Many of you no doubt have heard or read the phrase “You can’t multiply wealth by dividing it.” It’s used many times by us conservatives to stand up against and oppose social safety net programs. They say that “redistribution of wealth” does not work because you are taking wealth away from those who are creating it and giving it to people who are not creating it – they say it’s nothing more than a form of looting. So, let me ask you a question: have you ever tested this statement to see if there’s any truth to it?
I have. I’ve created some thought experiments to see what kind of conclusions can be derived. Let me share with you a few of my own thought experiments and their conclusions.
Experiment 1: Indiana
In the first thought experiment, I created two scenarios.
In the first scenario, I picture my home state of Indiana, with its 6 1/2 million people, and bustling economy. The state takes $1 billion and decides that they want to use it to create new businesses, create new jobs, and grow the state’s economy. So, they find one person with a good business and financial sense, and give that person the entire billion dollars and tell him to invest that money however he or she thinks best for creating jobs and growing the economy.
In the second scenario, the state takes that billion dollars, divides it 100 different ways, and gives $10 million apiece to 100 different people, all of whom have a good business and financial sense, with the goal that each of these people use the money given to them to create businesses and jobs, and cause economic growth.
Now which of these two scenarios do you think would work better at creating more jobs and economic growth, and thus create and multiply wealth faster? Although I haven’t had a chance to test these two scenarios in real life (how would I?), I would conclude that although the person in the first scenario would indeed succeed in creating jobs and causing economic growth, the second scenario would be more successful, creating more jobs and economic growth than the first scenario.
In other words, wealth would be created and multiplied faster by dividing that investment money among more people that could produce wealth.
Experiment 2: Grocery Stores
In the second thought experiment, I look at grocery stores. In 2015, a few years back, there were over 38,000 grocery stores in the U.S. with sales of over $2 million. Among these are grocery stores owned by Kroger, a large Midwestern chain headquartered in Cincinnati, Ohio. In 2015, Kroger accounted for 2,778 of these stores, and had 431,000 employees. Since many employees are part-time, I calculated that each store has the equivalent of 72 full-time employees, or the equivalent of about 8 million hours worked. Kroger’s revenues for their fiscal year previous to 2015 was $109.83 billion, with a gross profit of $24.33 billion, and a net income of $2.04 billion. According to my calculations, if you divide the net income by employee hours worked, that’s about $255 for every hour worked by their employees! Or, to put it another way, there’s over $734,000 made per store.
Since Kroger’s stores tend to be corporate-owned, that means all or most profit ends up all going back to Cincinnati. It’s good for Cincinnati, right? Yes! Of course it is!
Now imagine if Kroger’s setup was different – imagine if they acted like a franchising organization, so that all of the individual stores were each owned by separate and different groups of investors, all of whom lived in the same communities where their stores were located. In this type of setup, most of the net income of each grocery store, other than franchising fees, would stay in the same communities where the stores were located rather than all be siphoned out and redirected to southwestern Ohio.
Now, let’s compare the two possible setups to each other. In the one setup, all stores are corporate owned, and all profits go to one location. In the other setup, all stores are locally owned by local investment groups, under a franchising arrangement, and so most profits stay local.
Now, under which of these two setups will more wealth be created, under the total-corporate-ownership arrangement, or under the locally-owned franchise arrangement?
I’ve concluded that although there would indeed be business growth, job growth, and economic growth under corporate leadership, the amount of benefit to jobs, business, and the economy would be even better when each store is locally owned. The wealth in this case would be distributed more widely, and wealth would be created faster using the second setup.
If each local investment group that owned each store decided to let the store be partially employee-owned, or did some kind of profit-sharing thing with their employees, so that half of their yearly profits went to their employees based on hours worked for that year, you would see even more economic and job growth because that wealth would be distributed even more widely. Some of those people might replace their old crappy car with a newer model. Some might buy a camper or RV. Some might buy a boat to go boating in their free time, while others might buy a hunting rifle and deer stand and go hunting. Still others might pay someone to remodel their house. Yet other people might take their money and go on a vacation. What you would discover is more jobs created in this setup and an even-more-quickly growing economy. Wealth would be created even faster.
Experiment 3: Farming
Back in 2012, there were about 914.5 million acres in the United States devoted to farming. There were 2.1 million farms, which meant about 433 acres per farm on average.
Let’s say that in the future, society takes one of two possible directions when it comes to American farms and agriculture.
One possibility leads to average farms being about 1,500 acres apiece that are well-managed by individual families. Each family has at least one combine harvester, among their other implements and machinery needed to run their farm.
