Billionaires have never had it so good

Fortunes are created by technology and globalisation, as well as talent and enterprise

John Gapper

web_Wealth tax on billionaires
© Ingram Pinn/Financial Times


The world’s billionaires do not have everything their own way these days. They are still rich and powerful, but they are less feted for exceptional achievement and are under pressure to pay more tax.

Elizabeth Warren, the US presidential candidate, plans a wealth tax to denude the fortunes of those, such as Bill Gates, by tens of billions over decades. “I’m starting to do a little math about what I have left over,” Mr Gates joked last week. Jeremy Corbyn, the UK Labour leader, launched his general election campaign by promising to make billionaires pay a lot more tax.

Billionaires still have some friends. UBS last week sprung to their defence, arguing that its private banking clients merit their wealth. The “smart risk-taking, business focus and determination” of rich entrepreneurs give them the ability “to transform entire industries, to create large numbers of well-paid jobs, and to rally the world to find cures for diseases such as malaria.”

UBS says “the billionaire effect” enables companies controlled by their founders to take a long-term view and beat those with impatient shareholders. The 2,100 billionaires it counts have “an obsessive business focus, constantly scanning the world for new opportunities. And they are highly resilient, undeterred by failures and roadblocks.”

There is plenty of truth to this. Even if one sets aside the heirs and heiresses to fortunes, and the oligarchs who seized their wealth, it leaves many entrepreneurs who started their businesses from scratch among what Ms Warren calls “ultra-millionaires”.

Indeed, the world’s billionaire super league is more meritocratic than in past decades. As one study of the Forbes 400 list of richest US billionaires found, they “did not grow up nearly as advantaged as those in decades past”. There are more entrepreneurs from middle-class backgrounds who went to elite universities before making their fortunes.

But such success would have been less lucrative in the past — they might have been merely rich rather than super-rich. Before lionising or demonising elite entrepreneurs, consider how their personal talents are amplified.

First, the superstar effect. Globalisation and technology that allows businesses, such as Google and Facebook, to span markets, help the most successful entrepreneurs to profit faster and at greater scale. Successful founders can create superstar franchises, like some Hollywood stars in China.

The economist Sherwin Rosen once noted that “superstar economics” mean the returns to the winner in any category can be vastly higher than the returns to second place. These winners can, as the economist Alfred Marshall commented in 1890, “apply their constructive or speculative genius to undertakings vaster, and extending over a wider area, than ever before”.

Second, the security effect. One reason why the poor stay poor is that they cannot plan for the long-term. Abhijit Banerjee, Esther Duflo and Michael Kremer won this year’s Nobel economics prize for showing, among other things, that “the present takes up a great deal of [poor] people’s awareness, so they tend to delay investment decisions”.

The reverse is true of billionaires, who can finance ideas over decades and ride out failures and setbacks. UBS says that “the outperformance we call the ‘billionaire effect’ depends on the entrepreneur keeping control [of a company]”, but they may be advantaged by security as much as genius.

Third, the insider effect. People do not turn into billionaires without a keen sense of financial opportunity and the drive to make a series of good decisions. But once they achieve positions of power, they are reinforced by a network of advisers and brokers.

Billionaires do not leave their cash at banks; UBS or other private banks handle it. They have insider access, such as the opportunity to invest in private businesses, or initial public offerings of fast-growing companies. Wealth does not automatically beget wealth but moving in elite financial circles with enviable resources helps.

Fourth, the tax effect. Many countries tax income higher than capital, because it is simpler and they want to encourage entrepreneurs. But this leads to the rich paying less as a share of their wealth than those on average incomes.

Wealth is also mobile. Some billionaires reside in jurisdictions such as Monaco or (in the case of Sir Richard Branson) the British Virgin Islands. Even those who stay at home have scope through trust and offshore structures to shield some of their wealth.

These effects mean that entrepreneurs with great talents are in better positions to gain and sustain riches than in previous decades. Mr Gates dislikes Ms Warren’s plan to drain his wealth but he observed that “we are not close to the limit” in terms of raising taxes without damaging enterprise.

