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Why do the rich get richer and you still don't make it to a fortnight?

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October 26, 2020 15 min read

This article was translated from our Spanish edition using AI technologies. Errors may exist due to this process.

Opinions expressed by Entrepreneur contributors are their own.

* This passage is part of the book “Why the rich get richer (and you still do not reach a fortnight)”, by Francisco García Pimentel and Salvador Manzano, Panorama editorial, which is published in November 2020.

Go with this unfair world.

This is the image I want you to have in your head: this world is an ocean.

You are in the ocean working hard. You have a little boat with oars. You have decided that you want to go to a certain distant island. That is your goal.

Since you have prepared yourself in rowing school, that’s what you know how to do: row. Every day, every week, you row and row. And yes, little by little you see how that island that seemed distant appears closer and closer. You are doing it very well.

Since you want to get there faster, you decide to row not eight, but ten hours a day. It’s what you do best… and your rowboat starts to go faster. When you have a thousand meters to go (it seems so close!) You are a little exhausted, but you keep rowing.

Suddenly, without warning or asking for permission, another boat approaches and begins to catch up with you.

That boat is so much faster! Not necessarily bigger than yours, but definitely faster. That is not possible! You tell yourself. Surely the man who paddles in that boat has arms of steel; maybe it’s Schwarzenegger. As it passes you by, you stop rowing a bit to see who is coming in the boat.

But it is not Schwarzenegger. He’s a much younger boy than you … and he doesn’t seem any stronger. If anything, you could use a return to the gym.

But that’s not the worst. You can barely get a good look at him (he’s going too fast) but it seems like this boy… he’s not rowing! He is apparently reading the newspaper while having a Martini.

  • The boy is a millionaire.
  • He’s not smarter than you.
  • It is not stronger than you.
  • He does not row more than you.
  • He does not row with better technique than you.
  • His boat isn’t even that big.

In less than three minutes it reaches you and leaves you behind. It is clear that he will reach the island before you. And without sweating a drop.

How is this possible? He is surely cheating.

First change. Row more.

That can’t stay like this! You tell yourself. The world is unfair and I want to get to the island.

“My parents told me that I could get to the island that I wanted. I know I can do it. And why shouldn’t it? I deserve success and wealth. That boy is no better than me. “

So you are determined: to the island!

Now you are going to put all the meat on the grill. Row faster! And not just ten, but twelve hours. Stronger, more decisively, with more concentration. You can do it. Your boat starts walking a little faster. But now (what time did this happen?) You are not alone in the boat. Now there is a family. You also have two children. Your boat weighs a little more.

Well, what else can you do? You have to row more! Not twelve, but fourteen hours . I already know it! You tell yourself You have to work smart and take advantage of my full potential.

So you tie two oars to your feet. Now you are rowing with hands and feet, with all your effort and dedication. You do it out of love, you do it out of conviction, you do it because you can do it!

But what happens now brings you down. There come your childhood friends, in their respective boats. They catch up with you and leave you behind. They go like flying. Now they are all about to reach the island… and you realize that you have been rowing in circles.

You are exhausted, destroyed. You cannot move a muscle. And that’s not the worst.

Something has happened to your boat. It is letting water in. It is urgent to get to the island! Your children’s feet are wet. With one foot you try to cover the hole while with both hands (and your remaining foot) you continue to paddle furiously.

Eventually you realize that you will never make it to the island. There is only one option left. Keep the hole just covered, and keep rowing with the strength you have left.

Because that’s the only thing you know how to do. Row.

Every day, every day, other boats catch up with you and leave you behind. Eventually your children grow up and take some boards from your boat to make other boats. And they start to row too. Where? It doesn’t matter anymore. What matters is to keep rowing. That is your destiny.

Along the way, you realize that some people in the ocean don’t even have a boat. They barely float on a life preserver.

“At least I’m better than them. I have my boat and I know how to row. What more can I ask for? “

The Sailor’s Council

One morning when you row with your head down, you see a boat approaching out of the corner of your eye. “One more, what does it matter now?”

But this boat stops by your side, and greets you.

