Caroline Freund Peterson Institute for International Economics February 11, 2016 1
Caroline Freund
Peterson Institute for
International Economics
February 11, 2016
1
Growth in Extreme Wealth
2
0
1000
2000
3000
4000
5000
1995 2000 2005 2010 2015
World Advanced Economies Emerging Markets
total real net worth, billions 1996 USD
42 percent of World’s billionaires are now from emerging markets.
Given trends, by 2025 more than half will be from the South.
Sources: Forbes World’s Billionaires and World Bank WDI.
Extreme Wealth & Mega Firms
0
5
10
15
20
25
1995 2000 2005 2010 2015
percent
BRIC share of
fortune global
500BRIC share of
billionaires
BRIC countries include Brazil, Russia, China and India
3Sources: Forbes World’s Billionaires and Fortune 500.
Data
• Forbes Billionaires List 1996-2014– Based on shareholder information and ownership
information on large private firms
• New characteristics data (based on web searches) 2001, 2014
• Inherited or self-made wealth
• Main source of wealth—company, founding date, and industry
• Political Connections—based on biographic information
• Firms: FT EM 500, Fortune 500, Global 2000, Bloomberg.
Who are the Superrich?
• Inheritors
• Self-made
– Company founders
– Executives
– Politically connected/resource based
– Finance/real estate
5
• Founded a company• Non-resource• Non-privatization• Non-finance/real estate• Non-license• No family in gov’t or corruption charge
Founders
Sources of Wealth
7
0
20
40
60
80
100
120
2001 2014 2001 2014
Avanced Countries Emerging Markets
Company founder & executive Inherited
Financial sector Resource related/politically connected
BRIC Source of Wealth
8
0
10
20
30
40
50
60
70
80
90
100
Russia Brazil India China
Distribution of billionaires, by source of wealth, 2014
Company founders & executives Political connections, privatization, resources
Financial sector Inherited
Who are the Richest?
Chile v. Tunisia
9
• 1985 same level of development, 2014 Chile is three times richer• Chile has 12 billionaires in 2014, Tunisia 0
Horst PaulmanFounder: CensocudFirst hypermarket in 1976645 stores in Latin America
Marouen MabroukOwner: French chain Casino (and Orange)Married to former President Ben Ali’s daughter
• Business environment encouraged large outward looking firms in Chile.• Ben Ali clan bought state companies and lured foreign investors in Tunisia.
Individuals Matter
• Case studies: eg. Samsung’s success & innovations by Lee Kun-Hee of Samsung.
• Large literature showing CEOs explain a significant share of firm policies and performance, controlling for other determinants. Exogenous variation in leadership – (unexpected) death of CEO.
• CEOs with more decision making power matter more.
10
Wealth and Large Firms
Go Together
11
Brazil
China
India
Japan
Russia
United States
10
20
30
10 20 30country share of Global 2000 firms (percent)
country share of billionaires (percent)
Sources: Forbes World’s Billionaires and Global 2000.
Large Firms Promote
Modernization
• Alfred Chandler’s view – Scale, R&D, and
management.
• Allocative efficiency – Firm heterogeneity and
resources flow to most productive uses.
• Individual firms matter.
12
Large Firms &
Manufacturing Employment
0
10
20
30
40
50
60
70
80
90
% firms %employment % firms %employment
China 2004 India 2007
number of employees
percent
0-49
50-99
100-199
200-499
500+
13
Source: van Ark et al. 2010
Branding Development:US at the turn of last century and the BRICS this century
14
Brazil
Russia
ChinaIndia
Source: Maddison Project 2013.
A Note on Extreme Wealth & Inequality Wealth is growing faster than income in the North,
but not in the South
15
Growth in wealth of the 5 richest and GDP growth
Source: Author’s calculations using data from Forbes World’s Billionaires and World Bank WDI.
Policy Implications
• Promote entrepreneurship
• Property rights, free entry and openness to trade
• Limit cronyism
• Transparent privatization & government procurement
• Tax more heavily less productive sources of wealth
• Inheritance & (some) finance
16
Global inequality has declined:Growth Incidence Curve, 1988-2008
17
Source: Lakner and Milanovic (2013)
0
10
20
30
40
50
60
70
80
0 10 20 30 40 50 60 70 80 90 100
Percentiles of the global income distribuion
Cumulative income growth rate (percent)