Are billionaires good for growth?

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Rich People, Poor Countries

We are living in a world where the largest corporations are larger and the richest entrepreneurs are richer than ever before – and an increasing number of billionaires are based in emerging countries. Who are these tycoons and how important are they to their economies?

A new book by Caroline Freund aims to answer these questions by examining the characteristics and impact of 700 emerging-market billionaires whose net worth adds up to more than $2 trillion.

Rich People, Poor Countries: The Rise of Emerging-Market Tycoons and Their Mega Firms finds that very large firms are export superstars in their home countries.

In the United States the top 1% of firms account for 80% of exports. In emerging countries, the top 1% account for 50% of exports but that figure is rising rapidly, Freund said at a book launch at the World Bank’s Infoshop on March 23.

Emerging market firms include Alibaba, started by a teacher and 18 friends and now larger than Walmart and GE; Alibaba’s founder, Jack Ma, is the richest man in China, with an estimated wealth of $21 billion. Dilip Shanghvi started pharmaceutical company Sun Pharma with a $1,000 loan from his father; it’s now a $27 billion company and Shanghvi is the second wealthiest man in India, worth $12.8 billion. The Zorlu Group in Turkey, a major exporter of appliances, employs 30,000 people and accounts for 3% of Turkey’s manufacturing exports; founder Ahmet Nazif Zorlu is worth $2 billion.

Such entrepreneurs are part of a new billionaire class displaying the same kind of “capitalist skills” usually associated with advanced economies – innovation, creativity, and ingenuity, says Freund, a senior fellow at the Peterson Institute for International Economics and former World Bank chief economist for the Middle East and North Africa region. She estimates about a third of the mega-rich tycoons in emerging markets are “self-made” entrepreneurs who, like Ma, Shanghvi, and Zorlu, founded companies or are company executives.

She divides the other two-thirds into the following categories: people who inherited wealth; government-connected billionaires whose wealth derives from natural resources, privatizations, or other connections to the government; and finance and real estate billionaires.

Among the BRICS countries, Russia has the most resource-related, politically connected wealth. China has the greatest share of company founders and executives. Brazil has a large share of billionaires with inherited wealth (47.7% in 2014), and India is a mix of company founders and inherited wealth.

The Middle East and North Africa is the only emerging-market region where the share of inherited wealth is increasing and entrepreneurship is declining, says Freund. Self-made billionaires in the region are highly dependent on resource-related and politically connected wealth.

Crony capitalism, in which the wealthy and powerful use political connections to distort government regulation and taxation, reduces productivity and harms growth, Freund says.

Overall, individual firms matter and large firms are good for growth, she argues. A large highly productive firm is more efficient than 1,000 smaller firms, and development is spurred when resources are drawn to the best firms.  “The emergence of rich people and rich companies in poor countries is a reflection of a healthy economy.”

Or, put another way, entrepreneurs and mega firms are the source of industrialization. Freund says it’s very hard to find examples of countries that got richer without the emergence of extreme wealth.

How to make sure extreme wealth plays a beneficial role? Freund recommends policies that could work: promoting entrepreneurship; limiting cronyism, and taxing less productive sources of wealth more heavily – such as inheritance.

This book – and Freund’s new database on the characteristics of billionaires -- is food for thought as we debate how to reduce inequality. 

Join the Conversation

Mohamed O. Msekeni
April 02, 2016

<p>Emerging economy in the world is mostly driven by the Private Sector at about more than 65% of each particular country's economy. That constitutes those 700 Billionaires with US$ 2 Trillion net worth fortune.<br />
Extreme wealth (Billionaires wealth) can play beneficial role if it becomes more inclusive. This inclusiveness can be by jobs creation and economic contribution through GDP Revenue and Taxes to particular Countries.<br />
Provided that the Private Sector (Billionaires) in emerging economies constitute big proportion of economic driving force and ownership, more than 65%. This inclusiveness could remove the paradox of "Rich people poor Countries".</p>

Mohamed O.Msekeni
April 02, 2016

<p>Definitely, Billionaires are good for growth if they facilitate "Baseline shared prosperity". This is inclusiveness by contributing to the societies by decent jobs creation and contributions to respective Nations economy through revenues (GDP) and Tax.This will overcome the bad clause 'Rich people poor countries' to realize that Billionaires are good for growth.</p>

Mohamed O.Msekeni
April 02, 2016

<p>Definitely, Billionaires are good for growth if they facilitate "Baseline shared prosperity". This is inclusiveness by contributing to the societies by decent jobs creation and contributions to respective Nations economy through revenues (GDP) and Tax.This will overcome the bad clause 'Rich people poor countries' to realize that Billionaires are good for growth.</p>

