By Benjamin Wetmore
Editor’s note: The opinions expressed here are those of the authors. View more opinion on ScoonTV.
This past week, Treasury Secretary Janet Yellen complained that the racial wealth gap is stubbornly hard to close. Her speech dovetails with recent reporting that billionaires got richer during the COVID pandemic while the poor and working classes lost a great deal of their wealth and savings.
It is no surprise that the mandatory lockdowns, vaccine mandates, and wholesale firings of skilled employees would cause a loss of worker wealth. Related to that, it’s no surprise that billionaires used this crisis to make money and exploit sloppy government responses.
It is said that no one ever got rich working a 9-5 job. The economic statistics and surveys generally bear out the truth of that old wisdom.
Some say it matters where you go to college. Some say being in the right industry is critical. But rarely is any clear direction given to motivated entrepreneurs on the logistics of getting rich. Many people have general and generic opinions but no direct and actionable advice.
So, how does one get rich? If you want to close your own wealth gap with the mega-rich, how do you do it? In any free-market system the challenge seems to lie in finding the unique profitable advantage over competitors.
Globally, there is $42 trillion in trade every year. Opportunities abound for the motivated entrepreneur. Yet in America, the so-called “wealth gap” between rich and poor keeps expanding. How can this be explained when opportunities abound? Why are the rich getting richer when there are so many talented and skilled people who are unemployed and underemployed?
There is a desire to wipe the profits off the available plate of the public at large and to wall off those profits from competitors. That can be done by becoming the dominant first player to a major market like Uber was for ridesharing. Another way is by reducing the costs for the main entrant to the market and thus raising the price for any subsequent entrant, like Amazon did from 1996-2015 when it first became profitable.
Those are the multi-billion-dollar examples, but corporate America is systematically searching to leech all available profits out of society. A more retail example would be house flipping. Popularized by a spate of shows like Flip This House 17 years ago, house-flipping became a source of potential profits for workers willing to risk putting in a great deal of sweat equity into rehabilitating an undervalued real estate property.
House-flipping is one of the few common opportunities available to the public that does not involve a necessary certification or college degree. More so, it’s not regulated by state occupational licensing regimes and regulators. Additionally, the compensation is not structured as a payment for time-labor but instead as a percentage of the profits, and the transaction amount is large.
Last November, Zillow announced it lost $330 million trying to flip houses via its website. In a statement, the company said that it could not adequately predict housing prices.
That admission is stunning for a real estate information clearinghouse. However, the failed attempt reveals even something as inherently risky as house-flipping is something that corporate America would like to absorb. They don’t care that it eliminates a major wealth-generating opportunity for the public.
Information and opportunities coagulate at the bigger firms and corporations first. Their options are greater than someone working on the side with a typical 9-5. Yet, they’re still trying to take away profit-generating fields from the public. The reason it is so unique is because it captures profits more than it seeks to compensate for time.
When an owner pays you for your time, you can’t get rich. When a financial transaction pays you with a percentage of the deal, there are obvious ways to enlarge a deal to get rich.
When a corporation finds a captive market like house flipping, it can erect walls around it by regulating out small competitors. In states that have recently legalized marijuana, you can see this as larger producers come in and agitate and lobby for regulation to erect barriers to entry for new producers.
This captive market then becomes the opportunity for larger companies to pull wealth from. If there’s any chance that new entrants could come into the market, large companies reduce prices and profits so low that they can eke out profits reliable enough for investment banks and conservative Wall Street investors.
If they can milk a profitable industry with no competition, they can reap a whirlwind. If they can’t, then they can use the powers of big business to ensure that no one else can enter that market. Big business has all the advantages, while upstart businesses have all the challenges.
Instead of rewarding and making it easier for entrepreneurs, too often state and federal policy prioritizes investors and corporate owners.
There is a significant policy choice to be made between entrepreneurs against large corporations. In a way, it’s a choice between capitalism and its distant cousin corporatism. On the one hand, you have self-reliant owners, and the other side has large corporations populated by people living off hourly wages.
On top of that, paperwork and regulation has made operating a successful business so complicated that one needs legal help just to start a business.
The benefit to the consumer with corporatism is that they often get low prices, but it also means that there’s a complete lack of innovation. It ensures that there’s zero competition and gradually declining quality of the product in order for the producer to fight core inflation.
Large businesses can insulate themselves from aggressive regulation by hiring lobbyists and engaging federal and state lobbyists. Often, those lobbyists are former legislators and regulators with the necessary relationships to justify their monthly retainers. Regulators are often reluctant to pursue large businesses whereas they are content to aggressively regulate small businesses that have no political power or clout.
So again, how are regular people supposed to close the wealth gap by becoming rich? Few offer tangible solutions, but one has to be in the right industry and of course a hard worker. But corporate America’s power to systemically obliterate profits and keep entrants from the market is substantial and often ignored.
Corporate America wants us all to be renters, consumers, and paid low hourly wages.
Pressure should be on policymakers and legislators, however, to avoid rewarding big corporations and instead reward those who want to start new businesses, innovate, and try new things. Instead of preferring low prices for its own sake, policy should focus on growing the productive economic output of communities.
Corporations want to force Americans to work for low hourly wages. But the path to real riches in this country involves ambitious entrepreneurs owning a piece and percentage of major financial transactions. While America should allow corporations to provide products at low prices, it should aggressively encourage entrepreneurs who are building new fortunes through hard work and innovation.
Right now, almost every part of society rewards big corporations. Then, we get the obscenity of federal figures like Yellen complaining about wealth gaps when the policies they promote and protect exacerbate that wealth gap.
If the public is to make more money, they need to have clear ways to reward their work. Not with time-compensation, but with equity ownership in whatever deal they work.
To fix this problem will require a major overhaul of taxes, and laws related to regulations, regulators, licensing, and employment, among many others. There is the political will to address the “wealth gap,” but rarely the disciplined political will to do the follow-through work addressing these roadblocks to real wealth development.
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