This is my latest book review for the Financial Times.
It is hard to imagine how the rapid development of many poorer economies in recent decades could have happened without the emergence of super-rich individuals. No doubt for most Financial Times readers the two go together. The rise of popular prosperity depends on the vibrancy of wealth- creating entrepreneurs.
But it is important to remember that many people do not see it that way. For some critics, the existence of the super-rich alongside many millions in poverty is immoral. For many others, life is inevitably a zero-sum game: more riches for the few must, by definition, mean less wealth for the many.
Rich People Poor Countries should be understood against the backdrop of this debate. Caroline Freund, a senior fellow at the Peterson Institute for International Economics, a Washington DC-based think-tank, begins the book with an exchange that encapsulates the contrasting views. At the World Economic Forum in Davos this year, Winnie Byanyima, executive director of Oxfam International, referred to the relief charity’s findings that the richest 1 per cent of the world’s population would own more than 50 per cent of the world’s wealth by 2016.
In response, Sir Martin Sorrell, chief executive of WPP, the advertising group, said: “I make no apology for having started a company 30 years ago with two people and having 179,000 people in 111 countries and investing in human capital each year to the tune of at least $12bn a year.”
The first part of Freund’s work is essentially a taxonomy of the super-rich in the emerging world. Her study’s starting point was an examination of the changing composition of the Forbes list of the world’s billionaires. From there she worked with an assistant, Sarah Oliver, to research every individual to determine how they achieved their fortune and the sectors with which they are associated.
On this basis, she determined that extreme wealth in emerging markets is largely self-made. Although some wealth is acquired by inheritance, its importance is declining. The typical emerging market billionaire builds a globally competitive mega-company that also plays a role in transforming their home country.
There are, of course, variations by region and sector. East Asia is, not surprisingly, the most dynamic. Mainland China went from being unrepresented in 1996 to making up 40 per cent of east Asian billionaires by 2014. The Middle East was exceptional in a negative sense, as the only region where inherited wealth had increased.
The second part of the book argues strongly that the rising prosperity of poorer countries has been closely associated with the growth of large companies. As countries have grown richer, so have companies and, in many cases, individual entrepreneurs.
In 1996, fewer than 3 per cent of global Fortune 500 companies were from emerging markets. By 2014, the figure was nearly 30 per cent. These large companies have played a central role in generating employment and exports for poorer countries. They have also helped economies shift from an emphasis on agriculture to industry and services. Of course, it is always possible some individuals will accrue great wealth by corrupt means. For Freund, an important way to guard against this is to ensure companies operate in a competitive environment.
This includes making it easy for individuals to set up businesses and maintaining an openness to trade. In such conditions, she argues, it is harder for powerful forces to hijack the wealth creation process for their own benefit.
Although Rich People Poor Countries clearly shows how the development process is closely connected to the rise of large companies, it is unlikely to convince sceptics. It is doubtful that those with a moral aversion to the accumulation of extreme wealth will be convinced simply by facts. And those who believe development is tightly constrained by scarce resources will continue to insist that more for some must necessarily mean less for others.
Winning the debate on the benefits of popular prosperity requires a culture war waged on several fronts. It means, among other things, showing through the force of argument that everyone can benefit from a wealthier society. It is also necessary to tackle the moral qualms about mass affluence. The fight cannot be won with evidence alone.
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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,
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