Monday, March 5, 2012
Sunday, March 4, 2012
Moscow March 4: Sights and Sounds of Today's Russian Election
Here is an account of the sights and sounds of today’s Russian Presidential election. As expected, Putin sailed to an easy victory with over 60 percent of the vote.
March 4th Russian Elections – grey day, nothing special…
Gregory Kataev, Moscow
It’s warm, around 0 C, snow melts, wide springs of dark mud near the sidewalks, water-drops fall from every roof, grey day, distant misty sun. I enter the regional election headquarters on Fadeyeva street inside the State Glinka Musical Culture Museum built in mid 70s.
The elections took place on the second floor in a huge lobby with a beautiful stained-glass window on one side. There were many people. Some of them were voters like me. Others were observing the landscape, monitoring the situation. I saw a couple of web cameras on the walls. Two policemen were quietly standing at the entrance to the 2nd floor. The other two were standing on the other side of the lobby.
I came over to the table where there was a sign with several street addresses, including may own. A nicely dressed woman in elegant glasses was sitting opposite me. She checked my passport and address, wrote down my passport number in a huge hard-covered notebook. She asked me to sign and gave me two voting bulletins with the lists of candidates. The first was for the regional city council, the second for president of Russia. I looked through both. The second list contained no surprises. The first was full of completely unknown names. I looked at the woman. She smiled at me with her mouth tightly closed and eyebrows arched as if to say: “That’s all I’ve got for you, any questions? “
I smiled in return and said out of earshot of others: “You know, the grocery sections with the small items have variety and freshness, but the main dish menu looks definitely stale.” She looked glanced around and said in a hushed voice: “Everything depends on your taste.” I replied: “They all look tasty, but don’t their labels say they have already expired? She started laughing without emitting a sound. An elderly man behind my back joined in the repartee: “Young man, you’re not in a resort hotel, it’s too late to drink Borjomi.”*
Nevertheless, I read carefully the names of all the regional city council candidates, examined the shining faces of the presidential candidates, made my choice, voted and started down the marble stairs. On my way out, I met my new friend, the elderly man. I smiled at him; he nodded to me and made a deep sigh of resignation.
I went back to the first floor and looked around – there were two wide tables not far from the exit covered with different goods for sale. A temporary first-floor lobby mini-market. There were Chinese toys, Russian sweets, honey, and… American cowboy hats.
How come? - I thought approaching the table.
A young woman greeted me: “Congratulations on the elections!” She was dressed in a Russian folk costume. “Would you like to buy something?”
“No thank you,” I answered. “Have you already voted?”
“No,” she laughed. “I will not vote, I have no time, take a look – we have very nice folk artist’s cups, plates and vases.”
“Funny,” I asked: “Why do you have American cowboy hats?”
“Because, except for the Russian things, everything comes from China. She picked up one of the cowboy hats. “These hats are very good, natural leather, and even Americans order them from China.”
Her appearance and her light accent revealed she was not from Moscow, but from some Russian town nearby. She went on: “I took the brown one for my husband.” A serious look crossed her face: “In fact in Russia we could make such hats even better than the Chinese. “
She kept smiling. She wasn’t pretty, but she was very nice with a clear and open face. I imagined her husband in a Russian folk outfit and Chinese American cowboy hat. The visual picture struck me as ridiculous but at the same time touching.
She doesn’t have time to vote. And probably she doesn’t know what’s going on around and for whom to vote. She, and I assume many Russians, are simply out of this issue.
I bought a honey. Russian honey in natural honeycombs.
Outside in the windy open air, a policeman, guarding the entrance, turned to me: “Have you got a light?” – “No, I quit smoking.” – “That’s the right thing to do,” He added – “I’ll quit smoking in my new life.” I asked: “And whom do we have to elect to start a new life?” He looked at me, sizing me up: “You voted for Prokhorov, didn’t you?” I pretended not to be surprised: “How can you be so sure?” He responded: “Nothing to be sure about. It’s enough just to look at you.” I joked: “Can you see through the walls also? So that’s why you’re standing here, right?” He repositioned his Kalashnikov on his shoulder more comfortably and answered with a peaceful smile: “Come on, that’s fine, Prokhorov seems a good guy, at least young enough to change something.” Then he lowered his voice, moved closer to me and said: “Does it really matter for whom you vote?” He abruptly turned from me to stop the conversation, asking a man entering the Museum: “Excuse me, have you got a light?”
