The power of billionaires has not always been this extreme. It has some specific consequences.
This is the third and last in a three-part series of long essays about what’s wrong with the world… Thank you all for following along, and thank you for letting me know what you think!
This is not an essay about inequality, nor is it a critique of capitalism.
Let me be clear: I am an entrepreneur, and I spend my days working on a project that is basically a kind of Private Equity firm, a pure capitalistic enterprise. I love living in a free society with decentralized markets – where anyone has the freedom to challenge the status quo – and I know that inequality is an inescapable consequence of decentralization and freedom.
I wish the minimum acceptable standard of living was higher, I wish wages were higher for the masses, I wish more parts of our society were protected from the private markets and better-funded with public spending (see the previous essay about care). But I have no problem with great wealth being the reward for innovation and wise investments, and in fact I count on it for our continued safety and progress.
In this essay I am attempting to make a more subtle, nuanced argument about a problem with our current system. I want to show you how, when taken to extremes, the very biggest fortunes in our society transform into something different than just wealth. At a certain point in the billions of dollars or euros, a fortune becomes a different, special kind of power: oligarchic power.
Oligarchs have always existed, and will probably always exist in the future. But I want to show you how in the past ten years, partially due to secret inflation and technology, our society has reached an extreme of oligarchic power that rivals ancient civilizations. This is not a necessary consequence of capitalism and it has not always been this extreme. I want to point out three consequences of today’s Extreme Oligarchy: it makes it easier for autocrats to seize power (which is happening all over the world), it makes it harder to fight climate change, and it hurts the reliability of our media.
It will take a few pages to present this subtle argument, so if you have ten minutes in front of you, here we go…
1. Why a billion is different than a hundred million
In physics, there is a principle that “more is different”, also known as phase change. Water can be cold, room-temperature, or hot, but if the temperature is taken to an extreme (above 100°C) it changes: no longer water at all, now it is steam.
I think the same holds true for possession of money. At an extreme level, the kind of power inherent in money changes into something else. I think that phase change happens somewhere around $1B.
To explain why, let’s compare the difference between a fortune of $100M, $1B, and $10B.
Imagine the annual accounts of someone with $100 million. Every year, their fortune generates a return-on-investment, it magically produces cashflow. Let’s assume that this person does not plan to draw down on the magic pot that produces cash-flow each year, unless it’s to invest that money in something – like real-estate or art – that will retain its value over time. Most people reason this way.
Let’s say the annual return averages 8-12% per year, which is about the historical average of large, professionally-managed funds. So in this case, the fortune of $100M produces $8-$12M per year in returns.
Of that, 2% (so in this case, $2M) is the industry-standard for how much you spend on the team that manages the money, your “family office” of investment managers and tax specialists and lawyers.
At least 5% (in this case, $5M) goes back to the magic pot as an annual increase to keep up with inflation, real & secret, and the general progression of the economy (and in most cases, at least 5% of the return is illiquid, so a bit harder to use as pure cashflow in any case).
The excess left over comes out to 1-5%. Most people add that money back to their wealth so it continues to grow faster than the economy as a whole. But some people, those who are highly motivated, can use it to influence society. They use this money as an annual Meddling Budget.
For someone with $100M in wealth, their meddling budget could be as high as $1-5M per year. With that sum of money you can employ a few people full-time, let’s say 3-10 well-paid senior folks, with an additional budget for grants or donations, investments, marketing campaigns, organizing conferences, lobbying, etc. etc., all the various activities that could potentially influence society with the guidance of the aforementioned professional staff.
That scale of operation, with 3-10 employees, can usually have significant influence only in a niche or small community. There are exceptions, of course (and I’d love to write about that later, since I am attempting to create an exception to the rule with Imagination Machine), but on a regional or national level it’s probably too small an organization to make waves. Society is too vast and complex.
With $1 billion, that same 1-5% comes out to $10-$50M as an annual Meddling Budget. Now we’re talking about a well-paid staff of 30-100 people and additional budgets to match. Remember, there’s no need to make any revenue with this organization, the only goal is influencing the course of history. It seems to me that this size organization starts to reach proportions where the influence can be more significant. Elections can potentially be swayed, research budgets changed, academic priorities set, etc.
With $10 billion of wealth, someone’s annual Meddling Budget is $100-$500M, which means hundreds of direct or indirect employees working full-time to influence society according to the whims of the wealthy individual. There’s no doubt this scale of operation changes things: easier to imagine how it could influence laws, elections, the direction of scientific research, geopolitics in general, and many other highly consequential parts of our world. There are now many examples of organizations like this, funded by fortunes in the tens of billions: the Gates Foundation, the Open Society Foundations, the Marble Freedom Trust, and many others that we haven’t heard of.
