The 2023 crony-capitalism index

EITHERWatch the For the past 20 years, Britain’s capital has been so welcoming to oligarchs that it has become known as “Londongrad.” Many bought mansions from Highgate to Hyde Park; a couple bought into football clubs. After Russia invaded Ukraine in February last year, 48 oligarchs were sanctioned by the West. The immense wealth of many of Vladimir Putin’s associates highlights the problem of crony capitalism and why more must be done to combat it.

According to the latest installment of our crony capitalism index, which first estimated how much plutocrats profit from rent-seeking industries nearly a decade ago, the wealth of crony capitalists has risen from $315 billion, or 1% of world wealth. gdp, 25 years ago to $3 trillion or almost 3% of global gdp now (see table 1). About 65% of the increase came from the United States, China, India and Russia. In general, 40% of the wealth of the capitalist-friends comes from autocratic countries and amounts to 9% of their capital. gdp. There are hundreds of billionaires around the world whose wealth is largely believed to be derived from sectors that often feature friendly dealings with the state.

The way we estimate all of this is by starting with data from Forbes. The magazine has published an annual balance sheet of the world’s rich for nearly four decades. In 1998 it was estimated that there were 209 billionaires with a total net worth of $1 trillion, equivalent to 3% of the world’s population. gdp. This year, the publication details 2,640 billionaires worth $12 trillion or 12% of gdp. Most listings do not operate in rental seeking industries. With increasing price adjustments ($1 billion in 1998 is now equal to $3.3 billion), there are 877 billionaires (at 1998 prices) with a collective net worth of $9 trillion.

We classify the source of wealth into rent-seeking and non-rentier sectors. An economic rent is the surplus that remains once capital and labor have been paid, which, in perfect competition, tends to zero. Rent seeking is common in sectors close to the state, including banking, construction, property and natural resources. Sometimes rent seekers can inflate their income by gaining favorable access to land, licenses, and resources. They can form cartels to limit competition or pressure the government to establish comfortable regulations. They may bend the rules, but they don’t usually break them.

Russia is once again the most crony capitalist country in our index (see chart 2). The multi-billion dollar wealth of the crony sectors amounts to 19% of gdp. However, the effects of the Ukrainian war are clear. Friends’ wealth declined from $456 billion in 2021 to $387 billion this year. Only a fifth of the wealth of Russian billionaires is derived from unfriendly sectors, showing just how distorted the economy is.

In March of last year, the g7he EU and Australia launched the Russian Elites, Proxies and Oligarchs (repository) Task Force to “isolate and exert unprecedented pressure on sanctioned Russian individuals.” A year later he announced that he had blocked or frozen $58 billion in assets. But repository He admits that in some cases, oligarchs have found it easy to evade sanctions by using shell companies, transferring assets to family members or investing in property. Wealth is increasingly stored in manicured lawns and marble columns.

The pressure on the oligarchs also comes from Russia. In March, Putin rebuked them for making themselves “dependent on foreign authorities” by hiding their assets abroad. Putin is a hypocrite. By one estimate, he has stolen more than $100 billion from Russia, helping pay for a Black Sea resort estimated to cost $1.4 billion and a $700 million yacht seized by Italian authorities on last year. But he is not in Forbes billionaires list

Our index illuminates other trends among the mega-rich. Many of America’s 735 billionaires have been hurt by the fall in technology stocks last year; three-fifths of the world’s wealth of tech billionaires originates there. From the country nasdaq Composite, a tech-leaning index, lost about a third of its value between November 2021 and December 2022. We reckon that America’s tech billionaires saw their wealth decline by 18%.

The overall wealth of the crony sector amounts to around 2% of gdp in the United States, while the wealth of the non-crony sector is 15%. But the technology exhibits some sidekick characteristics. The 20 largest tech companies in the United States accounted for half of all industry sales in 2017, making it the most concentrated sector in the country. Tech firms are among the biggest lobbyists in Washington, with eight firms collectively spending $100 million last year. Reclassify tech as a crony industry in our index and America’s crony wealth rises to 6% of gdp.

Meanwhile, Chinese billionaires continue to wrestle with the whims of their government. Since Xi Jinping launched a crackdown on private capital, the wealth of cronies has fallen sharply, from a high of 4.4% of gdp in 2018 at 2.5% now. Tycoons of all stripes operate only with the consent of the state. In 1998 there were just eight billionaires in the country (including Hong Kong and Macao), with a total net worth of $50 billion. Now its 562 billionaires manage $2 trillion.