The policeman’s choice remained unclear to me.
Walking home I remembered how I was standing on the White Ring round the Sadovoye Kol’tso (Garden Ring) the previous Saturday, a week back. Passing cars of protesters were joyfully honking at us. People waved from open windows, and we waved back at them with our white ribbons. The high point was a brand new Ford Mondeo police car. Two cops were inside, and both smiled at us, waved and spiritedly honked. Then I came to myself: “Where am I?” I thought: The guard I just met will probably never get the “new life” in which he can get the motivation to quit smoking.
* Borjomi – famous Georgian mineral sparkling water known for its healing microelements. The Russian expression "It’s too late to drink Borjomi" means that it’s too late to take light medicines and that more radical measures are needed.
Rattner Delusional on Obama’s Detroit Bailout? A Virtual Chris Wallace Interview
Chris Wallace: We wish to welcome Steve Rattner to this virtual edition of Fox News Sunday.
Steve Rattner: Pleased to be here Chris.
Chris Wallace: Tell us what your position in the Obama administration was.
Steve Rattner: Well, the Times lists me as Obama’s lead advisor on his automotive task force. I was really his “Car Czar.” As with his other Czars, I had all the power and no need for Senate confirmation. Boy, was that a rush.
Chris Wallace: In your Delusions About the Detroit Bailout, you claim there was no alternative to the government bailout of Detroit, which your critics characterize as a corrupt, cronyist, and inefficient payoff to organized labor and the green energy lobby.
Steve Rattner: Yes, I wrote that no conceivable providers of funds had the slightest interest in financing those companies on any terms. Let me say this Chris: I recognize the risks of government intervention, particularly rewarding failure and the scary prospect of politics entering private sector decision-making. But when markets fail, government should have the ability — in fact, the obligation — to step in.
Chris Wallace: But your critics argue that you should have only provided a bridge loan, secured by GM and Chrysler assets, and then stepped aside for an experienced bankruptcy judge. Instead, as the GAO reports, you put in $62 billion of taxpayer funds to control the process from start to finish. Your critics argue that GM and Chrysler would have emerged leaner and more competitive at no taxpayer cost from a regular bankruptcy, and all stakeholders would have shared sacrifice. You could have avoided the “scary political” charge that the Detroit bailout was a corrupt payoff to Obama’s labor and green-energy contributors.
Steve Rattner: (Changing the subject). What critics conveniently ignore is that the president’s plan was litigated throughout the federal court system — all the way to the Supreme Court, in the case of Chrysler — without so much as a nod to the opponents from a single judge.
Chris Wallace: Your critics would say “Hogwash.” Bankruptcy courts and superior courts regularly accept “voluntary” agreements among stakeholders. GM and Chrysler’s TARP lenders could scarcely resist Obama’s demand for their “shared sacrifice.” The secured Chrysler lenders were strong-armed into accepting 29 cents on the dollar after the President of the United States publicly accused them of being “speculators” who hold out when everyone else is making sacrifice.
Steve Rattner: (Becoming angry). Chris, you should refrain from inflammatory language like “strong armed.”
Chris Wallace: Wait a minute, Sir. The Director of the Indiana State Pension Fund – scarcely a speculator -- complained that Indiana retirees ended up with pennies while non-secured UAW funds got 55 percent of the “new” GM, and senior union members still earn $116,480 in wages and benefits. You have to admit that is pretty good pay for high-school graduates. UAW members currently pay only 7 percent of their health-care costs. The UAW’s own website brags that Obama’s bankruptcy saved the UAW’s gold-plated pension fund from being reduced 65 percent to pension rates in other industries. Do you agree that the UAW did not sacrifice and the Indiana Fund is, as it claims, a victim of the abuse of power by the Executive Branch to further its political agenda?
