The balance between wealth and responsibility
Those of you who have watched the Billionaires episode of the Netflix series Explained will have learned a few things about billionaires. Compared to the average American, for a billionaire a trip in a private jet ranks about as highly a tram ride, a Lamborghini sports car has roughly the same value as a toy car and buying a private island is on a par with a down payment on a mortgage. Billionaires comprise 0.0001 percent of the world’s population and between 1987 and 2019 their numbers have swelled from 140 to 2,153 (a fifteen-fold increase).
The Netflix series also explained that Cornelius Vanderbilt, John D. Rockefeller and Andrew Carnegie became billionaires in the nineteenth century on the strength of their political connections and the exploitation of their workers. Those political connections enabled them to influence both their competitors and the legislative environment in which they operated. How else, in an accessible market with limited to non-existent government involvement, would it have been possible for them to make such huge profits and accumulate fortunes of over a billion dollars? Today, however, we live in an age of more government regulation and we can assume that most billionaires have become so in a fair and morally responsible manner. And if this is not the case, we can conclude from the increase in the number of billionaires during the past 30 years that it’s because there is an anomaly in our economic system.
Using data from Forbes Magazine, UK weekly magazine, The Economist, made an analysis of the billionaire population in which they differentiated between “rent-seeking” and “non-rent-seeking”. Rent-seeking, we are told, is defined as when the owner of a company uses production resources (labor, machines, intellectual property or capital) to generate more monetary gain than he or she would otherwise have been able to do so in a competitive market. The study concluded that 75 percent of billionaires are non-rent-seeking.
Going by this definition, Spotify’s Daniel Ek is a non-rent-seeking billionaire. As far as we can tell he has not blocked access to the market to new participants or asked the government for any favors. The same can be said of Oprah Winfrey, Michael Jordan and Jay-Z. The huge profits these billionaires have made can partly be attributed to technological innovation. In accessing the global market they have not only offered their products and/or services, they have also developed them. The research tells us that the increase in the number of billionaires does not necessarily point to a glitch in the correct functioning of the economic system. It could also indicate that there might be a dislocation or disruption in what is essentially a dynamic market. The obvious example here would be Jeff Bezos, whose Amazon has taken online shopping to an altogether higher level and made huge profits in the process. However, the mechanics of that same dynamic market could just as easily oust Bezos from his throne during a subsequent disruption.
The way I see it, the bottom line of the analysis carried out by The Economist is that the presence of rent-seeking billionaires tells us that profits are too high, while the presence of non-rent-seeking billionaires indicates that there is room in the system for innovation and disruption. However, concerning the latter I have serious reservations. Thanks to their huge assets, billionaires have the financial clout to buy up new participants, thereby blocking disruption and, with it, innovation too. Globalization is forcing us to redefine the definitions of rent-seeking and non-rent-seeking. It is also making it more difficult to ensure that wealth is obtained in a fair and morally responsible manner. How then, can we guarantee that the increase in the number of billionaires will benefit society as a whole? With a lot of money comes a lot of responsibility. And the big question is whether it’s wise to trust that responsibility to just one individual.
*) This data cannot be considered complete because billionaires’ financial assets that have been “concealed” are not included.