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Bhupesh Bhandari: Billionaires - or oligarchs?

Bhupesh Bhandari  |  New Delhi 

Ruchir Sharma has taught us to look at rich lists with new respect. The author of Breakout Nations advises us to “watch the changes in the list of top billionaires, learn how they made their billions, and note how many billions they made”. A country that produces too many billionaires, relative to its size, is in all likelihood off-balance. “If the average billionaire of a country has amassed too much wealth, not just billions but tens of billions, the lack of balance can lead to stagnation. If the billionaires make their wealth from government patronage, it can lead to popular unrest. There should be a healthy churn in their ranks;” and “they should emerge predominantly from productive economic services, not from cozy relationship with politicians” — a point also made by Raghuram Rajan in Fault Lines.

Sharma says that the churn in the list of Indian billionaires has slowed. In 2010, nine of the top ten on the Forbes list (of billionaires) were holdovers from the past, up from five in 2006. As of today, Sharma says, “many of India’s super-rich still inspire national pride, not resentment, and they can travel the country with no fear for their safety,” but this “genial state of affairs could change quickly”. Concentration of wealth and economic power can cause public angst to rise. To be sure, there is enough public angst in India, but so far it is aimed at the political class, not the business elite. In China, unlike India, Sharma comes across regular churn.

The 2012 Forbes list is equally instructive. The 48 Indians on the list had personal wealth of $194.6 billion. On an average, an Indian billionaire was thus worth $4.05 billion. In comparison, the 95 billionaires were together worth $245.35 billion. The wealth of the average billionaire was, therefore, $2.58 billion — 36 per cent below the Indian average. The economy is thrice the size of the Indian economy, yet it produces fewer than twice the number of billionaires. By Sharma’s logic, the Indian list would certainly appear off-balance. There is obviously a concentration of economic power and elements of crony capitalism in the country, and there are significant entry barriers. Entry barriers could be financial or technological, which is fine. In India, a new entrant has to often confront an entry barrier of a different kind — environment management. Older business houses and companies have mastered the art to perfection. For a newcomer, it is a nightmare. That’s why India often shows up at the bottom of the heap when it comes to the ease of doing business. The laws are archaic and corruption amongst bureaucrats is rampant. It hinders economic democracy. The opportunities aren’t equal for all.

In the same list, the 95 Russian billionaires were worth $376.1 billion. Thus, on an average, the net worth of a Russian billionaire was worth $3.95 billion — higher than China (though the size of its economy is much smaller) but still lower than India. However, the Russian list is heavy with businessmen from the natural resources sector — the oligarchs. No fewer than 37 of the 95 Russian billionaires, or almost 40 per cent, were from oil and gas, steel, and metals, coal and mining sectors. The Chinese list of 95 doesn’t have any such dominant sector, though 15 (fewer than 16 per cent) come from the real estate sector and six (6.31 per cent) from retail. On the other hand, the Indian list of 48 has six billionaires each from the software, pharmaceutical and diversified (which, by definition, is no particular business) sectors. There are four from real estate, three each from steel and the media, two each from oil and gas, telecom, commodities, and motorcycles. There are 11 other sectors on the list. So it’s a varied basket of billionaires.

On the positive side, not once in his book does Sharma refer to India’s billionaires as oligarchs. Is that evidence that they don’t wield outsize power in the country’s economic life? That may not be entirely true. But it is clear that their influence is not the same as that of billionaires in Mexico and Russia. In Mexico, Sharma tells us, the top ten business families control all industry. It helps them to extract high prices from consumers and thus report huge profits. This extra cash in the coffers has given rise to Mexican multinationals like Cemex. But it enhances the oligopolistic structure of business there. With more profits comes more influence. So it’s a self-serving circle. Private monopolies control 50 to 80 per cent of the beer, telecom and cement markets. Private cartels, says Sharma, “produce 40 per cent of the goods that Mexicans consume and charge prices that are 30 per cent higher than international averages”. The top 10 Mexican families account for more than a third of the country’s stock value.

Sharma also draws attention to the extravagant lifestyles of Russian oligarchs — something that has the potential to foment popular unrest one day. Below the oligarchs, who have mostly made their money in commodities, there is no middle. Though Russia is home to one of the largest number of billionaires, there aren’t enough millionaires in the country. It does not make it to the Boston Consulting Group’s top-15 list of maximum millionaires. This shows there is concentration of wealth, and the power that comes with it, with the billionaires. In Russia, Sharma says, there’s room only at the top.

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First Published: Thu, May 24 2012. 00:17 IST