– Hi friend! How are you?
– Okay, here, paddling. You see how everything is. It’s very difficult.
– But… don’t you want to get to the island? I see you lost.
– Maybe someday. If I keep rowing, I’ll get there eventually, won’t I?
“Not with that boat, my friend,” says the mysterious sailor.
– It’s the boat that touched me. It’s the one they gave me … – you say.
– Yes, but you can change that boat, if you want.
– For a bigger one? For what? It would be even more tiring to row.
– But haven’t you noticed?
– Account of what?
– Look up!

With work, you look up, and finally see the sailor’s boat. It is a large boat, made of fine woods and carved in gold. It is a beautiful boat.

– Ha! –You say- are you making fun of me? I can never have a boat like that. Also, I don’t need those luxuries.
– Friend, says the sailor, you are not lifting as high as you should. You are seeing only what is seen from below. Look above!

With an even greater effort, you lift your gaze as high as you can, until you almost flipped onto your back.

Oh God. This you did not expect.

The sailor’s boat has a small mast, and on that mast … a sail … a sail. A candle!

– Now you see, my friend. I wish you all the luck in the world. See you later!

While saying this, the sailor pulls a rope, hoists the sail again and disappears over the horizon in a few seconds.

Now it is clear what you have to do.

Second change: Build the sail

The day feels cooler. For the first time, you feel the wind blowing hard. Until now the air did not drive you; it was just a need to breathe. From now on, the wind will set you free.

For the first time in decades, you stop rowing. It is time to change the strategy .

With a log from your boat and your own shirt, you spend most of the morning building a small sail. The candle drops several times, breaks and you are left without a shirt . But you keep trying.

That day even the rowboats leave you behind. They greet you and go straight ahead, and they feel sorry for you, because you are not rowing. What will become of your life if you don’t row every moment?
Not one, but three days it takes you to install a first –and very rudimentary- sail for your boat. You have almost run out of wood, no shirt and no pants . But that does not matter.

You feel what you have never felt before: your boat is moving without you rowing. First timidly, then gently, your boat moves, yes sir!

Now you have time and your hands free. You start to figure out how to make a bigger candle . You stop to chat with other sailors and exchange your shoes for more fabric. Now your boat walks faster. Much faster.

Before you know it … you’ve reached the island you dreamed of.

Yesterday seemed impossible. Now you did it in record time. On the island you rest, enjoy yourself and get a new shirt. And more fabric.

Beyond the island

It is only until you have reached the island that you realize that if you go up the mountain, the ocean is vast and there are many more distant and larger islands.

On the island you meet more sailors! All of them have discovered the secret. Their boats have sails and they can go wherever they want.

In a few days you are back in your boat. You now have a much larger candle and you are thinking of putting two in it. It has stronger wood, larger size and even some comforts.

You still spend a week building a better boat; But you don’t have to row all day, and you can spend time with your kids.

At last you jump into the sea, in search of a new island. Your boat is so big that you even employ several people. Surely you have to steer the wheel, and sometimes row if necessary. But you know that day and night, at any moment, your boat keeps walking because it does not depend on your arms, but on something much more powerful, and that it is there for everyone: the wind .

You don’t push your boat. The wind does it. You just take the helm. You are not breaking any rules. On the contrary: now you know the other rule: that of the rich.

One morning when you float to a new island, you find a dying man in the middle of the ocean in a small rowboat. He is rowing with all his might, but it is evident that he cannot do it anymore.

– Friend! –You say – you can change that boat if you want!

The rules of the rich

The parable is clear.
The poor don’t have boats.
The middle class has rowboats.
The rich have sailing boats.

That’s the sailor’s rule.

In order to get rich, the sailor in the story had to abandon what he had been taught – work, work, work! – and use his creativity to build a boat with sails strong enough to take it around the world.

The poor are desperate trying to stay afloat; they cannot see the sails of the boats; and they only suffer when they pass by.

The middle class has their own rowboats, and with downcast eyes they row without stopping, certain that this is the way to the island. They are lost and exhausted in a race they can never win.

The middle class is adept at rowing. They take courses to row better; they look for bigger oars. They exercise their arms constantly. And they row until they literally die of exhaustion .

In this parable the ocean is the world; air is money.

Everyone needs air to live. But while some use it just for that – to survive, others use it to push themselves and go further.

Those who do not have a boat – even if it is a rowboat – cannot decide where to go. They are people without freedom who cannot see beyond a few meters, who are carried away by waves, tides, currents, eddies. Sometimes they dive in, out of exhaustion, and stick their heads out just to breathe a little.

