Better to be EQUAL and POOR or UNEQUAL but RICHER?

Why are we writing this article? Certainly not because we can offer a better economic theory. Rather, we believe it is timely to be reminded of this debate and to reconsider or recalibrate our beliefs and policies for the benefit of our people and nation. Too often, we become dogmatic. Like it or not, prevalent, or popular, beliefs and thoughts do constantly evolve, as they have historically. Our reasons are, first, in view of how technology and artificial intelligence (AI) will affect labour, productivity, wages and profits. Second, as we have previously written, we believe we are now seeing a new pendulum swing to the right; for lower taxes, deregulation, free market, anti-immigration, deglobalisation and less progressive inclusion. A small nation within a connected world does not have the option to impose its own policies — not without severe economic consequences to its currency, inflation and investments and resulting in capital flight, loss of jobs and talents — unless its people are prepared to live like the North Koreans. And last, we think we can add a new and better dimension to the debate, one that is not commonly articulated. More on this at the end of the article.

Inequality does not mean injustice

Mr A works six hours a day for which he earns a total of $180, while Mr B works 12 hours a day and earns $360 in total. In mathematical terms, the daily incomes of A and B are clearly unequal. But most of us will agree that it is NOT UNFAIR. It is only unfair if Mr A does not have the opportunity to also work the 12 hours if he is able and wanted to. (Note: It must be BOTH want to AND able to — most of us have experienced many occasions when someone wants something but is not able or willing to sacrifice for it.) Because of progressive taxation, the after tax earned per hour for Mr B will, in fact, be lower than that for Mr A, which disincentivises work.

Our first proposition is that the world has wrongly chosen to focus on economic inequality of outcome instead of what really matters: economic injustice and unfairness. (Economic equality of outcome means regardless of effort, everyone ends up the same. Economic equality of opportunity, on the other hand, means everyone has the same opportunity but some people will end up richer.) We will explain later why this is the case, but it mostly boils down to simplicity of measurement. But what is easy does not also mean it is right. In other words, we need a deeper examination to determine whether what is perceived as inequality (and wrong) is indeed justified (and right) or not.

See also: High cost of private healthcare: Who is (ir)responsible and how to mitigate?

Broadly, there are two forms of economic inequality that are justifiable. Note that the terms “justifiable” and “just” are related but have distinct meanings. “Just” means intrinsically right or fair, while “justifiable” means defensible and reasonable. Natural and unavoidable inequalities arise out of people with different abilities, talents and work ethics. In a free market, some people earn more due to the value of their work skills and risk-taking. The second form arises from functional inequalities. Incentives and motivation, and differences in rewards encourage some to work harder and to innovate. Merit-based inequality encourages efficiency and productivity, which ensure the most competent have better outcomes.

Economic inequality becomes unfair when there are systemic barriers, discrimination, corruption or there is a lack of access to education and resources and lack of opportunities. Inequality of outcome is NOT inherently wrong. It depends on the causes and effects. (Please read the accompanying article, “What is economic justice?”, for a more detailed explanation.)

Regardless of the view on fairness and what policies might be needed to address excessive economic inequity, the historical fact is that economic inequality of outcomes is either natural, necessary or beneficial for societies and nations. This is our second proposition. Capitalism, entrepreneurship, institutional quality and cultural factors are the key drivers of national wealth and prosperity.

See also: Who speaks for the ‘squeezed and bruised’ middle class in Malaysia?

Why economic equality of outcome will not lead to economic prosperity

Among the developed countries, the US has one of the highest levels of income inequality. Yet, it remains the world’s largest economy and a leader in technology, healthcare and finance. Innovative people with massive wealth are responsible for creating world-changing companies, generating millions of jobs.

In 1978, China was a poor country and its people were largely equal. Following market reforms, 800 million people were lifted out of poverty — but inequality also skyrocketed.

On the other hand, absolute economic equality and state-controlled wages led to stagnation, low productivity, prevalent black markets, corruption and, finally, the economic collapse of the Soviet Union in 1991. Equality models like those in Cuba and Venezuela have seen brain drain and economic stagnation. Human resources is the single most critical asset of any nation, and forced equality inevitably leads to ambitious individuals leaving.