By our measure, crony capitalists make up about a quarter of that total. A recent working paper published by the Stone Center on Socio-Economic Inequality, part of the City University of New York, finds that between 83% and 91% of corrupt senior officials were in the top 1% of the urban income distribution due to their illegal income. Without that money, only 6% would be in that group.

Since Xi came to power in 2012, more than 1.5 million people have been punished in an ongoing anti-corruption campaign. High-profile tycoons are also facing increased scrutiny. When Jack Ma, co-founder of tech giant Alibaba, disappeared in late 2020 after criticizing authorities, he was worth nearly $50 billion. He recently resurfaced with a value half of what he had been. Bao Fan, a billionaire banker, was kidnapped in February to help in an investigation. He has not been seen since.

The official discourse of “common prosperity” has created a cottage industry to get money out of China. Singapore is a prime destination for it. In 2019, the country had just 33 Chinese family offices, companies that manage a family’s assets. There were perhaps 750 at the end of 2022.

India’s leader, Narendra Modi, has favorites among the country’s corporate captains. During the last decade, the wealth of the friendly capitalist sectors has increased from 5% to almost 8% of their income. gdp. Gautam Adani, owner of the conglomerate of the same name, was briefly the world’s third-richest person in September. But in January his company was charged with fraud and stock market manipulation by Hindenburg Research, an American short seller. He denies all the accusations. His wealth has fallen from $90 billion to $47 billion.

Don’t take a piece of my pie

What happens when cronyism gets completely out of control? If the elites get so rich that they impoverish a country, a “kleptocracy” is formed, declared Stanislav Andreski, a Polish sociologist. He warned against such regimes and their effects in the late 1960s. Western countries have taken more than 50 years to pay attention to him.

Identifying kleptocracy is more art than science. Our findings correlate only slightly with the democracy and corruption indices. And in any case, at what level does corruption destroy the functions of the State? you said, The US Agency for International Development published an 84-page guide on “decleptification” last year. After studying 13 countries, including Brazil, Malaysia and Ukraine, it recommends cracking down on corrupt monopolies and digitizing property records, among other important measures.

The United States is also trying to arouse international fervor for a crackdown. In March it hosted its second “democracy summit”. Seventy-four countries representing two thirds of the world’s population gdp He stated that, among other things, they would work to “prevent and combat corruption.” Russia and China were understandably missing. Brazil, Indonesia and South Africa were among the least understandably.

At the summit, Janet Yellen, US Treasury Secretary, noted that “kleptocrats launder bribes through anonymous purchases of foreign real estate.” So, starting next year, the United States will require companies formed or operating in the country to disclose their beneficial or beneficial owners. Another 36 countries have joined the US statement to make hiding identity more difficult. But transparency is not a panacea. Last year, a new law in Britain required foreign companies holding real estate assets to register and disclose their true owners. A February report by an anti-corruption watchdog found that the owners of 52,000 of the 92,000 properties subject to the new rule remained undisclosed. Shady owners skirt the rules and registries often lack the resources to keep an eye on them.

The United States also worries about “golden” visas, which sell citizenship for a large amount of cash. Five Caribbean tax havens sell passports that allow visa-free travel to around 150 countries for $100,000-150,000 each. Britain’s top-tier visa scheme, launched in 2008, granted permanent residence within five years to foreigners who could prove they had £1 million ($1.25 million) to invest in British bonds or shares. It closed a week before the war in the Ukraine started due to fears over Russian money (talk about closing the barn door once the thoroughbred has run away). Of the 13,777 visas issued, a fifth went to Russians (including ten for oligarchs now under sanctions), a third to Chinese.

Back in London, a warning is found in Highgate Cemetery. There you can find the grave of Alexander Litvinenko, not far from the mansions of the oligarchs (and also the grave of Karl Marx). He was assassinated in 2006 by Russian agents with a dose of polonium-210 after making lurid allegations about Putin’s circle. Litvinenko is buried in a specially sealed lead-lined coffin to prevent radiation from leaking out. Now Western authorities must prevent dangerous assets from leaking into their countries. ■