GOOD BILLIONAIRES AND BAD BILLIONAIRES:
(Courtesy: Ruchir Sharma,
TNN Nov 11, 2012. Ruchir Sharma is head and emerging markets and
global macro at Morgan Stanley Investment
Management and
the author of the bestseller 'Breakout Nations' . He will be the closing
speaker at the Times of India Literary Carnival , at Mehboob Studios, at 5.30pm
on December 9).
No issue resonates at more loudly today than inequality and more hollow too. Guthrie's
claim that "greed and globalization aren't just America's fault" may
be partly true.
More and more, you can hear the
citizens of emerging market capitals complain that the global economy is profiting the plutocrats
(tycoons, big shots),
· expanding the ranks
of the poor and
· While in countries
like Mexico, popular resentment has long driven the super-rich to seek a low
profile ;
· in others such as
India, the billionaire class was until recently feted as a symbol of growing
economic prowess, but now faces tough questions about what it contributes to
that success.
There are good billionaires , but the last decade saw a worldwide rise
of bad billionaires.
Back in the 1990s, many of the new tycoons were tech entrepreneurs, and
those who endured the dotcom crash are still delivering new smart
phones, ereaders , cloud computing. They are good billionaires, driven perhaps
by greed but also by the kind of genius that creates innovative products and
more productive economies.
Unfortunately , the 2000s saw the rise of a rawer kind of greed and a
class of billionaires who make money by using political connections to corner
monopolies or contracts for peddling natural resources.
In 2001, the world had
·
29 billionaires in
energy, 75 in technology.
·
By 2011 the numbers had
flipped: 91 in energy (mostly oil), and 36 in technology.
·
These new tycoons make
money essentially by digging stuff out of the ground, and make a productive
contribution only if they inspire rivals to find alternatives to oil. No bubble
is a good bubble, but commodity bubbles are the worst, because they cause a lot
of pain but leave nothing of value behind.
If the top billionaires control too great a share of
national wealth—and in Russia they control assets equal to about 20 percent
of GDP, the highest share of any major country—it could
spark unrest. If billionaire fortunes are relatively small—the average for
the top 10 in Korea is just $4 billion, less than half the average in Russia or
India—it suggests a more stable balance.
Russia ranks second in the world for the numbers of billionaires, and
sixth for individuals worth more than $100 million. It doesn't make the top 15
for millionaires. Russian billionaires are squeezing out the middle class, and
the millionaires too.
The world capital of the bad billionaires is Russia, with its intense
concentration of billionaire wealth in
commodities.
Eight of the top 10 are holdovers from 2007 list. As of 2011, Russian
billionaires obtained 80 percent of their wealth in nonproductive industries,
especially oil and gas, the largest share in the world, and 69 of the 100
Russian billionaires lived in Moscow,
reflecting their close ties to the state.
INDIA and CHINA:
Economists Aditi Gandhi and Michael Walton recently
found that
·
43 percent of India's
billionaires and
·
about 60 percent of
their total wealth
·
come from
"rentthick" industries like real estate or construction that enjoy abnormally high
profits.
In India, provincial tycoons who cut political deals
to corner unproductive industries like mining or real estate have increasingly
displaced the 1990s generation of tech entrepreneurs from the billionaires
list.
With no wealth or inheritance taxes, India has long
been top heavy with billionaires, but this class is now exploding in worrisome
directions.
·
Bad
billionaires are also rising faster in India than in China, which has more
balance and competition at the top.
·
The
average wealth of the top 10 Indian billionaires is about $11 billion, nearly double
the Chinese average of $6 billion.
·
In
India , billionaires hold assets equal to 11 percent of GDP, compared to 3
percent in China.
·
Eight
of the top-ten Indian billionaires on the latest Forbes list are holdovers from
the 2007 list, while only two of China's top 10 are holdovers.
China also has a stronger middle tier.
The latest CS Global Wealth recently found that
·
while China has a
relatively small share of families in the top and bottom 10 percent of the
global income distribution, it has a disproportionally large share in the upper
middle class (the top 50 to 90 percent ).
·
Meanwhile India is
overrepresented at the top and bottom, but underrepresented in the middle.
Billionaires should face competition so that it would
limit their control of economy. The competition to the billionaires would also promotes
turnover at the top, and generate wealth in industries that are productive, not
politically connected. Competition helps
keep in check the dark side of greed and the also checks the rise of bad
billionaires, who are the most powerful enemies of capitalism.