Like the phase change in physics from solid to liquid, or liquid to steam, I’d like to suggest that the influence on society changes, becomes of a different category, when the annual meddling budget reaches high into the tens of millions or hundreds of millions of dollars.
2. Winters’ theory of Oligarchy
In 2011 the political scientist Jeffrey Winters published his theory of Oligarchy and it quickly became the standard definition of the subject in academic circles.
He doesn’t propose any specific threshold for what constitutes an oligarch, like I just did. But he does propose a similar definition (in a more articulate way). First he defines “power”:
“Power is a notoriously difficult concept to define. It changes with different circumstances. Some forms of power are brutally physical and directly expressed, whereas others are indirect and latent… It is useful to think of five main individual power resources: power based on political rights, the power of official positions in government or at the helm of organizations, coercive power, mobilizational power, and finally material power. This is hardly an exhaustive list of power resources, but it encompasses the lion’s share of the types of power individuals can possess in politics and society…”
Upon first reading, it took me a few minutes to realize that “coercive power” means beating people up, and “mobilizational power” means number of twitter followers. But he focuses his analysis on “material power”, which means money, because it is the only one of the five kinds of power that is exchangeable for the other kinds…
“The sheer versatility of material power is what makes it so significant politically… Material power is unique in that it allows oligarchs to purchase the sustained engagement of others who require no personal commitment to the goals of the oligarchs they serve... No social or political force pursuing policies that threaten oligarchic interests can match this focus and endurance. In countries or political communities where the rule of law and property rights are weak, these same material resources can be used to buy security forces (sometimes even militias or small armies); to maintain networks of officials on retainer; to pay off police prosecutors, and judges; and even to fund masses of people to demonstrate in the streets as if they were genuine political mobilizations from below.” [emphasis my own]
Winters makes a few key points in his book. First, he explains that oligarchy has existed throughout history and continues to exist in our modern, democratic societies (“The rise of contemporary institutions and politics, including the emergence of democracy, has neither eliminated oligarchs nor rendered oligarchy politically obsolete.”) In the ancient world, oligarchs had their own armies; at some point, they made a deal with national leaders, who were often just the most powerful oligarchs, to forfeit their armies but keep their great wealth.
Second, he explains that the oligarchs throughout history have funded wealth defense industries, teams of highly-skilled people whose job is to protect the oligarchs’ wealth. In the past this took the form of armed guards, and today it takes the form of armies of tax specialists, lawyers and lobbyists. As a result, Winters says that efforts to increase taxes nearly always impact the wealthy-but-not-yet-oligarchs, the strata of rich people below the upper crust.
Third, he claims that yes, oligarchs try to influence the world around them. But he makes the subtle but essential point that oligarchs basically cancel each other out when meddling with society about most things. They might be left-wing or right-wing, they might be pro-this and anti-that, they might push religion A or religion B. They’ll spend immense amounts of money to shape society to their desires. But the proportion of oligarchs on any side of an issue will resemble, on average, the proportion of the total population. Overall, in the end, society is not systematically pushed in one direction or another.
With one exception, that is: the subject of wealth defense, of shaping a society that allows them to keep their immense power. The vast majority will use their power to further this common interest, to influence society to protect their fortunes, using the wealth defense industries.
Throughout history governments, and the masses, have been no match for this power of Oligarchic Wealth Defense. Like gravity and the laws of thermodynamics, it is a power that shapes our universe.
3. Oligarchic power has gotten significantly more extreme in the past 10 years.
Winters proposes a measure of oligarchy called the Material Power Index (MPI) as a way to compare oligarchies in different societies.
He takes the average wealth of the top 10 wealthiest individuals in a society, the wealthiest oligarchs. Then he compares that to the average wealth of people in the bottom 90% – the vast, vast majority of people, including all the various shades of lower- and upper-middle-classes. That ratio of wealth, top-10-individuals to bottom-90%-of-everyone, he calls the MPI.
This is different from measures of general inequality, like the Gini coefficient which looks at the shape of the overall wealth distribution. The MPI technique is only concerned with the few mega-wealthy.
He analyzes a few historical cases, including ancient Rome, ancient Athens, and the modern US. He calculates these numbers:
Material Power Index of Oligarchs
Ancient Rome - 400,000 (top 10)
US circa 2007 - 60,000 (top 100)
Ancient Athens - 2,500 (top 10)
To explain what this means: In ancient Rome, at the peak of their oligarchy, Winters calculated that the average wealth of the top 10 oligarchs was about 400,000 times higher than the average wealth of the masses.
