Richard Riordan and Eli Broad: Is it a sin to be rich? Not if your resources are used to help others and create jobs. Rather than investing in hedge funds and other forms of financial speculation divorced from the real economy, more of the wealthy

2014-01-02 16:53

Is it a sin to be rich?

By Richard Riordan and Eli Broad
Is it a sin to be rich?
Not if your resources are used to help others and create jobs.
If you listen to most of the discussions of income inequality, it certainly seems like affluence itself is a crime. We hear increasing calls for higher taxes on the wealthy and other policies designed to redistribute income. President Obama summed up that position when he said, “Our country cannot succeed when a shrinking few do very well and a growing many barely make it.”The assumption behind these proposals is that a minority of Americans has become rich by making a majority of our people poorer. In other words, it is seen as cause and effect. That’s simply not the case.
We agree that the facts on income inequality are stark and disturbing. Since 1973, the gap between incomes earned by the rich and middle-class Americans has grown every year, increasing now at a higher rate. Meanwhile, the number of middle-class jobs has been reduced by global competition and automation.
But many of the factors driving this process aren’t getting enough attention.
One is education. As Obama’s nominee to chair the Federal Reserve, Janet Yellen, recently pointed out, “from 1973 to 2005, real hourly wages of those in the (top 10 percent) ― where most people have college or advanced degrees ― rose by 30 percent or more. … In contrast, at the 50th percentile and below ― where many people have at most a high school diploma ― real, inflation-adjusted wages rose by only 5 percent to 10 percent.” And those without college degrees are much more likely to be unemployed.
In the new globalized economy, in which manufacturing is largely done offshore, many of the middle-class American jobs that don’t require higher education have left the country. The good jobs that remain will increasingly require far more technological know-how. We need to be educating American workers to fill them.
We also need wealthy Americans to create those jobs. Start-ups in ventures that produce middle-class jobs require investments by those willing and able to take risks. Over the last five years, according to the Economist magazine, those start-ups have accounted for almost all of the net increase in new American jobs paying at least middle-class salaries.
And before demonizing the rich, it’s important to consider the foundations and charities they have built and supported. Many of those with money take pride in using it to help others and to create jobs. That should be encouraged rather than discouraged with punitive taxes. Last year, despite the halting economic recovery, individual charitable contributions increased 3.9 percent to $228.93 billion, and most of that comes from the top 10 percent, according to an annual report on giving by Indiana University’s Lilly Family School of Philanthropy.
Equally important, because today’s philanthropists are applying the entrepreneurial lessons of their own careers to their giving, unprecedented results are being achieved in cutting-edge medical research, education reform and the fights against HIV and tropical and childhood diseases.
Americans are rightfully concerned about income inequality, but some of the “solutions” proposed wouldn’t help much or would be counterproductive. Measures such as raising the minimum wage would help only a small number of workers. And while raising taxes on the wealthy might sound fair, it is likely to be counterproductive. When a succession of post-World War II Labor Party governments imposed high marginal tax rates and other income redistribution policies on Britain, it set off a well-documented brain and talent drain that benefited every other country in the English-speaking world.
When taxes rise to onerous levels, the wealthy move on, taking their investments, tax payments and philanthropic contributions with them. As Gregory Mankiw, chairman of Harvard’s economic department, has pointed out: “Rich people can pretty much live anywhere. If you’re a retired person trying to decide between Palm Beach and Santa Barbara, the tax difference between Florida and California is huge.”
We are the only country in the developed world without large national labor or socialist parties, and it’s unlikely that many Americans ever are going to be converted to the notion that it’s sinful to be wealthy. What we all need to continue to believe, and to act on, is the conviction that it’s wrong and socially destructive for the rich to forget those who still can use a hand up.
Rather than investing in hedge funds and other forms of financial speculation divorced from the real economy, more of the wealthy need to accept the responsibility of investing in job-creating enterprises. At the same time, they need to make educating the workers to fill those jobs a principle focus of their philanthropy.
Former Los Angeles Mayor Richard Riordan gives 50 percent of his annual income (including capital gains) to charities, mostly for the benefit of poor children. Eli Broad and his wife, Edye, have invested billions of dollars to improve K-12 schools, advance scientific and medical research and increase public access to contemporary art. This article was published and distributed by MCT Information Services

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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