Inherited Wealth And Crony Capitalism Have Created An Aristocratic Class That Undermines Social Mobility And Democracy.
A third of wealth is inherited. Another third comes from special access/crony capitalism. Didier Jacobs calculated a few years ago that another third of billionaire wealth comes from crony connections to government and monopoly. This could be for example when billionaires secure concessions to provide services exclusively from government, using crony connections and corruption. The Economist has developed a similar measure of crony capitalism with similar findings. What is clear it seems to me is that corruption and crony connections to governments are behind a significant proportion of billionaire wealth.
Almost all sectors of our global economy are also now characterized by monopoly power, as is detailed by Nick Shaxson in his great new book, the Finance Curse. Whether food, pharmaceuticals, media, finance, or technology, each sector is characterized by a handful of huge corporations. Decades of largely unquestioned mergers and acquisitions, where corporations have bought up competitors, have led to this.
The actions of corporations, including the move towards monopoly, are driven by a relentless focus on ever-increasing returns to shareholders — shareholders who are primarily the very same extremely wealthy people. Our new Oxfam paper on the “Seven Deadly Sins” of the G7, released this week, shows how returns to shareholders have increased dramatically whilst real wages have barely increased. One ground-breaking study that made use of this leaked information showed that the super-rich are paying as much as 30 percent less tax than they should, denying governments billions in lost tax revenue, that could have been spent on schools or on hospitals. The super-rich are supported in this by the Society of Trust and Estate Practitioners (STEP), a secretive organization of over 20,000 wealth managers that actively pressures governments to reduce taxes on the richest.
The New York Times published an editorial comment on its front page in January 2019, provocatively entitled “abolish billionaires.” The editorial raised a serious question: what if instead of being a sign of economic success, billionaires are a sign of economic failure? In what ways can the boom in billionaires, and the dramatic increase in extreme wealth generally, be harmful?
To answer this question, we need to understand the origins of billionaire wealth, and to understand how that wealth is used once it is gained. The answer to both these questions I think rightly casts doubt on the value of the super-rich in our society.
Approximately one third of billionaire wealth comes from inheritance. It is very hard to make the case for the economic utility of inherited wealth, and instead there is a strong case for the fact that it undermines social mobility and economic progress. It creates instead a new aristocracy who are rich simply because their parents were rich which is hard to see as a good thing.
Whether inherited or secured in other ways, extreme wealth takes on a momentum of its own. The super-rich have the money to spend on the best investment advice, and billionaire wealth has increased since 2009 by an average of 11 percent a year, far higher than rates ordinary savers can obtain.
Bill Gates is worth nearly $100 billion dollars in 2019, almost twice what he was worth when he stepped down as head of Microsoft. This is despite his admirable commitment to giving his money away. As Thomas Piketty said in his book Capital in the 21st Century, “No matter how justified inequalities of wealth may be initially, fortunes can grow beyond any rational justification in terms of social utility.”
My Oxfam colleague Didier Jacobs calculated a few years ago that another third of billionaire wealth comes from crony connections to government and monopoly. This could be for example when billionaires secure concessions to provide services exclusively from government, using crony connections and corruption. The Economist has developed a similar measure of crony capitalism with similar findings. What is clear it seems to me is that corruption and crony connections to governments are behind a significant proportion of billionaire wealth.
Get The Facts
Almost all sectors of our global economy are also now characterized by monopoly power, as is detailed by Nick Shaxson in his great new book, the Finance Curse. Whether food, pharmaceuticals, media, finance, or technology, each sector is characterized by a handful of huge corporations. Decades of largely unquestioned mergers and acquisitions, where corporations have bought up competitors, have led to this. Historically, and especially in the United States in the early part of the 20th century, monopoly power was rightly viewed as a serious threat to the economy and to society, and steps were taken to break up monopolies. It was President Franklin Roosevelt who famously said that “government by organized money is just as dangerous as government by organized mob.” However, in recent decades, neoliberal economics has led a much more benign view of monopoly power, and very little action is now taken to dismantle them. I think this is a key distinction between neoliberalism and classical liberal economics. These monopolies impose hidden monopoly taxes on every consumer, as it enables these companies, and their wealthy shareholders, to extract excessive profits from the market, directly fueling the growth in extreme wealth at the expense of ordinary citizens.
The actions of corporations, including the move towards monopoly, are driven by a relentless focus on ever-increasing returns to shareholders — shareholders who are primarily the very same extremely wealthy people. Our new Oxfam paper on the “Seven Deadly Sins” of the G7, released this week, shows how returns to shareholders have increased dramatically whilst real wages have barely increased.
Behind corporate power and corporate actions is increasingly the power of super-rich shareholders.
