Redistribution of income and wealth

Sebastian Colorado Hincapie O

Catholic University from Pereira

International Economy

Faculty of Economic and Administrative Sciences

First of March 2018, Pereira Risaralda

 Redistribution of income and wealth

The redistribution of wealth is something new, because the economic growths was the most
important priority for most nations around the world, but in the modern time a lot of countries,
economists and politicians are thinking seriously in this issue. In 2000, the income ratio between
the richest twenty percent on the planet and twenty percent poorest was 80 to 1 a big difference
with what happened in 1920 were the difference was only 7 to 1, this only mean one thing the
society is every day more unequal, this growing inequality of wealth and income, in my
perspective has different reasons, I think one of them is the globalization that in many cases help
countries to growth fast like Mexico, China and others, but this increases of income doesn’t see
reflected in all the population of the nation, if you see Mexico is one of the most unequal country
in the world according to the world bank and the Gini index in which one has 48 points, but it is
important to say, not all nations that had broken in the globalization have bad a well distribution
of income for example Egypt, South Korea and other have good punctuation in the same index.

Other reasons for this inequality can be the political trends and the kind of politicians the different
countries have, a government corrupt is one issue that makes one society poorer and unequal, on
the other hand political trends like socialism can help to have a better distribution of income and
wealth but which is the price that people need to pay, is fair everybody eat the same, earn the
same without consider what people do or study. Something that can be a political trend is what
happened with the president 44th of the United States of America Barack Obama and the actual
Donald Trump with the Obamacare, the repeal of Obamacare, could be seen like redistribution in
favor of rich people and more unequal society.

The education in many cases is other reason of inequality, a society with little access to education
it is very likely that his distribution of income and wealth will be really bad, the people who study
are going to have highest incomes and on the contrary people who don’t have access to
education, only can go to primary education or secondary are going to have less incomes. In those
terms the government has an important role, giving a free education access to all the population
making more sophisticated and competitive workforce.

The problem of inequality is not new, since the beginning of our history we can see different
positions injustice in the economic system and it increase after the industrial revolution and
globalization, for this line Segio lopez affirm “Poverty is certainly not new in history. What is new is
the extremely unequal distribution of resources of humanity” (Lopez, A p 233) and this is not only
between countries it is also too between society in a same nation. This is why the countries are
reflating seriously in a new form to distribute and generate new policies to make a change.

To continue it is important to note what Redistribution of income and wealth is, in common worlds
refers to transferring money from those who have more or are rich people to those who have less
or are poor people, It can be carried out in various ways like taxation system, monetary politics,
agrarian reforms, confiscation and others.
There are a lot of examples of redistribution of income and wealth around the world here we are
going to analyze some them. First one interesting case is Mexico, being one of the most unequal
countries in the world, “the disparity of income can reach more than 100 times the minimum
wage” according to Alfredo Coutiño director of Moody’s Analytics for Latin America, Coutiño say
too, this issue has three main aspects, economic, politic and social.

In the same way, Ricardo Fuentes Neiva, Executive Director of OXFAM Mexico says that Mexico in
the 90s began a process of economic and commercial liberation, opening its market to increase
foreign direct investment, this process; he says, was an idea taken by the political elite in favor of
powerful people, "There have been few countries that followed the processes of economic
liberalization, deregulation or privatizations like Mexico," he explains.

Maybe they didn’t take care on what would happen to poor people with this new opening process,
and they didn’t make an inclusive plan to benefit everybody, an only they thought in growth
economy, but now they are thinking in that parentage given by the CEPAL, “80% of the wealth in
the hands of 10%”.

In the last years, Mexican government set up a series of taxes called ISTP Tax on product of work,
this tax is in function of year people income been the first example of redistribution, there are a
lot of people that are against this tax and other who think is good, but I think the two points of
view are saying the same each other, always talking about the education access, possibilities to
find a job, the productivity in what they do.

This taxes adopted by Mexican government has had one important problem, this is not touching
the real rich people and meddle class is who really paying this taxes, because powerful and
important people has different methods to reduce or not pay this taxes, and that isn’t all, the final
destination of money raised, in many cases is not used in what it have to be used or in the worst
case, finally ends being stolen.

Actually, Mexican government is plaining a new method to redistribution of income, named

universal basic income, this system consist in giving to every citizen a certain amount of money
every month, by the fact of being citizens, the idea born in the conservative party PAN in alliance
with the progressive party as an electoral proposal, some critics are; first it would require huge
sums of money, second in Mexico the money that could be given would be very mediocre and it
would cost to the nation almost 8% of GDP. I think this is not the best option to distribute the
national incomes because is not good to have a quarter of population doing nothing and earning
money it could convert Mexico in a mediocre country and if people know that they are going to
earn this easy money, they aren’t going to study becoming in a little qualified workforce losing
international competitiveness.