Steve Rattner: (At a loss for words). No. There was shared sacrifice all around!
Chris Wallace: Excuse me sir, but did not you recently say: The members of President Obama's Auto Task Force did not work as hard as we did in order for workers to see their pay slashed.
Steve Rattner: Well, I had to backtrack from unguarded remarks before a Detroit business group, where I admitted that the UAW members should have taken a pay cut.
Chris Wallace: Well, does not that….
Steve Rattner (Interrupting to change the subject): Don’t forget that the Bush administration approved the first loan to Detroit in its last two weeks in office.
Chris Wallace: Excuse me, sir. You, not the Bush administration, handled the bankruptcy. Did you inform the Bush administration that you were going to use the bankruptcy to reward political supporters?
Steve Rattner (Weakly): But we saved a million automotive jobs.
Chris Wallace: Excuse me sir, but other industries that have gone through regular bankruptcies have saved as many or more jobs. Top legal minds also say GM could easily have found a private buyer or private investor once the bankruptcy proceeding was underway. Instead, the reorganization was structured as a sale that excluded private capital and that preserved a very large flow of union and environmental contributions.
go to Forbes
Saturday, March 3, 2012
Is There are Clearer Case of Media Bias? Gas Prices under Bush and Obama
The Times’ March 1 news piece Tensions Raise Specter of Gas at $5 a Gallon reflects an obvious media bias. As the Times news piece claims, rising gas prices are the result of international events over which President Obama has no control. I cite the first paragraph:
With no clear end to tensions with Iran and Syria and rising demand from countries like China, gas prices are already at record highs for the winter months — averaging $4.32 in California and $3.73 a gallon nationally on Wednesday, according to AAA’s Daily Fuel Gauge Report. As summer approaches, demand for gasoline rises, typically pushing prices up around 20 cents a gallon. And gas prices could rise another 50 cents a gallon or more, analysts say, if the diplomatic and economic standoff over Iran’s nuclear ambitions escalates into military conflict or there is some other major supply disruption.
Under Bush, the “rising gas price” news story would invariably mention Bush by name, Big Oil, and his long-standing ties to the oil industry.
I was about to document this media bias by searching news archives, when I found an excellent blog of March 1 by Julia Seymour, whose main results I cite below:
The Business & Media Institute examined all the broadcast network news reports mentioning gas prices during each of those time periods and found ABC, CBS and NBC aired more than 2 ½ times more stories (63 stories to 24) in 2008 than they did in 2011.
But it was more than just the amount of coverage that showed the media's willingness to spin gas prices one way under Bush, and another way under Obama. In 2008, network reporters mentioned "Bush," the "president" or "government" in gas price reports 15 times more often than in 2011 under President Obama (15 stories to 1).
Congratulations to Julia Seymour for excellent reporting and analysis.
Thursday, March 1, 2012
Kleptocrats, Oligarchs, and Billionaire Entrepreneurs
(Note: I posted this back in 2011. Someone stole my domain name back then so I am reposting it now. It seems relevant given Russia's March 4 presidential election)
Personal wealth is created in one of two ways. On the positive side, it arises as a result of innovation, hard work, brilliant insights, or even luck. Entrepreneurs create enormous wealth when they have a better idea (Henry Ford’s assembly line), discover and develop new products (Microsoft Windows or Google’s search engine), see a new business model (Sam Walton), or are simply at the right place at the right time. Often, it is a combination of innovation and timing, something economists call network externalities.
A second and negative route to personal wealth is through political connections, lobbying to obtain benefits from the state, violence to remove competitors, or outright theft of public resources. Those who earn their fortunes the first way create jobs, raise productivity, and contribute to economic welfare. Those who use the second route are “rent seekers” who subtract from growth and welfare for their own benefit.
Bill Gates, Sam Walton, and Sergei Brin represent wealth earned through entrepreneurship. Their Microsoft, Walmart, and Google made them not only among the richest persons in the world. They have created new technologies, hundreds of thousands of jobs, new business models, and have revolutionized they way we gather and process information. Carlos Slim, the world’s wealthiest man, made his fortune by monopolizing Mexico’s telecommunications market (presumably with help from government regulators). Poor Mexicans have been denied the wide range of choice of telephone services that others have and pay for his wealth in the form of the highest telephone rates on the continent.