Once billionaire wealth is accumulated, the way it is used also casts doubt on how useful it is to have billionaires. The super-rich use their wealth to pay as little tax as possible, making active use of a secretive global network of tax havens, as revealed by the Panama Papers and other exposes.
One ground-breaking study that made use of this leaked information showed that the super-rich are paying as much as 30 percent less tax than they should, denying governments billions in lost tax revenue, that could have been spent on schools or on hospitals. The super-rich are supported in this by the Society of Trust and Estate Practitioners (STEP), a secretive organization of over 20,000 wealth managers that actively pressures governments to reduce taxes on the richest.
Billions are not just used to ensure lower taxes. They can also be used to buy impunity from justice, to buy politicians, or to buy a pliant media. The use of “dark” money to influence elections and public policy is a growing problem all over the world. The Koch brothers — Charles and the recently deceased David — two of the richest men in the world, have had a huge influence over conservative politics in the United States.
Another recent Oxfam study showed the many ways in which politics has been captured by the very rich in Latin America. Many of today’s new breed of nationalist, racist leaders have substantial financial backing.
This active political influencing by the super-rich directly drives greater inequality, by constructing reinforcing feedback loops, in which the winners of the game get even more resources to win even bigger next time.
For all these reasons, I think there is a strong case to be made that rather than being celebrated, as one U.S. commentator recently said, “every billionaire is a policy failure,” and that in particular if we are to end poverty and build fairer societies, we need to bring an end to extreme wealth.
A radical idea is gaining adherents on the left. It’s the perfect way to blunt tech-driven inequality.
Last fall, Tom Scocca, editor of the essential blog Hmm Daily, wrote a tiny, searing post that has been rattling around my head ever since.
“Some ideas about how to make the world better require careful, nuanced thinking about how best to balance competing interests,” he began. “Others don’t: Billionaires are bad. We should presumptively get rid of billionaires. All of them.”
Mr. Scocca — a longtime writer at Gawker until that site was muffled by a billionaire — offered a straightforward argument for kneecapping the wealthiest among us. A billion dollars is wildly more than anyone needs, even accounting for life’s most excessive lavishes. It’s far more than anyone might reasonably claim to deserve, however much he believes he has contributed to society.
At some level of extreme wealth, money inevitably corrupts. On the left and the right, it buys political power, it silences dissent, it serves primarily to perpetuate ever-greater wealth, often unrelated to any reciprocal social good. For Mr. Scocca, that level is self-evidently somewhere around one billion dollars; beyond that, you’re irredeemable.
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[Farhad Manjoo answered your questions about this column on Twitter.]
I cover technology, an industry that belches up a murder of new billionaires annually, and much of my career has required a deep anthropological inquiry into billionairedom. But I’m embarrassed to say I had never before considered Mr. Scocca’s idea — that if we aimed, through public and social policy, simply to discourage people from attaining and possessing more than a billion in lucre, just about everyone would be better off.
In my defense, back in October, abolishing billionaires felt way out there. It sounded radical, impossible, maybe even un-American, and even Mr. Scocca seemed to float the notion as a mere reverie.
But it is an illustration of the political precariousness of billionaires that the idea has since become something like mainline thought on the progressive left. Bernie Sanders and Elizabeth Warren are floating new taxes aimed at the superrich, including special rates for billionaires. Representative Alexandria Ocasio-Cortez, who also favors higher taxes on the wealthy, has been making a moral case against the existence of billionaires. Dan Riffle, her policy adviser, recently changed his Twitter name to “Every Billionaire Is A Policy Failure.” Last week, HuffPost asked, “Should Billionaires Even Exist?”
I suspect the question is getting so much attention because the answer is obvious: Nope. Billionaires should not exist — at least not in their present numbers, with their current globe-swallowing power, garnering this level of adulation, while the rest of the economy scrapes by.
I like to use this column to explore maximalist policy visions — positions we might aspire to over time rather than push through tomorrow. Abolishing billionaires might not sound like a practical idea, but if you think about it as a long-term goal in light of today’s deepest economic ills, it feels anything but radical. Instead, banishing billionaires — seeking to cut their economic power, working to reduce their political power and attempting to question their social status — is a pithy, perfectly encapsulated vision for surviving the digital future.
Billionaire abolishment could take many forms. It could mean preventing people from keeping more than a billion in booty, but more likely it would mean higher marginal taxes on income, wealth and estates for billionaires and people on the way to becoming billionaires. These policy ideas turn out to poll very well, even if they’re probably not actually redistributive enough to turn most billionaires into sub-billionaires.Another viewOpinion | Will WilkinsonDon’t Abolish BillionairesFeb. 21, 2019
More important, aiming to abolish billionaires would involve reshaping the structure of the digital economy so that it produces a more equitable ratio of superrich to the rest of us.