The other possibility is that all farmland eventually gets bought up by no more than ten giant agribusinesses. In order for those businesses to stay more profitable, they limit themselves to two combine harvesters per 6,000 acres, meaning about one per 3,000 acres of farmland.
Now, of course, these two possibilities are just hypothetical, but I want you to think about this in terms of these combines and their value. If the country were divided into 1,500-acre family farms, there would be about 600,000 combines around for harvesting purposes. On the other hand, in this hypothetical scenario, if giant agribusinesses took over all farmland, you would only see about 300,000 combines needed.
If we’re to add up the value of the combines themselves, and take that value as a form of wealth, you would see the amount of wealth in terms of those harvesters be twice as much under the family farms than it would be if they were all owned by giant agribusinesses.
On top of that, you would notice that the amount of labor needed for manufacturing those combines would be twice as much for the family farm scenario. This would mean twice as many jobs, and its implications – twice as many homes built, twice as many cars bought, twice as much income tax revenue, and so forth. From the manufacturing end, you’d see a higher amount of wealth created by allowing for family farms than you would by allowing for large agribusiness takeover of all farmland.
Results of Thought Experiments
If the conclusions of hypothetical scenarios in the thought experiments are correct, then this leads me to one conclusion:
THE MORE YOU DIVIDE WEALTH AMONG THOSE THAT CAN PRODUCE THINGS OF VALUE, THE FASTER THAT WEALTH MULTIPLIES.
Now I want you to keep something in mind. I am in no way suggesting that this means that the government should overtax people who have the power to produce and create things of value – that which we call wealth – and give it to those who AREN’T producing anything of value.
I do actually see value in programs that help those in need, but they should only be temporary, and they should motivate and help people to get back on their feet. People these days have been chronically dependent on our social welfare programs for far too long, which to me means they don’t actually help these people become prosperous. Yes, they do in fact help people – they help them stay poor.
What I am suggesting is that the direction we are taking in our country, and in the more developed parts of the world, where wealth seems, over time, to become more concentrated into fewer and fewer hands, is not the best course for us to take. Yes, even now, under our present circumstances, the rich are getting richer, and the poor are getting richer faster, but I am suggesting that we can do even better than that – the rich will still be getting richer, and the poor will get richer even faster.
There are so many times throughout human history where wealth gets accumulated into fewer and fewer hands, all while more and more people become destitute. And many times, the situation gets to the point where the destitute cannot take it anymore, and revolt, in which case revolution happens, unless a solution-giver comes along and fixes the problem – think Solon in ancient Greece. Although the poor are getting richer, and our present economic system has pulled billions of people out of poverty, we need to make sure this never happens again.
In my opinion, we need to take the anti-monopoly laws of yesteryear, and recondition them to break apart large businesses.
Just from a CEO standpoint, ten CEO’s making $5 million a year will actually stimulate more economic growth and wealth creation than one CEO making $50 million a year. Come to think of it, 100 CEO’s making $500,000 a year would stimulate even more growth.
Getting our big businesses, like Walmart and Kroger, to change the way they do business so that all individual stores are owned separately by different investment groups as part of a Walmart or Kroger franchise would definitely help to keep those profits more localized. In fact, a proper way to change our system would be to get Walmart, and other large store chains like them, to make their money in a way that helps others make money.
If we broke apart today’s super-sized banks into hundreds of community banks, not only would we be more likely to see wealth being created, and at a faster rate, but you would greatly reduce the possibility of dire economic collapse and financial failure due to oversized banking institutions over-investing in high-risk investments that failed. On the other hand, if we had a bunch of community-sized banking companies, and a few of them failed, the rest of the banking industry would still be intact
Also, if we provided some type of financial incentive to business owners wanting to sell their businesses so that they knew they would make more money selling to their employees rather than another investor or large conglomerate, and did it in a way that was profitable to banks, we might see more employee ownership of the companies they work for, more of a business’ profits going to employees, and because of that, a faster growth of secondary and tertiary sectors of the economy, and wealth being created even faster.
If you made it this far into this article, congratulations, you made it to the end. Hopefully you understand the conclusions that I came to, based on my own thought processes, and came to the same conclusions. If you didn’t, I’d encourage you to keep thinking about this subject, and what’s best for our country. I am definitely NOT talking about redistribution of wealth based on high tax rates for the wealthy, and socialist, or social welfare programs, to redistribute that tax revenue, because that really does nothing to make those people more prosperous, and everything to keep them chronically poor and dependent on the system; what I AM talking about is tweaking our capitalistic system a little bit to make capitalism work for the maximum number of people, and to maximize our wealth creation.
Thank you for your time.
