Does anyone deserve to be rich? There is a widespread belief in a distinction between the deserving and the undeserving rich. And it goes far beyond the ancient debate over egalitarianism or socialism. Even for those who are happy to accept capitalism, and the idea that some will be richer than others, there is still a sense that some of the wealthy do not deserve their status.
This was rammed home to me after a generally positive column I wrote last year about the Mexican telecommunications magnate Carlos Slim, who had just been named the world’s richest man. He is a great investor. However, he owes his wealth in large part to the decision by the Mexican government to sell him the national telecoms monopoly without, at first, creating any competition. He went on to exploit that by levying phone bills that many regarded as excessive, particularly in a poverty-stricken developing nation.
One e-mail asserted that, given the way I had written it, “anyone would think he actually deserved to be rich”.
There have been many botched privatisations in emerging markets, but none have enriched their beneficiaries as much as Slim. There is more to him than that, but it is easy to see why people consider him undeserving.
This leads to a more profound problem: does anyone else deserve to be rich? Earlier this month, Forbes published its annual list of the world’s wealthiest people, and it showed that by the end of last year the investor Warren Buffett had narrowly overtaken Slim (Buffett has $62bn to Slim’s $60bn,
according to the magazine). Bill Gates, the co-founder of
Microsoft and the world’s richest man for more than a decade, had dropped to third.
The top 25 included four Indians and seven Russians. Did any of these men (and one woman) do anything more
than follow the logic of capitalism? If you want to amass money, your aim is to extinguish the competition, putting yourself in a position where you can set the price.
Buffett labels this the “wide economic moat”: he looks for companies that have such strong competitive advantages that they can repulse challengers and maintain their margins. All the world’s richest people have economic moats that make them almost impregnable. This does not make them popular.
In some cases, the moat has even been built by someone else. This is the case for Gates, whose moat was built for him by IBM. It is obviously the case for Slim, whose moat was dug for him by the Mexican government. And it is also the case for many Russian oligarchs.
Former holders of the “world’s richest” title do not seem much more “deserving”. John D. Rockefeller, for example, became so dominant over the oil industry that he more or less forced the US to invent the concepts of antitrust and competition policy. He showed that the logic of competition is to try to reach a point where there is no competition.
Even “self-made” monopolists tend to become so dominant that they are unpopular. This is true of Sam Walton, founder of Wal-Mart and once the world’s richest man, and Ingvar Kamprad, founder of Ikea and currently ranked seventh. Both came up with great business models that produced companies that are so dominant that few people appear to love them – even though they use their services.
Even the case of Buffett gets more complicated on close examination. He did not stumble into one single monopoly position, and his $62bn fortune was only amassed with remarkable skill. But his first forays into investment were through limited partnerships, which would now probably be called “hedge funds”. He still indulges in the kind of trades that elicit distaste when they are perpetrated by hedge funds – for example, last year he made $100m by betting that the Brazilian real would appreciate against the dollar.
And his big long-term investments are in companies with wide “economic moats” which, as we have already established, are rarely loved, and sometimes deeply unpopular.
Slim named a key strategy he used to establish América Móvil’s dominance the “Gillette plan”. They would sell phones cheap and then recoup their investment because customers now had no choice but to buy the company’s Ladatel pay-as-you-go phone cards. This was
modelled on Gillette’s practice of selling relatively cheap shavers, and then making its money on the replacement razor blades.
All these fortunes have been made in accordance with the law. So it becomes difficult for anyone who accepts capitalism to say any of these people do not deserve their wealth.
Rather than the way in which it was gained, it is in the way the wealthy use
their money that, it appears, we can hold them undeserving. Andrew Carnegie, one of the first great capitalists, said more than a century ago that “the man who dies rich dies disgraced”. In other words, there is nothing wrong with coldly applying the logic of self-interest to make yourself rich, but you have to give it away before you die.
Buffett, a populist who once cheerfully told a rally for Hillary Clinton that he was “very undertaxed”, seems to fit neatly into the Carnegie tradition. He has even told Congress that it should not repeal the estate tax because “dynastic wealth, the enemy of a meritocracy, is on the rise.”
He also, according to Forbes, dared the 400 richest Americans to admit they paid less tax, as a percentage of income, than their secretaries. He promised to give $1m (not a huge sum for a man with $62bn) to charity if they did.
So, dynastic wealth is out. Those who inherit wealth do not deserve it.
Instead we seem to expect the truly rich to give their money away. That is how names once tagged as “robber barons” transform themselves into the founders of great philanthropies, such as Carnegie or Rockefeller.
There appear to be different rules for the rest of us. In the US, it is popular to argue against the “death tax”. In the UK, the Conservative party has scored a palpable political hit by promising to raise the threshold at which inheritance tax becomes payable.
And Slim, intriguingly, seems to be on the other side of the question from Buffett. Speaking to the FT’s Adam Thomson last year, he said: “Listen, regardless of whether I am first or 1,000th, I am not going to take anything with me to the grave. As far as I know, I am not going to take anything. Now, creating, investing, creating companies with value, creating value, that is separate from whether you are first, fourth, fifth. That is work, it is your responsibility and your commitment.”
Slim has turned his attention increasingly towards work that will aid the development of Mexico and the rest of Latin America, and has enjoyed a huge success with the revival of his native district in Mexico City. But he does not describe this as a philanthropic endeavour. Instead, he calls it a “social investment”, and he may well profit from the big real estate investments he has made there.
Slim, unlike Gates or Buffett, employs his children in the running of his businesses. And he does not apologise: “Somebody asked me, I think it was a journalist, whether I was going to leave money for my children. When you leave a company to them you leave them responsibility and commitment. That’s what a company is. It is work, responsibility and commitment.”
I will leave it to readers to decide whether Carlos Slim deserves to be rich. Beyond him, the complicated accommodation that the world seems to have made with the very wealthy, for now, is that it is all right to be very rich. They need not be ashamed of playing the game of capitalism, even if this is sometimes a little unpleasant. But amassing great wealth does bring with it the obligation to give it away, without passing it on to heirs.
That implies ever greater attention to the management of huge fortunes, and the gradual professionalisation of philanthropy. And for the wealth management industry, which has much to gain from both trends, this is an accommodation devoutly to be wished.
