What are the main causes of the gap between the rich and the poor?

01 1% of people hold 50% of the world's wealth

I recently read a report.

The US media said that since the outbreak of the new crown epidemic in March 2020, the assets of the rich in the US have increased rapidly, with the net worth of billionaires doubling in size to $5 trillion, equal to the total GDP of the whole of Japan in one year.

Almost 70% of the wealth in the US is in the hands of 20%.

The richest 1% of people in the US own all the wealth of the poorest 50% of people in the US.

Of this, Musk has a net worth of $289 billion and he could help feed 42 million people with just 2% of these assets.

Shocking?

And that's just the state of wealth in the US.

When you look around the world, the state of wealth and poverty between countries and regions is even more staggering.

Switzerland, Denmark and Germany have a GDP per capita more than three times that of Albania, Serbia and Ukraine.

Norway's GDP per capita is more than five times that of these three countries.

Even our neighbour, Japan, has a GDP per capita more than three times that of the country and more than nine times that of India.

Sub-Saharan Africa has a GDP per capita that is less than a tenth of that of developed countries.

Why is this a phenomenon?

What exactly are the factors responsible for the gap between rich and poor?

The American economist Thomas Sowell has studied and analysed this. Thomas Sowell, an American economist, has studied and analysed this.

In his opinion, there are four factors that contribute to the different levels of development of different countries and regions and the huge gap between the rich and the poor.

Geography, Culture, Society and Politics.

In his book "Wealth, Poverty and Politics", he analyses and explains these four factors in detail, revealing the hidden truth behind wealth.

02 Geographical factors

Many places we know in China are known as "the land of fish and rice", such as Suzhou in Jiangsu and Hangzhou in Zhejiang.

The economic development of these regions is significantly better than that of other geographical provinces, such as the north-western part of China.

The very different geographical environments have an important influence on economic development.

The famous French historian Fernand said that mountainous areas would continue to lag behind the plains.

This applies particularly to the world thousands of years ago, when technology was backward, information was closed and a large mountain was a permanent barrier for mountain people.

It is only in recent times that some isolated mountain areas have been exploited and developed, thanks to the evolution and upgrading of transport.

In his book, Thomas gives many examples of the important influence of geographical factors on wealth and poverty.

Greece, for example, which is closer to the Middle East than northern and western Europe, had an early start in agricultural development, it was urbanised centuries before Europe, and its economy was ahead of the rest of the world.

Generally speaking, geographical location leads to a very different climate, which in turn has a direct effect on the agricultural economy, which for most countries is an essential economic cornerstone and an important basis for urbanisation.

For the people of North Africa, the vast Sahara desert, where crops cannot be grown, is an obstacle to development.

Within the broad category of geographical factors, there are many more subtle factors, such as waterways and climate, that affect economic development.

Waterways are used both to irrigate crops and to transport goods. Africa is an arid continent with few and shallow rivers, which means that it is not as well connected as China, which has an extensive waterway system.

The climate, which is more easily understood, with snowfall in the mountains and typhoons on the coast, has an impact on the development of local agriculture.

03 Cultural environment

Of course, with the progress of random times and the development of technology, many of the objective geographical problems can be improved and solved.

Geographical factors are moderately less powerful, and cultural and environmental factors, too, can lead to a gap between rich and poor in different countries and regions.

Thomas refers to the Germans in his book.

The German culture has always been known for its rigorous research and pragmatism.

They are also well known for their craftsmanship, and piano making is one of the skills that the Germans excel at.

In addition to this, the world's leading optical companies for camera lenses are German, and German cars are world famous.

This cultural heritage has predetermined Germany's strengths and achievements in manufacturing, which in turn has naturally led to a booming economy and the accumulation of wealth.

If we pay attention to our own lives, we will also find ourselves surrounded by groups of people of a similar cultural level, earning roughly the same amount of money.

Differences in culture and environment create economic and wealth disparities.

This is an indisputable fact.

Thomas also mentions a particular phenomenon in his book: many Chinese in Southeast Asia are doing better than the locals, they are richer, and the economies of places with large Chinese populations are more developed.

The reasons behind this have much to do with the cultural background of the Chinese, such as their hard work and frugality.

Unfortunately, these virtues are often rejected and resented by the locals, and even jealousy and resentment.

If this good culture is not learnt and embraced, the local economic situation will not be improved in general.

04 The social factor

The social factor consists of two main points: one is population and the other is intelligence.

Simply put, the larger the population, the more value can be created. Although there was a time when it was feared that excessive population growth would deplete the planet's energy and bring about an economic downturn.

However, this theory has proven to be untrue.

Sub-Saharan Africa, for example, has a much lower population density than Japan, yet remains mired in poverty.

While it is true that some poor countries have higher population densities than developed countries and regions, there is no direct relationship between population density and the wealth of a country.

It is not substantial to look at population closely alone; we also have to look at population structure and intelligence levels.

When a country's population structure has a higher proportion of young adults and teenagers than older people, they can create more value.

Likewise, the higher the level of intelligence, the more economic benefits they can bring relative to lower intelligence groups.

05 Political factors

In addition to the above factors, historical and fortuitous events of a particular period can also influence economic development.

For example, in the 15th century Ming Emperor Xuanzong isolated China from the outside world, and this general political environment could have unintended consequences for economic development.

The Spanish government funded Columbus to find a route to India via the Atlantic Ocean, a decision that not only changed the trajectory of countries throughout the Western Hemisphere but also, to a large extent, Europe.

If Japan had not bombed the US at Pearl Island, it would not have undergone the far-reaching social and institutional changes triggered by the US occupation after its defeat in World War II, and Japan might be a different place today.

China's economy is also closely linked to political factors.

In the pre-Qin era, the changes to the law by Shang Yang led to the growth of the Qin state, and the reign of Zhenguan led to the peak of economic development in the Tang dynasty.

Modern China, too, has continued to experience new peaks of economic growth as a result of reform and opening up and the Belt and Road.

Thomas Sowell In Wealth, Poverty and Politics, Sowell provides an insightful explanation and analysis of economic success and failure worldwide.

He tells us why some groups fall into poverty. Others continue to accumulate wealth.

Some of the answers given in the book are common sense and some are science.

Although Thomas does not give specific answers on how to solve poverty, he does give the possible causes of poverty, and analysing along these lines, I believe the answers are obvious and call out.

Since I was an economics major in college, I enjoyed this book and wanted to share it with you.

I hope that the opening of the book will be beneficial and that we can all gain something from Thomas' writings, understand the basic laws of economic development and the truth behind income inequality and the gap between the rich and the poor.