Wealth, Inequality, and Power

Who controls the wealth in modern society? And how much power does it give them?

According to the Forbes report released in March 2013, there are currently 1,426 U.S. dollar billionaires worldwide from 66 countries, boasting a combined net worth of $5.4 trillion, which is more than the combined GDP of 152 countries. The United States has the largest number of billionaires of any country, with 442 as of 2013, while China and Russia are home to 122 and 110 billionaires respectively. Among U.S. billionaires, the average age is 66 years.

Wikipedia

Do these thousand or so super-rich control the world? Pretty clearly not. What’s striking about the list of the world’s richest men is how unremarkable their businesses are. Gates and Ellison are software; essentially, copyright law gives their companies a small cut of the hundreds of millions of copies of their software in use. The Waltons get their wealth from retail—again, a tiny cut of the billions spent by ordinary people at Wal-Mart. The Koch brothers from oil: that sounds more promising as the basis of some kind of real leverage over society, but their business is primarily oil refining—they’re another set of middlemen getting a tiny piece of the money flowing through the economy. Other middlemen pulling in riches the same way are Carlos Slim (Mexican telecoms) and Sheldon Adelson (Casinos).

Of the top ten, that leaves Warren Buffett as the only contender for a true plutocratic power. Michael Bloomberg is also swimming around in the top twenty.

The other one I left out is Amancio Ortega. It was Steve Sailer’s piece on him that triggered this examination, because he is the best example of the phenomenon I am discussing.

Ortega’s wealth is the Zara fashion chain—a bizarre thing to make someone the third richest person in the world. Sailer asks, “how great of a businessman do you have to be to get insanely rich in moderately priced women’s clothes?” And clearly, Zara isn’t even dominant in moderately priced women’s clothes. You can picture a dominant plutocracy based on control of the world’s energy, or weaponry, or a vital component of fertilizer or technology manufacturing. But Ortega is #3 because of a chain of 6,000 fairly ordinary clothes shops. What is going on?

One point is that the world’s richest individuals clearly aren’t the best way to look at the role of wealth in society. What has made these individuals super-rich is not the absolute position of their businesses, but the rapid growth of those businesses, which results in the rare situation of a significant proportion of a huge business being owned by only a few.

I don’t think that necessarily makes them unrepresentative, however. There is something else going on.

In the modern economy, relatively little of the nominal wealth is in solid capital: land, gold, machinery or even in specific pieces of “intellectual property”. The billionaires on the list have that wealth because money flows through the economy rapidly, from hand to hand to hand, and they are in positions that allow them to take a tiny piece of that flow as it goes past them.

The wealth is real, because the share of those flows really are, individually, exchangable for any other form of wealth. Zara really does produce profits of a couple of billion a year, and if you want to own that flow of profit, it really will cost you tens of billions to buy it from Senor Ortega. But, in aggregate, the sum of that wealth does not exist at all. That is because all the fountains of profit that give value to businesses like Zara or Wal-Mart are drawing from the same flow of money. If a few of those drawing water from the fountains stop pouring it back in: stop spending the profits on more moderately-priced dresses, smartphone contracts and kitchen gadgets, then the transient wealth can be converted to solid wealth. But if too many try to do that, the flow itself slows down and all the fountains run dry.

This is a familiar point, of course: it is the basis of Keynsian macroeconomics. However, it is equally significant in terms of power. The owners of wealth, whether individuals or corporations, can to a certain degree throw some weight around at the micro level, but the aggregate of all that power simply isn’t real. If one exercises it, the others can’t, because it’s really all the same power, being counted multiple times.

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