It is behavioural economics, rational self-interest. When individuals receive equal rewards for efforts or skills, there is little motivation to work harder, take risks or innovate. Enforcing the equality of outcome (rather than equality of opportunity) will lead to punishing high performers and rewarding low effort, leading to a decline in overall economic activity (and rise in stupidity). Meritocracy, on the other hand, encourages  excellence — where people are forced to strive for self-improvement.

If profits and rewards are distributed equally, why would entrepreneurs and investors take risks, start a new business and create jobs, opportunities and drive economic growth? Redistribution of wealth means government intervention, which leads to inefficiencies, bureaucracy, corruption and crony capitalism. In contrast, economic inequality of income and wealth leads to capital accumulation, necessary to fuel investments in businesses, technology and create jobs.

Of course, there is the other side of the equation. EXCESSIVE inequality can result in instability, social unrest and reduced opportunities for the poor. Without state intervention, inequality will continue to grow (yes, that is the nature of capitalism). And harms democracy and freedom itself due to state capture by the elites. Thus the need for strong and independent political and economic institutions, removing systemic barriers and corruption.

For more stories about where money flows, click here for Capital Section

These two sides of the ideological equation will always swing from one end to the other — first benefiting from “correcting” the excessiveness of the other ideology and then creating its own excessiveness, leading to a backlash and a swing to the opposite direction. This is our third proposition. Excessiveness of one ideology over another will create pendulum swings — for as long as the debate is between economic prosperity and economic  equality of outcomes. In the article “The economic pendulum swings”, we looked at how the pendulum has swung over the past six decades of history.

The year 2025 and beyond: What can we expect? Where will the pendulum be?

In our article published in this column on Nov 18, 2024, titled “The pendulum swings right: A pushback against liberal, progressive, interventionist economics”, we wrote of the strong anti-incumbent sentiment underscored in the results of recent elections around the world — over work and business opportunities, and the surge in inflation and cost of living. We saw the rise of right-wing politicians like Javier  Milei (Argentina), Giorgia Meloni (Italy) and Jordan Bardella (successor to Marine Le Pen in France), while the politics of the left are left weakened, in France, Germany, Austria and Japan. The conservative, nationalist, pro-business “illiberal democracy” of the right in Hungary, Türkiye and India have consolidated further. And, of course, the recent sweeping electoral victory for Donald Trump in the US (across gender, ethnicity, age, those from rural, suburban and cities, including black people, Latinos, Hispanics, Arabs and Asian Americans), and with the Republicans now in control of both the Senate and the House of Representatives. As we said in that article, Trump broke identity politics. He built a coalition of the working class against the college-educated, far-left liberal elites (whom the working class resented and see as out of touch). They voted for the economics of livelihoods, wages, employment, taxes, cost of living and immigration. For less government intervention and a smaller bureaucracy. And against what Trump called “creeping socialism”, in particular, against diversity, equity and inclusion (DEI), and environmental, social and governance (ESG).

The point is, it is not that DEI, ESG or any of the liberal ideas are offensive to the population. It is not that all immigration, all ideas of social inclusion and equality of income, all guard rails to innovation, all forms of taxes, are rejected. But it is the EXTREMISM, EXCESSIVENESS and the EXPANDING demands for such policies that triggered this pendulum swing, now to the right.

Besides a reaction to the extremism of the left, this swing to the right is reinforced by two events. With globalisation comes economic inequality among nations and regions, leading to rise in protectionism and nationalist policies, and governments introducing trade policies to prioritise local jobs.

The second is the rise of AI and automation and the gig economy. Their adoption will lead to greater prosperity overall, but inevitably, more inequality. Traditional jobs will be eliminated. Wealth will get more concentrated. At the same time, overall productivity will rise, leading to cheaper and better goods and services, and raising living standards.

The gig economy will grow but it reduces job security and increases financial instability for the lower income group (in the absence of pensions and health insurance). Even then, many jobs — be it driver, cashier, customer service officer and so on — will be permanently eliminated. This time around, even some white-collar professional jobs might get eliminated.