Those who do have a rowboat – the middle class – have a certain freedom, security and autonomy. Without a doubt, they are better than those who float without a boat. But this boat has serious limitations, since it can only move through the direct work of its owner.

If the owner rests. If the owner sleeps. If the owner takes a vacation. If the owner gets sick … the boat stops and begins to drift.

Debts – the water that enters the boat – only make it heavier, slower, and distract the person pushing the boat; who has to cover the hole with one hand and keep rowing with the other. Furthermore, if they are not controlled or eliminated, they end up sinking the boat.

The people who have sailboats, meanwhile, are on another level. They move faster; they can go further; they have more free time and greater decision-making capacity. They can also take risks and change course if necessary. They have tranquility and, more than anything … they have a wind that always pushes them. They are not rowers; They are captains and have taken the helm of their boat.

The boat continues to walk towards the island. Although the captain rests; sleep or be sick. Even if the captain plays golf or chess; the boat goes on.

The captain cannot disappear entirely. It is he who is at the helm; the one who directs the sails; the one who gives the orders and the strategy to keep the boat in good condition. The captain takes care of his boat, because the boat takes care of him.

In the world of boat owners, there are boats of all sizes. There are small and discreet sailing boats. There are gigantic sailboats, ocean liners. Some are made of wood and some are bathed in gold. There are boats that are nowhere near looking like planes.

In any case, a sailboat, no matter how small, will always go further than a rowboat.

Forever.

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The Trump campaign celebrated a growth record that Democrats downplayed.

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The White House celebrated economic growth numbers for the third quarter released on Thursday, even as Joseph R. Biden Jr.’s presidential campaign sought to throw cold water on the report — the last major data release leading up to the Nov. 3 election — and warned that the economic recovery was losing steam.

The economy grew at a record pace last quarter, but the upswing was a partial bounce-back after an enormous decline and left the economy smaller than it was before the pandemic. The White House took no notice of those glum caveats.

“This record economic growth is absolute validation of President Trump’s policies, which create jobs and opportunities for Americans in every corner of the country,” Mr. Trump’s re-election campaign said in a statement, highlighting a rebound of 33.1 percent at an annualized rate. Mr. Trump heralded the data on Twitter, posting that he was “so glad” that the number had come out before Election Day.

The annualized rate that the White House emphasized extrapolates growth numbers as if the current pace held up for a year, and risks overstating big swings. Because the economy’s growth has been so volatile amid the pandemic, economists have urged focusing on quarterly numbers.

Those showed a 7.4 percent gain in the third quarter. That rebound, by far the biggest since reliable statistics began after World War II, still leaves the economy short of its pre-pandemic levels. The pace of recovery has also slowed, and now coronavirus cases are rising again across much of the United States, raising the prospect of further pullback.

“The recovery is stalling out, thanks to Trump’s refusal to have a serious plan to deal with Covid or to pass a new economic relief plan for workers, small businesses and communities,” Mr. Biden’s campaign said in a release ahead of Thursday’s report. The rebound was widely expected, and the campaign characterized it as “a partial return from a catastrophic hit.”

Economists have warned that the recovery could face serious roadblocks ahead. Temporary measures meant to shore up households and businesses — including unemployment insurance supplements and forgivable loans — have run dry. Swaths of the service sector remain shut down as the virus continues to spread, and job losses that were temporary are increasingly turning permanent.

“With coronavirus infections hitting a record high in recent days and any additional fiscal stimulus unlikely to arrive until, at the earliest, the start of next year, further progress will be much slower,” Paul Ashworth, chief United States economist at Capital Economics, wrote in a note following the report.

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Black and Hispanic workers, especially women, lag in the U.S. economic recovery.

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The surge in economic output in the third quarter set a record, but the recovery isn’t reaching everyone.

Economists have long warned that aggregate statistics like gross domestic product can obscure important differences beneath the surface. In the aftermath of the last recession, for example, G.D.P. returned to its previous level in early 2011, even as poverty rates remained high and the unemployment rate for Black Americans was above 15 percent.

