Marcus Tuck

Bloomberg keeps a regularly updated list of the world's wealthiest billionaires on their website. The current Top 10 can be seen below. What is interesting besides the sheer scale of the numbers, is the dominant influence of technology companies. They are responsible for 6 of the Top 10 fortunes, specifically Amazon.com, Microsoft, Facebook, Alphabet (for both Page and Brin) and Oracle.

Amazon.com tops the list. Over the past 12 months, Amazon.com's share price has increased by 30%, three times the 10% rise in the S&P 500 Index. That includes the drop in the December quarter, which had nothing to do with Amazon's business fundamentals.

As for the other industries, Bernard Arnault controls about half of the luxury goods company LVMH Moet Hennessy Louis Vuitton. Amancio Ortega owns 59% of Inditex, the world's largest clothing retailer (Zara is its most famous brand). And Carlos Slim controls America Movil, the largest mobile phone operator in Latin America, among other business interests. 

Mr Bezos also has another claim to fame, recently setting a new world record for the price of love. As part of his divorce settlement, his ex-wife will receive a 4% stake in Amazon.com (a quarter of his holding), currently worth about US$36 billion.

Ray Dalio, founder of the hedge fund manager Bridgewater Associates, is also on Bloomberg's billionaires list, coming in at No. 66 with an estimated net wealth of nearly US$17 billion. He recently wrote a paper entitled Why and How Capitalism Needs to be Reformed. In it he writes, 

"My exposure to most economic systems in most countries over many years taught me that the ability to make money, save it, and put it into capital (i.e. capitalism) is the most effective motivator of people and allocator of resources to raise people's living standards.
Over these many years I have also seen capitalism evolve in a way that it is not working well for the majority of Americans because it's producing self-reinforcing spirals up for the haves and down for the have-nots. This is creating widening income/wealth/opportunity gaps that pose existential threats to the United States because these gaps are bringing about damaging domestic and international conflicts and weakening America's condition.
I think that most capitalists don't know how to divide the economic pie well and most socialists don't know how to grow it well, yet we are now at a juncture in which either: a) people of different ideological inclinations will work together to skilfully re-engineer the system so that the pie is both divided and grown well, or b) we will have great conflict and some form of revolution that will hurt most everyone and will shrink the pie. I believe that all good things taken to an extreme can be self-destructive and that everything must evolve or die. This is now true for capitalism."

As shown below, the income gap in America is about as high as ever, and the wealth gap is the highest since the late 1930s. Today, the wealth of the top 1% of the population is more than that of the bottom 90% of the population combined, which is the same sort of wealth gap that existed during the 1935-40 period (a period that brought in an era of great internal and external conflicts for most countries). Those in the top 40% now have on average more than 10 times as much wealth as those in the bottom 60%. That is up from 6 times in 1980.

Most people in the bottom 60% are poor. For example, only about a third of the bottom 60% save any of their income in cash or financial assets. According to a recent Federal Reserve study, 40% of all Americans would struggle to raise US$400 in the event of an emergency. And they are increasingly getting stuck being poor - income mobility is decreasing as disadvantage becomes entrenched.

Mr Dalio notes that the pursuit of profit and greater efficiencies has shifted too far in favour of capital over labour (see charts below), aided by the invention of new technologies that replace people (an old argument first heard during the Industrial Revolution) and globalization.

He also notes that post the GFC, the printing of money and buying of financial assets by central banks drove up the prices of financial assets, making the owners of them richer relative to those who don't own them. He also thinks that policymakers pay too much attention to budgets rather than returns on investment. For example, underspending on education might help the budget bottom line but makes no sense from an investment perspective.

One of the problems is that many business and political elites don't think there is a problem. Mr Dalio says what is needed is bipartisan political leadership, assisted by skilled shapers of policy, to redesign the system in a way that works better for most people. The aim is to improve both the well-being and the productivity of the vast majority of people. Clear metrics are needed to judge success and avoid wasting public resources (something that has occurred too often in the past).

Shifting more resources into the hands of those who need it most and will spend, rather than those who don't need it and have a higher propensity to save, is good for growth as well as social equity. It's not easy to get the balance right, but some societies manage it better than others.


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