Inequality is the defining economic condition of the tech age. Software, by its very nature, drives concentrations of wealth. Through network effects, in which the very popularity of a service ensures that it keeps getting more popular, and unprecedented economies of scale — in which Amazon can make Alexa once and have it work everywhere, for everyone — tech instills a winner-take-all dynamic across much of the economy.
We’re already seeing these effects now. A few superstar corporations, many in tech, account for the bulk of American corporate profits, while most of the share of economic growth since the 1970s has gone to a small number of the country’s richest people.
But the problem is poised to get worse. Artificial intelligence is creating prosperous new industries that don’t employ very many workers; left unchecked, technology is creating a world where a few billionaires control an unprecedented share of global wealth.
But abolishment does not involve only economic policy. It might also take the form of social and political opprobrium. For at least 20 years, we’ve been in a devastating national love affair with billionaires — a dalliance that the tech industry has championed more than any other.
I’ve witnessed a generation of striving entrepreneurs join the three-comma club and instantly transform into superheroes of the global order, celebrated from the Bay Area to Beijing for what’s taken to be their obvious and irrefutable wisdom about anything and everything. We put billionaires on magazine covers, speculate about their political ambitions, praise their grand visions to save the world and wink affectionately at their wacky plans to help us escape — thanks to their very huge and not-in-any-way-Freudianly-suggestive rockets — to a new one.
But the adulation we heap upon billionaires obscures the plain moral quandary at the center of their wealth: Why should anyone have a billion dollars, why should anyone be proud to brandish their billions, when there is so much suffering in the world?
As Ms. Ocasio-Cortez put it in a conversation with Ta-Nehisi Coates: “I’m not saying that Bill Gates or Warren Buffett are immoral, but a system that allows billionaires to exist when there are parts of Alabama where people are still getting ringworm because they don’t have access to public health is wrong.” (She meant hookworm, she later corrected.)
Last week, to dig into this question of whether it was possible to be a good billionaire, I called up two experts.
The first was Peter Singer, the Princeton moral philosopher who has written extensively about the ethical duties of the rich. Mr. Singer told me that in general, he did not think it was possible to live morally as a billionaire, though he made a few exceptions: Mr. Gates and Mr. Buffett, who have pledged to give away the bulk of their wealth to philanthropy, would not earn Mr. Singer’s scorn.
But most billionaires are not so generous; of the 2,200 or so billionaires in the world — about 500 of whom are American — fewer than 200 have signed the Giving Pledge created by Bill and Melinda Gates and Mr. Buffett.
“I have a moral concern with the conduct of individuals — we have many billionaires who are not living ethically, and are not doing nearly as much good as they can, by a wide margin,” Mr. Singer said.
Then there is the additional complication of whether even the ones who are “doing good” are actually doing good. As the writer Anand Giridharadas has argued, many billionaires approach philanthropy as a kind of branding exercise to maintain a system in which they get to keep their billions.
When a billionaire commits to putting money into politics — whether it’s Howard Schultz or Michael Bloomberg or Sheldon Adelson, whether it’s for your team or the other — you should see the plan for what it is: an effort to gain some leverage over the political system, a scheme to short-circuit the revolution and blunt the advancing pitchforks.
Which brings me to my second expert on the subject, Tom Steyer, the former hedge-fund investor who is devoting his billion-dollar fortune to a passel of progressive causes, like voter registration and climate change and impeaching Donald Trump.
Mr. Steyer ticks every liberal box. He favors a wealth tax, and he and his wife have signed the Giving Pledge. He doesn’t live excessively lavishly — he drives a Chevy Volt. Still, I wondered when I got on the phone with him last week: Wouldn’t we be better off if we didn’t have to worry about rich people like him trying to alter the political process?
Mr. Steyer was affable and loquacious; he spoke to me for nearly an hour about his interest in economic justice and his belief in grass-roots organizing. At one point I compared his giving with that of the Koch brothers, and he seemed genuinely pained by the comparison.
“I understand about the real issues of money in politics,” he said. “We have a system that I know is not right, but it’s the one we got, and we’re trying as hard as possible to change it.”
I admire his zeal. But if we tolerate the supposedly “good” billionaires in politics, we inevitably leave open the door for the bad ones. And the bad ones will overrun us. When American capitalism sends us its billionaires, it’s not sending its best. It’s sending us people who have lots of problems, and they’re bringing those problems with them. They’re bringing inequality. They’re bringing injustice. They’re buying politicians.
And some, I assume, are good people.