Samuel Vimes’ Boots Theory explains how it’s expensive to be poor; how it costs less to be rich but more to be poor.
This theory is from Terry Pratchett’s book Men at Arms which first came out in 1993.
If you didn’t read the book, the theory goes like this:
Someone with $50 can buy boots that last 10 years, while someone with $10 can afford boots that last only a year.
However, in 10 years the second person would have spent on boots two times as much as the first person.
We know first person is rich and the second poor.
People also call it a theory of socio-economic unfairness for the reason obvious to us.
Let us see how it costs more to be poor but less to be rich in Bhutan as well from the theory’s perspective:
Banking and Loans
Thinley got a Nu. 1 million loan. Unless I also have assets for mortgage like him, banks will not give me a Nu.500k loan.
If I were try getting one more Nu.500k loan to make Nu.1 million, I won’t get before clearing the first one.
This means I have only half of what my friend has, to make more money from leverage.
So, not getting that additional loan of Nu.500k is the price of being poor. Thinley isn’t as poor as me. He got Nu. 1 million loan easily!
Moreover, Nu. 1 million loan has a longer repayment period compared to Nu.500k. It’s again easy for Thinley to make more money!
Capital and costs
Last year, my nephew needed 5 lakh to start his restaurant business. But he’s poor and has nothing for a mortgage. So he couldn’t get a bank loan.
His parents also couldn’t manage it. So he managed to get 5 lakh from a private lender but at 10% interest.
The bank loan interest is 8%. So he paid 2% more for the same capital amount. If someone having collateral assets applied for this loan, that person will pay 8% interest instead of 10%
Therefore, capital for starting a business also costs more to poor people than rich people. This is how the system makes the rich richer.
Housing Expense
Housing is really expensive in Bhutan, especially in places like Phuntsholing and Thimphu. Rent takes at least 40% of a person’s monthly net salary.
I have to continue living paying rent of at least 40% of my salary throughout my life because I am poor to afford my own house.
My friend has the same salary. But he lives in his parent’s building for free. This means he can afford to save at least 40% of his salary. So he can become richer faster than me.
Though it’s a house, in both the cases, I am paying rent 40% more than my friend. It’s expensive to be poor even for housing.
In Income Taxes
The rich people know how tax codes are written. So, they usually hold their wealth in business capital and stock which are not taxable.
The unfairness starts from where income is taxed. If I earn a monthly salary of Nu.25,000 working in the civil service, I’ll be taxed on Nu.25,000 itself.
Dorji owns a business making Nu.25,000 profit. He can deduct his own salary of Nu.10,000 (below taxable income), and depreciation of Nu.8,000 from the income for taxation.
If tax is 10%, my one year tax is Nu.30,000 but Nu.8,400 for Dorji. He can put back the saving into capital. When he closes a business, capital is his own money.
Rich people are like Dorji, who legally pay zero or very less tax. See, it has been expensive to be poor in the taxation system.
This is the reason why National Statistics Bureau or Credit Information Bureau of Bhutan never declares richest people of Bhutan like in other countries.
What would be people’s reactions when the top 1% richest of Bhutan don’t income tax even like an entry-grade civil service officer?
Mobile Data Cost
The internet data and mobile data plans provided by our two telecom companies are perfect examples of how it costs more to be poor and less to be rich.
When we purchase Bhutan Telecom’s Monthly Lite Nu.199, we get 2,720MB data but 48,730MB data from Monthly Lite Nu,1199 plan.
Dorji and I spend Nu.1,200 monthly on data. But Dorji can purchase Lite Nu.1199 plan. I cannot recharge at once like him. So I recharge 6 times across a month using the Lite Nu.199 plan.
Dorji got 48,730MB of data whereas I got only 16,320MB. This means he got 198.5% more data than me even though we paid the same Nu.1200.
Life is really difficult being poor. We must build wealth to live a decent life on our own terms. Otherwise we’ll always remain victims.
