A billionaire is a weird concept. To their supporters, they're the epitome of success, an indication of what someone can achieve if they have the right talent, work ethic and ingenuity. To their detractors, billionaires are nothing more than a policy failure, the very worst of capitalism and epitome of greed. Is it okay to have millions struggling to survive when a small number of people hoard a huge amount of resources? In this article I set out 5 reasons why billionaires shouldn't exist.
How much is a billion?
Firstly, let's try to wrap our heads around just how much £1 billion is - we hear it a lot but have we ever stopped to think how much it really is?
In the UK, we have traditionally had two definitions, a long scale and a short scale, and since 1974 we have primarily used the short scale, in-line with the rest of the world. A short scale billion is a thousand million, or put another way, £1bn is a millionaire a thousand times over.
And thats £1 billion. Most billionaires have multiple billions and Jeff Bezos has over £100bn at the time of writing. These are insane numbers.
We can look at it another way. The average British worker needs to work almost 400,000 years to earn the same amount as the richest Briton. In the US, the average American needs to work for 2.8 million years to earn the same as Jeff Bezos, while the lowest paid Amazon workers would have to work almost twice as long as that to earn how much their boss has made.
Do I think Jeff Bezos deserves to make more money? Absolutely. He had a great idea, innovated, and made himself a fortune. But is he two million times smarter, more innovative than the average American? Does he offer society two million times what a nurse or a teacher does?
I understand that many of these billions are linked to the values of a company and isn't the cash these individuals actually have to hand - and these billions are set by the market. But, these companies, like their founders, benefit from favourable tax (as well as loopholes) and policy environments that distort the share of wealth.
My issue isn't making money and getting rich - that's a cornerstone of a capitalist society that has raised living standards quicker than at any point in history. I don't have anything against the rich, but a billionaire? That's different.
My issue is with unregulated capitalism and an economic system that has allowed a handful of people to amass power far beyond what they have fairly earned.
Capitalism when done right works, and I don't think there's a better system out there. But a billionaire is a grotesque, monstrous consequence of capitalism done wrong. A billionaire is nothing more than an error - a policy failure.
Some are probably reading this now rolling their eyes thinking another hater blaming billionaires for his own failures. As I've mentioned in other articles, I've worked my way out from under the official UK poverty line, from a single parent household, out of council houses and into a job that places me comfortably in the top quartile of UK earners. I'm living comfortably regardless. I'm good.
But the poverty I've seen along the way makes me pretty frustrated at a system that allows one person to hoard so much wealth, while so many others are struggling to survive.
In this article, I'm going to debunk the five most popular myths people spout in support of the concept of a billionaire.
1. "People won't be incentivised to innovate"
Let's start with the one I hear the most. If you raise taxes, people won't be incentivised to innovate once they have made a certain amount of money.
You can become rich by innovating, but the truth is that you don't become a billionaire by innovating and producing - you become a billionaire when you control the means for others to produce.
Firstly, just under half of all the billionaires in the world inherited their wealth. They didn't innovate, they didn't produce anything, they just won the genetic lottery. And being born into money doesn't automatically make you smarter or more innovative than others. But it does allow you to control the means of production over others who might be smarter.
Daron Acemoglu and James Robinson in their excellent book "Why Nations Fail" suggest that a country's living standard grows most when economic systems are open and the smartest are able to rise to the top. But often, billionaires are able to get their kids into the best universities, use contacts to get them the best jobs, and pass on their companies to their kids - even if others have better attributes to do the same job. In the long run, having less than ideal people holding positions of power in the country means that the economy of the country begins to suffer.
For those self-made wealthy individuals that have innovated, having a high tax rate to do away with billionaires doesn't mean those people won't innovate, nor does it mean that a capitalist country will just fall apart.
Think of historical America. A strong successful, innovative, globally respected America. Where does your brain take you?
1940s? After all this is when it became the biggest military power in the world? Or, the 1950s? This is when its culture began to dominate the world? Maybe it's the 1960s when its financial and manufacturing prowess meant that it essentially propped up the rest of the world with aids, grants and loans, and managed to win a space race?
Well, the next time someone asks you to name a country where a big top rate of tax has worked, tell them about the United States in the middle of the 20th century. Because during those decades the top rate of tax in the US was 90%+ for much of the time, reaching 94% in the 1940s and hovering around 92% in the 1950s. Even at the end of the 1960s the highest rate of tax was at 77% - and this was the year the United States put a man on the moon!
Did the country fall apart? Were people disincentivised to work or innovate? Did the rich flee the country in their thousands?
