Not surprisingly, American billionaires have dismissed recent wealth-tax proposals as an affront to the entrepreneurial spirit to which they attribute their massive wealth. But the ultra-rich never would have their great wealth without legal subsidies from the state and reliable enforcement by the courts.
NEW YORK – Economic inequality has moved to the top of the political agenda in many countries, including free-market poster children like the United States and the United Kingdom. The issue is mobilizing the left and causing headaches on the right, where wealth has long been viewed as worthy of celebration, not as demanding justification.
But today’s concentrations of wealth do demand justification. In 2018, Forbes listed three billionaires among its top ten most powerful people in the world. Next to the heads of states of Chinese President Xi Jinping, Russian President Vladimir Putin, US President Donald Trump, and German Chancellor Angela Merkel, one finds not only the Pope, but also Amazon founder Jeff Bezos, Microsoft co-founder Bill Gates, and Google co-founder Larry Page. All three owe their power not to public position or spiritual influence but to private wealth.
As contenders in the Democratic primary for the 2020 US presidential election, Senator Bernie Sanders of Vermont and Senator Elizabeth Warren of Massachusetts have promised to impose new taxes on the super-wealthy. Warren’s wealth-tax proposal – a levy of 2% on every dollar of net worth above $50 million, rising to 6% for fortunes greater than $1 billion – has ruffled billionaires’ feathers. According to Gates, he has paid more in taxes than almost anybody – some $10 billion. And while he would consider it “fine” if that figure had been doubled to $20 billion, he believes a much higher tax would threaten the incentive system that led him (and others) to invest in the first place.
For his part, Michael Bloomberg, the founder of the Bloomberg news empire, a former mayor of New York City, and now a Democratic presidential contender himself, argues that a wealth tax might be unconstitutional, and that it would turn the US into the likes of Venezuela. And not to be outdone, Facebook founder and CEO Mark Zuckerberg has suggested that taxing billionaires’ wealth would lead to worse outcomes than leaving it where it is, implying that the ultra-wealthy know better than the peoples’ elected representatives how tax revenues should be spent.
Note the sense of entitlement underlying each of these reactions. Each man’s billions, we are told, belong to him; he earned the money and should therefore get to decide how to spend it, be it on philanthropic projects, taxes, or neither. The billionaires tell us that they are willing to pay a fair share of taxes, but that there is some undefined threshold where the incentives to innovate and invest will be thrown into reverse. At that point, apparently, the ultra-wealthy will go on strike, leaving the rest of us worse off.
But this perspective ignores the fact that accumulated wealth is largely a product of law, and by implication of the state and the people who constitute it. As economist Thomas Piketty demonstrates in his 2014 book, Capital in the Twenty-First Century, the rich today hold most of their wealth in financial assets, which are simply legally protected promises to receive future cash flows. Take away legal enforceability, and all that remains is hope, not a secure asset.
Moreover, the private empires over which today’s billionaires preside are organized as legally chartered corporations, which makes them creatures of the law, not of nature. The corporate form shields the personal wealth of the founders and other shareholders from the corporation’s creditors. It also facilitates the diversification of risk within a company, by allowing discrete pools of assets to be created, each with its own set of creditors who are barred from making claims on another asset pool, even though the parent company’s management controls all of them.
Further, the company’s own shares can be used as currency when acquiring other companies. When Facebook bought WhatsApp, it covered $12 billion of the $16 billion purchase price with its own shares, paying only $4 billion in cash. And, as with Facebook, corporate law can be used to cement control by founders and their affiliates through dual-class share structures that grant them more votes than everyone else. As such, they need not fear elections or takeovers of any kind.
Finally, companies whose assets take the form of intellectual property (IP) and other intangibles tend to rely even more on the helping hand of the law. As of 2018, 84% of the market capitalization of the S&P 500 was held in such intangible assets. It takes a legal intervention to turn ideas, skills, and knowhow – which are free to be shared by anybody – into exclusive property rights that are enforced by the full power of the state. And in recent years, Microsoft and other US tech companies have boosted their earning power significantly by promoting US-style IP rules around the world through the World Trade Organization’s body for Trade-Related Aspects of Intellectual Property Rights (TRIPS).