Of course, tech also democratises access to opportunities, finance and education. For instance, online learning platforms (such as Coursera and Udema) can deliver high-quality education at incredibly low costs. Remote work and the talent market allow workers from developing countries to access high-paying jobs in wealthy nations.

Even more importantly, we are at an inflection point where return on investment (ROI) gains will accrue to non-tech companies, as the users of tech as an enabler, instead of tech companies investing in more tech research and development (R&D). Technology is never an end in itself but a means to an end — an enabler for companies and people to use, to better themselves, to be more efficient, more productive, more profitable.

In other words, tech will be further democratised, serving the interest of the masses, instead of the tech companies and their expanding valuations. This is what we have articulated in many of our recent articles on our investment strategies for 2025. The breakthrough of DeepSeek is a “Sputnik” moment for US tech, a paradigm shift from investing in tech itself to investing in using technology, including AI.

What do the above trends imply to the economic well-being of individuals, of nations, to relative competitiveness, for jobs and wealth creation, and livelihoods? Who will thrive? Surely, the highly skilled workers in AI, biotechnology and fintech. The nations that invest in education, innovation and responsible capitalism will outperform. This is our fourth proposition. Nothing speaks louder to us than Joseph Schumpeter’s “creative destruction” at this point in history — that inequality is a necessary part of capitalist progress and that entrepreneurial success benefits society in the long run.

The temptation is always to find middle ground: a hybrid model, a balancing act between growth and equality. The right balance between wealth creation and preventing extreme disparities that can destabilise society. To combine market-driven growth with more social protection. However, history has proven that such balancing acts inevitably failed — underscored by the constant pendulum swings.

So, what other options are there?

Pursue BOTH economic growth and economic justice

Pursue BOTH economic growth and economic justice rigorously. This is our fifth proposition. Why? Because there is no contradiction, no trade-off to make. Inequality arising out of growth is justified if society is better off overall, if it benefits the least advantaged members of society (Rawlsian justice).

Singapore is likely the closest example of this version. It fully embraces growth, meritocracy, free market capitalism, free flows of capital, pro-business policies, competitive taxes, talent immigration, legal protection of intellectual property rights, strong institutions, intolerance to corruption and, at the same time, providing one of the world’s best safety nets — excellent and affordable (and highly subsidised) public education and healthcare, public housing for all, programmes for low-income citizens from cradle to grave.

The country promotes personal responsibility  while ensuring affordability. The country that appears moving in this direction is China. It is certainly meritocratic, with an excellent education and healthcare system, and recent attempts to weed out corruption. Yes, there are still missing elements like free flow of capital. It would be a tectonic shift to the global economic order, with tremendous opportunities but also frightening risks to those nations intent on getting tied down with the dichotomy of economic growth versus economic equality, unable to elevate their relative competitiveness.

The fact is the pursuit of economic equality of outcome — to reduce and eliminate economic class divisions by redistributing wealth, controlling means of production, and ensuring collective welfare — is the pursuit of socialism, which is inconsistent with growth or justice. To quote Karl Marx (Critique of the Gotha Programme [1875]), “From each according to his ability, to each according to his needs”.

Nations need to provide equal opportunities, not equal outcomes. To prioritise meritocracy and innovation, reskilling for workers to remain competitive, protection against crony capitalism and rent-seeking. Inequality that is justified and fair provides opportunities for all and allows for upward mobility. And as many jobs become permanently eliminated, and others require less time at work, some form of universal basic income will be needed (more people enrolled into social welfare programmes).

In other words, economic inequality of outcome is inevitable to embrace meritocracy and innovation, which are required to improve the standard of living for nations. The goals of all governments are to facilitate growth, create jobs and higher incomes, safety and fairness.

In a globalised and interconnected world, nations, especially small countries, do not have a choice. One either becomes relatively competitive or one suffers from lower and lower living standards, depreciating currencies, rising unemployment, low wages, lack of opportunities, attracting low value investments, perpetuating the talent drain, capital outflows and ultimately becoming a banana republic.

