The one letter that distinguishes the word ‘million’ from the word ‘billion’ obscures a difference in scale that is hard for the human mind to comprehend. Counting the numbers to a million would take you 12 days; counting the numbers to a billion would take you 32 years. The median income in the UK is around £29,000. If you spent this amount every day, it would take you almost a century to spend a billion pounds.
There are around 150 billionaires in the UK – there are five billionaire families in the country that hold the same wealth as the bottom 20% of the population. These people have more money than any one person could hope to spend in a lifetime; and they certainly have more than any one person could hope to earn. How do we justify this extreme wealth?
The great myth of capitalism – one peddled by BBC radio host Emma Barnett on Thursday – is that the wealth of the few ultimately trickles down to the many. Those with the money have to put it somewhere if they want to earn a return, so – the argument goes – they invest their savings in production. Thus their desire for high returns will ensure that capital is directed into the most productive investments, which will create jobs and boost economic growth, making everyone better off.
If this sounds like a fairy tale, that’s because it is. The vast majority of the world’s billionaires have not become rich through anything approaching ‘productive’ investment. Oxfam has showed that, approximately one third of global billionaire wealth comes from inheritance, whilst another third comes from ‘crony connections to government and monopoly’.
Some argue that it’s different in the UK; inherited wealth is no longer as significant a source of wealth as it once was. This is true, but only because billionaires have come up with far more efficient ways of maintaining their privilege. The greatest single source of wealth on the Sunday Times Rich List is property. It goes without saying: property developers do not become billionaires by building affordable housing. Most generate their wealth through luxury developments that can be sold to other billionaires – or in the case of the Candy Brothers, two of the UK’s most famous property tycoons, to themselves through a Guernsey shell company.
But more of this property wealth comes from speculation than development. Over the last forty years, as property prices have boomed, the wealthy have simply bought up the nation’s housing stock and waited for prices to rise. The returns they have generated are not productive – rising house prices do not create jobs or expand the economy’s potential.
Instead, those who own all the property are able to use their control over a scarce and invaluable resource to extract economic rents (unproductive payments from non-owners to owners) from working people. The housing crisis that has resulted from this dynamic has led to a dramatic rise in homelessness, and high rents are depriving many young people of the ability to save in order to purchase property of their own.
Other forms of wealth that dominate the Sunday Times Rich List – finance, commodities, energy – all rely on the ability of the wealthy to monopolise a resource – credit, diamonds, oil – and use their monopoly position to extract of economic rents. Most of those who call themselves ‘industrialists’ also benefit from monopoly rents generated through intellectual property rules, resource rents or other barriers to entry.
You do not become a billionaire through labour. You become a billionaire through inheritance, corruption or economic rents – or, in most cases, some mixture of all three. There is an immutable and impermeable distinction between people who live off work and those who live off wealth.
Controlling society’s wealth effectively gives the wealthy the right to plan economic activity. Billionaires – and the people who manage their money – determine which governments can access borrowing, which companies deserve to grow, and which ideas should be researched. This gives them an immense amount of political, as well as economic, power – allowing billionaires to provide favours to those politicians who helped them get rich in the first place.
Ultimately, the monopolisation of society’s resources by a tiny, closed-off elite means that most of society’s resources are used for dirty, unsustainable and unproductive speculation.
But even when wealth is ‘earned’ as profits rather than simply appropriated as rents, the billionaire’s earnings come at the expense of the social good. ‘Productive’ capitalists make their money through exploitation – paying workers a wage below what they deserve. Only under a system of democratised, socialised production, in which resources were owned in common and controlled collectively, would this exploitation disappear.
We don’t need billionaires. But, then again, we don’t need capitalists.
Grace Blakeley is an economic commentator and author of Stolen: How to save the world from financialisation.