Prabhavathy Ramakrishnan
April 03, 2016

<p>large companies may provide, employment, growth, and modern technologies which are crucial for human well being. But i think that small firms are more in tune with the sustainable development, by decentralzation of production process and localization of value chain. They use locally available resources, simple manufacturing/ production process, and local distribution of their products, thereby ensuring a complete circular movement of resources/value.<br />
but when it comes to technology these small firms cannot compete with technologically advanced corporations.<br />
it is not viable for small firms to produce certain products, which needs a large organizational set up and manufacturing units. eg.automobile industry, extractive industries. but there are products that they can produce sustainably and environment friendly. likewise for large manufacturing companies, they are capable of producing daily use products like food items, personal hygiene products with large economy of scale. But if the small firms/ informal sector are<br />
encouraged to do the same, they can produce it more naturally and locally.</p>
<p>Large number of billionares in poor countries means the wealth is being concentrated in a few hands. but a large number of profitable, efficient and sustainable small firms in a poor country means, their economy is being developed from the bottom/base.</p>
<p>i feel that the future belongs to the informal sector/ small scale firms, which has the enormous potential to move towards a green path.</p>

Mohamed O. Msekeni
April 02, 2016

Emerging economy in the world is mostly driven by the Private Sector at about more than 65% of each particular country's economy. That constitutes those 700 Billionaires with US$ 2 Trillion net worth fortune.
Extreme wealth (Billionaires wealth) can play beneficial role if it becomes more inclusive. This inclusiveness can be by jobs creation and economic contribution through GDP Revenue and Taxes to particular Countries.
Provided that the Private Sector (Billionaires) in emerging economies constitute big proportion of economic driving force and ownership, more than 65%. This inclusiveness could remove the paradox of "Rich people poor Countries".

Arthur Mboue
May 14, 2019

<p>Hard working and successful people including Billionaires are good for the economy and the poors. People must know that if they work hard enough or are lucky they can get a decent living standard like any successful person (or Billionaire). It will help productivity and reduce demand for Gov't assistance (easy way out) instead of hard work. For instead, we, market innovators are asking ourselves why the World Bank has not have any market oriented leader since Jim Wolfensohn era. We feel hurt, may not contribute enough under the leadership of anthropologists (World bank CEO, US directors,...). It is a way it works.<br />
Billionaire can help<br />
Arthur Mboue</p>

Arthur Mboue
May 14, 2019

Hard working and successful people including Billionaires are good for the economy and the poors. People must know that if they work hard enough or are lucky they can get a decent living standard like any successful person (or Billionaire). It will help productivity and reduce demand for Gov't assistance (easy way out) instead of hard work. For instead, we, market innovators are asking ourselves why the World Bank has not have any market oriented leader since Jim Wolfensohn era. We feel hurt, may not contribute enough under the leadership of anthropologists (World bank CEO, US directors,...). It is a way it works.
Billionaire can help
Arthur Mboue

Mohamed O.Msekeni
April 02, 2016

Definitely, Billionaires are good for growth if they facilitate "Baseline shared prosperity". This is inclusiveness by contributing to the societies by decent jobs creation and contributions to respective Nations economy through revenues (GDP) and Tax.This will overcome the bad clause 'Rich people poor countries' to realize that Billionaires are good for growth.

Mohamed O.Msekeni
April 02, 2016

Definitely, Billionaires are good for growth if they facilitate "Baseline shared prosperity". This is inclusiveness by contributing to the societies by decent jobs creation and contributions to respective Nations economy through revenues (GDP) and Tax.This will overcome the bad clause 'Rich people poor countries' to realize that Billionaires are good for growth.

Younouss M Magassa
April 02, 2016

Depuis le New Deal le monde occidental est contrasté par la prédominance du modèle Friedmanien qui a mis au rebut le keynésianisme. Personne ne se pose la question d'un retournement de tendance parce que tout simplement l'économie en bénéficie souterrainement. Là où se pose l'interrogation fondamentale, c'est à quel frais?
Les 1% exploitant les 99%. Je pense que cela est une raison évidente que la politique change maintenant en faveur de l'équité social.