Of course not. In fact, these were some of the most prosperous decades in the history of the country. It coincided with the quickest growth in GDP in the history of the United States. and US GDP slowed down around the same time the top rate of tax was reduced.
Yes, there's other variables, but the truth is the quickest sustained growth of wealth in the US happened when the top rate of tax was in the 90's - it wasn't a hindrance.
And if that wasn't enough, if billionaires paid the same rate of tax now that they did in the 1950s the US would have an additional $3 trillion to spend which is the same as the entire budget of the US in 2008.
2. "The money of billionaires trickles down so everyone wins"
Next, we move onto the reason why many governments have created an environment for billionaires to succeed - trickle-down economics.
This theory had its genesis in the 1980s with Thatcher and Reagan and sets out that tax cuts to the most wealthy spurs economic growth because billionaires and corporations are the big drivers of growth. The argument goes that billionaires create companies, that create jobs, they pay more taxes (more on that below) and so everyone is better off.
However, trickle-down economics has been debunked as a theory that looks good in textbooks but just doesn't work in real life - because people don't always behave like mathematical equations - we aren't rational beings.
Firstly, the obvious. In order for trickle-down economics to work, the money that billionaires earn needs to stay within a community, or at least within a country. The moment it leaves the country, trickle-down economics fails. So when billionaires begin to hoard money in off-shore accounts, they aren't spending it into the community, they aren't using it to innovate, they aren't paying taxes on it, and they aren't using it to create jobs. They are just sitting on big piles of cash - cash that could be put to better use elsewhere.
A study done by "Tax Research" suggests that high net worth individuals from around the world have hidden $11.5 trillion in off-shore tax havens. In Africa roughly 30% of the continent's wealth is hidden off-shore rather than being "trickled-down" into local communities to lift them out of poverty. In the UK, the loss of tax resulting from this hoarding is about £8.5 billion each year. Put it another way, it's roughly a quarter of what the Government spends on housing and the environment. So it's a massive amount.
A second reason is that even the maths doesn't hold up anymore. The IMF finds that increasing the wealth of the working class and middle class grows the national economy much more than increasing the wealth of billionaires. In fact, increasing the wealth of billionaires actually reduces GDP growth in the long run. Even the person who invented the theory of trickle-down economics, Art Laffer, admits that if taxes for the wealthiest are reduced too much, then the economy suffers.
3. "They pay a lot of taxes"
This one is true, billionaires do pay a lot of taxes - but it's only part of the picture.
As we've already explored, much of the tax billionaires should be paying is hidden away in off-shore accounts. So we already know that they aren't paying tax on all the money they earn. But the picture is actually worse than that. In fact, billionaires pay proportionally less tax than the middle class and the working class in the UK. In the US the average billionaire pays 23% in income tax, compared to 28% that the average American pays. Warren Buffet himself said that billionaires are paying proportionally less in tax than the average person.
What reduces the tax burden further on billionaires is that the tax rate on income is just one element of the tax system. It means that things like wealth and inheritance are relatively untouched. It brings on exactly the type of environment we mentioned in point 1 - it keeps the means of production and money in an exclusive club, whether they have earned it or not.
The craziest thing is that some billionaires themselves are asking Governments to raise taxes for them. They believe that increased taxes on their wealth will help fund health and education for all. Now, it's not all billionaires saying it, but the ones that are include Warren Buffet, Bill Gates and George Soros. You know things are messed up when the people who have benefited most from this system are holding their hands up and saying 'yep, this is messed up'.
Think about it this way - wealth inequality now is as bad as it was during the Victorian age. You know the age of chimney sweeps and 'please sir, can I have some more'. You think of those soot blackened faces and wonder how they allowed such an environment to exist - and yet that's exactly the environment we live in now. Sure living standards have risen for all, but imagine what it could have been like in a fair tax system.
While tax rates were high on top earners wealth inequality was closing and in the 1970s was the smallest in recorded history - but it has since widened and continues to grow. We live on a planet with finite resources.
If we simplify what's happening to 100 people on the planet we can illustrate just how crazy the situation is.
If at the start of the 20th century those 100 people were told there were 100 coins they had available, how angry would you be if one person decided to keep 25 for themselves because their parents were something special, or they came up with one good idea?
You'd then get a few people getting to keep a couple of coins, most getting 1 coin and a sizeable amount with no coins at all. Now imagine half a century later them being told another 100 coins are available due to the hard work of all. How pissed would you be if that person took another 25 (owning 50/200 coins), while everyone else took either two coins or 1 coins - with some without any.
Imagine the cheek if that person with 50 coins turns around and says, well most of you had 1 coin before, you now have 2 or even 3 - the system works, your living standard has improved.
People would be swinging limbs, right?