The real problem in realising this version is selling this narrative to the population. Being apologetic for inequality is not going to cut it. Every nation will need its own story. There is no one single template.

Why do politicians and media sell economic equality instead of economic justice?

First, equality is easier to measure and politically more appealing, whereas justice requires complex moral, ethical and structural considerations. Economic equality is simply reducing income and wealth disparity (the overused Gini coefficient); economic justice focuses on fairness in economic opportunities, policies and outcomes (perceived to be more subjective). But as we have already said, what is simple does not mean it is right.

Second, countries do not frame their policies in terms of “injustice” or perpetuating unfairness as nations seek social cohesion and legitimacy. It is easy for politicians to campaign on reducing wealth inequality with tangible policies like higher taxes on the rich, higher minimum wages or subsidised wages, or universal benefits. On the other hand, “economic  justice” requires deeper reforms and, more often than not, cannot deliver immediate or visible results. It is also harder to articulate.

Third, redistributing the wealth of the rich to gain favour with the public is always easier than creating new wealth that requires undertaking difficult structural changes (growth and jobs from investments and innovation, capital formation, legal, education and healthcare reforms, anti-corruption and anti-rent-seeking measures, enabling use of technology and so on).

Determining what is “fair” can also be politically divisive. And all politicians know their trade is about winning over — not splitting up — people against them. Plus, they operate on election cycles — which require quick, measurable impacts.

Good narrative (storytelling) is as important as good policies

We know there is no contradiction in pursuing economic growth and economic justice. We also know the pursuit of economic growth with economic equality of outcome is a contradiction. That the pursuit of economic equality of outcome is the wrong objective as it amounts to the pursuit of socialism (if we are willing to call a spade a spade). Yet, policies are always directed at and articulated for the purpose of pursuing economic equality of outcome — and we have expressed the reasons for this above.

Thus our sixth and last proposition. In this new age of social media, good narratives (or storytelling) are as important as good policies. We think the best way to explain what we mean is to use a recent real-world example.

Trump’s campaign promise of tariffs on all imports to protect and create jobs for Americans (which will also enable taxes to be lowered) is a highly populist articulation. It was very effective as proven by his resounding victory in the US presidential election. Yet, the fact is that such tariffs, if imposed, would effectively be a consumption tax, as the higher prices of these goods from the new tariffs will be passed on to consumers. Articulating import tariffs as a consumption (regressive) tax on the people to reduce corporate taxes would have been extremely unpopular. Instead, he sold this very pro-business policy of lower taxes that creates wealth but worsens economic disparity as pro-workers. Brilliant. His policies will promote economic growth without having to also promise equality of economic outcomes — and yes, they will also promote economic justice by raising investments, R&D, technological adoption, growth, relative competitiveness, wages, the US dollar and the standard of education, and reduce wastages, the size of government and government interference.

And, if the rest of the world reacts to the US tariffs by also imposing tariffs on US goods (like Canada just did), but continues to stay with the policies of the left — that is, by expanding fiscal expenditures using the tariff revenue instead of lowering personal and corporate taxes — to counter the slowdown in their domestic economy, it will play right into US interests. The negative consequences of a tariff war on the world will be mitigated and less severe — but will benefit the US and US companies, Making America Great Again (MAGA). It is why we think using tariffs as Trump has is a well-articulated strategy.

Great leaders cannot pander to popularism. Think Abraham Lincoln, Mahatma Gandhi, Nelson Mandela, Winston Churchill, Franklin Roosevelt and Deng Xiaoping. It requires clear vision, honesty, bravery, pragmatism, resilience, discipline, intelligence, humility and accountability. And now, great skills in storytelling. To quote Lee Kuan Yew, “If you can’t force or are unwilling to force your people to follow you, with or without threats, you are not a leader”.

We end this article by repeating the six propositions discussed above:

1. The world has wrongly chosen to focus on economic inequality of outcome when what matters is economic injustice (there are acceptable definitions). 
2. Economic inequality of outcomes is not inherently wrong. It can be natural, necessary or beneficial for societies and nations.
3. Excessiveness of one ideology over another will create pendulum swings — for as long as the debate is between economic prosperity and economic equality.
4. Nations that invest in education, innovation and responsible capitalism will outperform.
5. Pursue both economic growth and economic justice rigorously. There is no contradiction and trade-off.
6. Good narratives (or storytelling) are as important as good policies.

