the assumption of responsibility for the welfare of the world











2003 March 20


Forbes, the great celebrant of wealth and capitalism, has recently released its annual estimate of the world’s largest fortunes. The primary list, the so-called working rich (more on which in a moment), is topped, unsurprisingly, by Bill Gates. Gates’ company, Microsoft (which also endowed numbers four, Paul Allen, and sixteen, Steve Ballmer), has a near-monopoly on personal-computer operating systems. Since this is an electronic publication, I could echo the words of Madge: you’re soaking in it. In 1999, Gates peaked at $90 billion (with Allen third and Ballmer fourth). Though currently struggling ― a pathetic $41 billion ― Gates has held the top spot on Forbes’ list for most years since 1992.

That was the year Sam Walton died. His fortune since then, even considered as a whole, has not always exceeded that of Gates, but this year would be twice as large; it is enough to place his five heirs at numbers seven through eleven. That fortune was built through the world’s largest retailer, Wal-Mart. In addition to qualifying as “working rich”, Gates and Walton have something else in common. Their fortunes were both built on services, not goods. We didn’t make them rich because they took natural resources and made things. We made them rich because they took human resources and made conveniences ― in Microsoft’s case, the convenience of using the same system as 93% of the world’s computers, in Wal-Mart’s case, the convenience of buying lawn furniture and Froot Loops in the same concrete-block sarcophagus.

The Forbes list used to include those whose fortunes did not derive from what Forbes considers capitalism. The last person to top the list other than Gates was Hassanal Bolkiah, the sultan (or, in English, dictator) of Brunei. In 1997, four of the top eight were similar individuals ― Hassanal Bolkiah, Fahd bin Abdul-Aziz al-Saud, Suharto, and Jaber al-Ahmad al-Jaber al-Sabah, the last three being the dictators of Saudi Arabia, Indonesia, and Kuwait. Suharto’s wealth at the time was estimated as $16 billion; it has been estimated elsewhere as high as $30 to $45 billion. Fahd’s fortune was estimated by Forbes at $20 billion, then and now. He is not the real ruler of Saudi Arabia these days; that would be his half-brother Abdullah, who is sure to have a fair amount of wealth at his disposal also. Strangely, their relative al-Walid bin Talal al-Saud, with $18 billion, is on the regular capitalist list, so we must presume that his fortune derives not from belonging to the ruling family of an oil kingdom, but to other factors (pluck, I’m guessing).

A few state figures are mentioned this year, off of the main list and not exhaustively. Besides Fahd ($20 billion) and Hassanal Bolkiah ($11 billion), others are Liechtenstein’s Hans Adam ($2 billion), Iraq’s Saddam Hussein ($2 billion), Britain’s Elizabeth Windsor ($525 million), Arab Palestine’s Yasser Arafat ($300 million), the Netherlands’ Beatrix Oranje-Nassau ($250 million), and Cuba’s Fidel Castro ($110 million). Forbes does mention the difficulty of sorting personal assets from state assets available for personal use, calling most of its estimates a minimum, though in reality, of course, these are all state assets available for personal use ― or did Yasser Arafat introduce some innovative product that has escaped public notice? There is no mention of African dictators, present (Eyadema), past (Moi), or passed on (Abacha, whose family is trying to persuade Nigeria that it arrived at its wealth through legitimate business). There is no discussion of nepotism and cronyism, whereby Suharto’s personal looting is measured separately from the looting by his family and associates, all of which was done through state power at national expense. And the estimates are dubious. The Coalition for International Justice estimates that $2 billion is closer to Saddam’s annual income, and that strikes me as a good deal more credible. But then I am always prepared to believe the worst about people.

Saddam’s personal fortune, if $10 billion, distributed over the course of a year to the citizens of Iraq, would raise the per-capita income by 17%, $417. Granted, this is a fortune that has been accumulated over time; but it does not include the wealth taken by others under his soon-to-be-ended rule. A one-time distribution could give Iraqis the ability to save, invest, start businesses, buy farmland, or do other things for their own well-being; and it would be the first equitable distribution of wealth in Iraqi history. Some will insist on continuing to blame sanctions for the poverty of Iraqis; but this is simply not true.