It is salutary that more of today’s super-wealthy built their own fortunes, but they are also lucky to live at an unusually helpful time in economic history. Mr Gates has acknowledged it by devoting tens of billions to philanthropy, as well as in prompting others to give back. Rather than getting too angry at Ms Warren’s wealth tax plan, it behoves others to recognise it too.

Smartphones fuel online shopping splurge as US marks Black Friday

Malls miss out as more Americans reach for mobiles

Alistair Gray in New York

Jayln Martin, left, and Dan Villegas stock items in preparation for a holiday sale at a Walmart Supercenter, Wednesday, Nov. 27, 2019, in Las Vegas. Black Friday once again kicks off the start of the holiday shopping season. But it will be the shortest season since 2013 because of Thanksgiving falling on the fourth Thursday in November, the latest possible date it can be. (AP Photo/John Locher)
Walmart employees prepare for Black Friday at a Las Vegas store. Big box US retailers such as Walmart and Target are faring well © AP


Millions of Americans were avoiding shopping malls and instead reaching for their smartphones to land Black Friday bargains, fuelling a boom in online orders over the extended Thanksgiving holiday.

Early data showed Amazon was on track to be a big beneficiary of the smartphone splurge as it grabbed an even larger share of consumer spending than last year, while weaker malls and department stores were set to miss out on the seasonal cheer.

“The lines aren’t what they used to be,” said Charlie O'Shea, lead retail analyst at Moody’s, who toured stores in suburban Philadelphia after doors opened on Thanksgiving. “People have more options.”

Hefty discounts were offered online long before Friday, reducing the need to rush to stores. TVs were being promoted heavily, with Amazon offering 50 per cent off some 4K models.

E-commerce spending totalled $57.5bn in the four weeks up to and including Thanksgiving, a like-for-like rise of about 16 per cent from a year ago, according to estimates from Adobe Analytics. It projected an additional $7.5bn for Black Friday.


$1.1tnUS retail sales in November-January period, according to Deloitte


Almost half the estimated $4.4bn worth of online purchases on Thanksgiving was made on mobile phones, Adobe said, compared with about a third last year.

Top selling items included children’s toys from the Disney movie Frozen II and LOL Surprise dolls.

Air fryers — kitchen gadgets — were selling well, as were Apple AirPods and Amazon Fire TVs. Popular video games included the music title Just Dance 2020 and basketball simulation NBA 2K20.

Initial figures pointed to Amazon increasing its lead over rivals online.

Of the top 10 digital vendors, Amazon captured a 61 per cent share in the week before Thanksgiving, according to figures from Edison Trends, compared with a 57 per cent share a year ago.

The company’s digital sales jumped 37 per cent in the period, Edison Trends figures showed. Only Walmart, which has a far smaller online business than Amazon, had a bigger rise, up 53 per cent.

In a sign that declining fortunes in stores is also translating to weakness online for some brands, digital spending at the department stores Kohl’s and JCPenney fell 6 per cent and 30 per cent, respectively, over the period.

Several forecasters predict total US consumer spending, which has been a source of resilience for the global economy, will remain strong over the holiday season despite concerns about trade tariffs.


Deloitte expects US retail sales to total $1.1tn over the November-January period, a rise of between 4.5 and 5 per cent from the same period a year ago. However, the season is threatening to widen the gulf between winners and losers in US retail.

Strong financial results released within the past two weeks have shown the big box retailers Walmart and Target, as well as discounters including TJX, are faring well. In stark contrast, several department stores and other mall-based companies posted sales declines.

Footfall overall at physical retailers in the run-up to the peak shopping season was weak, declining 5.5 per cent year-on-year in October, according to RetailNext.

Rod Sides, US retail practice leader at Deloitte, said consumers were even more willing to shop online over the Thanksgiving period than during the rest of the year. “Convenience is a big factor,” he said.

Retailers were set for a busy extended weekend online. Walmart on Friday unveiled discounts for Cyber Monday, including 45 per cent off Fruit of the Loom pyjamas, 35 per cent off a Ninja air fryer and 25 per cent off a Graco baby car seat.


In Central Asia, Can China Really Compete With Russia?

By: Ekaterina Zolotova


Chinese influence in Central Asia has increased markedly in recent years.

For Tajikistan, Kazakhstan, Uzbekistan, Kyrgyzstan and even the relatively more closed-off Turkmenistan, China is becoming not only a major supplier of loans and investment but also a key trading partner.

