries, businesses, or services. The poor remain economically disadvantaged. More so, privatization results in prices of goods and services that were once being offered by the government becoming more expensive as the private sector seeks to maximize profits. This means, the poor become more poorer as they become more economically disadvantaged, yet the rich become more richer through absorption of economic opportunities.

Indigenization policies - the economic policy also aims at empowering the native population. Foreign owned firms are mandated by law to sell at least 51-percent of their shares to the indigenous people. The point is that only the rich who are economically capacitated will be able to take advantage of the opportunities yet the poor remain incapacitated economically. The income gab between the rich and the poor widens.

Trade liberalization - this trade policy has more similar effects to privatization. However, this policy seeks to promote international trade by removing trade restrictions and restrictive licences. However, only the rich who have access to capital will take advantage of the new trade opportunities yet the poor remain disadvantaged. The economic inequality between the rich and the poor increases.

Thus, the above economic policies make the rich richer and the poor poorer by worsening the income disparity between the two groups. All economic opportunities will be absorbed by those already rich at the expense of the incapacitated poor people.