Of wealth creation and distribution

IN his keynote speech during the APEC CEO summit in Vietnam last Thursday, Digong pointed out that globalization should lead not just to wealth creation, but also to wealth distribution. If how I understand it is what he was meaning to say, then I totally agree with Digong on this.

But if I were to be technical about it, there should be an adjective that will qualify the degree for which wealth will be distributed. Personally, I would have preferred to hear that there should be GREATER wealth (or income) distribution or redistribution.

Globalization may be compared to a double-edged sword. There are a lot of possible benefits that may be derived from it, as there would be for its disadvantages as well.

Globalization has become a by word already, almost even considered as a household term. However, what is globalization really with the present context where it is being discussed on?

Globalization is basically referring to economic transactions, essentially involving the forces of supply and demand, entailing that economies are working interdependently, ideally mutually benefitting from these transactions. The borderless economy is what is called the "global market".

These transactions include international trade, currency exchange, foreign direct and portfolio investments, rapid development of technology, etc. Most of these transactions generally aim towards wealth creation. No matter how we deny it, the reality is that the parties to these transactions are rational economic agents who are simply looking out for their own best self-interest.

Somehow, the perspective of the society-atlarge toward these economic agents who are looking out for their best self-interest, they would seem to be voraciously benefitting from these transactions. But if we look at it more closely, they are only reaping the fruits of what they have actually sown in the first place, assuming ethics is in place.

As business enterprises, the multinational corporations, when they invest in developing countries, which is what I think Digong was trying to say, they have opportunities to help the population and the economy. When FDIs come into the country, they can provide employment to the community, and could create more opportunities for having a source of livelihood for the household. These multinationals can help develop the area where they established their factories or offices.

And finally, the Balance of Payments of the country would be better. Although it cannot be felt by ordinary citizens and would be considered as an abstract idea, it can create positive results to the economy. Other than that, it is not this sector’s responsibility for wealth distribution.

The thing is, these parties are just playing the role that the economy have assigned to them, to produce or to consume, and in the process, attempt to satisfy themselves by gaining profit and using the goods and services.

So, whose role is it to distribute (or actually, redistribute) the wealth?

The distribution (or redistribution) of income/ wealth is the role of the government. It is actually one of the macroeconomic goals that governments are aiming to achieve. Digong’s pronouncement that the rich are becoming richer, while the poor is becoming poorer, is very true. And the reality is, there will always be people who are rich, and there will always be people who are poor. It is very ambitious, even impossible, to make all people equal, because there will always be a gap between the rich and poor. What the government can only do is to make the gap between the rich and the poor more narrow, and founded on the concept of equity.

There are several ways that have been set-up to help achieve this macroeconomic goal. One is taxation. Progressive taxation, which is used by