Aggregate statistics could be even more misleading during the current crisis. The job losses in the initial months of the pandemic disproportionately struck low-wage service workers, many of them Black and Hispanic women. Service-sector jobs have been slow to return, while school closings are keeping many parents, especially mothers, from returning to work. Nearly half a million Hispanic women have left the labor force over the last three months.

“If we’re thinking that the economy is recovering completely and uniformly, that is simply not the case,” said Michelle Holder, an economist at John Jay College in New York. “This rebound is unevenly distributed along racial and gender lines.”

The G.D.P. report released Thursday doesn’t break down the data by race, sex or income. But other sources make the disparities clear. A pair of studies by researchers at the Urban Institute released this week found that Black and Hispanic adults were more likely to have lost jobs or income since March, and were twice as likely as white adults to experience food insecurity in September.

The financial impact of the pandemic hit many of the families that were least able to afford it, even as white-collar workers were largely spared, said Michael Karpman, an Urban Institute researcher and one of the studies’ authors.

“A lot of people who were already in a precarious position before the pandemic are now in worse shape, whereas people who were better off have generally been faring better financially,” he said.

Federal relief programs, such as expanded unemployment benefits, helped offset the damage for many families in the first months of the pandemic. But those programs have mostly ended, and talks to revive them have stalled in Washington. With virus cases surging in much of the country, Mr. Karpman warned, the economic toll could increase.

“There could be a lot more hardship coming up this winter if there’s not more relief from Congress, with the impact falling disproportionately on Black and Hispanic workers and their families,” he said.

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Ant Challenged Beijing and Prospered. Now It Toes the Line.

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As Jack Ma of Alibaba helped turn China into the world’s biggest e-commerce market over the past two decades, he was also vowing to pull off a more audacious transformation.

“If the banks don’t change, we’ll change the banks,” he said in 2008, decrying how hard it was for small businesses in China to borrow from government-run lenders.

“The financial industry needs disrupters,” he told People’s Daily, the official Communist Party newspaper, a few years later. His goal, he said, was to make banks and other state-owned enterprises “feel unwell.”

The scope of Mr. Ma’s success is becoming clearer. The vehicle for his financial-technology ambitions, an Alibaba spinoff called Ant Group, is preparing for the largest initial public offering on record. Ant is set to raise $34 billion by selling its shares to the public in Hong Kong and Shanghai, according to stock exchange documents released on Monday. After the listing, Ant would be worth around $310 billion, much more than many global banks.

The company is going public not as a scrappy upstart, but as a leviathan deeply dependent on the good will of the government Mr. Ma once relished prodding.

More than 730 million people use Ant’s Alipay app every month to pay for lunch, invest their savings and shop on credit. Yet Alipay’s size and importance have made it an inevitable target for China’s regulators, which have already brought its business to heel in certain areas.

These days, Ant talks mostly about creating partnerships with big banks, not disrupting or supplanting them. Several government-owned funds and institutions are Ant shareholders and stand to profit handsomely from the public offering.

The question now is how much higher Ant can fly without provoking the Chinese authorities into clipping its wings further.

Excitable investors see Ant as a buzzy internet innovator. The risk is that it becomes more like a heavily regulated “financial digital utility,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.”

“Utility stocks, as far as I remember, were not the ones to be seen as the most exciting,” Mr. Howie said.

Ant declined to comment, citing the quiet period demanded by regulators before its share sale.

The company has played give-and-take with Beijing for years. As smartphone payments became ubiquitous in China, Ant found itself managing huge piles of money in Alipay users’ virtual wallets. The central bank made it park those funds in special accounts where they would earn minimal interest.

After people piled into an easy-to-use investment fund inside Alipay, the government forced the fund to shed risk and lower returns. Regulators curbed a plan to use Alipay data as the basis for a credit-scoring system akin to Americans’ FICO scores.

China’s Supreme Court this summer capped interest rates for consumer loans, though it was unclear how the ceiling would apply to Ant. The central bank is preparing a new virtual currency that could compete against Alipay and another digital wallet, the messaging app WeChat, as an everyday payment tool.

Ant has learned ways of keeping the authorities on its side. Mr. Ma once boasted at the World Economic Forum in Davos, Switzerland, about never taking money from the Chinese government. Today, funds associated with China’s social security system, its sovereign wealth fund, a state-owned life insurance company and the national postal carrier hold stakes in Ant. The I.P.O. is likely to increase the value of their holdings considerably.

