In: Uncategorized8 May 2013
This is my Perspective column from this week’s Fund Strategy magazine.
It has become widely accepted that the wealthy, and particularly the super-rich, have changed fundamentally in the recent past. Not so long ago the rich mainly inherited their wealth but the current crop, so the argument goes, usually made their own fortunes.
The editors of the Sunday Times put forward this view in its annual survey of Britain’s wealthy. A comment accompanying the list was headed “No longer born with a silver spoon” and concluded that a lot has changed since the publication’s first wealth survey in 1989. Back then “it was much more Downton Abbey than Dragons’ Den”.
Chrystia Freeland, the author of Plutocrats (Allen Lane 2012), drew a similar conclusion in her survey of the global super-rich. Only her metaphor was slightly different: “If you are looking to define the archetypal member of the global elite, he isn’t Jane Austen’s Mr Darcy, with his gorgeous acres of Pemberley. He– and they are almost all still men– is an aggressive, intensely educated mathematician, the son of middle or upper middle-class parents, who made his first fortune young.”
However, a closer look at wealth surveys themselves shows a more complex pattern. The past quarter century or so have not seen a simple shift from wealthy aristocrats to self-made men (with a sprinkling of women thrown in).
It is true that three British aristocrats headed the 1989 Sunday Times rich list: the queen, the Duke of Westminster and Lord (John) Sainsbury. Gad and Hans Rausing, originally from Sweden, held the fourth spot while Sir John Moores was fifth.
In contrast, four of the top five in the latest list have Russian connections. In fourth place, the Mittal family, hails originally from India. Indeed the family in seventh place is Indian too while a Norwegian family is at number six. The highest ranked native Briton, only making eighth place, was the Duke of Westminster.
But there are several ways in which a direct comparison between these two lists is misleading. For a start the 1989 valuation included the Crown Estate and the royal art collection as part of the queen’s individual wealth. Subsequently these assets were excluded as it was decided they belonged to the state rather than to her personally.
This is not to take a stand about how the queen’s wealth should be classified. However, it is clear that in that respect the two lists do not compare like with like. In relation to the queen’s wealth the definition, rather than the reality, has undergone an important change.
It is also easy to exaggerate the importance of the aristocracy in the original list. A relatively small number were peers at all and many who were gained life peerages as recognition of their success in business. Aristocratic landowners such as the Duke of Westminster, the Earl of Cadogan and the Duke of Buccleuch were a small minority. Britain at the end of the Thatcher era did not feel like Downton Abbey except perhaps within a tiny circle of traditional aristocrats.
Even more striking is how many of the current richest of the rich are of foreign origin. Many of those domiciled in Britain are not British citizens. That is not to criticise them for basing themselves here. But it does suggest that the character of their wealth is different from those at the top in 1989.
In particular, much of their wealth is held and originates outside Britain. They may be domiciled here for legal purposes but their business empires extend well beyond these shores. In that sense their great wealth reveals far more about developments overseas than in this country.
Many have benefitted, either directly or indirectly, from the rapid rise of emerging economies since the 1980s. A substantial number on the Sunday Times list have connections to China or India. This is a welcome development but it is not one that is specifically British.
Nor is it a coincidence that so many of the very richest come from the former Soviet Union. Back in 1989, at the time of the first Sunday Times survey, the Soviet Union was intact. Since then the break-up of the former power has provided opportunities for a few oligarchs to become fabulously wealthy.
This points to another reason why the self made tag is misleading. It is true that in many cases the current generation of the super-rich did not inherit their wealth. But many benefitted enormously from good connections with the authorities. In that respect ties with the state were as important as business acumen.
This trend is clearest in relation to the Russians. As the Soviet Union was dismembered having close contacts with the state became a great advantage. It gave a select few an inside track in gaining control of assets and seizing opportunities.
It is misleading therefore to talk about a shift from Downton to the Dragons’ Den. Such a characterisation gives a misleading impression of what Britain was like in the 1980s. It also understates the importance of the rise of emerging economies and connections to the state to the success of the current generation of super-rich.
Welcome to danielbenami.com.
To contact me email ferraris AT danielbenami.com
I also have a Facebook fan page.
Ferraris For All, my book defending economic progress, has just been published in an extended edition in paperback and on Kindle with a new chapter on the inequality debate.Amazon.com, Amazon.co.uk, Amazon.ca, Amazon.de,
Please see the Buy the book page for more details.