Trickle Down or Sucking Up?

It is shocking and disturbing that the new British Prime Minister, Liz Truss, remains an evangelist of bygone era and the notion of trickle-down economics, something that has been well and truly proven as a fallacy after the failed experiment during the Reagan and Thatcher years of government.

The decades that have passed since that time have only seen the rich get richer and a consistent increase in the rich-poor divide.

Let’s start with that premise of supporting the wealthiest in society so that their gains can trickle down and benefit the rest of society.

First of all, businesses are mandated, under (US) law, to place shareholder interests above all other stakeholders (shareholder primacy). That necessarily means profit maximisation. For that to happen, apart from companies needing to be selling their goods and services for the highest possible price, they also need to be minimising their costs. That will of course include labour costs (wages). It will also mean that raw materials will be acquired from the cheapest possible source and not necessarily from a responsible source.

Excluding a handful of notable outliers, companies following this behaviour are not going to benefit society. On the contrary, they use their power to enrich themselves and, consequently, exploit and impoverish the working masses. Quite the opposite of trickle down!

If that thought process holds true, then surely the government needs to play a key role in supporting its population with necessary benefits such as quality health care and education, as well as food and housing for those unable to afford it themselves. However, tax cuts that are implemented to benefit the rich will only further encourage businesses exploitative behaviour and, simultaneously, reduce the available government purse to assist the rest of society. Let’s also not forget that the beneficiaries of these tax cuts are highly likely to be utilising loopholes in the first place to minimise their tax exposure.

This, of course, leads to anther discussion about the efficacy of government spending on supporting the needy in society which, in many countries, is sub-optimal to say the least.

So where is the “trickle down” … it only seems to be “sucking up” to me. It is only poverty and hardship that seems to trickle down!

Global issues such as poverty, famine, water scarcity, climate change and so on are exacerbated by the prevalence of a shareholder primacy doctrine. Some issues are barely scratched at surface level via high profile but limited CSR initiatives, although many of these issues could cease to exist if corporate behaviour was not so driven by a financial bottom line.

In my opinion, there needs to be pressure for wholesale change in the definition of the system. Capitalism does not have to be a bad thing. Correctly deployed, it can be a powerful and positive thing, but instead of thinking of it as the opportunity to maximise profit and wealth, why not think of it as the opportunity to achieve whatever outcomes one wants. We live in a world with a dangerous and toxic culture that dictates success is about financial gain. We need to move away from this and value health and happiness and build systems and structures that promote and support this.

Unfortunately, the current status quo is a symbiotic relationship between government and big business, and for the sake of their own survival are failing the masses.

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Please let me know what you think of my ideology on this matter. Give me your comments as to whether you agree or disagree.

If you want to see some more material on this matter, here are some links:

• Kevin O' Leary celebrates wealth disparity
• Nick Hanauer: Beware, fellow plutocrats, the pitchforks are coming | TED Talk
• The Impact of Shareholder Primacy: What it Means to put the Stock Price First - The Aspen Institute