In ancient Athens, the birthplace of democracy, the MPI was 2,500. Still an extremely unequal society, but the top 10 oligarchs were about 200x less powerful than in ancient Rome, relatively speaking.
In the United States pre-financial-crisis, in the 2000’s, Winters calculated the MPI as 60,000. He doesn't calculate the number for France, but I imagine that the number is in the same general range as the US, in the tens of thousands.
Winters used the average wealth of the top 100 oligarchs in the US, not the top 10. He does not explain why (since he used the top 10 for the other societies studied), but I suppose the obvious answer is that the population of the modern US is so much greater than an ancient republic or city-state. Nevertheless I was curious to know what the MPI was in the US if we just looked at the top 10 oligarchs, so I went back and recalculated with numbers I found from 2004. I came up with 178,000.
Material Power Index of Oligarchs
Ancient Rome - 400,000 (top 10)
US circa 2004 - 178,000 (top 10) [my addition]
US circa 2007 - 60,000 (top 100)
Ancient Athens - 2,500 (top 10)
These numbers are fascinating to me. When I hear people arguing that everyone should have close-to-equal wealth, I think: it would be great – even utopian – if the very wealthiest were only thousands of times richer than the masses. That would be a nice society, with historical precedent, that would likely be compatible with a similar kind of free and decentralized capitalist system to the one we have today. Instead, today the wealthiest are tens or hundreds of thousands of times richer than the masses.
I was curious to re-compute Winters’ numbers after the past 12 years of secret inflation, right before the recent market crash in the beginning of 2022. As I explained in my previous essay, when the interest rates moved to zero in 2010, banks in the US and EU created trillions of dollars & euros in new money, much of that as loans to billionaire individuals and billionaire businesses. And some of the most powerful billionaires – individuals and companies – didn’t even need any bank loans, because the technology products they created were transforming our societies so dramatically that the money was pouring in hand over fist. So it would make sense, with that insight as context, that oligarchs have gotten more powerful in the past 12 years relative to everyone else.
Using numbers from the US Federal Reserve and the Forbes billionaire index, I calculated that the top 10 US oligarchs at the beginning of 2022 were 327,000 times as wealthy as the bottom 90% of the population. That’s nearly double the power for the same oligarchs compared to 12 years, and not too far from ancient Rome.
So to restate the numbers, with the addition of the US in 2022:
Material Power Index of Oligarchs
Ancient Rome - 400,000 (top 10)
US circa 2022 - 327,000 (top 10)
US circa 2004 - 178,000 (top 10)
US circa 2007 - 60,000 (top 100)
Ancient Athens - 2,500 (top 10)
In the delicate balance of power between governments, the masses, and the billionaires, it seems super clear that billionaires are gaining a major advantage. Their meddling power has never been higher or more consequential, it has increased massively in the past 12 years.
Here is an eye-popping chart from the US political scene:
There are any number of additional graphs and charts that can make the case that billionaires have become even more powerful than they were 10 years ago, across the world. Here’s a good one:
One can also look at the massive growth in the private security industry serving ultra-wealthy clients over the past ten years, the rise of “family offices” in the capital markets, the power of mega-philanthropies that promote the agendas of their billionaires founders. Sometimes it feels like we’ve been living with these phenomena forever. But twelve short years ago, the situation was much, much less extreme.
As I stated at the beginning, this is not a critique of wealth inequality in general. I am pointing out the increased power of the very-wealthiest, the intensification of oligarchy to today’s extreme state, because I believe it has important consequences.
4. Extreme Oligarchy sets the stage for autocrats
One consequence is that in a world where oligarchs have too much power, democratic norms start to erode. It gradually becomes more acceptable, in our collective consciousness, for very powerful individuals to shape society without democratic checks and balances. It starts to feel normal for billionaires to try to become president. The speed and efficiency of the private empires run by billionaires starts to seem like a welcome alternative to the slow and messy process of broad-based democracy.
When the world stage is dominated by Musk and Gates alongside democratically-elected national leaders, it doesn’t seem so strange when Orban shows up to the party.
I have written about the authoritarian norms of business culture in the past, and how the diffusion of these norms subtly-but-surely changes our politics.
And when oligarchs in the western world have their wealth tied up with autocrats in other, non-democratic countries, then the situation becomes even more dangerous. Many of the most powerful oligarchs in the US and Europe have increased their business ties to the Saudi royal family, the Emirati royals, and the circle of billionaires around Putin (the tech industry is particularly guilty here). The wealth of many western oligarchs is now interdependent with the wealth of Gulf autocrats and the Putin regime. (Here’s a recent example.) And so what we see happening is that the force of Oligarchic Wealth Defense in our own democratic societies is increasingly used to defend the interests of autocrats across the world.