Box Article 1: What is economic justice?

We know “equal” can be defined mathematically, like 2+2=4, being the same in value. Equality in law refers to the principle that all individuals are treated the same under the legal framework. It does not mean equal outcomes, only that all individuals start from the same legal standpoint.

In economics, fairness and justice relate to how people are treated, how resources are distributed, how laws and moral principles are applied. It is a subject matter that can be as complicated or as simplified as one chooses.

In the interest of making this article more readable, we have assumed most of us can live with Rawlsian justice and equality as expounded in John Rawls’ book, A Theory of Justice (1971). He emphasises the principles of fair equality of opportunity (not outcomes) and the two principles to balance freedom and economic inequality.

The first principle of justice, Equal Basic Liberties, is where every individual should have equal fundamental rights (such as freedom of speech, religion and vote) that cannot be sacrificed for economic gain or even social stability. Why? If your starting position is you do not know your race, gender, intelligence, wealth or social status, you would rationally choose a just society that ensures equal fundamental rights of freedom. He called it the “veil of ignorance”.

Under the second principle, Fair Equality of Opportunity and the Difference Principle, people should have genuine opportunities regardless of their social or economic backgrounds. The Difference Principle justified inequality only if it benefits the least advantaged members of society (for example, high salaries for doctors are acceptable if their work improves society, especially the poor).

Rawlsian justice accepts some inequality but ensures that the system is fair and benefits everyone, especially the poorest. It seeks liberty, opportunity and fairness and allowing market-based incentives to drive progress.

The implications of Rawlsian justice in policy and society are progressive taxation, ensuring access and opportunities to public education and healthcare, and affirmative action to correct historical injustices and ensuring fair competition.

Other leading thoughts on the same subject that have influenced governments and decision-makers over the last 100 years include:

• Joseph Schumpeter (Capitalism, Socialism and Democracy [1942]), who introduced the idea of creative destruction, arguing that economic inequity is a necessary part of capitalist progress and that entrepreneurial success benefits society in the long run.
• Friedrich Hayek (The Road to Serfdom [1944] and The Constitution of Liberty [1960]), who argued that economic inequality is a natural outcome of a free society, and that government intervention can lead to tyranny.
• Milton Friedman (Capitalism and Freedom [1962]), who asserted that economic inequality is an inevitable and acceptable outcome of a free market, arguing that capitalism provides the most opportunities for prosperity.
• Robert Nozick (Anarchy, State and Utopia [1974]), who critiqued Rawls and argued for a libertarian perspective, individual rights and entitlement over redistributive justice.
• Hernando de Soto (The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else [2000]), who argued that the key to economic growth is not reducing inequity but ensuring property rights and economic participation for all.
• Joseph Stiglitz (The Price of Inequality [2012]), who examined how growing economic inequality harms democracy and economic stability.
• Charles Murray (Coming Apart: The State of White America, 1960-2010 [2012]), who argued that economic inequality reflects cultural and behavioural differences.
• Daron Acemoglu and James A Robinson (Why Nations Fail [2012]), who explored why some nations are wealthy while others remain poor, emphasising the role of political and economic institutions rather than inequality itself as the deciding factor.
• Thomas Piketty (Capital in the Twenty-First Century [2013]), who used historical economic data to argue that inequality grows unless countered by policies like a wealth tax.
• Thomas Sowell (Wealth, Poverty and Politics [2015]), who criticised the idea that inequality is inherently unfair, arguing that cultural, geographical and historical factors play a bigger role in wealth disparities than systemic oppression.

