BLOG STARTUPS, VENTURE AND THE TECH BUSINESS

January 30 2011
by Todd Hixon

The Hidden Truth About The Rich

Unless you are a media hermit, you have surely heard that:

  • The distribution of wealth has become much more unequal in the last 20 years.  Relatively few rich people control most of the world’s wealth, and this threatens to undermine democratic societies.
  • “Rich” people means bankers, hedge fund managers, private equity managers, corporate CEOs, and trust fund brats.  They became rich through speculation and financial manipulation (with ruinous effect on the global economy and the fortunes of ordinary people), by charming malleable boards of directors, or by inheriting money.
  • They have lavish lifestyles, insulated from the reality of ordinary people.

Of course, there are a few examples that lend credence to this view.

Left: Steve Schwarzman at the 2010 Blackstone Group holiday party, from article "Let Us Eat Cake", nymag.com, 12/10/10; Right: Paris Hilton, from article "Paris Hilton Arrested For Cocaine Posession In Las Vegas", whyfame.com, 8/28/10.

I care about this for two reasons:  I can be considered rich by some definitions and dislike the implication that this characterization fits me, and more important, I believe that the ability to create wealth is fundamental to the success of our society.  My work as a VC depends on extraordinary success achieved by talented, hard-working entrepreneurs.  If we throw entrepreneurs under the campaign bus, their contribution to competitiveness and job creation could disappear.

Last week The Economist published a special report (link) that illuminates this issue:  who the rich people in the world are, how they got that way, how they behave, and (implicitly) how legitimate their wealth and other privilege is.  It uses  a broad definition of “rich”: the 24 million people globally (0.5% of adults) whose assets exceed $1 million.  The reported facts:

  • Rich people control slightly more than a third of global wealth, which is a lot but not nearly all.  While income inequality has increased in some countries (including the U.S.), it has declined in others, and has declined on a global basis (source).
  • Almost half (47%) of the rich are entrepreneurs:  they became rich by creating a business and jobs for others.  23% became rich through highly paid work.  The global information society enables the most gifted to apply their talents to broader markets, and that’s a major driver of income inequality.  Only 16% inherited their wealth.
  • 41% of the rich live in the U.S.  “A typical American millionaire is surprisingly ordinary.  He has spent his life patiently saving and plowing his money into a business he founded.  He does not live in the fanciest part of town – why waste money you can invest?”  [Sounds like Warren Buffet.]

My point is Wall Street “fat cats” and high-profile CEOs are a niche, not the mainstream of rich, successful people.   Most often people get wealthy by making a big contribution to society.  We need the rich; it is a huge mistake to demonize and demotivate them.

COMMENTS

January 31 2011
by Pablo Gibson

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Pablo Gibson

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