Wealth - A Decent Ambition

By Johannes Berchtold

Before 1750, subsistence-level income was the rule. Wealth creation on a broader scale kicked in only after a period of sustained economic growth. Today's wealth is effectively the result of two hundred years of steady economic growth. Because the human lifespan covers just a fraction of this centuries-long period, it is easy to forget that growth has neither been self-evident in the past, nor can it be assumed for the future. The bottom line is: we cannot take today's wealth for granted. Where there is no growth, there will be no wealth. This might sound obvious, but it is a truth we need to be reminded of, not only when it comes to distributing wealth but also when it comes to appreciating the roots of wealth.

In one of the most thought-provoking recent explanations of why some nations are richer than others, Acemoglu & Robinson have compellingly demonstrated that a country's wealth is the result of economic institutions created and agreed upon by political institutions. The more participatory political institutions are, the better the economic institutions that are put in place - and the more these economic institutions contribute to a country's prosperity. But good institutions aren't enough. Wealth creation can be endangered in many ways. There are those who plead for wealth without growth but have yet to come up with an alternative that matches the aspirations of the individual. It is hard to see how this could happen in a free society that thrives on individual choices, rewarding investments and freedom of research.

There are also those, like Brynjolfsson & McAfee, who say that although today's progress, namely digital technology, makes economies grow, it simultaneously contributes to stagnating average incomes and job creation. Where the two used to grow in sync with GDP per capita and labor productivity, they seem to have been decoupled. In other words, economies keep on growing, but for a large chunk of workers - and with them, their families - the prospect of increased wealth is fading. Without raking up the old fear that progress is necessarily a job-killer, the crucial question remains: What will substitute for today's job-loss, and how can we prepare for this? This will define the wealth of the future and how it will be distributed.

This article refers to «Growth - the good, the bad, and the ugly» debated at the 46th St. Gallen Symposium (11-13 May 2016, Switzerland).