—— End of Box Article 1 ——

Box Article 2: Goodbye ‘China+1’ strategy

“My message to every business in the world is very simple: Come make your product in America and we will give you among the lowest taxes of any nation on earth. We’re bringing them down very substantially, even from the original Trump tax cuts. But if you don’t make your product in America, which is your prerogative, then, very simply, you will have to pay a tariff — differing amounts, but a tariff — which will direct hundreds of billions of dollars and even trillions of dollars into our Treasury to strengthen our economy and pay down debt. “We’ve been having massive deficits with China. Biden allowed it to get out of hand. He’s — US$1.1 trillion deficit. It’s ridiculous, and it’s just an unfair relationship. “And we have to make it just fair … The deficit is massive, as it is with other countries — a lot of Asian countries, actually. But we have deficits that are very big, and we can’t keep doing that, so we’re not going to keep doing that.”

Note: Excerpts from remarks by US President Donald Trump at the World Economic Forum in Davos, Switzerland on Jan 23, 2025. you can read the full transcript here: www.whitehouse.gov/remarks/2025/01/ remarks-by-president-trump-at-the-world-economic-forum/

The above statements from Trump should give investors pause. And, in particular, analysts and economists who think his tariff threats are a negotiating tactic and those who still believe in the “China+1” strategy, and that it will benefit Asean countries.

Yes, tariffs may well be a negotiating tactic, a way to leverage other countries to achieve his objectives (such as stopping illegal migrants or fentanyl at border crossings) and a way to reduce the country’s trade deficits that are the result of “unfair relationships”, as he terms it. And yes, China may have one of the biggest targets on its back. But we think that Trump may have just sounded the death knell on the “China+1” strategy as well. In fact, we have suggested this in previous articles.

If there is to be a universal tariff (as Trump has promised) and all countries seen to be “manipulating” their currencies to gain a competitive advantage (whether true or not) and running a trade surplus with the US are legitimate targets for even higher tariffs, then there is very little incentive for costly geographical reconfiguration of supply chains. Case in point: Mexico — a favourite near-shoring destination for US and global businesses — and Canada have already been hit with 25% tariffs this month. Notably, the Trump administration is expected to target businesses based on their ownership rather than location. Chinese-owned solar panel producers in Malaysia, exporting primarily to the US, are reportedly scaling down or shuttering with such increased scrutiny and tariff concerns.

We think Trump fundamentally believes that tariff is “the most beautiful word in the dictionary”. More importantly, we believe that Trump’s tariffs are a strategic tool, and not “crazy, mad, dumb” (or any of the adjectives being used in the media) economic policy. (We have articulated our reasons in the main article.) It is why a higher tariff of 25% has been levied on close allies and neighbours Canada and Mexico, compared with only 10% on China, and none on enemies such as Russia (where imports are minimal).

Trump sees tariffs as a source of revenue — he has proposed creating a new agency called the External Revenue Service to collect import tariffs and revenue from other countries — to fund his other major campaign promise, individual and corporate tax cuts, without blowing up the budget. Tariffs coupled with tax cuts are key to attracting investments and capital inflows. There are already early indications that they are working. Companies, including European multinationals, are reportedly considering relocating their production facilities and/or listing in the US, to circumvent punitive tariffs (plus get higher valuations for their stocks).

For a more detailed explanation on how Trump’s proposed policies tie together, please read our article “Innovation, earnings growth and ruthless capitalism will continue to drive US equities’ relative outperformance” published in The Edge dated Jan 27, 2025. They are, in combination, a rational and coherent set of capitalist-driven, America First policies — positive for the US economic and corporate earnings growth but detrimental to the rest of the world. Friends and foes alike.

—— End of Box Article 2 ——

Box Article 3: The economic pendulum swings

How the pendulum has swung over the past six decades of history:

1960s — Keynesian dominance and the welfare expansion

• Economic thought: Government intervention, focus on full employment, redistribution policies and public spending such as welfare programmes to reduce economic disparities.
• Policy and society: Expansion of the welfare state (Great Society in the US, post-war social democracy in Europe). Increase taxation on the wealthy to fund public services and social programmes. High government spending aimed at reducing economic inequalities.
• Shift in perception: Economic equality was seen as a government responsibility. High trust in state intervention, but concerns about inefficiencies started to emerge.