Robert Mugabe, the butcher of Matabeleland, has taken a legitimate issue, land domination by whites, and turned it into a power grab. In theory, he has been taking land from wealthy whites and giving it to poor blacks. In practice, he has been taking land from political opponents and giving it to political supporters, taking land from competent farmers and giving it to corrupt and inept politicians, and wrecking Zimbabwe’s economy, not that we are to suppose he cares. His supporters are still eating. Specifically, the international food aid to deal with the Mugabe-induced famine is being distributed by Mugabe only to members of his party. Opposition supporters are told to ask Tony Blair for food. Fortunately Blair is not as petty as Mugabe, nor as duplicitous as Chirac, nor as timorous as Mbeki, and is willing to confront a tyrant, or two even. And yet Blair has a hand in the system of looting and corruption, or two even.

That is because the international consensus of the left and that of the right are both supporting, hopefully without intention, the perpetuation of looting and corruption, both supporting some policy that rewards the practitioners of self-enrichment, and particularly those who use absolutist polities to amass personal wealth for themselves, their families, and their supporters. Those who believe in socialist economics have called for debt relief for developing countries. Those who believe in capitalist economics have called for privatization of public resources. The end result of both of these policies, not in theory but in practice, is the provision of enormous personal fortunes to dictators and dictatorial regimes, and their associates, at the expense of citizens in developing and developed countries alike.

Privatization has the intended effect of putting a resource or enterprise in the hands of those who will manage it well because they have an economic incentive to do so. While the empirical evidence supporting this may generally go without question, the logic is faulty and produces many exceptions. Logically, the state has just as much of an economic incentive to manage a resource well. In some cases it has more of an incentive. The fact that resources have been mismanaged by the public should be considered alongside the fact that resources have been mismanaged by private interests.

Also logically, the private interest does not have the full theoretical interest in maximizing potential if that resource was acquired for less than its actual value, or if not all associated costs will be paid by the private interest. This latter includes things like cleanup and side effects. One of the failings of capitalism is its failure to place a value on the commons; only the public has an incentive to protect the commons, so consumption of the commons by a private interest is a cost borne by the public, even if the public does not derive the benefit, or much of the benefit, from that consumption.

Two realities must be kept in mind considering privatization, two realities of implementation that undoubtedly defy the best intentions of some theorists and yet seem widespread. First, the sale of public resources to private interests usually takes place for less than the actual value of the resource. Second, the sale is often, in some systems exclusively, to those who are well-connected to the regime in power. Beyond that, the resource, once sold, is no longer a resource to the public, and perpetually a resource to a private interest. This has particularly been the case where land itself (as opposed to minerals), or renewable resources such as timber, have been privatized; but new versions of this have appeared in modern times, such as the firesale of communication bandwidth in the US.

Presumably I needn’t repeat my usual complaint about the federal budget process ― but of course I will. Sales of that last sort exist to facilitate fiscal incaution, the long-term loss of resources being trivial compared to the short-term benefit of revenue deriving from something other than taxes or debt. But there is also privatization by stealth, such as the use of land for mineral extraction or livestock feeding without a deed transfer. Such privatization in our system serves primarily to fuel a Reagan-Watt axis (or, if you prefer, Bush-Norton axis) of two things that are reciprocal examples (here my own cleverness overwhelms me) of cowboy enterprise. On the one hand are entrepreneurs behaving as cowboys, maverick capitalists demanding a Dodge City of the markets in which the gunfight ends with the best man standing ― or at least the best man with a gun. On the other hand are cowboys behaving as entrepreneurs, herding their cattle across public lands, consuming the vegetation, compacting the soil, and polluting the waterways, paying next to nothing for the favor and pocketing the proceeds.

