The right's mega-rich problem

“I don't think anyone in this country should be a billionaire” said Labour’s Lloyd Russell-Moyle yesterday, at which the BBC’s Emma Barnett took umbrage. The exchange is curious, because from one perspective it should be conservative supporters of a free market who don’t want there to be billionaires.

I say so because in a healthy market economy there should be almost no extremely wealthy people simply because profits should be bid away by competition. In the textbook case of perfect competition there are no super-normal profits, and in the more realistic case of Schumpeterian creative destruction, high profits should be competed away quickly.

From this perspective, every billionaire is a market failure – a sign that competition has failed. The Duke of Westminster is rich because there’s a monopoly of prime land in central London. Would Ineos’ Jim Ratcliffe be so rich if pollution were properly priced, or if his firm faced more competition? How can hedge funds get away for so long with their “2 and 20” pricing? (Hint: it’s for the same reason that Friedman thought government spending was inefficient, because people are spending other people’s money.) And so on.

What’s more, monopoly pricing is a form of tax – a tax which often falls upon other, smaller businesses, as Frederick Guy argues (pdf):

Monopolies, by their nature, set prices and extract rents from their customers. Current technology monopolies are collecting taxes based on the global distribution of their products like ancient empires exacting tribute from distant provinces and returning them to spatially concentrated bases. Microsoft produces its Windows and Office products in the Seattle area, and harvests license fees globally, as does Monsanto (Bayer) for the seed varieties and complementary herbicides engineered in St Louis. Booking intermediaries like Airbnb, Trip Advisor, Booking.com, Expedia (Microsoft, again), and Uber take significant slices of revenue from many thousands of globally dispersed small businesses.

In this sense, not only are billionaires a symptom of an absence of a healthy competitive economy, but they are also a cause of it: their taxes on other firms restrict growth and entrepreneurship. What Brink Lindsey and Steven Teles say of the US economy is probably true of the UK too:

The US economy has become less open to competition and more clogged by insider-protecting deals than it was just a few decades ago. These deals make our economy less dynamic and innovative. (The Captured Economy, p5)

In a similar spirit but different perspective, Michael Kremer, Christopher Snyder, Albert Chen show that the costs of monopoly are greater than conventional economics suggests.

Tories are wrong, therefore, to portray attacks on the mega-rich as the politics of envy. It’s not. The existence of billionaires is a sign and cause of a dysfunctional economy. Equally, though, this is not solely a tax issue.The way to stop people becoming billionaires is to have much stronger competition policy and less restrictive intellectual property laws as well as support for new entrepreneurs who want to compete against incumbents: entrepreneurial Marxism is a thing. Taxes upon the mega-rich should be seen as a backstop, a way of compensating for past market failures.

In fact, logically, it is rightists who should be most concerned by the concentration of wealth. We lefties can point to it as evidence that the system is rigged. But Tories should worry that it undermines the legitimacy of the existing order not only because people don’t like inequality, but because it slows down economic growth and so encourages demands for change.

Those of us formed in the 80s see another paradox here. Back then, Tories championed the “free market.” Great wealth, though, is a sign that the free market isn’t working well, that there isn’t enough competition, which should trouble free marketeers.

All of which poses the question. Why, then, are rightists like Ms Barnett and Douglas Carswell standing up for the mega-rich when it is they who should be most discomfited by their existence?

Adam Smith had one theory:

The great mob of mankind are the admirers and worshippers, and, what may seem more extraordinary, most frequently the disinterested admirers and worshippers, of wealth and greatness.

There is, though, another possibility. Maybe all that cheering for a dynamic free market economy was simply insincere. Tories might like the forces of competition when they throw miners and steel-workers out of jobs, but are not so  keen on them if they threaten the very rich. Maybe the right doesn’t really believe in things like free markets or liberty after all. Instead, their one principle is the support of inequality. As Corey Robin has written: “the priority of conservative political argument has been the maintenance of private regimes of power.”

Comments

[luis enqriue]

yes, insincere free-marketeers: who was it that said something like the entire intellectual effort of the right consists of finding cover for selfishness?

I am guessing you have seen Philippon's new book? Here's a blog / article where he lays out the main points:

https://www.theatlantic.com/ideas/archive/2019/10/europe-not-america-home-free-market/600859/

[Keith Robertson]

The modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness.

JK Galbraith

[Kevin Carson]

In addition to IP rents, it's also vital to combat rents from increasing site rent from land -- land value taxation and/or strong encouragement to community land trusts.

[Blissex]

«In addition to IP rents, it's also vital to combat rents from increasing site rent from land»

Vital for whom? For a plurality of voters, and perhaps a majority, it has been vital to boost site rents as fast as possible: the average southern property owner gets £30-40,000 a year of work-free gains from their property, a near-doubling of their after-tax incomes, and they are very, very, very happy about that.

After all if property in the Home Counties and London keep doubling in price every 7-10 years "forever", that would be the biggest wealth creating wonder ever discovered, greater than the silver of Potosí and the oil of Arabia.

[AMB]

Blissex- I can only assume irony in your post.