Anonymous
April 02, 2016

tres bonne analyse

Prabhavathy Ramakrishnan
April 03, 2016

large companies may provide, employment, growth, and modern technologies which are crucial for human well being. But i think that small firms are more in tune with the sustainable development, by decentralzation of production process and localization of value chain. They use locally available resources, simple manufacturing/ production process, and local distribution of their products, thereby ensuring a complete circular movement of resources/value.
but when it comes to technology these small firms cannot compete with technologically advanced corporations.
it is not viable for small firms to produce certain products, which needs a large organizational set up and manufacturing units. eg.automobile industry, extractive industries. but there are products that they can produce sustainably and environment friendly. likewise for large manufacturing companies, they are capable of producing daily use products like food items, personal hygiene products with large economy of scale. But if the small firms/ informal sector are
encouraged to do the same, they can produce it more naturally and locally.
Large number of billionares in poor countries means the wealth is being concentrated in a few hands. but a large number of profitable, efficient and sustainable small firms in a poor country means, their economy is being developed from the bottom/base.
i feel that the future belongs to the informal sector/ small scale firms, which has the enormous potential to move towards a green path.

Walter Ceballos
April 03, 2016

Sin duda que la carga impositiva de ganancias debe ser muy progresiva sobre las megaganancias pero, además, deberíamos diferenciar la alicuota de ganancias entre las rentas obtenidas de diferentes actividades, por ejemplo el que agrega valor debería tener un gravamen de ganancias menor que el desarrolla ganancias obtenidas de procesos extractivos primarios.

ابراهيم محمد عبدالله
April 05, 2016

الصبر والعمل والاخلاص في العمل وقبل من كل هذا التوفيق من الله تعالي

KEITA
April 05, 2016

taxer lourdement les entreprises moins productives ne serait-il pas un moyen de freiner la promotion des PME ?

Yannick GOY
May 14, 2019

Je pense que cela aura un effet négatif sur l'idée même d'entrepreneuriat. Car en Afrique nous faisons face aux produits occidentaux et la plupart de nos micro-entreprises ne sont pas subventionnées par nos gouvernants. Les taxées lourdement, comme vous le suggérez, ne peux que les ruinées et les poussées à la fermeture car les produits que nous exportons sont pour la plupart soutenus par leurs gouvernements.

Anonymous
April 08, 2016

les riches ont le devoir d'aider les pauvres.une telle situation donne un sens à leur vie.sans pauvre il n' y aura pas de riches et vice versa.
il faut donc un impôt en fonction du train de vie et non en fonction de la richesse.
la fiscalité doit apporter une solution.
mais l’économie aussi a une responsabilité la plus lourde .
elle doit penser à une autre forme de récompense du travail compte tenue de la nouvelle donne du travail et de la peine .

Demba BA
April 08, 2016

Les lois de développement socio économiques mises en évidence par Karl Marx dans ses écrits et qui l'ont amené à écrire:" prolétaires de tous les pays unissez vous", ne peuvent être ignorées. Elle sont objectives.Tout est de savoir quelle attitude adopter? Surtout pour nous autres économistes des pays en développement(ou qui aspirent au développement.
les dernières crises économiques, 2007-2009,et l'attitude des décideurs dans les pays développés les plus touchés par cette crise, montrent que nous sommes tous à la recherche d'un mode de gestion sociétale qui allie la productivité et le social au bénéfice des populations. Mais malheureusement dans cette recherche personne ne détient la clé. On avance en tâtonnant, en faisant des erreurs et en les corrigeant.
d'où l'importance des évaluations qui permettent d'éviter la répétition des erreurs et de les limiter.

Ndiaye
April 11, 2016

La banque mondiale n'a t'elle pas une responsabilité dans cette situation ?
D'une part du fait des privatisations qu'elle a préconisées et qui enrichit davantage ces multinationales ?
D'autre part du fait de son système de prêt qui nécessite des experts de haut niveau et dont elle ne se préoccupe pas suffisamment de la formation pour ceux qui sont choisis ?
La conséquence est que les retards s'aggravent, les remboursements aussi, les intérêts croissent, au détriment des populations qui sont ceux qui remboursent le prêt, et sans pour autant bénéficier des retombées des projets.

Luis Alberto Loza J.
May 30, 2016

La economía de escala es el motor que impulsa la formación de MEGA-EMPRESAS; por supuesto,el poder económico,mayor eficiencia y productividad que esto provoca, permite que impongan las condiciones a los países menos desarrollados,especialmente en la explotación de las materias primas: minería, petróleos productos agrícolas de exportación etc. El reciente super-desarrollo económico de China, parece cimentarse mas bien en el mercado potencial que una población superior a los 1.300.000.000 millones de habitantes, representan un mercado de consumidores que podrían ser el principal atractivo para las mega empresas si solamente su ingreso per-cápita llegase al 40% del de USA.
Asia podría ser el continente que lidere el mundo económico en el próximo futuro, si juntos manejan la tecnología, el mercado interno,y una distribución equitativa de la riqueza.
Los países como Ecuador, podemos vivir con equidad, sin una gran riqueza; pero con la certeza de seguridad alimentaria, vida saludable, educación, seguridad, entretenimiento etc. personalmente creo que es lo principal.