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The right’s mega-rich problem

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“I don't think anyone in this country should be a billionaire” said Labour’s Lloyd Russell-Moyle yesterday, at which the BBC’s Emma Barnett took umbrage. The exchange is curious, because from one perspective it should be conservative supporters of a free market who don’t want there to be billionaires. I say so because in a healthy market economy there should be almost no extremely wealthy people simply because profits should be bid away by competition. In the textbook case of perfect competition there are no super-normal profits, and in the more realistic case of Schumpeterian creative destruction, high profits should be competed away quickly. From this perspective, every billionaire is a market failure – a sign that competition has failed. The Duke of Westminster is rich because

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“I don't think anyone in this country should be a billionaire” said Labour’s Lloyd Russell-Moyle yesterday, at which the BBC’s Emma Barnett took umbrage. The exchange is curious, because from one perspective it should be conservative supporters of a free market who don’t want there to be billionaires.

I say so because in a healthy market economy there should be almost no extremely wealthy people simply because profits should be bid away by competition. In the textbook case of perfect competition there are no super-normal profits, and in the more realistic case of Schumpeterian creative destruction, high profits should be competed away quickly. Scrooge6f48fe8bf5e1b83380cd6dcc9da5fae0

From this perspective, every billionaire is a market failure – a sign that competition has failed. The Duke of Westminster is rich because there’s a monopoly of prime land in central London. Would Ineos’ Jim Ratcliffe be so rich if pollution were properly priced, or if his firm faced more competition? How can hedge funds get away for so long with their “2 and 20” pricing? (Hint: it’s for the same reason that Friedman thought government spending was inefficient, because people are spending other people’s money.) And so on.

What’s more, monopoly pricing is a form of tax – a tax which often falls upon other, smaller businesses, as Frederick Guy argues (pdf):

Monopolies, by their nature, set prices and extract rents from their customers. Current technology monopolies are collecting taxes based on the global distribution of their products like ancient empires exacting tribute from distant provinces and returning them to spatially concentrated bases. Microsoft produces its Windows and Office products in the Seattle area, and harvests license fees globally, as does Monsanto (Bayer) for the seed varieties and complementary herbicides engineered in St Louis. Booking intermediaries like Airbnb, Trip Advisor, Booking.com, Expedia (Microsoft, again), and Uber take significant slices of revenue from many thousands of globally dispersed small businesses.

In this sense, not only are billionaires a symptom of an absence of a healthy competitive economy, but they are also a cause of it: their taxes on other firms restrict growth and entrepreneurship. What Brink Lindsey and Steven Teles say of the US economy is probably true of the UK too:

The US economy has become less open to competition and more clogged by insider-protecting deals than it was just a few decades ago. These deals make our economy less dynamic and innovative. (The Captured Economy, p5)

In a similar spirit but different perspective, Michael Kremer, Christopher Snyder, Albert Chen show that the costs of monopoly are greater than conventional economics suggests.

Tories are wrong, therefore, to portray attacks on the mega-rich as the politics of envy. It’s not. The existence of billionaires is a sign and cause of a dysfunctional economy. Equally, though, this is not solely a tax issue.The way to stop people becoming billionaires is to have much stronger competition policy and less restrictive intellectual property laws as well as support for new entrepreneurs who want to compete against incumbents: entrepreneurial Marxism is a thing. Taxes upon the mega-rich should be seen as a backstop, a way of compensating for past market failures.

In fact, logically, it is rightists who should be most concerned by the concentration of wealth. We lefties can point to it as evidence that the system is rigged. But Tories should worry that it undermines the legitimacy of the existing order not only because people don’t like inequality, but because it slows down economic growth and so encourages demands for change.

Those of us formed in the 80s see another paradox here. Back then, Tories championed the “free market.” Great wealth, though, is a sign that the free market isn’t working well, that there isn’t enough competition, which should trouble free marketeers.

All of which poses the question. Why, then, are rightists like Ms Barnett and Douglas Carswell standing up for the mega-rich when it is they who should be most discomfited by their existence?

Adam Smith had one theory:

The great mob of mankind are the admirers and worshippers, and, what may seem more extraordinary, most frequently the disinterested admirers and worshippers, of wealth and greatness.

There is, though, another possibility. Maybe all that cheering for a dynamic free market economy was simply insincere. Tories might like the forces of competition when they throw miners and steel-workers out of jobs, but are not so  keen on them if they threaten the very rich. Maybe the right doesn’t really believe in things like free markets or liberty after all. Instead, their one principle is the support of inequality. As Corey Robin has written: “the priority of conservative political argument has been the maintenance of private regimes of power.”

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