“That’s how the state gets its payoff,” Mr. Howie said. With Ant, he said, “the line between state-owned enterprise and private enterprise is highly, highly blurred.”

China, in less than two generations, went from having a state-planned financial system to being at the global vanguard of internet finance, with trillions of dollars in transactions being made on mobile devices each year. Alipay had a lot to do with it.

Alibaba created the service in the early 2000s to hold payments for online purchases in escrow. Its broader usefulness quickly became clear in a country that mostly missed out on the credit card era. Features were added and users piled in. It became impossible for regulators and banks not to see the app as a threat.

ImageAnt Group’s headquarters in Hangzhou, China.
Credit…Alex Plavevski/EPA, via Shutterstock

A big test came when Ant began making an offer to Alipay users: Park your money in a section of the app called Yu’ebao, which means “leftover treasure,” and we will pay you more than the low rates fixed by the government at banks.

People could invest as much or as little as they wanted, making them feel like they were putting their pocket change to use. Yu’ebao was a hit, becoming one of the world’s largest money market funds.

The banks were terrified. One commentator for a state broadcaster called the fund a “vampire” and a “parasite.”

Still, “all the main regulators remained unanimous in saying that this was a positive thing for the Chinese financial system,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington.

“If you can’t actually reform the banks,” Mr. Chorzempa said, “you can inject more competition.”

But then came worries about shadowy, unregulated corners of finance and the dangers they posed to the wider economy. Today, Chinese regulators are tightening supervision of financial holding companies, Ant included. Beijing has kept close watch on the financial instruments that small lenders create out of their consumer loans and sell to investors. Such securities help Ant fund some of its lending. But they also amplify the blowup if too many of those loans aren’t repaid.

“Those kinds of derivative products are something the government is really concerned about,” said Tian X. Hou, founder of the research firm TH Data Capital. Given Ant’s size, she said, “the government should be concerned.”

The broader worry for China is about growing levels of household debt. Beijing wants to cultivate a consumer economy, but excessive borrowing could eventually weigh on people’s spending power. The names of two of Alipay’s popular credit functions, Huabei and Jiebei, are jaunty invitations to spend and borrow.

Huang Ling, 22, started using Huabei when she was in high school. At the time, she didn’t qualify for a credit card. With Huabei’s help, she bought a drone, a scooter, a laptop and more.

The credit line made her feel rich. It also made her realize that if she actually wanted to be rich, she had to get busy.

“Living beyond my means forced me to work harder,” Ms. Huang said.

First, she opened a clothing shop in her hometown, Nanchang, in southeastern China. Then she started an advertising company in the inland metropolis of Chongqing. When the business needed cash, she borrowed from Jiebei.

Online shopping became a way to soothe daily anxieties, and Ms. Huang sometimes racked up thousands of dollars in Huabei bills, which only made her even more anxious. When the pandemic slammed her business, she started falling behind on her payments. That cast her into a deep depression.

Finally, early this month, with her parents’ help, she paid off her debts and closed her Huabei and Jiebei accounts. She felt “elated,” she said.

China’s recent troubles with freewheeling online loan platforms have put the government under pressure to protect ordinary borrowers.

Ant is helped by the fact that its business lines up with many of the Chinese leadership’s priorities: encouraging entrepreneurship and financial inclusion, and expanding the middle class. This year, the company helped the eastern city of Hangzhou, where it is based, set up an early version of the government’s app-based system for dictating coronavirus quarantines.

Such coziness is bound to raise hackles overseas. In Washington, Chinese tech companies that are seen as close to the government are radioactive.

In January 2017, Eric Jing, then Ant’s chief executive, said the company aimed to be serving two billion users worldwide within a decade. Shortly after, Ant announced that it was acquiring the money transfer company MoneyGram to increase its U.S. footprint. By the following January, the deal was dead, thwarted by data security concerns.

More recently, top officials in the Trump administration have discussed whether to place Ant Group on the so-called entity list, which prohibits foreign companies from purchasing American products. Officials from the State Department have suggested that an interagency committee, which also includes officials from the departments of defense, commerce and energy, review Ant for the potential entity listing, according to three people familiar with the matter.

Ant does not talk much anymore about expanding in the United States.

Ana Swanson contributed reporting.

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