Introduction
A key characteristic surrounding the wealth inequality debate is the extent to which personal initiative and productivity contribute to the amassment of vast fortunes. The associated debates have raged since the Gilded Age, which was characterised by the rise of vast wealth holdings amongst the few in the United States (US). Andrew Carnegie, for example, is often quoted as saying, âPeople who are unable to motivate themselves must be content with mediocrity, no matter how impressive their other talentsâ. In stark contrast to the previous economic system of feudalism, in which feudal lords extracted rents from serfs through rights and privileges bestowed by kings, under the capitalist system any individual could pursue great fortune solely through success in commerce. This element of human agency, which anyone can attain great wealth through the successful application of their natural talents, has remained a central tenet in arguments against wealth redistribution. As Krugman (2014) states, âimplied in all this is that wealth is the reward for virtue, which makes it hard to argue for redistributionâ. This centrality of the individual in the wealth story has persisted in mainstream economics. Contemporary economists such as Kaplan and Rauh (2013), for example, have sought to justify the existence of an ultra-rich class, as represented by the Forbes 400 , along the lines of skill and entrepreneurial talent. This âskillâ is at the core of the extreme wealth levels of a few thousand individuals according to such narratives.
According to this viewpoint, Krugman (2014) argues, through hard work, along with a sprinkle of genius and luck, a vast accumulation of fortunes can arise. From a policy perspective, arguments that centralise and elevate individualsâ skills and talent above other factors in the wealth debate present a formidable challenge to any notion of wealth redistribution. Among business publications and the mass media, for example, one often encounters biographical portrayals of the wealthy containing ârags-to-richesâ stories. These stories simultaneously represent records of their success and the possibility that any individual, through sufficient application of productive hard work, can also attain the dizzying heights of extreme wealth (e.g. Baer, 2014; Giang & Goudreau, 2014; Stonington, 2010).
The wealthy and the concomitant wealth distribution skewed in their favour is gaining much focus among the contemporary media, policy makers and non-governmental organisations. In the wake of the financial system crisis in the US and the sovereign debt crisis that has engulfed Europe since 2008, there has been much renewed debate over the extent to which prevailing economic structures and institutions brought on the crises and, as a corollary, exacerbated the levels of wealth inequality observed across the world.
Indeed, the importance of the issue of the levels of wealth and income accumulation can be seen from the drastic policies recommended or considered when viewed through the prism of inequality. A report by the organisation Oxfam (2014) details the extent to which inequality has for the past decade increased substantially, as the wealth held by the top 1% now amounts to a staggering sum of USD110 trillion. In the US, home to the worldâs most Forbes billionaires, the top 1% captured 95% of the growth in wealth compared to the bottom 90%, who became poorer (Oxfam, 2014). To reverse the growing inequality, Oxfam (2014) recommended a number of policy initiatives. These policy recommendations ranged from reducing the incidence of tax evasion, enforce disclosure and transparency in all wealth holdings, the establishment of a living wage and, perhaps most controversially (depending on which side of the political spectrum one falls), the creation of progressive income and wealth tax regimes.
The International Monetary Fund (IMF) also explored the issue of income inequality, including its key drivers and its impact on economic growth (Dabla-Norris, Kochhar, Suphaphiphat, Ricka, & Tsounta, 2015). Dabla-Norris et al. (2015) find that significant income inequality decreases economic growth and that there is no âtrickle downâ effect that represented the cornerstone of growth and development theories since the 1950s. They recommend investing more into education and training to develop the human capital for the poorest classes as well as implementing progressive tax regimes. The issue has already the entered political debate at the national government level. In 2012, for example, President Barack Obama raised the capital gains and dividend tax for couples with incomes above USD250,000 (Sanders, 2015). Of course, some countries have maintained a wealth tax for some time. France instituted the Solidarity Tax on Wealth in 1981, while a number of other western European nations have maintained wealth taxes throughout their respective histories, including Norway and Switzerland. Still, other countries have abandoned such an approach. Germany, for example, repealed a property tax law after it was found to be unconstitutional by the Federal Constitutional Court in Germany (âUmfairteilungâ , 2012).
Recently, the Group of Twenty (G20) bloc has sought to reduce tax evasion via offshore financial centres by creating and enforcing a series of bilateral tax agreements and treaties (Lewis, 2014). More recently still, the Australian Taxation Office (ATO) has considered applying a 40% tax penalty, otherwise known as the âGoogle taxâ, against multinationals with global incomes of $1bn AUD in a bid to address tax avoidance (Knaus, 2019).
The purpose of this book is to analyse the processes through which the modern forms of large fortunes are amassed. Despite the recent spate of governmental and non-governmental interest in inequality (be it wealth or income), the most privileged and fortunate have not generated much interest in mainstream economics. However, the publication of Pikettyâs (2014a) book, Capital in the 21st Century, has once again catapulted wealth into the focus of scholarly debate. As the issue of wealth is multifaceted, this book is not merely an exercise in business history but deals with the issue from multiple perspectives, accordingly, employing alternative research methods. Broadly, the trends and dynamics in high-tier wealth accumulation are coupled to the economic, political and social mechanisms that have been in play for at least half a century or more in some parts of the world. This approach leads to potential policy implications since much of the debate on wealth distribution centres on the extent to which wealth has been âjustlyâ attained.
Both world governments and non-government organisations are directing attention to the related issues of tax policy, wealth concentration and inequality. Piketty (2014a) forced a reconsideration on how economics and the social sciences at large tackle the issues driving wealth accumulation and concentration. By emphasising the importance of âcapitalâ in capitalism and the transition from an affluent society to a society based, potentially, on inheritance and patrimony, Piketty has revealed tremendous gaps and logic in how the latter is analysed.
Amongst mainstream economics, when the issues of high wealth concentration have been recognised and explored, the boundary of analysis has been restrictive. This body of research has typically focused on the returns to skills and education as an overriding aspect of the new economic elite. One of the most recent works in this strain, Kaplan and Rauh (2013), seeks to attribute the rise in US billionaires to the appearance of the âtechâ based billionaire where an education in computer science, preferably from an Ivy League university, is presumably a core requirement. Such sentiments echo Kalleberg (2011), where highly skilled workers reap enormous benefits in the âmodernâ economy while the low-skilled miss out. Bonnet and ThĂ©ry (2014) argue the elite themselves have adopted this view, believing that discourse that associates great fortunes with hard work in itself explains their privileged standing in society.
Such a discourse on the relation between economic elite and meritocracy negates much of the historical changes in both the political, social and economic realm that could potentially explain the existence of the new ultra-rich class. Meritocracy alone, for example, cannot explain the survival and prosperity of the German family dynasties throughout the past century which included two devastating world wars. Nor can a standard life cycle model account for its preponderance. Explanations in the realm of law and politics are better suited here.
Objectives of the Book
To date, the exploration of the ultra-rich has been limited and often beholden to restrictive precepts of neoclassical thought. The rise of the ultr...