Does anyone suppose that the oligarchs in Russia made their fortunes legitimately? There are seventeen billionaires in Russia, seventeen more than three years ago, and only two fewer than in Japan. The richest, Mikhail Khodorkovsky ($8 billion), managed his purchase of the state oil firm Yukos in 1995 for what Forbes describes as “a song”. The price, even with the assumption of debt, was thought by the IMF to be a tenth of the actual value. Yukos has since devised innovative tax dodges and sheltered assets from creditors during the 1997-1998 Asian financial crisis; those sheltered assets were, it was believed, personally accessible by executives. Yukos was purchased under the Russian government’s loans-for-shares program, where state assets were privatized at reduced rates to companies making loans to the government, which had (as always) fiscal problems. The World Bank estimated that any one of the auctioned state oil companies would have brought in far more on the open market than the entire value of the loans-for-shares auctions. Khodorkovsky denies influence, but a former employee became Energy Minister at his suggestion, and was later fired at his suggestion.

In other cases and other countries, privatization leads to patterns of extortion, kickbacks, embezzlement, state and ruling-class involvement in enterprise, and the blurring of state and ruling class. Every deal is a new opportunity for graft and looting, every flow of money has a side channel to the dictator’s pocket. And states without dictators have lobbyists, whose corporate clients receive thousand-to-one returns on small investments of campaign cash. Though the regulated lease of land to small farmers or selected other small entrepreneurs can lead to incentives and better management, outright privatization is just generally a bad idea.

But what of debt relief, an article of conviction among stewards? There are forty-two so-called Heavily-Indebted Poor Countries. Of these forty-two, nineteen could generously be considered democracies; forty-three are unquestionably dictatorships. (If math seems to be an issue, it is because, for instance, Congo-Zaire is in fact three dictatorships, and Somalia is at least eleven.) We should never do business with dictatorships. Any provision of even minor funds, any provision of so little as recognition, feeds the power of the dictatorship. We need to isolate these governments ― not the peoples, but definitely the governments ― to avoid giving them means or incentives to continue their rule. Direct debt relief to governments is exactly that.

There is a reasonable and humanitarian belief that if we don’t relieve the debt of these dictatorships, they will extract the repayment funds from their poor subjects. I believe, on the other hand, that if we do relieve the debt of these dictatorships, they will still extract the repayment funds from their poor subjects, and just have more to “repay” themselves. (“The three were soon busy with their meal; and the two hobbits, unabashed, set to a second time. ‘We must keep our guests company,’ they said. ― ‘You are full of courtesy this morning,’ laughed Legolas. ‘But maybe, if we had not arrived, you would already have been keeping one another company again.’”)

Outright forgiveness of loans amounts to a grant ex post facto, and a grant made, moreover, at the discretion of the grantee. For those who, unlike me, still believe in private property, there is a technical term for this habit of borrowing something without intending to pay it back: ‘theft’. Theft by a dictatorship shouldn’t be paid by the people, but nor should it be forgiven, either financially or morally, since it is also theft from the people. It is maddening that even in dictatorships a line cannot be drawn between government and people, not by those who want repayment and not by those who want relief.

The key point in this is that loans and grants are, or certainly should be, distributed differently. A policy of blanket debt relief effectively rewards those states whose governments borrowed the most and squandered and looted the most, or, supposing that some of the money was not squandered and looted, invested the most. States who were more responsible or cautious are retroactively hit with a development disadvantage. What are the poor developing countries that don’t qualify as HIPCs to conclude? That their responsibility was foolish, that they would have benefitted from this unintended grant had they only been reckless or deceitful enough to take out massive loans that they either couldn’t repay or didn’t intend to.

Let us suppose, then, that the West is inclined to address poverty through a program of grants. How would we distribute this aid best? Our criteria should not be past misbehavior, political and fiscal, but present need and present merit. As for need, we should look at population and poverty, and assist most those persons (not governments) who are most poor, regardless of how much debt their governments have taken out. As for merit, we should be providing assistance to states only if they adhere to minimum standards of liberal democratic governance. But the latter is a less important point, since our aid should primarily be provided directly to individuals and communities. Rare is the person who believes that any government in the developing world, democratic or not, is better to be trusted with relief and development aid than certain trusted non-governmental organizations.