To be sure, there are good reasons for states to adopt laws that empower private agents to reap the rewards of organizing businesses and developing new products and services. But let’s call a spade a spade and a (legal) subsidy a subsidy. While Bezos, Bloomberg, Gates, and Zuckerberg may well be savvy entrepreneurs, they also have benefited on a massive scale from the helping hand of legislatures and courts around the world. This hand is more contingent than the invisible one immortalized by Adam Smith, because its vitality depends on a widely shared belief in the rule of law. The erosion of that belief, not a tax, poses the greatest threat to billionaires’ wealth.
Sacha Baron Cohen denounced tech giants Facebook, Twitter, YouTube and Google. Cenk Uygur, John Iadarola, and Mark Thompson, hosts of The Young Turks, break it down. MORE TYT: https://tyt.com/trial
no no I understand that but guys what
I’m afraid of is if you take that
argument to its logical extreme all
you’re gonna do is go back to the
establishment media so you’re gonna put
in so many guardrails that we’re gonna
go back to the era of acceptable thought
The Silicon Six:
- Mark Zuckerberg: Facebook
- Larry Page: Alphabet
- Sergey Brin: Alphabel
- Sundar Pichai: Google
- Susan Wojcicki: YouTube
- Jack Dorsey: Twitter
Facebook Zuckerberg tried to portray
this whole issue as choices around free
expression that is ludicrous this is not
about limiting anyone’s free speech this
is about giving people including some of
the most reprehensible people on earth
the biggest platform in history to reach
a third of the planet freedom of speech
is not freedom of reach Mark Zuckerberg
seemed to equate regulation of companies
like his to the actions of the most
repressive societies incredible this
from one of the six people who decide
what information so much of the world
Zuka burger t’set facebook sundar pichai
at google at its parent company alphabet
Larry Page and Sergey Brin Bryn’s
ex-sister-in-law Susan Wojcicki at
YouTube and Jack Dorsey at Twitter the
silicon six all billionaires all
Americans who care more about boosting
their share price than about protecting
democracy this this is ideological
imperialism six unelected individuals in
Silicon Valley imposing their vision on
the rest of the world unaccountable to
any government and acting like their
Abarth of the reach of law it’s like
In public comments, Mr. Page goes out of his way to say the opposite, describing Google more in terms of a nonprofit than a gigantic corporation. During a 2014 interview with Charlie Rose, he said he wished there were a vehicle for people to donate money to their company so that it could be used for projects that had some kind of social purpose.
People who have worked with Mr. Page say that he tries to guard his calendar, avoiding back-to-back meetings and leaving time to read, research and see new technologies that interest him.
.. Leslie Dewan, a nuclear engineer who founded a company that is trying to generate cheap electricity from nuclear waste, also had a brief conversation with Mr. Page at the Solve For X conference.
She said he questioned her on things like modular manufacturing and how to find the right employees.
“He doesn’t have a nuclear background, but he knew the right questions to ask,” said Dr. Dewan, chief executive of Transatomic Power. “‘Have you thought about approaching the manufacturing in this way?’ ‘Have you thought about the vertical integration of the company in this way?’ ‘Have you thought about training the work force this way?’ They weren’t nuclear physics questions, but they were extremely thoughtful ways to think about how we could structure the business.”
The problem for Page, though, is that he is not a strategy and business nerd. Page is, for lack of a better description, a change-the-world nerd, and it seems clear that he found the day-to-day business of managing a very profitable utility to be not only uninteresting but a distraction from what he truly wanted to do.
.. That, though, leads to a bigger question: why should all of these disparate ventures be a part of the same company at all?
.. That is actually an easy one to answer: Page and Brin can do whatever they want because of Google’s dual-class structure. From Google’s IPO letter:
.. As Page sees it, it all comes down to ambition – a commodity of which the world simply doesn’t have a large enough supply. In the midst of one of its periodic booms, Silicon Valley, still the epicentre of the tech business world, has become short-sighted, he says…
Page estimates that only about 50 investors are chasing the real breakthrough technologies that have the potential to make a material difference to the lives of most people on earth. If there is something holding these big ideas back, it is not a shortage of money or even the barrier of insurmountable technical hurdles. When breakthroughs of the type he has in mind are pursued, it is “not really being driven by any fundamental technical advance. It’s just being driven by people working on it and being ambitious,” he says. Not enough institutions – particularly governments – are thinking expansively enough about these issues: “We’re probably underinvested as a world in that.”