WASHINGTON, DC – According to conventional wisdom, inequality is an inevitable byproduct of strong economic growth. Talent, innovation, and entrepreneurship will inevitably capture the lion’s share of the income being generated, and efforts to redistribute wealth can only be counterproductive, because they weaken the incentives that drive an economy forward.
The truth, of course, is more complicated. Not all sources of wealth – and by extension not all types of inequality – are the same. The wealth that is created when new products, processes, and technologies are introduced is, indeed, correlated with faster economic growth. But wealth obtained by other means has a much smaller effect, if any, on the economy. So there is no reason it cannot be safely redistributed.
Consider, for example, the rise of a billionaire class, which many think represents the most extreme form of inequality. There are, essentially, four paths to becoming a billionaire. Company founders and executives, like Bill Gates and Jack Ma, became rich by providing useful products and services. Financial wizards, like George Soros and Warren Buffet, generated their wealth through smart investments.
Politically connected businessmen, such as the Mexican telecoms tycoon Carlos Slim or LUKoil president Vagit Alekperov, used their influence to make fortunes through resource extraction, state-protected monopolies, or privatization of government property. Finally, many extremely rich people, such as Liliane Bettencourt and Christy Walton, inherited their money.