If you scan the Wealthiest Angelenos section in this week’s issue of the Business Journal, you’ll see that most rich people here did quite well over the past year. In some cases, spectacularly so.
If you think that’s great, you may find yourself in a debate. Whenever there’s a discussion of immense wealth in America these days, there’s always a question from the back of the room that goes something like this: Isn’t this a bad thing? Can the concentration of money in the hands of a few be sustainable and healthy, economically, when so many are poor or nearly so? (See the poll question below.)
That question always stops me because it links things that are not directly connected. In our economic system, some people can become quite wealthy without diminishing the financial standing of others. The increase in billionaires does not result in an increase of low- or middle-income folks. The question seems to assume that there’s a stagnant pool of money and if a few conniving people figure how to suck out most of it, there’s only a few puddles for all the rest of us to scramble for.
But that’s not the way it works. In our economic system, a business with a successful new product or service creates net new money; much of the company’s value did not exist before. It did not take from others (except for vanquished competitors). The pool of wealth was increased. The owner or innovator may get the lion’s share of that new money, sure, but the rest of us aren’t hurt. If anything, we can benefit by being shareholders, employees or vendors of that company.
After the iPhone was introduced in 2007, Apple shareholders became wealthy (or wealthier). You may have contributed by giving Apple a fair bit of your money in recent years, but that was because the tablet and smartphone made your life better. (Unless, of course, a distracted texter crashed into your car.)
Here’s the question: Did Steve Jobs’ status as a gazillionaire increase the ranks of the poor or middle classes? Did the wealth concentrated in his hands hurt you? I imagine you happily gave Apple some of your hard-earned cash.
It goes well beyond that. The smartphone created an industry of app makers, many of them in L.A.’s Silicon Beach. Some of the founders of those companies are on our list of Wealthiest Angelenos. Go ahead: Tell the employees of those companies that the “concentration” of wealth by Steve Jobs and his ilk has been a bad thing for them.
Here’s a hypothetical: If we could somehow magically take all the money from all the wealthy people in America, would everyone else be better off? Would the poor benefit and the middle class be lifted?
Actually, it’s not so hypothetical because that’s been tried before.
Under Mao Zedong in China, entrepreneurs were outlawed and private property was forbidden. “Strike hard against the slightest sign of private ownership,” was one slogan in that era. But the forced egalitarianism of the Great Leap Forward led to the Great Famine.
Under the reforms started by Deng Xiaoping in the 1970s, China has shown that economic liberalization is the best and surest path to financial security for most. Hundreds of millions of people now are well out of poverty, and many are quite wealthy. China now has more than 200 billionaires – up from zero in a little more than a decade. The creation of those billionaires did not prevent the others from becoming prosperous. If anything, the new billionaires are a byproduct, a sign, of growing and widely distributed prosperity. It’s just that some get richer than others. Same as here.
To be sure, poverty is a wrenching condition and the middle class has grown more fragile. But those situations have more to do with education and other issues. They have virtually nothing to do with the fact that some have become wealthy.
So yeah, the creation of wealth is sustainable. And it is healthy. I think we all wish we had more of it.
Charles Crumpley is editor of the Business Journal. He can be reached at firstname.lastname@example.org.