1970s — Stagflation and the crisis of Keynesianism

• Economic thought: Keynesian policies struggled to deal with stagflation (high inflation and unemployment — a direct result from the Keynesian policies of excessive spending and taxation). Consequently, theories of supply-side economics and monetarism (championed by Milton Friedman) gained traction, which suggest that government interventions caused inefficiencies, wastages and discourage private investments and economic growth.
• Policy and society: Governments attempted price and wage control but largely failed. Deregulation began as businesses and the public grew sceptical of state intervention. The oil crises of 1973 and 1979 exposed weaknesses in centralised economic planning.
• Shift in perception: A growing belief that government policies were inefficient, and that high taxation discouraged productivity. Economic equality became less of a focus. Instead, economic growth and stability took priority.

1980s — Rise of free-market policies (neoliberalism)

• Economic thought: Milton Friedman and Friedrich Hayek’s ideas dominated economic policy: free market, deregulation, lower taxes and privatisation. Reagonomics (US) and Thatcherism (UK)  emphasised that inequality was not inherently bad if it resulted from free-market mechanism.
• Policy and society: Tax cuts for high earners (Reagan’s 1981 tax cut, Thatcher’s corporate tax cuts). Deregulation and privatisation of industries (airlines, banks and telcos). Shift from welfare to “workfare” — reducing dependency on government aids.
• Shift in perception: Inequality became more acceptable if it led to higher overall prosperity. The idea that wealth trickles down from the rich to the poor gained popularity.

1990s — Globalisation, trade liberalisation, financial deregulation

• Economic thought: Driven by the spread of neoliberal policies, the world saw a proliferation of free trade agreements and rapid financial deregulations. Paul Krugman developed the New Trade Theory supporting free trade as the basis of economic growth. Jagdish Bhagwati argued protectionism harms economic growth. Jeffrey Sachs advanced globalisation as a tool for economic development in poorer countries.
• Policy and society: Welfare reform (Bill Clinton’s 1996 reforms encouraged work over welfare dependency), globalisation and trade liberalisation (Nafta, WTO) and the technology boom (the dotcom era) led to massive wealth accumulation but also growing wage disparities.
• Shift in perception: People accepted some level of inequality as necessary for growth and entrepreneurship. The focus was on “equal opportunity”, not “equal outcomes”.

2000s — Financial crisis and rising inequality

• Economic thought: By the early 2000s (especially after the 1997 Asian financial crisis), economists like Joseph Stiglitz, Dani Rodrik and Amartya Sen began to vocally call for regulations, safety nets and a more balanced approach to globalisation. The 2008 global financial crisis revived discussions on inequality and corporate regulations and governance. Those perceived as responsible were not held to account but bailed out. Thomas Piketty argued that uncontrolled capitalism leads to excessive inequality. The past three decades of deregulation, privatisation, globalisation and free market economics also led to excessive private sector borrowings, aggressive bank lending, volatility in exchange rates and inflated asset valuations, which resulted in the financial collapse.
• Policy and society: Bank bailouts and government stimulus (TARP, quantitative easing). Wealth and inequality debates intensified (Occupy Wall Street movement). Shifts towards progressive taxation proposals (and ultra-left views of Bernie Sanders and Elizabeth Warren).
• Shifts in perception: Public scepticism towards big corporations and the ultra-rich. The trickle-down theory of wealth rebutted. Renewed focus on regulating capitalism to prevent excessive inequality.

2010s to 2024 (?) — Inequality versus innovation debate and ‘progressive inclusivity’

• Economic thought: Universal basic income (UBI) ideas emerged (Andrew Yang). From the Silicon Valley, AI and automation raised concerns about wealth concentration. Popularism on the left (socialism) and right (nationalism) fuelled debates over wealth distribution. Rise of the “woke” culture, immigration (including illegals) to Europe and North America, social liberalism (he, she and “they”), and the “enforcement” of social, intellectual and legal pressure to accept everything labelled as “progressive and inclusive”.
• Policy and society: Tech billionaires and monopolies (arising from network effects) became central to the discussion on inequality. Rise in social policies like wealth taxes and minimum wage hikes. Rise in ESG (environmental, social and governance) investing and shifting focus to social responsibilities. Governments heavily concerned and interfered in issues of diversity, inclusivity, even in university admission, workplace employment and so on.
• Shift in perception: Economic inequality is still debated but growth, innovation and opportunities are increasingly critical, in a globally competitive world. Governments need to reconsider wealth redistribution policies — not to harm economic incentives.