Some may interpret this as an indication that the influence of Central Asia’s historical benefactor, Russia, is diminishing.

It seems, however, that Russia isn’t too alarmed by China’s growing influence in the region.

That’s because, unlike China, Moscow’s interests in Central Asia are not just economic. Indeed, Russia has historical links to the region and security and political interests there, which will ensure that Moscow will be the dominant player in the region for years to come.

For Russia, maintaining influence in the post-Soviet Central Asian states is critical. These countries form a key buffer zone for Russia, separating the country from unstable areas of the Middle East and terrorist elements. Russia is concerned that terrorist and extremist influences could spread to its southern border and into the Caucasus through Central Asia and threaten to destabilize its southern and eastern regions.

Economic Influence

From an economic point of view, Russia looks at Central Asia as a region with potential. It sees Central Asia as a key route through which it could supply energy and other goods to growing markets like India, China and Pakistan, which, as they face increasing uncertainty from sanctions and the U.S. trade war, could become major consumers of Russian exports. But Moscow is facing increasing competition from Beijing in its historical sphere of influence.

After the 2008 global economic crisis, Beijing began to more actively invest in and trade with the countries of Central Asia. China’s foremost interests in Central Asia are economic; Beijing sees these countries as a growing market for Chinese products, critical trade routes for the Belt and Road Initiative, and a source of needed natural resources.

Chinese companies produce roughly 20 percent of Kazakh oil. More than 80 percent of Tajik gold deposits are operated by companies that receive Chinese capital, and more than 700 enterprises in Uzbekistan receive Chinese funding. China has also financed the development of Turkmenistan’s Galkynysh gas field and the construction of a gas pipeline through Kazakhstan. The estimated combined cost of these two projects exceeds $8 billion.

Trade With Russia and China as Share of Total Trade



Central Asian countries now owe billions of dollars in debt to China. Uzbekistan alone owes $3.4 billion (21 percent of the state’s external debt); Tajikistan owes $2.9 billion (48 percent of its external debt); and Kyrgyzstan owes $1.7 billion (42.5 percent of external debt).

This is raising concerns that Central Asian countries could become ensnared in so-called debt traps, compelling these states to agree to hefty political or economic concessions in order to pay off large loans they can no longer service.

In 2011, for example, Tajikistan agreed to lease 1 percent of its territory to China. And Turkmenistan has supplied gas to China at a price three times lower than the market rate.

Central Asia's Debt Owed to China



The growing Chinese economic influence here could challenge Russia’s historical role as the main benefactor for Central Asia. On economic grounds, Russia can’t really compete with China.

Moscow is, however, maintaining a degree of economic influence by strengthening integration with Central Asia, particularly through the Eurasian Economic Union, which includes an integrated single market and common policies on several industries.

Ultimately, the two countries are unlikely to engage in open confrontation in the short term for a couple of reasons. First, Russia can’t afford a confrontation with China.

After Russia’s annexation of Crimea in 2014, China became the only major power that was willing to increase bilateral trade and economic ties with Russia; Russian foreign policy, after all, has long been oriented toward the east.

Second, Russia has been a dominant economic force in Central Asia for decades. Its influence has been somewhat diminished as sanctions and economic troubles at home have eroded Russia’s ability to finance the region, but Central Asia and the Caucasus remain heavily dependent on Moscow in terms of both trade and remittances.

Strategic Interests

Moreover, although Russia continues to provide economic assistance to the region, this assistance stems from strategic interests rather than the promise of economic gain. Russia has written off hundreds of millions of dollars in Central Asian debt, including $240 million owed by Kyrgyzstan in 2017 and $900 million owed by Uzbekistan in 2016. For Moscow, developing good relations with these strategically located countries is more important than the potential economic benefit they could offer.

Central Asia



These countries form a key buffer zone for Russia, separating the country from unstable areas of the Middle East where terrorism and extremism are rife.

Russia has a sprawling border with Kazakhstan that’s difficult to protect, and the borders between the Central Asian states are not well defended.

The attack carried out by Islamic State militants on the Tajik-Uzbek border last week showed that terrorist organizations have already gained a foothold in the region. This is particularly concerning for Moscow because the militaries and security forces of Central Asian countries are highly dependent on Russia for equipment and training.

