Where is it easiest to get rich? The U.S.? Japan? Germany? The Wealth Report (Knight Frank) defined ultra-high-net-worth individuals as those with net worth more than $30 million. Besides U.S., Japan and Germany, the U.K. and China are the other two nations with the most ultra-high-net-worth individuals.
But when it comes to rich people per capita per million inhabitants, it turns out that Norway was ranked first followed by Sweden, New Zealand, Canada and Denmark. The U.S. on the other hand was placed 13th.
Doesn’t this seem wrong? Norway, Sweden and Denmark are Scandinavian countries which have adopted the Nordic Model that combines elements from both capitalism and socialism. And instead of creating rich people, socialism supports equitable distribution of wealth and material resources among all people.
There are two reasons. First, free education. Social democracies provide free higher education to everybody – cheap student loans and grants. This allows more people to receive higher education and use their talents to earn money. This can be shown as below:
If we divide all fathers in a society into five groups based on their income, and we do the same for their sons, how many sons of the fathers from the bottom income end up on top, from rags to riches?
Assuming a perfect social mobility scenario, i.e. talents and opportunities are equally distributed, 20% from the bottom would end up on top. The numbers for the different countries are as below:
It may be observed that 14% of the sons from the bottom section in Denmark could end up at the top; 12% in Norway, 11% in Sweden and 8% in the U.S. Because of free education there are more self-made men in Scandinavia than in the US.
If we look at those sons who go from rags to rags, Denmark with 25% ends up at the bottom whereas the U.S. with 42% is the highest. This is explained by the high education fees in the U.S.
Another reason for upward mobility is the high wages in Scandinavian. Although there is no legal minimum wage for sector or industry but through collective bargaining each sector/industry sets a minimum wage. As the cost to hire workers is high, Scandinavian companies introduce new technology to replace workers. And new technology increases productivity and in the long run increases profits as well.
On the upper end of the wage ladder, in the name of solidarity, Scandinavian unions hold back the highest salaries of skilled workers. For example, a Norwegian senior engineer earns on average per year $76,000, while his American colleague earns more than $100,000. The unions are in a sense “subsidizing” the capitalists.
In short, high taxes provide free education and increases the number of talents while strong unions help to improve productivity, and the generous welfare state makes unions accept downsizing (because they know their members will be well taken care of). These then are the elements in a social democracy that makes people get rich easier.
Should we in Malaysia examine this in greater depth?
1. Harald Eia, Where in the World Is It Easiest to Get Rich? https://evonomics.com/
2. Will Kenton, Nordic Model, www.investopedia.com/
3. Claire Boyte-White, 5 Developed Countries without Minimum Wages, www.investopedia.com/