Turning the Tables On COVID-19: How the Wealthy have Defied the Odds

Anastase Maragos/Unsplash
Anastase Maragos/Unsplash

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Billionaires increasing their wealth despite the pandemic is not something retrenched workers would like to hear. But the reality is that, while the global economy has taken a dive into the Mariana Trench ā€” the worst recession since World War II ā€” moguls and capitalists alike have not only secured their footing but have also witnessed seemingly mysterious improvements in their own net worth.

The upper hand

The unequal bailouts in the US in 2008 are to blame for the perpetuation of wealth-accumulation by the elite.

In 2007, the subprime mortgage crisis spurred Congress to pass the Emergency Economic Stabilization Act (EESA) which unfroze the credit and capital markets, and lowered borrowing costs for both households and businesses.

At the same time, the Troubled Asset Relief Program (TARP), which was the actionable initiative under the EESA, gave the Treasury secretary the power to purchase up to $700 billion of toxic assets from banks, essentially cushioning the irresponsible lenders from the devastating fallout of their actions.

In stark contrast, homeowners received only $75 billion under the Home Affordable Modification Program by the Obama administration, almost 11% of the support given to the biggest perpetrators of this messy crisis.

The result? When the stock market rebounded, the wealthy had much more money than homeowners to invest and therefore profit, leading to the combined wealth of billionaires in the US to increase by more than 80% by 2020 and a drastic widening of the rich-poor gap.

Lack of wealth tax

The abolition of the tax on wealth in India in the Union Budget of 2016-17 may be a very good reason as to why the countryā€™s 100 richest became wealthier despite COVID-19.

According to the Hurun India Rich List 2019, the 953 richest individuals in India, each assuming a hypothetical average household size of five, would only constitute 0.0004% (rounded up) of all Indian households, yet they would hold Rs 50.3 lakh crore (or Rs 50,300,000,000,000).

To put into perspective just how wealthy these individuals are, a uniform marginal tax rate of 4% on their combined wealth would result in an amount that is slightly more than 1% of Indiaā€™s GDP.

Innovators and disruptors lead the way

A trend soon emerged when observing the list of Indiaā€™s 100 richest who gained wealth amid the pandemic: tech billionaires (like Shiv Nadar) and pharmaceutical entrepreneurs (like Cyrus Poonawalla and Kiran Mazumdar-Shaw) profited while real estate tycoons (like Kishore Biyani, who is the founder of Future Group, a conglomerate offering financial services and owning retail chains and outlets) were at the losing end.

This is supported by the fact that, in APAC, billionaires who are innovators and disruptors increased their wealth by a tremendous 23%, with those in the tech sector growing their wealth by 5.7 times over the last decade, while those in the financial services sector only grew theirs by 2.3 times.

Mr Anuj Kagalwala, the wealth management tax leader of PwC Singapore, explained that the pandemic had widened the rift between innovators and disruptors in the tech, healthcare and industrial sectors, and the others. He also concluded that technology and innovation were the ā€œkey ingredients for wealth creationā€, as evidenced by the relatively faster growth of ā€œsectors which have better adapted to technology and innovationā€ compared to that of the financial services sector, which ā€œis seen to be a slower adopter of technology and innovation than other sectorsā€.

What can the average Singaporean learn from booming industrialists?

  • Be ready to innovate. There is no doubt that pandemics in the course of history have forced major rethinks and breakthroughs from SARS and the flourishing of eCommerce outside of China, to the Great Plague and a greater emphasis on workersā€™ rights. Similarly, COVID-19, too, will act as a catalyst for yet another paradigm shift: companies valuing worker productivity over workplace presence. Employers will have to trust their employees more since there is minimal supervision than before. Employees will have to make their workstations at home ergonomic and distraction-free so that they can fully utilise their work hours.
  • Move on your feet to where the demand is. Pharmaceutical companies like Pfizer have been contracted by governments to develop COVID-19 vaccines; fashion brands have also turned to the supplying of masks to meet the global shortage, as a way of staying afloat.

 

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