The Economist - USA (2022-03-12)

TheEconomistMarch12th 2022 Finance&economics 63

Ourcrony-capitalismindex

Themakersandthetakers

A

lthoughbillionaireshavebeenget-
tinga badrapforyears,thesanctions
leviedatRussianoligarchshaveintensi-
fiedscrutiny onthe originsof tycoons’
wealth.OnMarch1stPresidentJoeBiden
announcedthathisgovernmentwasset-
tingupa “kleptocapture”taskforceto“go
afterthecrimesofRussianoligarchs”.
Themurkymoneysloshingaroundthe
favouredplutocraticplaygroundsofNew
York,LondonandParisisnothingnew.In
2014 TheEconomistdevisedacrony-capi-
talismindextomeasurewhethertheworld
wasexperiencinga newgildedage,charac-
terisedby themodernequivalentofthe
robberbaronsinlate-19th-centuryAmeri-
ca.In2016,whenwelastvisitedourindex,
we found that crony-capitalists had
thrivedduringthe2000sbutwerebegin-
ningtofeeltheheatfromtrustbustersin
therichworldandanti-corruptionpurges
indevelopingcountries. Howhascrony
capitalismperformedsince?
Rent-seekingentrepreneurstendtouse
theirrelationshipswiththestatetomaxi-
miseprofits.Technicallyspeaking,aneco-
nomicrentisthesurplusremainingonce
capitalandlabourhavebeenpaida market
price.Withperfectcompetitionthatsur-
pluswouldnotexist.Butrentscanbearti-
ficiallyelevatediffirmswincontractsat
beneficialprices,formcartelstostitchup
consumersorlobbygovernmentsforfa-
vourable rules. Most rent-seeking busi-
nessesareoperatingperfectlylegally.
Ourindexuses 25 yearsofdatafrom
Forbes’sannualstock-takeoftheworld’s
billionaires.In 2021 thepublicationlisted
2,755 individuals with total estimated
wealthof$13trn. Wehave classifiedthe

mainsourceofeachbillionaire’swealthin-

tocronyandnon-cronysectors.Ourcrony

sectorsincludea hostofindustriesthatare

vulnerabletorent-seekingbecauseoftheir

proximitytothestate,suchasbanking,ca-

sinos,defence, extractiveindustriesand

construction.Wehaveaggregatedthedata

accordingtobillionaires’countryofciti-

zenshipexpressedasa shareofitsgdp.

Russia’scronyeconomysticksoutlikea

blinged-upMuscoviteintheAlgarve.Some

70%ofthe 120 Russianbillionaires,who

togetherhold80%ofitsbillionairewealth,

fallwithinourcrony-capitalistdefinition.

Wealthequivalentto28%ofRussia’sgdp

in 2021 camefromcronysectors,upfrom

18%in2016.ButmanyRussianoligarchs

willbetakinghaircutsontheirempiresas

sanctionsbite.

Globally,cronywealthhasdeclinedasa

shareofthetotal, reflectinginpartthe

surgeintech-relatedwealth.Nonetheless

itremainsentrenchedinmanyplaces.In

Malaysia, a former prime minister was

jailedforcorruptionin 2020 after$4.5bn

wasstolenfromthestate,butcronycapi-

talismstilldominatesthere.India’sshare

ofbillionaire wealthderivedfromcrony

sectorshasrisenfrom29%to43%insix

years.ThePhilippineshasfallentofourth

inourindexbutcronysectorsstillaccount

forfour-fifthsoftotalbillionairewealth.

Bycontrast,aroundfour-fifthsofAmer-

icanbillionaires,accountingfor90%ofto-

talwealth,operateinnon-cronysectors.

Ledbya boomintechvaluations,wealthin

non-cronysectorsrosefrom11%to17%of

gdpbetween 2016 and2021.Butinrecent

yearsAmericahasopenedinvestigations

into thefirmsofits behemoth-building

billionaires.Techfirmsdoexhibitsomeof

thecossetedcharacteristicsofcrony in-

dustries:theyspendheavilyonlobbyingto

defendtheirjuicymarketshares,forin-

stance.Reclassifyingtechnologyfirmsas

crony would increase America’s crony

wealthfrom2%to7%ofgdp.

OverthepastdecadeChinahasminted

newbillionairesfasterthanyoucansay

YvesSaintLaurent.In 2010 therewere89.

Nowthereare 714 witha combinedwealth

of$3trn,around70%oftheamountin

America.The crony-sector shareof gdp

haschangedlittleinsixyears,thoughits

shareofoverallbillionairewealthhasfall-

enfrom44%to24%.Thisexposesoneof

theshortcomingsofourindex:tosomeex-

tentallbusinessesoperateinChinawith

theconsentofthestate.Fallingoutoffa-

vourcanhavegraveconsequences,asAli-

baba’sJackMadiscoveredin2020.Assum-

ingallChinesebillionairesarecronyistic

wouldplaceChinasecondinourindex.

Billionairesinautocraticcountriesre-

main vulnerable to the whims of their

leaders.MikhailKhodorkovskywasworth

$15bnin 2004 buthefelloutwithVladimir

Putinandhisoilfirmwasexpropriated.A

purgeinSaudiArabiahasmeantnota sin-

glebillionairefromthekingdomhasap-

pearedonForbes’slistsince2017.Billion-

airesinautocraticcountriesoutsideChina

deriveabout70%oftheirwealthfromcro-

nysectors. Agoodchunkofthis$750bnis

likelytobestashedinWesterncountries

thatdonotasktoomanyquestions.n

Rent-seekingcapitalistshavebeenrakingitinoverthepastdecade

The crony-capitalism index

Billionaire wealth as % of GDP, 2021

Sources:Forbes;IMF;TheEconomist *Incl. Hong Kong & Macau

Rankin 2021 (201)

1 (1)

2 (2)

3 (4)

4 (3)

5 (5)

6 (6)

7 (9)

8 (7)

9 (12)

10 (11)

11 (10)

12 (15)

13 (8)

14 (13)

15 (14)

16 (17)

17 (16)

18 (18)

19 (21)

20 (19)

21 (22)

22 (20) SouthKorea

Germany

Poland

Japan

France

Britain

UnitedStates

Argentina

Tu r ke y

SouthAfrica

Taiwan

Brazil

China*

Thailand

Indonesia

Philippines

India

Mexico

Ukraine

Singapore

Malaysia

Russia

Crony sectors Non-crony sectors

↓ 403020100

You scratch my back...

Wealth from crony sectors, by country ’s democratic status

Sources:Forbes;IMF;FreedomHouse;TheEconomist *Excluding China †Including Hong Kong & Macau

100

80

60

40

20

0

20001997 151005 21

As%oftotalbillionairewealth

China†

Autocratic*

Democratic

8

6

4

2

0

20001997 151005 21

As % of GDP

China†

Autocratic*

Democratic