5. Extreme Oligarchy is slowing efforts to save the climate
Another consequence: because our modern world is built upon the use of fossil fuels and their related corporate empires, it follows that the fossil fuel-industrial-complex (and its set of oligarch-owners) has more power than ever. Think about the oligarchs whose wealth is tied to oil & gas, drilling, and pipelines – but also the car industry, petrochemicals and fertilizer, aviation and airlines, heavy industry. The wealth of those billionaires is tied up in power plants, factories, and other assets that rely on fossil fuels.
There are alternative businesses, of course, corporate giants built upon renewable energy production, electric cars, heat pumps, bioplastics, etc. These giants and their oligarch owners have meddling budgets, as well, that could counter the meddling budgets of the petroleum-related industries. But these businesses are relatively new, and on the whole worldwide there are far, far more billionaire individuals and companies whose wealth is tied to fossil fuels.
So the force of oligarchic wealth defense – one of the most powerful forces in history – is, on the balance, now preventing actions to save the climate, because there is more oligarchic wealth tied up in the fossil-fuel industry than the alternatives.
I am one of those extremists who is unsatisfied with the big “climate bill” that was recently passed in the US, called the IRA. Even though it provides significant funds to incentivize renewable energy installation and electric car production, it includes zero efforts to slow the fossil fuel industry, or eliminate the billions in government subsidies for polluting industries. It protects fossil fuel infrastructure like pipelines and even expands the amount of oil and gas drilling projects in the US. Looking into the details is a clear window into the influence of the fossil fuel billionaires protecting their wealth.
These fossil fuel oligarchs are just more powerful than our governments. The disequilibrium of power was not so extreme twelve years ago, before secret inflation.
A simple interpretation of what I’m saying here is that fossil-fuel industries have powerful lobbyists, and climate activists are outmatched. That is, in a way, what I’m saying, and it is not a very original argument. But I want to add this nuance: that the power of the fossil-fuel lobbyists is a manifestation of oligarchic wealth defense. Which is one of the most powerful forces in history. So it’s not like the fossil-fuel lobbyists are twice as powerful or three times as powerful as the climate lobbyists, it’s more like they are one thousand times as powerful as the climate lobbyists. Recognizing this is essential. Which is why, for all my criticism of the IRA, I also recognize that it was the best deal possible.
This also means that efforts to curb the power of oligarchs in general will necessarily help the climate movement.
Perhaps the wealthiest oligarch in the world, the crown prince of Saudi Arabia, has his wealth based almost entirely on fossil fuels, and he has proven that no democratic government can tell him what to do. Last year, his half-brother and minister of energy made the shocking, but obviously honest admission, about Saudi Arabia’s plan regarding petroleum in the face of climate regulation: “We are still going to be the last man standing, and every molecule of hydrocarbon will come out.”
With oligarchic power at the levels of ancient Rome and oligarchs free of the constraints of any single national government – when oligarchs with hundreds of billions of dollars that are effectively exchangeable for political power are defending their fossil fuel empires – how are activists supposed to fight back?
6. Extreme Oligarchy is warping our media
Another major consequence of the recent power-surge of billionaires, turbocharged by secret inflation, is an increasingly warped media. The newspapers, TV channels and social media we use are now, more than ever, more than in 2010, controlled by billionaires who use their media assets as vectors to promote their personal agendas. The billionaires are now even wealthy enough that they can operate their media assets at a loss, as a subcategory of their meddling budgets.
Oligarchs owning media is nothing new, of course. But the acceleration of the phenomenon this past decade is evident, leading up to the recent Musk takeover of Twitter.
The consequence is that the media is more partisan and less trustworthy than ever, at a time when, more than ever, we need to be brought together to collaborate on the difficult challenges ahead.
There are dozens of examples I could cite here, and in any case I think this point is rather obvious so it doesn't need expansion. But there is one example that strikes me, which is the influence of Vincent Bolloré on French politics.
Bolloré is the thirteenth-richest oligarch in France, with a fortune close to 10 billion euros. During this past decade of secret inflation he bought CNews, the right-wing TV news channel in France. He intervened in the editorial agenda to promote an anti-immigrant agenda. He employed the hard-right, proto-fascist Eric Zemmour as a TV journalist on his network, and constantly put him on the screen, setting the stage for his candidacy for President. Even though that candidacy ultimately failed, there is no question that Bolloré’s influence moved all French politics to the right. The presence of Zemmour helped to position Le Pen’s party as more centrist and acceptable, which led to her success in the parliamentary elections. For a more in-depth analysis, I recommend this article from the NY Times.
