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Institute of Global Affairs public lectureRich People Poor Countries: the rise of emerging market tycoons and their mega-firmsCaroline FreundFormer Chief Economist for the Middle East and North Africa, World Bank
Hashtag for Twitter users: #LSEIGA
Professor Erik BerglofChair, LSE
Caroline FreundPeterson Institute for
International Economics
Presentation at LSEOctober 25, 2016
2
Growth in Extreme Wealth
3
0
1000
2000
3000
4000
5000
1995 2000 2005 2010 2015
World Advanced Economies Emerging Markets
total real net worth, billions 1996 USD
42 percent of World’s billionaires are now from emerging markets.
Given trends, by 2025 more than half will be from the South.
Sources: Forbes World’s Billionaires and World Bank WDI.
Extreme Wealth & Mega Firms
4
0
5
10
15
20
25
1995 2000 2005 2010 2015
percent
BRIC share offortune global500BRIC share ofbillionaires
BRIC countries include Brazil, Russia, China and IndiaSources: Forbes World’s Billionaires and Fortune 500.
Who are the Superrich?
• Inheritors• Self-made
– Company founders– Executives– Politically connected/resource based– Finance/real estate
5
• Founded a company• Non‐resource• Non‐privatization• Non‐finance/real estate• Non‐license• No family in gov’t or corruption charge
Founders
Sources of Wealth
7
0102030405060708090100
2001 2014 2001 2014
Advanced Countries Emerging Markets
Resource related/politically connected Financial sectorInherited Company founder & executive
A Note on the Advanced Countries
8
0
10
20
30
40
50
60
70
80
90
100
United States Europe other advanced economies1996 2001 2014 1996 2001 2014 1996 2001 2014
share of billionaires
inherited wealth self-made company founders self-made financial sectorself-made owners and executives political connections and resource related
BRIC Source of Wealth
9
0102030405060708090100
Russia Brazil India China
Distribution of billionaires, by source of wealth, 2014
Inherited Financial sector
Political connections, privatization, resources Company founders & executives
Who are the Richest?Chile v. Tunisia
10
• 1985 same level of development, 2014 Chile is three times richer• Chile has 12 billionaires in 2014, Tunisia 0
Horst PaulmanFounder: CencosudFirst hypermarket in 1976645 stores in Latin America
Marouen MabroukOwner: French chain Casino (and Orange)Married to former President Ben Ali’s daughter
• Business environment encouraged large outward looking firms in Chile.• Ben Ali clan bought state companies and lured foreign investors in Tunisia.
Individuals Matter
• Case studies: eg. Samsung’s success & innovations by Lee Kun-Hee of Samsung.
• Large literature showing CEOs explain a significant share of firm policies and performance, controlling for other determinants. Exogenous variation in leadership – (unexpected) death of CEO.
• CEOs with more decision making power matter more.
11
Wealth and Large Firms Go Together
12
Brazil
China
India
Japan
Russia
United States
10
2030
10 20 30country share of Global 2000 firms (percent)
country share of billionaires (percent)
Sources: Forbes World’s Billionaires and Global 2000.
Large Firms Promote Modernization
• Alfred Chandler –Scale, R&D, and management.
• Allocative efficiency – Firm heterogeneity and resources flow to most productive uses.
• Individual firms matter.
13
050
100150200250300350
US
Japa
n
German
y
UK
China
India
Russia
Brazil
Advanced economies Emerging markets
Number of Top 500 Firms
1962 1993 2014
Large Firms & Manufacturing Employment
14
0
10
20
30
40
50
60
70
80
90
% firms %employment % firms %employment
China 2004 India 2007
number of employees
percent
0‐4950‐99100‐199200‐499500+
Source: van Ark et al. 2010
Branding Development:US at the turn of last century and the BRICS this century
15
BrazilRussia
ChinaIndia
Source: Maddison Project 2013.
A Note on Extreme Wealth & Inequality Wealth is growing faster than income in the North,
but not in the South
16
Growth in wealth of the 5 richest and GDP growth 2006‐2012
Source: Author’s calculations using data from Forbes World’s Billionaires and World Bank WDI.
Global inequality has declined:Growth Incidence Curve, 1988-2008
17
Source: Lakner and Milanovic (2013)
0
10
20
30
40
50
60
70
80
0 10 20 30 40 50 60 70 80 90 100
Percentiles of the global income distribution
Income growth rate (percent)
Policy Implications
• Promote entrepreneurship • Property rights, free entry and openness to trade
• Limit cronyism • Transparent privatization & government procurement, competition policy
• Tax more heavily less productive sources of wealth• Inheritance & (some) finance
18
Institute of Global Affairs public lectureRich People Poor Countries: the rise of emerging market tycoons and their mega-firmsCaroline FreundFormer Chief Economist for the Middle East and North Africa, World Bank
Hashtag for Twitter users: #LSEIGA
Professor Erik BerglofChair, LSE