What happens when wealth is too concentrated?
We all know some of the worst problems associated with the overconcentration of wealth. You end up with widespread poverty and its associated ills. Plus the difference between the Haves and Have-Nots creates anger, resentment, and potentially even violence and revolution. Looking from the perspective of society at large, none of these outcomes are good. When you get to the point of revolution, it's like hitting the "reset" button: the chaos and violence is likely to result in a loss of knowledge, and a painful reversal of the slow progress that naturally comes with stability. It's like going back in time by several decades or more. But what is worse is to know that the revolutionaries who are now in power will most likely make the same mistakes as those previously in power. Today's revolutionary is tomorrow's oligarch.

But there are other impacts that may be less obvious. When wealth is concentrated, opportunity is also concentrated. For example, if you are poor and without collateral or income, you will not be able to get the loan that might allow you to be come a successful business person and productive member of society. This concentration of opportunity is intrinsically bad for a society. In the same way that having a state monopoly results in lower creativity, innovation and productivity than a (truly) open market place, having opportunity concentrated in the hands of a relatively few people undermines the creativity of a society. What is worse, is that having resources too concentrated results in an elite that does not want to innovate at all, choosing to spend their money on their own comfort rather than the advancement of society that comes when competition is more widespread.

There was some argument for concentrated wealth in the past due to high coordination costs: many people with a small amount of money would spend too much of their money simply on coordination to be able to accomplish much. But with the rise of the Internet Age and modern communications technology, coordination costs are much lower than they ever have been. People can pool their resources and act together in ways that only 10 years ago were impossible.

Concentrated wealth also adversely effects financial markets, and through those markets the societies that depend on them. This happens in a few ways:
1) When wealth is controlled by a few, especially a few that share a set of interests and worldview, that wealth will be overinvested in some areas and underinvested in most areas. The collective blindspot of these investors results in missed opportunities and a reduced overall return.
2) Concentrated wealth also results in exacerated boom and bust cycles that destablize societies and undermine progress. Those investors who think more alike than the general population chase the same limited number of investment opportunities. As a result, too much money flows into this small number of opportunities creating a bubble which must burst and correct. As money leaves that investment, it then all migrates to the next best investment in the view the few investors and the process starts all over again.
3) When wealth is controlled by too few, the sums of money that must be invested are large and the amount of due dilligence that can be done is relatively small. As a result, money is overinvested in a few large projects that can absorb that amount of money. This reinforces the concentration of wealth.

Imagine how things would be different if instead of the top 2% if households controlling 50% of the weath, every person had his or her proportionate share. Think about how much more investment there would be in places like Africa, India and China. Think about how much more savvy the distributed investment decisions of a million Africans in Africa than 5 Americans in America for Africa would be. Perhaps not at first, but coming very quickly as they learned together. Think about how it would transform those places from the bottom up, creating positive reinforcing cycles of investment and development and exponential gains. Think about how it would reduce corruption as money started to channel through many hands rather than a few. Think about the creativity that would result as more minds were applied to more problems. Think about how the newfound stability, prosperity and self-determination in those regions would reduce their hatred of the developed world and the terrorism that inevitably comes with the deadly combination of incredible anger and incredible inequality.

And all it would require is simply redistributing wealth more broadly. How to do that, I don't know. But perhaps it could start with the large aid agencies and the UN and then ripple out from there. Perhaps the money could be used to provide a guaranteed mimum wage rather than handouts. This is an idea originally propsed by Rev. Martin Luther King Jr. Those large agencies may have the potential to create a tipping point that would start to unwind the concentration of wealth rather than reinforce it. It would mean a lot of lost development jobs for people in the developed world, but that's what's needed if we are serious about change.