Since the formation of the Collective Security Treaty Organization in 1992, Russia has been the primary security guarantor for three Central Asian countries: Kazakhstan, Kyrgyzstan and Tajikistan. (Uzbekistan was also part of the CSTO but has withdrawn its membership.) Russia has military bases and facilities in Tajikistan and an air base in Kyrgyzstan, and is helping to strengthen these countries’ own military capabilities.


In October, it donated to Tajikistan 320 million rubles ($5 million) worth of military equipment and weapons including a radar station for monitoring airspace and modernized armored reconnaissance and BRDM-2M patrol vehicles. Also in October, the Central Military District’s press service announced the transfer of the S-300 Favorit anti-aircraft missile system to the Tajik-Afghan border. In addition, Uzbekistan has purchased from Russia Typhoon armored vehicles, delivery of which will begin sometime this year, as well as Russian-made BTR-82A armored personnel carriers, Tiger armored vehicles and a Sopka-2 radar station. Russia also plans to supply 12 Mi-35M transport and combat helicopters to Uzbekistan.

Though there has been much talk of China’s growing military presence in Tajikistan (it recently opened a new military base on the Tajik side of their shared border, for example, and held drills with the Tajik military in August), its security operations in Central Asia are mostly carried out within the framework of the Shanghai Cooperation Organization.

Whereas Russia wants to remain the dominant military player in the region, China is content to take a backseat and avoid competing with Moscow for regional supremacy. Moreover, Beijing shares many of Moscow’s security concerns in Central Asia and therefore doesn’t feel threatened by Russia’s willingness to support Central Asian countries. China actually has more reasons to cooperate than compete with Russia, at least in the short term.

Despite China’s growing economic and military power, Moscow and Beijing don’t see each other as direct rivals in Central Asia, at least for now. There is indirect competition between the two countries, but their current interests and priorities rarely overlap in such a way that would push them into direct competition. China’s interests in the region are mostly economic, so it will be involved there only inasmuch as it can benefit economically.

The deployment of Chinese troops in Tajikistan and the launch of counterterrorism drills with Tajik forces are connected to Chinese concerns over the security of its own investments in Central Asia and elsewhere. Russia, however, has deeper ties in Central Asia, and its interests are more strategic than economic. In tough economic times, it may see increasing competition for influence there, but no country has been able to match Russia’s presence and impact in the region.

Even With a Trade Deal, Copper Is No Sure Thing

Copper prices have risen in the past few months, but weakness in China’s construction sector could put an end to the rally

By Nataniel Taplin


China’s construction sector, the top source of global demand for copper, is losing steam. Photo: ruben sprich/Reuters


Things have been looking up for copper.

Prices for the red metal have risen about 4% since early September, after a dark and dreary stretch for it beginning in mid-2018.

Like many growth plays, copper has been buoyed by signs of warming relations between the U.S. and China, after a bruising trade conflict.

The latest headlines show even a limited deal between the two powers this winter is no sure thing.

But there are even more fundamental reasons to doubt the rally in copper—an important part of the investment case for mining stocks such as GlencorePLC or Freeport-McMoRan Inc. —has further to run.

That’s because Chinese construction, the top source of global demand, is losing steam after two strong years.

Monthly data Thursday showed property-investment growth, a good proxy for the construction of new homes, offices and other buildings, slowing to 8.8% on the year, down from 10.5% in both of the two months prior.





Growth in heavy industrial output and home prices has been slowing for months, and overall industrial growth also moderated in October.

Property investment is likely to droop further, along with industry and house prices, unless Beijing ramps up credit supply—which it has been unwilling to do.

There was some better news for metals in Thursday’s data: investment in power and utilities rose 1.9% in the first 10 months of 2019, compared with the same period a year earlier.

That beats the negative or near-zero growth of the last two years. Still, only far more substantial flows into the already overinvested power sector could offset the drag from property.

Last year, miner BHP estimated the construction sector accounted for 26% of China’s copper demand, versus 22% for power.

A trade deal would be marginally positive for copper.

But the real story for industrial metals is China’s construction cycle.

Investors should keep their attention focused there.