Summary

Over the last six decades, we saw the evolution from Keynesian interventionism to free-market capitalism and, more recently, back towards the extreme left of “progressive inclusivity”. Does the solution lie in finding the right balance between allowing wealth creation and preventing extreme disparities? Or are such pendulum swings inevitable, given human nature?

How did we get to where we are today — where societies are being forced to accept extreme liberalism (some would argue bullied into acceptance by law and social pressure) on equality, diversity, progressive inclusivity and the “woke” culture?

The genesis likely came from the Civil Rights Movement of the 1950s-60s, in the push for racial and gender equality; the Second Wave Feminism of the 1960s-80s in advocating for workplace equality; Affirmative Actions of the 1970s-present, where governments introduce policies to correct past discrimination; Globalisation of the 1990s-2000s, where companies expanded internationally leading to multicultural workplaces; Social Media and Activism since the 2010s, where platforms like X and Facebook amplified progressive social movements (#MeToo, Black Lives Matter); ESG investing since 2010s where institutional investors began to prioritise responsible business practices (whether real or as an economic tool against competitors).

These led to government legislation on anti-discrimination and diversity quotas; corporations adopting diversity, equity and inclusion (DEI) initiatives to avoid public ridicule and boycott; media and academia promoting inclusivity and social justice as essential values; and investment trends by large financial institutions supporting the above initiatives with their money. Ultimately, money talks.

But there are economic costs and consequences. Emphasis on identity-based hiring and promotions lead to inefficiencies and declining productivity from lower morale and workplace cohesion. Identity-based placements in universities lead to brain drain, lack of innovation and overall lower performance. Billions are spent on compliance costs on ESG, DEI and bureaucratic oversight. Government interferences affect companies’ optimal strategies, operations, capital allocation and profit-maximisation objectives. The cost to this excessive government intervention means more tax money must be raised from private companies and higher taxes on individuals, discouraging work, investments and job creation. This is the main cause for the current economic stagnation and decline in Europe — where regulation is the primary obstacle to competitiveness.

Every action leads to a reaction. Every policy has positive and negative consequences. And motion creates its own momentum, which is difficult to stop. But ultimately, it always does. And when it does and reverses, the pendulum then swings the other way. The year 2025 looks like such an inflection point.

Incidentally, the World Bank provided a contrasting view to ours in its February 2025 report highlighting the need to reduce inequality in Malaysia, including higher taxes to fund more social spending. It also noted rising inequality not between ethnicities but within the bumiputera community. We wrote about this back in 2023 (scan QR). The reason for this inequality arises from state capture and rent-seeking – it is no secret.

—— End of Box Article 3 ——

The Malaysian Portfolio rebounded 1.9% for the week ended Feb 5, after the broader market sell-off in January. Gamuda (+8.7%), KSL Holdings (+3.8%) and IOI Properties Group (+3.4%) were the top gainers  while UOA Development (-0.6%) was the only loser. Total portfolio returns now stand at 194.9% since inception, outperforming the benchmark FBM KLCI, which is down 13.9% over the same period.

The Absolute Returns Portfolio was up 5.6%, lifting total returns since inception to a record high 27.1%. The top gainer for the week was Palantir, up 27.1% after a huge earnings beat, guidance and outlook, and analyst upgrades. The only losing stock was Grab, down 4.6% due to uncertainties regarding the Grab-GoTo deal.

Disclaimer: This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell stocks, including the particular stocks mentioned herein. It does not take into account an individual investor’s particular financial situation, investment objectives, investment horizon, risk profile and/ or risk preference. Our shareholders, directors and employees may have positions in or may be materially interested in any of the stocks. We may also have or have had dealings with or may provide or have provided content services to the companies mentioned in the reports.