January 29, 2020 / 2:46 PM / 6 months ago

Breakingviews - Hadas: Who deserves to be a billionaire?

LONDON (Reuters Breakingviews) - “A billion here, a billion there, pretty soon, you’re talking real money.” Everett Dirksen, the American politician credited with that saying, was thinking in terms of a large nation. For an individual, say Isabel dos Santos, being a millionaire a thousand times over means possessing real money – and Forbes magazine estimates her worth at $2.1 billion. 

Isabel Dos Santos, daughter of Angola’s former President and Africa's richest woman, sits for a portrait during a Reuters interview in London, Britain, January 9, 2020.

How did the daughter of the former president of Angola amass such wealth? The minimum annual income required to be included in the top 1% of earners in the United States is $328,551, according to financial website Don’t Quit Your Day Job. At that rate, it would have taken dos Santos 6,392 years to accumulate her current fortune. And that’s assuming no taxes and expenditure.

Of course, if recent press reports are to be believed, dos Santos did not get her fortune by years of tough slog. The current Angolan government accuses her of “money laundering, influence peddling… forgery of documents, among other economic crimes”. Dos Santos denies all illegality. 

Leaving aside the legal questions, consider some basic economic ethics. Does dos Santos deserve to have so much wealth? Indeed, does anyone merit a billion-dollar net worth?

Enthusiasts for free markets might answer the general question with a rousing affirmative. They would say that billion-dollar fortunes are the product of successful investments, often in shares of companies founded and managed by the billionaires themselves, or at least by their parents or ancestors. These capital gains are the market’s reward for cleverness and hard work.

Dos Santos’s hoard might not be the best example of this principle. The vast majority of her fortune was built, ultimately, on the foundation of Angolan oil revenues, which the country’s central bank reports are currently running at a $36 billion annual rate, equivalent to about $1,000 a year per resident. Her level of wealth seems out of place in a country where 42% of the population live in poverty, according to an estimate by the Catholic University of Angola.

The contrast between dos Santos’s affluence and her compatriots’ misery is particularly sharp, but she is not alone. Many billionaire fortunes come from nothing more worthy than having the right parents, good friends in high places, or the opportunity to take unfair advantage of weak governance. 

Revolutionary fervour is not required to condemn that sort of wealth as unmerited. The evaluation is even more negative when vast sums are moved out of the country where they were accumulated, a common practice among Russia’s oligarchs.

Fortunes made in more competitive markets are not so obviously dodgy. Still, there is a good economic reason to be uneasy about all the 2,057 people on Forbes’ list of billionaires, from the $131 billion attributed to Amazon’s Jeff Bezos down to the $1 billion of Du Sha, founder of the Chinese retailer Home World Group.

These entrepreneurs undeniably contributed a great deal to their companies’ success, but the rewards are still disproportionately large. Early equity investors suck up gains which rightly belong to the larger economy. Their seed money does far less than the basically unrewarded panoply of systems, services and knowledge that allow new things to be made, distributed and paid for. The persistent growth of large fortunes also suggests that free-market economies are less competitive than they claim to be.

In the mid-19th century, Karl Marx complained about capitalists getting too much while labourers get too little. The lowly paid workers at Amazon warehouses might agree with his analysis. However, Marx’s thinking was too narrow. Prosperity, both as a whole and in a particular enterprise, is too much of a common good for any individual to capture a 10-digit reward.

If this argument is right, then dos Santos is a particularly doubtful example of a broader social problem. Once the silent social contributions to wealth are recognised, then a substantial portion of all the plutocrats’ billions looks ill-gotten. Justice requires restitution to the society that helped create the wealth. 

The “Giving Pledge” is one way to do that. That is a commitment from a group of billionaires to dedicate “the majority of their wealth to philanthropy”. The most prominent member is Microsoft founder Bill Gates, whose fortune is being used for anti-poverty programmes, health research and other good causes.

The foundation established by Gates and his wife Melinda has done excellent work by almost any standard, but the philanthropic principle remains questionable. Donations can be seen as less a restitution of unjustly garnered wealth than an extension of unfairly great influence, as billionaires shift from buying luxury goods to promoting a social agenda, or their own political careers.

In the current system, wealth taxes are probably the most effective way to ensure that corporate gains are distributed more widely. Economists such as Gabriel Zucman usually promote these levies as reducing the social strains created by wealth inequality. That argument is appealing, in Angola as well as in the United States. But the recent proliferation of billionaires suggests a more basic flaw. Some individual rewards have gotten out of line with economic reality.

Breakingviews

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