Capitalist Pigs

Forbes magazine recently published it's annual listing of the 400 wealthiest Americans. The results are summarized here.

In reviewing this list I am stuck by several things. I'm am struck by just how wealthy some of these people really are. I'm struck by those who were on the list 20 years ago who are not there now. I'm struck by the fact that many of those there now were not even known as recently as 10 years ago. I'm struck by how many of these people represent first generation wealth. I'm struck by the incredible contributions that most of these 400 people have made to the world.

And, most importantly, I'm struck by how this simple list, when read in light of all previous such listings by Forbes, demonstrates beyond any doubt the awesome power of capitalism while completely undermining the the premises of socialism.

The traditional complaint against capitalism is that the game of life is "rigged" in favor of the wealthy--only those from "privileged" backgrounds have any chance of competing. To quote the trite socialist slogan, "the rich get richer and the poor get poorer." But, looking at the Forbes listing, it appears that nothing could be further from the truth. In a capitalist country like the United States, wealth is dynamic. Adam Smith's "invisible hand" constantly reallocates wealth to society's most productive members--those who contribute the most to the overall good while pursuing quot;selfish" objectives. And that same hand takes from those who don't make productive use of their wealth, be they currently wealthy or not.

Those who can't or won't recognize this obvious fact preach socialism. They argue that government intervention is required in order to level life's playing field and insure equal "opportunity" for all. In reality, however, socialism does nothing to promote equal opportunity, rather just the opposite. Socialism tends to simply cement the status quo. Those who are already ultra-wealthy when socialist policies are implemented can easily afford to pay the required higher taxes (or find creative ways to avoid them altogether). On the other hand, under socialism, the middle class stands very little chance of ever becoming wealthy--very few have figured out how to compete against the "big boys" and thereby accumulate wealth while paying two-thirds or more of their comparatively meager incomes in taxes.

And so, in socialist countries, it's the wealthy, as well as the poor, whose social position is"protected" by the government's tax and social policies. The status quo is largely fixed. Wealthy socialists don't have to risk their wealth by putting it to productive use for the common good and are instead free to hoard it. In short, in socialist countries the wealthy really do get wealthier (or at least never lose their wealth), and everyone else largely stagnates. This explains why so many of the ultra-wealthy often preach socialism--people like George Soros.

Last year I sorted Forbes' annual listing of the world's billionaires by country and noted whether their wealth was self-made or inherited. Here's last year's list for the United States:

1) Bill Gates & family--Self Made--Microsoft
2) Warren Buffett & family--Self Made--Berkshire Hathaway
3) Sheldon Adelson& family--Self Made--Casinos, Hotels
4) Larry Ellison & family--Self Made--Oracle
5) Paul Allen& family--Self Made--Microsoft
6) Walton Family--Inherited--WalMart
7) Sergy Brin & family--Self Made--Google
8) Larry Page & family--Self Made--Google
9) Michael Dell & family--Self Made--Dell
10) Steven Ballmer& family--Self Made--Microsoft
11) Kirk Kerkorian & family--Self Made--Investments, Casinos
12) Jack Taylor & Family--Self Made--Enterprise Rent-A-Car
13) Carl Icahn--Self Made--Leverage Buyouts
14) Abigail Johnson & family--Inherited--Fidelity Investments
15) Cox Family--Inherited--Cox Enterprises
16) Koch Family--Inherited--Oil, Commities
17) Mars Family--Inherited--Candy
18) Charles Ergen & family--Self Made-EchoStar
19) Philip Knight & family--Self Made--Nike
20) John Kluge & family--Self Made--MetroMedia
21) Rupert Murdoch & family--Self Made--News Corp
22) Pierre Omidyar & family--Self Made--Ebay
23) Donald Bren & family--Self Made--Real Estate
24) George Kaiser & family--Self Made--Oil & Gas
25) George Soros & family--Self Made--Hedge Funds
26) Dan Duncan & family--Self Made--Energy
27) Sumner Redstone & family--Self Made--Viacom
28) Philip Anschutz & family--Self Made--Investments
29) Edward Johnson III & family--Self Made--Fidelity
30) Newhouse Family--Inherited--Publishing
31) Leonard Blavatnik--Self Made--Access Industries
32) Ronald Perelman--Self Made--Leveraged Buyouts
33) Eric Schmidt--Self Made--Google
34) Eli Broad--Self Made--Investments
35) Micky Arison--Inherited--Carival Cruises
36) Steven Jobs--Self Made--Apple, Pixar
37) Charles Johnson--Self Made--Franklin Resources
38) Robert Bass--Inherited--Oil, Investments
39) Michael Bloomburg--Self Made--Bloomburg
40) Robert Rowling--Inherited--Oil & Gas
41) Bradley Hughes & Family--Self Made--Public Storage4
2) Joe Menard Jr.--Self Made--Home Improvement Stores
43) Charles Schwab--Self Made--Discount Brokerage
44) Ralph Lauren--Self Made--Fashion
45) Samuel Zell--Self Made--Real Estate, Private Equity
46) David Geffen--Self Made--Movies, Music
47) Lester Crown & family--inherited--Investments
48) James Goodnight--Self Made--SAS Institute
49) Herbert Kohler & Family--Inherited--Plumbing Fixtures
50) Edward Lampert--Self Made--Investments
51) James Sorenson--Self Made--Medical Services, Real Estate
52) Ty Warner--Self Made--Beanie Babies
53) Jeffrey Bezoz--Self Made--Amazon
54) H. Ross Perot--Self Made--EDS
55) Robert Holding--Self Made--Energy, Resorts, Banking
56) David Murdoch--Self Made--Investments
57) Matthew Bucksbaum & family--Self Made--Real Estate
58) William Davidson--Inherited--Glass
59) Robert Shultze--Self Made--Best Buy
60) Harold Simmons--Self Made--Investments

