It is fashionable in many circles these days to criticize the wealthy. Those in the top one percent (of either income or wealth) are attacked in academic studies, in the media, and occasionally to their faces. There is a widespread presumption that these successful people must have come by their high salaries, bonuses, and wealth unfairly; that the rest of us must have been exploited or shortchanged in order for this level of inequality to arise. Fortunately, such a narrative is almost completely false.
Forbes just came out with the latest incarnation of its famous billionaires list. This year’s edition contains 1826 billionaires. Handily, Forbes categorizes them by industry. For the purposes of this column, I separated those industries into two giant categories: those where revenue is generated by selling a product to a customer and those where assets are traded and capital allocated. Essentially, the second group consisted of the billionaires who wealth was designated as associated with finance, investments, real estate, generic business, and politics.
While all of these asset-focused industries can produce social value, and while some of the people getting rich in these industries make their money selling a product (new homes or retirement annuities, perhaps), these industries are the ones most commonly associated with the rich getting richer in manners that are unfair or unjust to others. Also, these industries can produce wealth through zero-sum transaction (one person gets richer while another gets poorer by an equal amount).
In contrast, the first group of billionaires amassed their wealth in industries such as fashion, retail, gaming, food and beverage manufacturing and sales, service industries, technology, media, and energy production. By the definition of free market transactions, these billionaires made their money by selling something that their customers wanted; in fact, wanted more than they wanted the money they paid for the good or service. These billionaires were creating wealth while also making their customers better off. Such wealth is clearly a win-win for society because if the customers are not happy, the person selling will not end up rich.
What is fascinating about this segregating of the world’s billionaires is the respective size of the two groups. Those getting rich in finance and real estate make up about 25 percent of the world total. Those getting rich making customers happy constitute 75 percent of the world’s billionaires. And remember, that 75 percent is lower than the true total because some, or even many, of those I am categorizing into the asset-based group may really be selling a product to happy customers.
At the very top, the dichotomy is even starker. Of the 50 richest people on earth, at least 41 and perhaps as many as 47 can be categorized as having generated their wealth through the active manufacturing and/or selling of products to customers. In simple terms, great wealth is almost always the result of making a great number of customers happy.
There are certainly counterexamples on the Forbes billionaires list, people who amassed great wealth through financial manipulation that involved no customers and created no new products to be consumed and no new net wealth. What they earned was earned by outmaneuvering others, rather than through the win-win transactions of goods and services for money. However, those exceptions do not a rule make.
As further proof of the misconceptions about wealth, 65 percent of the world’s billionaires are characterized by Forbes as completely self-made. Only 13 percent inherited their wealth, while 22 percent inherited substantial wealth but have worked to increase it. These statistics should dispel any myth that great wealth is simply passive management of wealth built up through generations. Those cases exist, but they are few and far between.
Rather, while much of the world is convulsing in horror over economic inequality, it is important to stop and note that such inequality is, in the vast majority of cases, arising because these few people have proven themselves exceptionally good at improving the lives of others.
Without these billionaires we would not have Microsoft Office, iPhones, Polo shirts, Facebook, Twitter, Nikes, or Google. When we think about economic inequality, two things should come to mind: sympathy for those at the bottom and gratitude for those at the top. All of us should strive to help the least fortunate among us. At the same time, we should remember that the richest among us mostly got there by improving the lives of millions of people. We are better, not worse off, for having so many billionaires. We have not been exploited by the billionaires, but, rather, enriched by their ingenuity.
This article was written by Jeffrey Dorfman from Forbes and was legally licensed through the NewsCred publisher network.