This article first appeared in The Edge Malaysia Weekly on February 10, 2025 - February 16, 2025

This question and other similar ones, such as innovation versus inequality, meritocracy versus redistribution, individual freedom versus state intervention, economic prosperity and inequality, and fairness and incentives, have been debated for centuries. In fact, more than 2,000 years ago, Aristotle (384 BC–322 BC) was reported to have said, “The worst form of inequality is to try to make unequal things equal.”

We would argue it is the central premise of philosophy, politics and economics. It affects the livelihoods of everyone now and into the future, it defines our beliefs, history, values and culture. Huge volumes of books and literature have been written, by some of the best and brightest. Governments all over the world have risen and fallen on this very question. Here are a few contrasting quotes by some of the greatest minds to provide the context, such as Friedrich Hayek’s “... a claim for equality of material position can be met only by a government with totalitarian powers”; Milton Friedman’s “A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both”; and the opposite view, by John Maynard Keynes, “Capitalism is the extraordinary belief that the nastiest of men, for the nastiest of reasons, will somehow work for the benefit of all.”

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 . (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.

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.

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 This is our second proposition.

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.

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. 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.

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

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. 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.

— to reduce and eliminate economic class divisions by redistributing wealth, controlling means of production, and ensuring collective welfare — . To quote Karl Marx (Critique of the Gotha Programme [1875]), “From each according to his ability, to each according to his needs”.

. To prioritise meritocracy and innovation, reskilling for workers to remain competitive, protection against crony capitalism and rent-seeking. . 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, .

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.

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.

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