And yet, we sit here quietly accepting it. A progressive and fair tax rate would distribute those coins more evenly. Maybe that person ends up with 25/200 coins instead of 50/200 - still far more than anyone else. But others get 5-6 coins, and those without any coins get some too. With those 5-6 coins, those people are more likely to be able to innovate and create new ideas and make the whole population of 100 richer with even better living standards.
4. "They give a lot of money away"
Again, this is a true statement. Bill Gates and Warren Buffet have both pledged to give away 99% of their wealth and Mark Zuckerberg has pledged to give away most of his money.
First of all, a lot of the money pledged by these billionaires is never spent wisely. No one knows a local community like local people and local councils. It's why, when Mark Zuckerberg donated $100 million to improve schools in New Jersey, the majority of money went on administration, like consultants, and very little actually found its way into the school system.
Think about it, when billionaires are giving away most of their wealth, they are giving away money created in a system that benefited them, money they probably should have been paying in taxes anyway.
Now if that money is paid in taxes, it's spent by the Government, which is supposed to represent the people. If we don't agree with how they spend that money, we can vote them out of power. The Government are accountable to the people and they need to justify how they spend their money.
Society might think that money needs to be spent on health or the environment. But a billionaire might decide to give substantial amounts of money to Oxford University or Harvard - places they've studied, where their money is most likely to benefit other rich students. They might decide the money is best spent supporting museums that hold stolen artefacts from around the world - and if they give enough, they might just get a wing in the museum named after them.
One person shouldn't have that much power. Today they might be funding museums, tomorrow they could fund politicians with questionable manifestos, as they have done in the past.
Billionaires might argue that it's better for them to give money away than less capable people in Government. Now, I'll be the first to admit that Government isn't usually led by the best and brightest, but billionaires aren't a special breed. You're either the half who inherited wealth, or you were very good at one thing - and if you're good at one thing (e.g. creating and marketing a social network) it doesn't mean you'll be good at other things (e.g. improving the education system of New Jersey).
If you combine this with the issues around tax, the truth is the billionaires aren't giving away their money, they are giving away your money - but you have no say in how this money is spent. This is money they've earned through controlling the means of production, and money that's been allowed to grow due to the quirks of an imbalanced economic system. In a capitalistic society that has the appropriate regulation in place, more people would have a say on how this money is spent.
5. "They'll just move to another country"
When the top rate of tax was 92% in 1950s America, the rich didn't just get up and leave. It's an easy threat to make, but much of the time they have extensive personal or business connections in their home country to not be able to do that. For example, the Duke of Westminster derives most of his wealth from land ownership in the UK - no matter where he goes, the income derived from his portfolio will always come from the UK. And studies support the fact that increasing tax on the super-rich does not mean they'll leave the country they call home - 84% of the world's billionaires still live in the country of their birth, and of those that have moved, the majority moved before they became billionaires.
The data just doesn't support the statement that they will leave.
But the only way to guarantee that billionaires won't leave is to have a globally harmonised approach to taxing billionaires, and that's unlikely to happen.
But let's say a few billionaires decide to leave, is that really so bad?
All that does is free up space for young entrepreneurs to step up, innovate and make wealth of their own. It allows for real talent to once again rise to the top, and fair taxes on wealth and inheritance will ensure that in every generation the best and brightest are able to lead, innovate and grow the economy in a way that benefits all.
If you already thought the notion of a billionaire was weird, then this article hopefully just reinforces that. If you hadn't thought about it before, I'd encourage you to do your own research and come to your own conclusions, but I hope this provides you with a starting point. And if you're pro-billionaire, well if nothing has convinced you before, I doubt this will convince you either.
But what's the solution? What's fair?
I said it at the start and I'll say it again. The solution isn't to get rid of capitalism, because capitalism done right works. But at the moment, capitalism isn't being done right. The rich are being subsidised and are able to keep the wealth spread between them - call it socialism for the rich.
The solution to me is simple - a fair and progressive tax rate. I could write a big long conclusion, or I could link you to Rutger Bregman who did a fantastic job of calling billionaires out in Davos - the billionaire's 'safe space'.
A second solution is to link founder/CEO pay to the lowest paid person in the company, for example the highest paid person can't be paid more than say 50 times the salary of the lowest paid. This can put a drag on inequality, while ensuring incentives are in place for CEOs to continue growing their companies. It doesn't tackle wealth or inheritance issues, but would be a decent start.
A billionaire isn't an inevitability, it's a policy failure. A failure on our part to hold the powerful to account and make the changes necessary to establish a fairer world. But it isn't too late.
British Sikh in my twenties, born in the Midlands, based in London, travelling the world seeing new cultures.