The most egregious rent seeking occurs in autocratic and dictatorial regimes in which wealth accumulation is not constrained by an electorate, corporate transparency, or a free press. Such authoritarian regimes breed kleptocrats –those who accumulate wealth for themselves through their official positions. Oligarchs are those who use their access to those in power to accumulate wealth. Both kleptocrats and oligarchs transfer assets from society or from others to themselves; they do not create new products or additional jobs. They reduce economic welfare by crowding out real entrepreneurs, who refrain from economic activity knowing the fruits of their labor will be stolen. Kleptocracy and oligarchy are determined by the quality of society’s institutions and rule of law. The better the institutions, the more limited kleptocracy and oligarchy.
I present here some data on the world’s kleptocrats, oligarchs, and top entrepreneurs. The wealth of kleptocrats cannot be measured with any degree of precision because, as heads of state or government officials, they wish to conceal it. However, the figures capture rough orders of magnitude. Oligarchs, not being government heads or officials, are less prone to conceal their wealth. They may even feel a sense of pride when they see their names listed in Forbes.
I begin with a ranking of kleptocrat heads of state by absolute wealth. (I convert the wealth of past kleptocrats into current dollars). Four of the top six rule (or ruled) countries with rich natural resources (Putin, Nazarbaev, Aliev, Mobutu), such as energy or diamonds. The real “oil curse” is therefore the tendency of the rulers of mineral-rich countries to steal the national wealth. Other kleptocrats controlled poor countries lacking access to rich natural resources. The recently deposed Mubarak (whose personal wealth is listed at the maximum estimate) is in the middle range of notable kleptocrats. Of the eleven countries represented, four (Philippines, Indonesia, Nicaragua, and Peru) have subsequently democratized, although Nicaragua’s democracy may be shaky. Democracy strikes at the root causes of kleptocracy by making the rulers accountable to an electorate and investigative journalists.
Heads of state who steal from less populous countries (Serbia, Haiti, and Nicaragua) accumulate less wealth ceteris paribus than those in populous economies (Russia, Indonesia and Nigeria). The grazing ground for kleptocrats is less spacious in poor countries than in rich countries. The percentage of the kleptocrat’s wealth to GDP is a measure of the kleptocrat-head-of-state’s s burden on society. This table shows that Mobutu, at the end of his reign in Congo, had accumulated wealth equal to more than forty percent of the nation’s meager output. Duvalier had accumulated an estimated ten percent – a figure comparable to the Central Asian oil magnates of Kazakhstan and Azerbaijan. Marcos and Suharto are in the three to four percent range, whereas Putin and Milosevic are in the one to two percent range.
It should be noted that these figures show the economic burden imposed only by the head of state. Heads of state have their courts, which share in the plunder of resources. The court’s assets are not calculable, but we imagine that, if they could be included as well, the kleptocratic burden would be multiplied many times over.
The next table shows the cumulated wealth of the ten wealthiest persons in industrialized democracies (the United States, the European Union, and South Korea), in two former Soviet states (Russia and Ukraine), Mexico and in China. These figures omit the wealth of the head of state.
The table shows that the top ten have more wealth in the large and wealthy United States and European Union (between 170 and 270 billion). Relatively poor Mexico and Russia both have nearly one hundred billion. (There are as many billionaires listed for “poor” Russia as for the “rich” United States – a remarkable testimony to rent seeking in Putin’s Russia.) The top ten in South Korea and Ukraine have the same amount of wealth even though South Korea is five times richer. China lies between Mexico and Ukraine although it has the world’s second largest economy.
