Opinion     

Billionaires don't necessarily boost growth

China Daily, July 24, 2015

• The richest 1 percent will soon hold more than half of the world's wealth, and their share will continue to grow. This raises some key questions: Is a higher number of billionaires in a country a positive, as some might argue? Or is there evidence to suggest it is a negative? Leaving aside moral questions, do billionaires accelerate or slow down a country's economic growth?

  If it turns out that having more billionaires does not favor higher GDP growth, then the policy suggestion to reduce wealth concentration at the top moves from a moral argument to one about economic growth and prosperity.

  This is the set of questions that I, along with Sutirtha Bagchi of Villanova University, Pennsylvania, have examined. Using data on billionaires published by Forbes magazine, we applied econometric techniques and reached a conclusion that will perplex some and delight others: A greater presence of billionaires in a country actually slows down its economic growth.

  Controlling other relevant factors, such as the country's level of income and education, we have shown that countries' economies could grow faster if less money was controlled by the uber-rich. This implies that economies could be more efficient if more money were allocated to others than those at the top of the income and wealth pyramid.

  Other key factors to be considered are the sources and nature of inequality. Indonesia and the United Kingdom, for instance, have a similar value of the most widely used indicator of income inequality (the so-called Gini coefficient). But the two countries differ markedly on the role that political connections play in achieving economic success and, as a result, the distribution of income and wealth.

  Broadly speaking, billionaires are of two types - those who would not have made it without political connections (that is, political cronies), and those who became billionaires because of their ingenuity, ability to innovate and willingness to take risks (that is, the politically unconnected).

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