Above Photo: Steve Leverett/Flickr
Inherited wealth and crony capitalism have created an aristocratic class that undermines social mobility and democracy.
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.
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.