So, of the United States 60 wealthiest individuals, an amazing 48, or 80%, are self-made while only 12 inherited their wealth.

How does this record compare with that of a highly socialist country, like France? Here's last year's complete list of French billionaires:

1) Bernard Arnault & family--Inherited--LVMH
2) Liliane Bettencourt & family--Inherited--L'Oreal
3) Francois Pinault & family--Self Made--Retail
4) Serge Dassault & Family--Inherited--Aviation
5) Alain & Gerard Wertheimer & family--Inherited--Chanel
6) Jean-Claud Decaux & Family--Self-Made--Advertising
7) Martin & Olivier Bouygues & family--Inherited--Construction, Media
8) Gerard Louis-Dreyfus & family--Inherited--Commodities
9) Pierre Bellon & family--Inherited--Food Services
10) Didier Primat & family--Inherited--Oil
11) Phillipe Foriel-Destezet & family--Self Made--Temp Agency
12) Marc Ladriet de Lacharriere & family--Self Made--Finance
13) Vincent Bollore & family--Inherited--Investments
14) Alain Merieux & Family--Inherited--Biotech
15) Romain Zeleski& family--Self Made--Investments

As one might suspect at this point, only 5, or 33%, of France's billionaires sere self-made. All the rest inherited their wealth. This is fully consistent with my premise that socialism protects the wealthy at the expense of opportunity.

Given this premise, we would expect that the billionaires of a country more socialist than the US but less socialist than the France would fall somewhere in between the two, and that's exactly the case. For instance, the following is a listing of the UK's top 15 billionaires last year:

1) Gerald Cavenish Grosvenor & Family--Inherited--Real Estate
2) Phillip & Christina Green & Family--Self Made--Retail
3) David & Simon Reuben & Family--Self Made--Real Estate & Investments
4) Simon Halabi & Family--Inherited--Real Estate
5) Richard Branson & family--Self Made--Virgin
6) Charles Cadogan & family--Inherited--Real Estate
7) Bernard Ecclestone & family--Self Made--Formula One
8) Nadhmi Auchi & Family--Self Made--Various
9) Barclay Family--Self Made--Media, Retail
10) Clive Calder & Family--Self Made--Record Label
11) Bruno Schroder & Family--Inherited--Banking
12) Joseph Lewis & family--Self Made--Finance
13) John Whittaker & family--Self Made--Real Estate
14) John Caudwell & family--Self Made--Mobile Phones
15) David Sainsbury & family--Inherited--Supermarkets

So, while an amazing 66% of France's billionaires inherited their wealth, only 33% of the UK's did, and only 20% of the US's did. I have not done this analysis for every nation's billionaires, but intuition tells me that the correlation I've identified will hold true.

To conclude, the idea that socialism somehow insures more equal opportunity is demonstrably false. Socialism purports to be interested in the "little guy" when in fact it is a system designed to create barriers to entry which, by their very nature, insure that the little guy will almost never become big, and even more despicably, that the big guy will almost never become little. Thus, socialism protects the vested interests of the elite by restricting class mobility. In this sense, socialism is, at least economically speaking, nothing more than a modernized form of feudalism, and, it suffers from feudalism's two central problems--stagnant growth and lack of economic mobility

By contrast, capitalism is the "fairest" economic system devised or discovered because it allows maximum economic freedom for all individuals while insuring that the most successful and competitive only become so, and stay so, by constantly improving the lives and standard of living of the less competitive among us.