Or are you like Grant Chapps who’s get rich quick scheme mistakenly branded “wealth creating entrepreneurialism” as rent seeking on real estate inflation.

[georgesdelatour]

The most fearsome monopolies today are in the tech sector. One problem is, most of them don’t actually employ very many people. Only Amazon has employee numbers comparable to a classic Fordist business like, say, BMW. The old Fordist businesses were ultimately domesticated by the trades unions. Could a revived trades unionism curtail the monopoly power of Google?

I’m in favour of antitrust legislation. Even there, I’m not sure it’s necessarily the right way to deal with the FANG monopolies. Most consumers probably like the fact that they can buy something from Amazon instantly with a single click, as soon as they think of it. They probably don’t want six rival Amazon-type providers to cross-check between before making a purchase. Plus, the US government probably won’t allow, say, Jack Ma to become a serious rival to Jeff Bezos in the US domestic market.

We could regulate them as public utilities, I guess.

[Blissex]

«mistakenly branded “wealth creating entrepreneurialism” as rent seeking on real estate inflation.»

That's also what W Munchau of the Financial Times wrote of crony rentierism:

“Margaret Thatcher’s successful brand of entrepreneurial capitalism in the UK in the 1980s. Through privatisation, she turned ordinary savers into shareholders. Through the sale of council houses, she turned tenants into property owners.”

What "leftoids" seem to forget is that it is a very, very, very popular claim.

The era of mass crony rentierism created by M Thatcher and T Blair (and by the good pensions and low property prices of the "butskellite" 60s-70s) poses a big political problem to the political representatives of producers, and there have been three main political reactions, all of which I find rather lacking:

* The "leftoids" have chosen to ignore it entirely, and keep singing delusionally "The red flag" and "El pueblo unido jamas sera vencido".

* The mandelsonian/blairite whigs have decided to embrace it while telling producers "you got nowhere else to go".

* The Conservatives and LibDems have decided to double down enthusiastically on crony finance and property rentierism, to the point of largely ignoring the producer side of business (except for pushing down wages whenever possible).

[Dipper]

what is the maximum amount of wealth that is reasonable for an individual in the UK to have?

[ricardo2000]

Modern economics is a failure as it doesn't describe, or allow for, billionaire concentrations of wealth. Billionaires are a cause of current social stress and poverty because they suck up vast amounts of money that would be put to productive investments elsewhere. Two, the money removed from the economy should be circling through people's pockets and bank accounts 5 to 10 times multiplying money's affects. Now it goes through 2 or 3 times at most before falling into a monetary black hole. Thus the failure of 'pump-priming' and 'quantitative easing' and 'TARP' programs, not to mention the long-term stagnation of Japan's economy under the rule of their corporate conglomerates.
The result is the immediate destitution of the middle and lower classes of every society.

[nicholas ford]

I think Chris is mostly correct about this. I suggest a big part of the problem that we all have is one of language.
The right typically refers to the benefits of FREE markets, when more accurately they should refer to the benefits of COMPETITIVE markets.
When the right refer to a market being FREE they generally have in mind that the market is free from government interference, as in no price regulation, and no legal barriers to entry. But in a FREE market, firms may also be FREE to exploit monopoly power, as Chris identifies. They also may be FREE to exploit other market imperfections, such as 'assymetry of information' (ie ripping off the ill informed) which is why the financial services industry is so large.
I think Chris is totally right- the authorities should seek to make markets more competitive wherever possible, and regulate where competition cannot protect the consumer.
The right should refer to the benefits of COMPETETIVE markets, and stop talking about FREE markets.
Just a pity that most of Corbynite left do not grasp one iota of this- wooosh! - and continue to propose creating nationalised state monopolies are the answer despite this being a wholly proven failure.

[Danny]

This is right, but it misses the point that there aren't very many Western billionaires, and the few that exist are easily accounted for. It's hardly a sign of market failure that tech innovators are richly - even absurdly - rewarded. It's interesting to glance at the various rich lists and see how few inherit their wealth rather than generate it themselves. It's an indication that the free market is working relatively well

[kramer]

Danny, there isn't enough wealth in existence for there to be very many billionaires, and if there was, we would all be talking about the quadrillionaires. You seem to attach some ethical property to wealth not inherited that automatically makes it "ok", but it's the rules in place that determine how the spoils of war get divided.

[Danny]

Kramer - UK gdp is £2.1 trillion, there is no shortage of wealth which (leaving aside dynamic effects) could be concentrated.

The relevance of inherited wealth is that it shows dissipation of assets over time. That's morally important. It shows that the optimal policy for someone who a) is concerned about extreme inequality but b) recognises property rights and freedom to trade - is just patience.

[Jackart]

I think you're saying "the right" when you mean "Tories". The Tories have indeed thrown their belief in Free Markets to the populist wind, but those of us on the right who still believe in Free markets are mostly no longer Tories. We are, and always have been liberals. The "support for wealth" is just a liberal respect for property rights. In this respect the occasional Billionaire is just a lottery win for a few people. The idea you could create perfect competition, or such a situation would be desirable is, like all fundamentalisms, erronious. There is a lot of luck in the distribution of wealth, true. That doesn't mean a tax system or bureaucracy could do better.