Terry Pratchett presents the "Sam Vimes boots theory" to explain this phenomenon. His character Captain Samuel Vimes of the watch observes:

  • The rich man can afford to pay $50 for a pair of boots that will last them 10 years.
  • The poor man buys $10 boots that last a season, because he only has $10 to spare.
  • At the end of 10 years, the poor man will have spent twice as much as the rich man on boots, and he will still have wet feet.

There's also the reason why richer players do better in gambling. Even if there are only random fluctuations, from time to time a fluctuation is going to knock you randomly below a certain limit. Then a poorer player goes bankrupt. A richer player can absorb the loss. So a rich person can survive to try again another day. If this sounds frivolous, I don't mean it to be. I think this is sound economics, but I just don't know their terminology. A poor person has only very narrow limits in which they can experiment, but a rich person can explore more of the space of possibilities, without failing.

Here are ten reasons I can come up with, as a poor person in a rich country. They overlap a bit, but hopefully they'll answer the question.

The rich can find out

Your average refugee in the Congo does not have access to the Internet. They'll be lucky if they can find a copy of The Economist or The Wall Street Journal, much less Time or People or The Daily Mail. More than likely, they don't have access to CNN or Sky News on anything approaching a regular basis. They might be able to listen to the BBC World Service, if they know someone with a shortwave radio and if they speak one of the languages being broadcasted, but that's not going to help them too much.

Your average villager in India does not have an MBA and wouldn't be able to afford the tuition at any college or university, even assuming that they had received enough primary education to be able to read the textbooks. They will not know what a stop order or an IPO is, and they'll probably be lucky if they understand even the fundamentals of a stock exchange.

For the most part, poor people don't know what's going on, except in their immediate vicinity. They don't know how rich people make money, and they don't have the resources at their disposal to find out. This is as true of people in the ghettoes of America as it is true of Bedouins and Mongolian tribesmen.

The rich can invest
Making money requires an initial investment, no matter what kind of business you're engaged in. Lawyers have to pay for law school and/or a bar examination, their suits, their office. Shopkeepers have to rent a shop and purchase inventory before they sell anything. Televangelists have to pay for hair treatments and onion-laced handkerchiefs. So it goes. Unless you already have money, you can't get in.

Of course, you can work and save money, but this places poor people at a definite disadvantage to rich people, who can just pay for their stuff and get going. George W. Bush sure as hell couldn't have saved up enough to buy the Texas Rangers by working at Burger King.

The rich can travel
In most industries, making money requires a lot of time driving, flying, or boating to get from your supplier to your distribution point to your end user. Rich people can afford to transport their goods and services, and they can afford personal travel to sell their products. Poor people cannot... at least, not on anything approaching a regular basis.
The rich can diversify
Check out what Wal-Mart has done to mom and pop stores in cities and towns all across the United States. The little guys can eke out a decent existence until the big guys show up, offering more stuff in one place for less money. And then the little guys go with a splat.

Check out Microsoft for another example. Thanks to the success of Windows 95 and Microsoft Office, Internet Explorer was able to compete Netscape and other Web browsers out of the market. Whether you think that legally constitutes unfair competition or not, it certainly shows that having more stuff to throw at a market can give you the upper hand.

The rich can bribe
In autocratic countries with a mediocre semblance of law (like the United States), bribes go a long way. They can take many forms, too. A wealthy drug dealer can give a Mexican police chief a sumptuous mansion in exchange for letting the wares go through. Alternately, a big airline can consistently lure passengers back with free trips to places the little airlines can't serve. Alternately, a tobacco company (or ten) can pay for the election of a senator to block any laws that are proposed against them.

If marijuana growers could fund a senator, we'd probably have free dope in this country... but they don't, so we don't. So the rich tobacco growers get richer, but the poor cannabis growers get poorer.

The rich can muscle
Just look at War on Iraq 2003 and tell me this ain't true. If you can afford enough guns and bombs, nothing else matters except what you want. (This applies to Osama bin Laden, too... do you think that poorer terrorist leaders could have pulled off what he pulled off?)

If you want to see this in money-making action, check out what ITT did in Chile, or what Shell and Exxon do in South America and the Sudan (thanks to mkb for reminding me about the latter).

The rich can network
Partly because they can travel so easily, partly because they all speak English, and partly because they can afford to eat at the same expensive restaurants and vacation at the same expensive resorts, rich people interact across long distances and divides in a way that poor people cannot. If a good business opportunity pops up somewhere, the rich guys will be getting their friends in on it within hours, if not minutes. Poor people don't get cell phones or e-mail, so they miss out.
The rich can get credit
Most of the world's money is fabricated, and it's fabricated by and for rich people. A yak herder in Slavedominia can't have a public offering or put up collateral for a loan or sell junk bonds in yak manure, and they probably don't know too many people who supply venture capital. You can't buy and sell yaks on margin either, last I checked.

Likewise, a guy working on the loading dock at Wal-Mart is not going to be able to sell stock in his Geo Metro, even in the rare event that he can find a friendly enough banker to give him a 25% loan on it.

The rich can look good
This might sound frivolous, but it's not. Really poor people are usually dirty, smelly, and toothless. Most better-off people would rather give their money to someone who is clean and good-looking.

In addition, a woman with a good boob job and face lift is going to do better in most money-making fields than a woman who sags. That's just how life goes.

The rich can live
This, I think, is at the heart of the matter. If you're poor, you're too worried about survival to worry about getting richer. Paying for next month's rent and the family's groceries takes a much higher priority than long-term investing. Rich people, on the other hand, have disposable income and spare time way the hell above what they need to pay the mortgage on their penthouse and the payments on their Maserati, and they can easily divert this time and money to whatever project tickles their profit-making fancy.
Of course, if you believe in Heaven and Hell, this is all moot, since a lot of rich people are going to end up getting screwed in the butt by Satan anyway.

