Trickle-down economic structure is an old song in the playbook first proposed by Reagan in 1980s. This is where the government grants tax cuts to the wealthy to stimulate investments which in turn creates employment. In my opinion, this approach is derogative in its form as it allocates wealth to a handful and makes employees dependent on government and a few fortunate corporations to earn and pay their debts. This economic structure thrives where captains of industries influence legislation and governance. It is the perfectly explains why industry tycoons influence politics.
Regimes such as that of former American president Donald Trump created an enabling environment for the rich to participate more in making a nation’s wealth by taxing them a little less. This, which is otherwise referred to as horse and sparrow theory suffocates middle and small players in a country such as Kenya who’s dominant population is the middle class. This middle and majority class drive and sustain the whole economy. When it is left out in a trickle-down economic structure it may result into huge poverty gaps and limit economic democracy.
Attempts to allocate money to the poor may prove futile as we cannot really predict what someone can do with their money. Who thought it was a good idea to give the rich a tax break assuming they will put the money back to their business? The rich may not reinvest the cash back to the business and may opt to hold it in their bank accounts. This will make it easier for banks to offer loans to startup businesses at lower interest rates which in turn indirectly stimulates investments among the middle-class. The rich consume less and save more as opposed to the middle class. Ultimately money lands in the hands of the rich.
No government can control all the variables of a free market. If the government focuses on eliminating corruption among the rich at the top of a trickle-down hierarchy and create an enabling business environment, everyone benefits albeit measure. If the government tries to control market dynamics all are worse off. Until we accept this, we will be erroneously stuck assuming we can manage an economic outcome that will only lead to failure.
Daisy Tum | Columnist, IGBR