The Economic Impact of the Affluent

In his magnum opus, The Wealth of Nations, published in 1776, Adam Smith explains how nations generate wealth, constructing the core of classical economics. The pioneer economist coined the term ‘invisible hand’, arguing that individuals acting in their self-interests accumulate and inadvertently benefit society and the economy. Using Smith’s belief, it can be blatantly concurred that successful business people play a crucial role in the development of society. However, this assumption would be ignorant of the market monopolisation, income inequality, and labour exploitation accentuated when successful individuals make money or the overt influence and power they gain by spending this money, among other things.

It then becomes questionable whether the pros of successful business people's actions necessarily outweigh their cons. Thus, this article investigates the two-coined impacts of such individuals’ economic activities on society, using several relevant cases to weigh and conclude the importance of such actions in the status quo. 

However, how do we gauge a businessperson’s success? Think of companies run by “successful business people,” and giants such as Elon Musk’s Tesla and Jeff Bezos’ Amazon come to mind. 

In the context of the question, “others” can refer to a range of individuals, groups, or organisations positively affected by their business activity. When successful individuals make money, this could include employees, consumers, investors, and suppliers. When these individuals spend their money, the most probable stakeholders are service providers, industries catering to personal spending, and beneficiaries of philanthropic efforts. Moreover, all actions of the successful entrepreneur would reflect on the government, society, and the economy at large.

Primarily, successful entrepreneurs benefit “others,” or the identified stakeholders through their business activities, that is, when they make money, which is essential for economic growth. Firstly, consumers will have to spend less to purchase products due to a price decrease, and there will be a greater availability of goods and services. 

Successful business people often need to expand their firms and hire new workers in a scenario with increased production and an extension in demand. This would lead to a decline in unemployment levels, and employees’ wages would rise as they compete for skilled labour, which is a limited resource. They will also be offered better working conditions and job security and be enrolled in skill training programmes — fringe benefits that benefit the employee’s prospects. Companies pushing towards full employment will solve one of the government’s five main macroeconomic objectives alongside economic growth and price stability.

Quantitative research has also supported the previous claim that a firm’s revenue generated through production and job creation is positively correlated, as evidenced by Tesla’s statistics on the relevant matter over the past years. Notably, Tesla amplified its hiring process during the 2022 recessionary period, marked by mass layoffs in the technology sector following the COVID-19 pandemic, welcoming 29,000 employees, a 22% increase from 2021. This aided many severely affected individuals or “others” by the pandemic’s aftermath. 

Furthermore, this increase in employee income would correspond to an increase in aggregate demand as employees, in the form of consumers, would be more willing and able to buy more goods or services at any price. 

Shareholders also earn high returns on investment on dividends due to this increased business activity, and the increase in the firm’s market value may result in capital appreciation if investors hold stocks in the firm. Suppliers also witness an increased demand for their raw materials, helping them secure long-term contracts with firms. They can also use economies of scale by supplying their raw materials in large quantities, lowering production costs. Therefore, “others” are directly or indirectly catered to in the process of successful individuals running their businesses and making money from it.

Opponents of this restless drive of successful business people to earn money may believe these individuals often go out of their way to fulfil their illusive desires. They argue that this quest only culminates in environmental harm, labour exploitation, competition stifling, and a limitation in social mobility due to income inequality. However, such effects are not exclusively due to successful business people’s actions, and any person running a business would find themselves amidst such raised concerns. 

Secondly, in the process of growing their firm and making money, successful business people drive innovation (most of which is now sustainable) because it is unique and effective products that stand out to consumers and carve their place in today’s competitive market. Moreover, innovation can only be derived from ingenuity in areas of opportunity, noticing the shortcomings in an industry or a region, and changes in people’s market preferences or perceptions. Take the example of Netflix’s pioneering streaming innovation in this regard. We see that it was no easy task to become a successful company, and this was only possible because Netflix’s innovation solved an unrequited consumer demand in a lacking industry.

While opponents, in such a situation, would regret the fallout of renting and Blockbuster, “others” greatly benefited from this paradigm shift. For instance, consumers now had a range of services to choose from, which were of higher quality and comfort. The industry also thrived after the revelation as more companies began to indulge and explore its scope. Currently, we see more than 200 specialised streaming services available worldwide. 

Lastly, individuals’ success results in their companies paying a higher income tax (as most countries work on progressive taxes) and corporate tax revenue to the government. This helps the economy prosper as the governments utilise the money for several purposes. These taxes also help the government provide subsidies to firms that produce goods with positive externalities and, in turn, boost employment in such sectors. India’s Reliance Industries Limited and Tata Group serve as prime examples of this, wherein increased business activity warranted a cumulated 4.16% of the total corporate tax revenue of the country, which resulted in better highways and infrastructure and groundbreaking space missions. Additionally, India’s newly imposed tax slab for the fiscal year 2023-24 also reinforces that these successful individuals bear the burden of underpinning the entire economy, with people below the annual income of Rs. 3 lakh not even expected to pay taxes. 

In all, successful business people are the pillars of an economy, and it would be unfathomable for society to function without them, given the risks mentioned above to job creation, consumption, price stability, economic growth, and innovation. So, while it can be that these individuals’ financial desires and spending are uncontrollable, it would be harsh to rule out their positive contributions, which far outweigh their drawbacks, whether unintentionally or otherwise. However, it can be helpful for governments to monitor and regulate the activities of such individuals from time to time, including taxing the sale of demerit goods and ensuring that their money is injected into the economy effectively, which will help successful business people be acknowledged as the sine qua non in the lives and functioning of “others”.