For those HIPCs that are democracies, a compromise may be in order. Debt should be deferred and interest cancelled on an annual basis, contingent on continued democracy and progress towards liberalism. A program of cooperation between Western governments and financial institutions, and the local government, should be instituted to track down and recover all misappropriated funds, and so that each has an incentive to vigorously cooperate, half of the recovered funds should go to creditors, and half to a special development fund to be used not at whim but for supervised direct aid. This is not patronizing to the developing country, since the money in legal terms belongs to the creditors. And as for unfairness to the creditors, the rule, as many recognize, is that making bad investments should carry a natural financial penalty as a disincentive for future recklessness. The creditors would be lucky to recover half of their funds, and the guarantee of their bad investments by Western taxpayers would reward their mismanagement.

Wealth is not unlimited power. At the peak of his wealth Bill Gates was unable to get his own government to quit treating him like an enemy. And for all the complaints about globalization putting corporate interests over those of regular people, the US government at the height of anti-globalization protests was undermining and trying to break up its most internationally-competitive business for the benefit of domestic consumers.

It is not a question of whether Bill Gates deserves to live so much better than the rest of us. No one seriously thinks he does. He could have invented the English language and he wouldn’t deserve a tenth of his wealth. But there are some who believe that we all benefit from the existence of a system that allows someone to become as rich as Gates. From my perspective, the existence of wealth at the Gates level is prima facie evidence of a corrupt and flawed society.

And even so, I would not be concerned if Gates’ wealth existed solely in credits traded and retraded for services that had no real cost and represented only a flurry of personal valuation. But Bill Gates can use his forty billion dollars to buy the right to monopolize, consume, and destroy real things in the world, genuine land and natural resources, substances that we all depend upon to live. It could be argued ― not to me, but to some ― that Bill Gates’ programming skill and entrepreneurial überskill, the value he has added to the economy, merit an income, if not at his present level, then at least at the pinnacle of luxury. It cannot be argued that his computer programming and saleswizardry make him qualified to determine or in any way deserving of determining the disposal of our air, water, and land. This is hypothetical, as Gates has shown no interest in buying and despoiling large territories. But he could; the system guarantees him that. And even considering his significant charity work, it would be hard to argue that he is especially qualified to determine the charitable needs of the world just because he is rich.

There is nothing more tedious than an old and tired leftist, I know. Some would claim that I am ignoring the laws of nature and the lessons of history: the Cold War has ended, consensus has emerged, capitalism has been vindicated. But I find this to be shoddy economics and shoddy history. The first thing I was ever taught in economics was: “There is no such thing as a free lunch.” This is presented, correctly I think, as an analogue to the first law of thermodynamics, that energy is neither created nor destroyed. There is no creatio ex nihilo, always a quid pro quo (and apparently latina ad nauseam). The idea that capitalism creates wealth seems to me a free lunch. The wealth of the world lies in natural resources that no one created; human labor the biological sustenance of which represents a conversion of natural resources (labor that, moreover, capitalism does not reward commensurately); and knowledge and technology that are discovered, not made, and much more the product of earlier economic systems. The material development of the world has been far from an unmitigated triumph; when the resources run out, or the cost of pollution becomes apparent, I think I may be dancing to the tune of historical vindication myself. I’d forgo the victory. Dictators past and present, capitalists and their heirs, profiteers, privileged classes, moneychangers and money movers, celebrities, con artists, and quacks have all fleeced the earth, and we have little to show for it. Overpopulation of the human race has fleeced the earth; and if there were a benefit to having all these people, we would most likely find it in the advancement of culture. But we have not settled the mysteries of the universe, nor even managed to provide a physically and emotionally tolerable atmosphere to most of the world’s individuals. We have siphoned off the earth’s resources, and our assets on hand are nothing to speak of. When our debts come due, will our creditors forgive us?


Original version


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