...duh.

There are other reasons:
  • Poor people tend to live in poor countries.
  • Poor countries can afford to spend less (or have bad governments which don't spend) on education.
  • Uneducated people don't read so many newspapers. Hungry people haven't got time to hold their government to account for being appallingly bad.
  • Countries where people don't hold their governments to account tend to have appallingly bad governments.
  • Poor countries are therefore much more likely to have appallingly bad governments.
  • Appallingly bad governments implement appallingly bad policies.
  • Uneducated people even welcome these policies as "good policies" (hell, this happens to educated people too).
  • Bad policies ruin the economy and make countries poor.

I think we're back to where we started.

Being poor is a vicious circle that's hard to get out of, and being rich a virtuous circle. This is not necessarily down to a global conspiracy to make everyone poor, it's just the way things are.

The subtleties of the vicious circles which afflict developing countries have not been too well understood in the past by well-meaning development economists.

They're certainly not understood by the anti-globalisation brigade, who obsess about multinationals but ignore the much greater sins of the governments of developing countries.

The debt issue is a prime example of this. Nobody asks where all the debt that developing countries have came from in the first place. Answer? Corrupt and incompetent governments who ran huge and unsustainable budget deficits financed by debt, who used almost none of the credit for productive investment, and almost all for stocking their bank accounts or building huge white elephants, like roads in countries where nobody has a car, or new capital cities in the middle of nowhere which nobody needed, or vast cathedrals in countries where only a small part of the population is Christian.

There are many and varied reasons why the rich get richer and the poor get poorer. Some of these reasons are rather mundane; the boots example quoted by Demeter above has always been one of my favourite bits of economic theory. There are also certain financial modes of operation that exacerbate this process: specifically, interest rates.

Take a thousand dollars for example - in itself it's not a dynamic entity. But throw a bank into the mix and that thousand will start to grow, because it is most likely in an account that accrues interest. Now, if you are $1,000 in credit, the interest will be incurred by the bank and credited to you: you will be getting richer by doing nothing. However, if you are $1,000 in debt, the interest will be incurred by you and credited to the bank: you will be getting poorer without spending anything.

The same basic process applies to national debts and is at the very core of the Third World debt problem. The vicious cycle works very much in the way that LordLiverpool describes above; however, what he fails to take into account is the fact that this cycle was not kick-started by the evil, cynical, incompetent Third World governments (and don't get me wrong, some of them are all of the above and more to boot). It was put in place by the World Bank when it gave countries loans it knew they will not be able to service, at interest rates many times higher than those available to powerful economies, and with such conditions attached that no entity that was not desperate for cash would ever have agreed to. It basically played the loan shark: lend them more money than they can repay, then forcibly take them for all they've got. The World Bank is basically asset-stripping Africa right now, and the UN is helpfully providing the muscle in the form of "peace" keeping troops.

It doesn't stop there, though. What people rarely consider in these sorts of debates (and their siblings, debates about the evils or otherwise of capitalism and the free market) is that the processes operating on the rich and the poor are interconnected. In other words, he poor get poorer because the rich get richer. To put it even more bluntly, the rich get richer by taking money away from the poor.

Some examples are glaringly obvious: if you are a company owner, you are most likely richer than your employees. You have the power to cut their wages and benefits, but they have no direct influence on your bank balance. You can - and probably would as soon as look at them - make them poorer. If you are a head of state in a G8 country, you can levy protectionist tariffs on goods imported into your country, bankrupting Third World producers, and there's nothing they can do about it - they have no leverage over you, because you have money and money is power (literally in the case of countries with fat "defence" budgets).

But we rich people in the West rob the poor of this world, including the poor of our own countries, in a more subtle way. We do it by exercising our right to better choice and value in our role as consumers. When we shop around to get the best price, we force companies to lower their costs in order to absorb the cut in profit margins. The most popular way of doing it (more even than cutting on security procedures, despite what Fight Club may try and tell you) is to cut wages. Since most people employed in manufacturing are already poor, by getting good value for our trainers, cars, frozen burgers and CD players we the people who can afford those goods are making them poorer.

It gets worse. When we elect governments who promise us lower tax on fuel, we inadvertently make them drive a harder bargain with the producers of oil - many if not most of whom are considered less than fully industrialised economies - because nobody, not even the government, likes to take a cut in revenue. It's much easier to go to war with Iraq to force oil prices down without actually cutting taxes. When we refuse to spend the extra £0.20 on a bar of Fair Trade chocolate, we are both directly and indirectly shooting small farmers in the leg, and they are by far the world's poorest sector. When we come to expect, even demand, uniformly low prices in a restaurant, we get McDonalds.


People are always telling me that my personal consumer boycotts and endorsements are a waste of time, that I am not making any difference, that the big companies who are responsible for the ravages of the unFree Market don't listen to the tiny minority that I am part of. Like I care. What I want is to be able to sleep at night, and I know I couldn't do that if I thought that I had robbed some starving child in Ghana even of a fraction of a cent. It's not much to me, but over the span of my entire consumer life it will be a hell of a lot to them. Think about it this way: I can’t prove to you that a person died because you bought that cheap, over processed Haitian sugar that was bought at starvation prices from desperate farmers; but you can’t prove to me that a person didn’t. So just to be on the safe side, I urge you to stop helping the big corporations and the powerful governments to force the poor deeper into poverty.

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