The US top 10 list is comprised largely of entrepreneurs whose ideas and business methods changed whole industries (Gates, Buffet, Walton, and Brin). The Russian top 10 list is made up of Kremlin-favored oligarchs who were awarded extremely valuable assets that had previously belonged to the state. The South Korean list is populated by industrialists who formed conglomerate businesses that compete in world markets, while the Ukrainian list is made up of those who received valuable state assets during privatization. China’s list is of industrialist owners of successful Chinese companies (most partially owned with the state), who could not have been successful without the support of the Chinese state.
The next table shows the wealth of the top ten as a percent of GDP. In those countries (US, EU, South Korea) where the top wealth holders play primarily entrepreneurial roles, their share is between one and two percent. Viewed in the light of their contribution to the economy, their wealth reward seems rather modest. In Ukraine and Russia, the share of GDP of the top ten is between four and six percent – a rather substantial return to those making a negative or questionable contributions to output and welfare. The high Mexican share is due to the “Carlos Slim Effect.” He alone accounts for most of the high Mexican figure.
China is an outlier. The wealth of its richest persons is small relative to the size of the Chinese economy. What this suggests is that there are forces at play, other than the usual constraints imposed by democracy and a free press, that have limited rapacious rent seeking on the part of connected Chinese businessmen . At this juncture, we do not know enough about the internal workings of large Chinese businesses to define the entrepreneurial roles played by their chief executives. These constraints on rent seeking in China may be one of the many (still unexplored) reasons for China’s rapid growth.
The basic message of this analysis is that, in countries with good institutions, generous wealth accumulation is a reward for positive contributions to the economy. These are rewards for innovation, radically new ideas, persistence, and risk taking. In societies with good institutions, the rewards are relatively modest as a percent of total economic activity. These rewards are constrained by competition, social morays, and the rule of law. In countries with poor institution, wealth is accumulated either by the head of state or by oligarch cronies by transferring assets from others or from society itself. Such transfers not only do not increase national wealth; they reduce it insofar as real entrepreneurs cannot prosper in such an environment.
We are often reminded of the greed of those at the top. Little attention is devoted to the contributions of those entrepreneurs whose ideas and methods have contributed to economic growth. Walmart, Microsoft and Google currently employ 2.1 million, 93,000, and 22,000 respectively. The indirect employment they create through suppliers, vendors and other stakeholders is a multiple of these figures. Their annual payrolls equal a large fraction of the accumulated wealth of their founders.
Warnings about the growing concentration of wealth at the very top must be considered in proportion to the size of economic activity, whose increase is in fact positively affected by those at the top. Today, the top ten account for less than two percent of GDP in the United States. At the turn of the twentieth century, the top ten accounted for more than five percent! In a ranking of the 100 top wealth holders from the founding of the United States to the present (as a percent of GDP), only five living persons are listed, and Gates and Buffet are ranked only numbers 31 and 39 respectively.
Data sources: This data is drawn from Forbes rankings of the world’s richest people, from estimates of Transparency International, and independent estimates of the wealth of Vladimir Putin and informal estimates of the wealth of Nazarbaev of Kazakhstan and the Aliev family of Azerbaijan. The wealth of other kleptocrats is given as of the date of their removal from power converted into 2010 US dollars. The top five Ukrainian oligarchs are taken from http://ukrainianguide.com/5-wealthiest-ukrainian-oligarchs/2/ Only five Ukrainian oligarchs made the billionaire list; so I assume there are five more slightly below one billion. Mubarak’s wealth is taken from an ABC News report of February 11, 2011 citing U.S. intelligence sources. These sources dismiss the high figures cited in the press and place Mubarak’s wealth between $1 and $5 billion. I take the upper figure to avoid underestimation. The wealthiest 100 Americans throughout history is taken from http://www.getrichslowly.org/blog/2006/07/29/the-wealthy-100-a-ranking-of-the-richest-americans-past-and-present/
Personal wealth is created in one of two ways. On the positive side, it arises as a result of innovation, hard work, brilliant insights, or even luck. Entrepreneurs create enormous wealth when they have a better idea (Henry Ford’s assembly line), discover and develop new products (Microsoft Windows or Google’s search engine), see a new business model (Sam Walton), or are simply at the right place at the right time. Often, it is a combination of innovation and timing, something economists call network externalities.
