IB Docs (2) Team
Inequality
Could Elon Musk become the world’s first trillionaire?
It is very difficult to keep track of the wealth of the world’s richest people, but the planet’s wealthiest entrepreneurs seem to be getting richer and richer. The investment bank, Morgan Stanley, has forecast that Elon Musk could become the world's first trillionaire.
The current top five richest people in the world are currently:
- Elon Musk (Tesla) $281 billion
- Jeff Bezos (Amazon) $201 billion
- Bernard Arnault (LVMH) $195 billion
- Bill Gates (Microsoft) $138 billion
- Mark Zuckerberg (Meta/Facebook) $121$
However, the value of these individuals and their rank order could change very quickly. This is partly because their wealth is tied up in the share price of the companies they own. If the Tesla share price falls by 10%, Elon Musk is suddenly quite a few billion poorer.
There are now over 2,700 billionaires in the world which a combined asset value of $13 trillion which is not far short of the value of the world’s second-biggest economy, China at $14 trillion.
Should anyone be a billionaire?
If you have a $ billion and earn a modest 3% income from its value that is an income of $30 million a year or $577,000 a week. It would be very difficult to spend this amount of income on ‘normal things’. Is there any point in having so much money? Being a billionaire also raises interesting income inequality questions for the rest of the world’s population. The average income in most MDCs is around $25,000 a year and 10% of the world (700 million people) is living on less than $2 a day. It is also worth noting that only about 10 per cent of the world’s billionaires are women and the world’s richest woman, Francoise Bettencourt Meyers (L'Oréal) at $89 billion is some way behind the leading group of men. A sign of gender inequality?
One argument is the world needs talented, innovative people who can lead the world's largest organisations that generate the employment and wealth needed by everyone else. Perhaps the world's billionaires are also the most likely to find the solutions to humanities most pressing global problems
But do they need to be rewarded so highly?
Discussion questions
1. To what extent is the rise in the number of world's billionaires a sign of rising income inequality?
Income inequality is the difference between the incomes of different households amongst the population of the country. It can effectively be represented by the Lorenz curve and the Gini coefficient. If the Gini coefficient increases in a country then income inequality is widening.
The rise in the number of billionaires in different countries and across the world may lead to an increase in the Gini coefficient in a country if the percentage of income or wealth of the richest households increases. If the rising number of billionaires leads to an increase in the Gini coefficient of different countries then it could mean an increase in global income inequality.
The rising number of billionaires could also be seen as an indication of increasing income inequality if the income or wealth of the world’s billionaires is rising at a faster rate than the income or wealth of other households in the world's population. In 2020 the average increase in the wealth of billionaires increased by 27 per cent whilst the income of the world’s poorest people fell by 6.7 per cent. This suggests widening income quality.
2. Evaluate the view that a rise in the number of billionaires is bad for society.
An explanation that an increasing number of billionaires might be bad for society because:
- It means the world’s richest people have too much political power and influence.
- It causes political instability amongst the poorer sections of society because they envy the world’s richest people.
- It can see as unethical for the richest people in society to have so much wealth relative to the rest of the population.
- Evaluation might include discussion of the benefits to society of billionaires in terms of the wealth they create and benefits their organisations bring to the economy.
3. Discuss the effectiveness of high levels of progressive taxation to redistribute income more equally.
An explanation that progressive taxation is where the rate of tax increases as an individual’s income increases. This means that people on higher incomes pay significantly more tax than those on lower incomes and this narrows income inequality.
An explanation that the additional tax raised from the people on the highest incomes can be used to fund public services such as health and education which can be used to improve equity amongst the poorest households in society.
Evaluation might include discussion of the problems using progressive taxation such as tax avoidance/evasion, loss or entrepreneurial/worker motivation and businesses relocating to low tax countries.
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