Another example of redistribution of income and wealth in the world is the case of Venezuela in
the Chavez age, maybe is not the best example knowing the result of this, but what Chavez did
expropriation of companies, households and lands, could be called redistribution, because he was
giving to the population of the nation a part of the benefits from those nationalizations.
Expropriate and nationalize was a characteristic of the government of former president of
Venezuela Hugo Chavez.

In the specific situation of expropriated companies, one of the most famous cases was the oil
Exxon Mobil in which the government only paid 255 million dollar of the 10.000 million that the oil
company wanted of compensation, all of those nationalizations happened due to the political
reforms that government did and approved laws like, The Law on Food Security and Sovereignty
that specified according to BBC: "proceed to the compulsory acquisition of goods and activities
related to the sector without the need to obtain authorization from the National Assembly". In the
same way, they imposed a reform of law, in the defense of “access to goods and services to all
people from the country and not only for rich” the government said, and also, they did a “plan for
the economic and social development of the nation 2007-1013” in this plan the administration
affirm that the state have to conserve the control of all the principal activities for country develop,
with more social inclusion and better distribution of means of production.

Those measurements had a lot of critiques from national assembly, the owners of companies and
foreign investors that lost their companies and money, but for the rest of the people it was seen as
a victory. On the other hand the cost of those political reforms was very high, the government
invested between 2007 and 2009 more than US$23.377 million in the nationalized companies,
resulting in a budget deficit, but offset with the export of oil with a great price making the problem
smaller and this problem many citizens didn’t see after a long time when it was too late.

There is another important aspect in the Chavez age it was the land ownership and land
productivity, after the reelection of Chavez in 2007 more than three millions of hectares were
expropriated and there were two main reasons, First when government thought the land wasn’t
good distributed they expropriate and put the land in different owners is the case of southern area
of Lake Maracaibo there “50% of the lands in the area were in the hands of 4% owners, which
shows a totally inequitable system" authorities said. Second the Chavez government said that the
unproductivity lands needed to be destined to food safety because they were importing a lot of
food but if we analyze the current situation they have a shortage and don’t have money to import
food, people is dying because don’t have medicine, I think the measurements didn’t be the best
and now the price of oil is not helping to the situation. We can see that in this case the process of
redistribution of wealth didn’t ends well maybe because they didn’t take the best chooses, this
method need to have care a lot and a supervision for do the right things, especially with corrupt
people in the power.

To finish this write we want to analyses one of the candidates for the presidency of republic of
Colombia in 2018, Gustavo Petro formed mayor of Bogota, many people is worried about his
proposals and even more because he was an integrant of M-19 a belligerent group time ago, but in
this time is hard to know the true about what he is saying and what would really do, because all
candidate say something different and attack each other with the same topics let see, there are a
lot of people that say Petro is going to implement a “costrochavismo” during his mandate because
his talking about better distribution of income, through political reforms to get equity and freedom
and he also say that in Colombia there are a fifteen millions of hectares and only five are in
production, he want to put a tax, for those lands that are unproductive, making the lands cheaper
for the state can buy them and redistribute in the society and is the fact that people and the
oppositions parties are nervous maybe thinking that if he wins the elections he will expropriate
farmers lands and they argument that is the beginning to became in a socialistic country, but this
is not only what happened in the electoral process, Petro also answered to this accusations, and
said that the opposite party “centro democratico” had already expropriated lands in Uraba during
the Alvaro Uribe mandate, and he don’t want to expropriate only want to make more productivity
the land. As we see they are speaking about the same attaching each other. The true is Colombia
is a really unequal country where are child starving, a lot of poor people, had bad distribution of
income, and is a corrupt country maybe the solution of this problem is not a new president
because we need to change our mint, the problem is not only in the government, it also involve all
society including families, teachers, students, politics.

According to this there is important to know that actually there is a law project of lands in which
the “mechanisms for the adjudication of lands are established” affirm Caracol Radio, especially for
lands that where in hands of the FARC, to relocate them and give back to the real owners.

In conclusion, we can see that inequality of income and wealth is a problem that affects many
states, especially in Latin nations where there are not a country with a good punctuation in the
gini index, the corruption and other factors don’t let them progress in this aspects, every one of
them no matter if were rich or poor they wanted to improve in this issue in different ways and we
can’t say which one is better or can be more efficient but we can say the nations have to ensure
that society is getting better and looking for new opportunities to all not only for some of them.
Bibliographic

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