Another addition to the inequality library. Rich People, Poor Countries has a less ambitious sweep than Piketty, Deaton or Milanovic’s grand narratives. Author Caroline Freund does some very revealing number crunching on the changing face of the annual Forbes billionaires list to explore ‘the rise of emerging-market tycoons and their mega firms’, in the words of the book’s subtitle. Unfortunately she laces her findings with some rather uncritical and breathless language of the ‘ain’t markets great!’ variety, but anyone who reads the Economist should be able to discount the bias with ease.
The book explores the changing origins of billionaires, by geography and the source of their wealth, and identifies some interesting developments, including a shift from rich world to emerging world – in 2004, the emerging world had just 20% of Forbes’ 587 billionaires; by 2014 it had 43% of a much bigger number (1,645).
Within emerging markets, she finds a shift from rent-seeking (eg dodgy privatizations and natural resources) and inheritance to ‘superstar entrepreneurs’ like Alibaba’s Jack Ma, who in true Bill Gates style, set up the company in his apartment in 1999, while working as an English teacher in Hangzhou, China. East Asia is ‘by far the most dynamic region’ in generating billionaires, especially entrepreneurial ones, but Latin America is starting to add some entrepreneurs to its more hereditary plutocrats, while Africa remains dominated by natural resource rentiers. The Middle East and North Africa is going backwards, with a rising proportion of hereditary billionaires.
She is a big fan of the megarich, whose firms ‘create jobs and transform a country’s economic structure, pulling workers out of agriculture and into industry’. Not sure that is actually, ermm, true – small and medium enterprises are the real job creators in most economies.
She finds a divergence in the relationship between the rise of the megarich and inequality – ‘In the North, billionaire wealth grew three times as fast as aggregate incomes between 2006 and 2014. By contrast, aggregate incomes grew faster than the incomes of the extremely wealthy in the poor countries of the South.’ She thinks that may help explain why polling shows inequality is more of a concern in the North than the South, while entrepreneurs are relatively held in much higher esteem in the poor countries.
There’s also a good chapter on that rare breed – women billionaires. She puts their scarcity down to social norms, lack of business networks, but also very limited access to credit. Most of them inherit their wealth, but China and the US are different, with 8 and 16 of the world’s 38 female self-made billionaires, respectively.
So what? Her conclusions/recommendations are essentially liberal (in the economic/European sense). The state should break up monopolies and oligopolies, ensure property rights and contracts, liberalize trade, encourage foreign investment, but otherwise get out of the way. Her Achilles’ heel is a classic free marketeer airbrushing out of the role of the state in the industrial transformation of countries like South Korea and Singapore. There is just no place for those tiresome old bureaucrats and their industrial policies in her narrative of swashbuckling entrepreneurs (although she grudgingly concedes a limited role for industrial policy in her final pages).
She warns against the dangers of political capture of governments by the megarich (although doesn’t seem to think it has happened yet in emerging economies) and advocates estate taxes to reduce the power of inherited wealth.
All in all, a very useful sourcebook for anyone working on the changing face of global and national inequality.