A second and negative route to personal wealth is through political connections, lobbying to obtain benefits from the state, violence to remove competitors, or outright theft of public resources. Those who earn their fortunes the first way create jobs, raise productivity, and contribute to economic welfare. Those who use the second route are “rent seekers” who subtract from growth and welfare for their own benefit.
Bill Gates, Sam Walton, and Sergei Brin represent wealth earned through entrepreneurship. Their Microsoft, Walmart, and Google made them not only among the richest persons in the world. They have created new technologies, hundreds of thousands of jobs, new business models, and have revolutionized they way we gather and process information. Carlos Slim, the world’s wealthiest man, made his fortune by monopolizing Mexico’s telecommunications market (presumably with help from government regulators). Poor Mexicans have been denied the wide range of choice of telephone services that others have and pay for his wealth in the form of the highest telephone rates on the continent.
The most egregious rent seeking occurs in autocratic and dictatorial regimes in which wealth accumulation is not constrained by an electorate, corporate transparency, or a free press. Such authoritarian regimes breed kleptocrats –those who accumulate wealth for themselves through their official positions. Oligarchs are those who use their access to those in power to accumulate wealth. Both kleptocrats and oligarchs transfer assets from society or from others to themselves; they do not create new products or additional jobs. They reduce economic welfare by crowding out real entrepreneurs, who refrain from economic activity knowing the fruits of their labor will be stolen. Kleptocracy and oligarchy are determined by the quality of society’s institutions and rule of law. The better the institutions, the more limited kleptocracy and oligarchy.
I present here some data on the world’s kleptocrats, oligarchs, and top entrepreneurs. The wealth of kleptocrats cannot be measured with any degree of precision because, as heads of state or government officials, they wish to conceal it. However, the figures capture rough orders of magnitude. Oligarchs, not being government heads or officials, are less prone to conceal their wealth. They may even feel a sense of pride when they see their names listed in Forbes.
I begin with a ranking of kleptocrat heads of state by absolute wealth. (I convert the wealth of past kleptocrats into current dollars). Four of the top six rule (or ruled) countries with rich natural resources (Putin, Nazarbaev, Aliev, Mobutu), such as energy or diamonds. The real “oil curse” is therefore the tendency of the rulers of mineral-rich countries to steal the national wealth. Other kleptocrats controlled poor countries lacking access to rich natural resources. The recently deposed Mubarak (whose personal wealth is listed at the maximum estimate) is in the middle range of notable kleptocrats. Of the eleven countries represented, four (Philippines, Indonesia, Nicaragua, and Peru) have subsequently democratized, although Nicaragua’s democracy may be shaky. Democracy strikes at the root causes of kleptocracy by making the rulers accountable to an electorate and investigative journalists.
| Ruler(ranked top to bottom) | Year | Wealth (bl. 2010 $) | ||
| Putin (Russia) | 2011 | 40 | ||
| Suharto (Indonesia) | 1998 | 25 | ||
| Nazarbaev Kazakhstan) | 2011 | 20 | ||
| Marcos (Philippines) | 1986 | 7.5 | ||
| Aliev (Azerbaijan) | 2011 | 10 | ||
| Mobutu (Congo, Zaire) | 1997 | 5 | ||
| Mubarak (Egypt) | 2011 | 5 | ||
| Abacha (Nigeria) | 1998 | 3.5 | ||
| Milosevich (Serbia) | 2000 | 1 | ||
| Duvalier (Haiti) | 1986 | 0.55 | ||
| Fujimori (Peru) | 2000 | 0.6 | ||
| Alemain (Nicaragua) | 2002 | 0.1 | ||
| Estrada (Philippines) | 2001 | 0.08 |
Heads of state who steal from less populous countries (Serbia, Haiti, and Nicaragua) accumulate less wealth ceteris paribus than those in populous economies (Russia, Indonesia and Nigeria). The grazing ground for kleptocrats is less spacious in poor countries than in rich countries. The percentage of the kleptocrat’s wealth to GDP is a measure of the kleptocrat-head-of-state’s s burden on society. This table shows that Mobutu, at the end of his reign in Congo, had accumulated wealth equal to more than forty percent of the nation’s meager output. Duvalier had accumulated an estimated ten percent – a figure comparable to the Central Asian oil magnates of Kazakhstan and Azerbaijan. Marcos and Suharto are in the three to four percent range, whereas Putin and Milosevic are in the one to two percent range.
