A piece in the Fairfax press today referenced a book by economist Professor Paul Frijters called Game of Mates. In essence the books looks at both the political connnectness of billionaires, how this affects their wealth, the wealth of a country and their contribution to innovation. In short it found that billionaires in Australia are highly politically connected with Australia ranking only behind the likes of Colombia and India in the degree to which influence guides wealth. It also shows that locally billionaires are a drain on the economy because of their stifling of innovation and the rent seeking nature of their wealth. True risk taking is not in their nature, guiding and influencing our third rate politicians is.
The piece in the Fairfax press referenced an earlier examination of this work done by the Washington Post which to my eye is a more complete analysis which offers this very salient point –
Looking at all the data, the researchers found that Russia, Argentina, Colombia, Malaysia, India, Australia, Indonesia, Thailand, South Korea and Italy had relatively more politically connected wealth. Hong Kong, the Netherlands, Singapore, Sweden, Switzerland and the U.K. all had zero politically connected billionaires. The U.S. also had very low levels of politically connected wealth inequality, falling just outside the top 10 at number 11.
When the researchers compared these figures to economic growth, the findings were clear: These politically connected billionaires weighed on economic growth. In fact, wealth inequality that came from political connections was responsible for nearly all the negative effect on economic growth that the researchers had observed from wealth inequality overall. Wealth inequality that wasn’t due to political connections, income inequality and poverty all had little effect on growth.
“The negative effects of wealth inequality are largely being driven by politically connected wealth inequality. That seems to be the primary channel that drives this relationship,” Bagchi said in an interview.
The researchers estimate that a 3.72 percent increase in the level of wealth inequality would cost a country about half a percent of real GDP per capita growth. That’s a big impact, given that average GDP growth is in the neighborhood of two percent per year, Bagchi said.
Why is politically connected wealth inequality so bad for a country? The researchers suggest that when wealth and power becomes concentrated in the hands of a few, those business and political elites often influence government policy in a way that hurts the broader interest.
None of this does anything to change my opinion that the hyper wealthy in Australia are simply a bunch of whingers who seek favour from politicians as opposed to doing anything that has a long term inter generational impact.