No, billionaires don’t drive economic growth – and crony billionaires strangle it

No, billionaires don’t drive economic growth – and crony billionaires strangle it

Jan Svejnar, the Guardian

http://www.theguardian.com/commentisfree/2015/jul/15/billionaires-drive-economic-growth-crony

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This is the set of questions that I, along with my colleague Sutirtha Bagchi of Villanova University, have examined. Using data on billionaires published by Forbes magazine, we applied econometric techniques and arrived at a finding that will perplex some and delight others: a greater presence of billionaires in a country actually slows down its economic growth.

Controlling for other relevant factors, such as the country’s level of income and education, we demonstrate that countries could grow their economies faster if there were less money controlled by the uber-rich. This implies that economies could be more efficient if more money were allocated to people other than those at the top of the income and wealth pyramid.


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Broadly speaking, billionaires come in two types – those who would not have made it without political connections (ie political cronies), and those who became billionaires because of their ingenuity, ability to innovate and willingness to take risks (ie the politically unconnected).

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We discovered that billionaire wealth that arises from being politically connected has a strongly negative effect on growth. In contrast, the effect of politically unconnected billionaire wealth on the overall economy is indistinguishable from zero. That means that billionaire cronies constrain economic growth, while billionaires who aren’t cronies on average don’t do so. Why are these findings important for the rest of us? They indicate that public policy toward income and wealth distribution needs to take into account the nature of wealth accumulation.


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