| Ranked top to bottom | Year | Percent of GDP | ||
| Mobutu (Congo, Zaire) | 1997 | 0.4202 | ||
| Aliev (Azerbaijan) | 2011 | 0.1111 | ||
| Nazarbaev (Kazakhstan) | 2011 | 0.1036 | ||
| Duvalier (Haiti) | 1986 | 0.1000 | ||
| Marcos (Philippines) | 1986 | 0.0429 | ||
| Suharto (Indonesia) | 1998 | 0.0331 | ||
| Putin (Russia) | 2011 | 0.0180 | ||
| Milosevich (Serbia) | 2000 | 0.0165 | ||
| Abacha (Nigeria) | 1998 | 0.0127 | ||
| Mubarak (Egypt) | 2011 | 0.0100 | ||
| Alemain (Nicaragua) | 2002 | 0.0073 | ||
| Fujimori (Peru) | 2000 | 0.0029 | ||
| Estrada (Philippines) | 2001 | 0.0003 |
It should be noted that these figures show the economic burden imposed only by the head of state. Heads of state have their courts, which share in the plunder of resources. The court’s assets are not calculable, but we imagine that, if they could be included as well, the kleptocratic burden would be multiplied many times over.
The next table shows the cumulated wealth of the ten wealthiest persons in industrialized democracies (the United States, the European Union, and South Korea), in two former Soviet states (Russia and Ukraine), Mexico and in China. These figures omit the wealth of the head of state.
The table shows that the top ten have more wealth in the large and wealthy United States and European Union (between 170 and 270 billion). Relatively poor Mexico and Russia both have nearly one hundred billion. (There are as many billionaires listed for “poor” Russia as for the “rich” United States – a remarkable testimony to rent seeking in Putin’s Russia.) The top ten in South Korea and Ukraine have the same amount of wealth even though South Korea is five times richer. China lies between Mexico and Ukraine although it has the world’s second largest economy.
| Ranked top to bottom | Wealth of Top 10 (bln $) | ||
| US | 264.8 | ||
| EU (without UK) | 171.5 | ||
| Russia | 97.0 | ||
| Mexico | 90.3 | ||
| China | 42.3 | ||
| South Korea | 21.4 | ||
| Ukraine | 17.7 |
The US top 10 list is comprised largely of entrepreneurs whose ideas and business methods changed whole industries (Gates, Buffet, Walton, and Brin). The Russian top 10 list is made up of Kremlin-favored oligarchs who were awarded extremely valuable assets that had previously belonged to the state. The South Korean list is populated by industrialists who formed conglomerate businesses that compete in world markets, while the Ukrainian list is made up of those who received valuable state assets during privatization. China’s list is of industrialist owners of successful Chinese companies (most partially owned with the state), who could not have been successful without the support of the Chinese state.
The next table shows the wealth of the top ten as a percent of GDP. In those countries (US, EU, South Korea) where the top wealth holders play primarily entrepreneurial roles, their share is between one and two percent. Viewed in the light of their contribution to the economy, their wealth reward seems rather modest. In Ukraine and Russia, the share of GDP of the top ten is between four and six percent – a rather substantial return to those making a negative or questionable contributions to output and welfare. The high Mexican share is due to the “Carlos Slim Effect.” He alone accounts for most of the high Mexican figure.
| Top 10 Persons | Wealth of top 10 as percent of GDP | ||
| Ukraine | 0.0586 | ||
| Mexico | 0.0583 | ||
| Russia | 0.0437 | ||
| US | 0.0184 | ||
| South Korea | 0.0147 | ||
| EU (without UK) | 0.0113 | ||
| China | 0.0042 |
China is an outlier. The wealth of its richest persons is small relative to the size of the Chinese economy. What this suggests is that there are forces at play, other than the usual constraints imposed by democracy and a free press, that have limited rapacious rent seeking on the part of connected Chinese businessmen . At this juncture, we do not know enough about the internal workings of large Chinese businesses to define the entrepreneurial roles played by their chief executives. These constraints on rent seeking in China may be one of the many (still unexplored) reasons for China’s rapid growth.
