Globalisation has brought with it its breed of new super-rich. Forbes recently released its new rich list. The richest man in the world now is a Mexican telecoms magnate, Carlos Slim, worth US$ 59bn. He just overtook so far unbeatable Bill Gates. The new super-rich appear in the world’s booming emerging markets. Mexico. China. Russia. The Middle East. India. The existence of such super-rich and powerful men (yes, they are generally male) feeds into the debate about inequality: is the appearance of such a class of billionaires normal, morally and socially acceptable, …. and economically sound?
An excellent book by the Swedish economist Anders Aslund takes stock of transition to the capitalist system in Central and Eastern Europe and Eurasia. One chapter analyses “The Role of Oligarchs”: of particular political salience when one looks at current affairs in countries like Russia or Ukraine. Aslund argues that Russian, Ukrainian and Kazakh oligarchs are similar to United States Robber Barons in the 19th Century. According to Aslund, the economic conditions for the appearance of such the super-rich US barons were similar to the ones prevailing for their Eurasian colleagues’:
- Great economies of scale (more here) available in sectors such as railways or metals in large countries
- Rapid structural change “which facilitated great accumulation of wealth among those few who knew how to take advantage of the trends of the day.”
- The presence of rent or “profits in excess of the competitive level”
- Free distribution of assets (land by US government back in the 19th Century, cheap privatization sell-offs in post-communist countries).
- Absence of strong legal institutions
Many parallels can be drawn here with today’s emerging market super-rich industry, financial and media magnates. Take Carlos Slim. Economies of scale: large booming Mexican market in a telecoms industry where network effects tend to make concentration of economic power easier. Rapid structural change: Mexico’s economy has undergone substantial change in the last decades towards deep capitalism. Presence of rent: Carlos Slim benefited from the monopoly he has over the Mexican telecoms sector. Free distribution of assets: I do not know much about the conditions of Mexican privatization, but Slim profited from it and from his close ties with the Mexican government in the 1980s and 1990s. Absence of strong legal institutions: can’t say that Mexico excels in the rule of law… The tales of Li Ka-sheng in China, and other Hong Kong tycoons can be analysed in the manner outlined here as well.
Now, what to do with those super-rich? Expropriate them, put them in prison? According to Aslund, the oligarchic phenomenon reflects a particular stage in capitalist development. Oligarchs have an immense social utility: in Eurasia they were the ones who turned around the metals and oil and gas sectors: “only a few businesspeople with concentrated private ownership and supreme knowledge of the informal rules could manage large Soviet enterprises in the early transition” of the 1990s. What tames the oligarchs over time is competition and the rule of law. Expropriation – such as the Yukos case in Russia – only undermines the most basic precondition for a capitalist and democratic society: secure property rights. Unfortuntely: “if the property rights of the richest are not secure, no property rights are.” Aslund reminds us that many of the world’s biggest millionaires sit in the United States and Western Europe (Germany in particular), rich countries par excellence.
- Tim Harford on the fact that today’s societies are as unequal as under the Romans
- Martin Wolf on emerging market plutocracy
- A paper by North, Wallis and Weingast on the role of competition in human history and the transition from “closed competition” (everything before industrial revolution) to “open competition systems”(contemporary capitalist-democratic systems).
- Foreign Policy has an excellent piece on how Carlos Slim became rich.