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Source: The post is based on the article “Bad Billions’ BFF: Socialism” published in “Times of India” on 28th June 2023.
Syllabus: GS 3 – Indian Economy: Inclusive growth and issues arising from it.
News: An analysis on billionaire wealth across developed and developing countries reveals that socialist policies can backfire by concentrating rather than spreading wealth. It also favors those who inherit wealth over entrepreneurial individuals.
What was the focus of the analysis?
The focus of the study was leading markets – developed and emerging countries. The analysis measured changes in billionaire wealth as a share of GDP.
It categorized billionaire wealth as inherited and earned or self-made. It tagged the billionaires in rent-seeking industries like real estate or commodities as “bad billionaires“, and the billionaires in productive sectors like technology and manufacturing as “good billionaires“.
It assumed that populist revolt is most likely to target wealth seen as excessively large and inherited rather than earned, and more likely corrupt than productive.
What are the findings of the analysis?
Worldwide, the number of billionaires has increased sharply over the last two decades. There were 500 billionaires worth a total of less than $1tn in 2000; in 2023 there are more than 2,500 worth over $12tn.
Billionaires remain a potential protest target, particularly in countries with evidence of growing anti-rich sentiment. These include nations with deep socialist roots, including France, Sweden, Russia and India.
France is the world’s heaviest spending welfare state. It has seen protests earlier this year as billionaire wealth nearly doubled over the last five years to 21% of GDP (85% inherited). Sweden’s billionaire wealth equals 24% of GDP, and nearly two-thirds of it is inherited.
The United States experienced a surge in billionaire wealth, reaching 18% of GDP in the last five years. This led to the rise of politicians calling for wealth redistribution and support for President Biden’s push for new wealth taxes.
Among emerging markets, in India and Russia, total billionaire wealth exceeded 20% of GDP. Russia had the highest share of “bad billionaire” wealth at 62%. India saw a decline in the presence of bad billionaires but experienced a boom in good billionaires, particularly in manufacturing.
Nations like South Korea, Taiwan, and Poland had less bloated billionaire classes. These countries restrained wealth inequality through small state intervention or embracing capitalism after breaking from socialist systems.
How do socialist policies lead to the concentration of wealth?
Increasing regulation favours the super-rich because they have the lobbyists and money to navigate the impact of regulations.
Since 2000, a significant portion of funds injected into their economies by the governments to sustain growth has fueled the expansion of financial markets. Since the super-rich own most of the financial assets, they gained the most.
The findings put into question the belief that a more socialist government is the solution to the challenges faced by capitalism.