The basic message of this analysis is that, in countries with good institutions, generous wealth accumulation is a reward for positive contributions to the economy. These are rewards for innovation, radically new ideas, persistence, and risk taking. In societies with good institutions, the rewards are relatively modest as a percent of total economic activity. These rewards are constrained by competition, social morays, and the rule of law. In countries with poor institution, wealth is accumulated either by the head of state or by oligarch cronies by transferring assets from others or from society itself. Such transfers not only do not increase national wealth; they reduce it insofar as real entrepreneurs cannot prosper in such an environment.
We are often reminded of the greed of those at the top. Little attention is devoted to the contributions of those entrepreneurs whose ideas and methods have contributed to economic growth. Walmart, Microsoft and Google currently employ 2.1 million, 93,000, and 22,000 respectively. The indirect employment they create through suppliers, vendors and other stakeholders is a multiple of these figures. Their annual payrolls equal a large fraction of the accumulated wealth of their founders.
Warnings about the growing concentration of wealth at the very top must be considered in proportion to the size of economic activity, whose increase is in fact positively affected by those at the top. Today, the top ten account for less than two percent of GDP in the United States. At the turn of the twentieth century, the top ten accounted for more than five percent! In a ranking of the 100 top wealth holders from the founding of the United States to the present (as a percent of GDP), only five living persons are listed, and Gates and Buffet are ranked only numbers 31 and 39 respectively.
Data sources: This data is drawn from Forbes rankings of the world’s richest people, from estimates of Transparency International, and independent estimates of the wealth of Vladimir Putin and informal estimates of the wealth of Nazarbaev of Kazakhstan and the Aliev family of Azerbaijan. The wealth of other kleptocrats is given as of the date of their removal from power converted into 2010 US dollars. The top five Ukrainian oligarchs are taken from http://ukrainianguide.com/5-wealthiest-ukrainian-oligarchs/2/ Only five Ukrainian oligarchs made the billionaire list; so I assume there are five more slightly below one billion. Mubarak’s wealth is taken from an ABC News report of February 11, 2011 citing U.S. intelligence sources. These sources dismiss the high figures cited in the press and place Mubarak’s wealth between $1 and $5 billion. I take the upper figure to avoid underestimation. The wealthiest 100 Americans throughout history is taken from http://www.getrichslowly.org/blog/2006/07/29/the-wealthy-100-a-ranking-of-the-richest-americans-past-and-present/
“Voluntary Exchange” of Greek Debt? And There Goes Another Market
Credit default swaps are default insurance for corporate and sovereign bonds, to be paid in the event of the restructuring of the debt, a failure to pay coupons or principal on the bonds, or a bankruptcy.
The International Swaps and Derivatives Association's EMEA Determinations Committee voted yesterday that no “event” had occurred despite the Greek parliament’s passage of legislation that forces private creditors to accept losses on their holdings.The Greeks and banks that sold credit default swaps had hoped to avoid triggering the credit default swaps by claiming that the swap of Greek bonds for “new” bonds at a loss of 53.5 percent was “voluntary.” The problem with this argument was that a number of private lenders were not willing to go along. Now the Greek parliament has legislated that they must.
So we now have a restructuring that is not a restructuring. We’ll have a default that is not a default. We now use semantics to solve inconvenient problems in new virtual universe of finance.
Greece’s long term problem is that lenders do not trust it to meet its obligations. I trust that memories are long. Such arbitrary action against private lenders and against holders of credit default swaps will only delay Greece’s return to credit markets. Moreover, they cast a pall over sovereign debt, the cost of which will be borne by borrowers generally.
Holders of credit default swaps join Chrysler’s secured lenders.
Subscribe to:
Posts (Atom)