To be clear, the warping of our media by oligarchs is not a question of right-wing or left-wing, nor good guys and bad guys. For every Bolloré there is a Laurene Powell Jobs funding progressive journalism at The Atlantic. And even though Zemmour was basically evil, there’s also the case of the Ukrainian billionaire Igor Kolomoisky who used his TV network to elect his favored candidate, Zelinsky, who is now the heroic leader of democratic values worldwide.
In all of these cases, though, the media has become less objective and less reliable this past decade, becoming instead vehicles for the whims of the oligarchs who own them.
With Musk now in control of Twitter, the situation is taken to a grotesque extreme. Musk has a fortune over $100B, so he can operate Twitter at a loss in perpetuity as a line-item in his meddling budget. Since Twitter has an outsize influence on other media channels, Musk’s decisions about what is tolerated, what is banned, and who is promoted will inevitably shape our lives.
7. So now what?
This essay is not a call to abolish billionaires or promote an enforced-equality in society. This is, rather, an observation that the oligarchic class has gained significant power since 2010, partially due to secret inflation and the power of tech, and that the world we live in today is worse off as a result. Understanding that dynamic is essential if we want to advance in the project of continuous reconstruction.
This essay is the final one in my series on the interdependent set of problems facing the world today. Like I said at the beginning, I believe that with this better understanding of some of the causes behind our broken world, we can better imagine solutions.
And the good news is that the interest rates are going up. The zero-interest-rate regime, which I think was responsible for secret inflation and the set of related problems I’ve detailed, is coming to an end in 2022. Banks will stop printing so much free money for the already-wealthy. The wealthy folks terrified of a coming recession are likely overreacting.
Armed with this understanding, how can we intervene as citizens, leaders, and entrepreneurs to make things better? How can we increase wages for the masses to counter the secret inflation, massively increase our collective care budgets, and reduce the extremity of oligarchic power? Finding answers to these questions is essential. I can’t wait to discuss it with you all.
Off with their heads? (Sorry, I'm being waaay too French!) Joke aside, thanks for clarifying all of this. It really helps better understanding the society we collectively live in. And makes me want to move forward, and help in every way those who can stand up for the greater good. Also have high hopes in IM :)
Hi Rob! It's been a while and I hope all is well!
It's a Friday, so I'm going to take the bait, such that it's been offered: Why do you assume that "oligarchs" are uniquely rapacious and/or that their rapaciousness is uniquely bad? I think if you invert that framing--which naturally I'll do for you--the phenomena you describe (and the problem/solutions that follow) adopt a very different look and feel.
State actors, regimes, and ruling classes (like ours) are similarly inclined towards "wealth defense." Not only that, but the scale of their coercive power, see e.g. Jack Ma, dwarves "meddling money," which, of course, regimes deploy in plenty (in addition to their coercive power). Regimes also have the benefit of expropriating their source of funds, where oligarchs generally do not (unless of course they've been granted rent-seeking rights from the regime). If anyone can, and does, "operate at a loss in perpetuity," it is regime actors, not private ones. The power imbalance strongly favors the regime, and it's unlikely that oligarchs have closed the gap, but if they have, you certainly haven't shown it. As per above, it makes little sense to plot the relative power of "oligarchs" v. "regimes" using material wealth only, especially given extent regimes use those self-same technologies to enrich themselves and their coercive power, e.g. through the expansion of the surveillance state or access to the banking system, not to mention basic gate-keeping in the form of licensing authority and regulatory interference.
But let's say you're right, that oligarchs have gained power at the expense of the regime, is that even a bad thing? The story of Musk at twitter is much more plausibly a unique example of a private citizen recapturing conquered territory from the regime and restoring it to the demos--indeed, the fear-mongering and hostility which has followed (regime meddling, if you will), including threatened coercion from the FTC as well as local authorities, reflects the consternation and anger of the ruling class, which had claimed twitter as it own. Musk not only demonstrated that 75% of the organization was nothing more than regime bloat--generally the regime insulates itself from charges of waste because it presents no alternative--but of course Musk's real sacrilege was wresting control of the public square. During the regime's control of twitter, "content moderation" or censorship, as its conventionally known, operated to "protect" users from information that they *liked* and/or found useful, but nonetheless diverged from the interests of the regime--that may well be good and proper, but it's surely not "democratic" or "liberal" in any meaningful sense.
To put a finer point on it, there is no reason to assume that oligarchal gains (particular at regime expense) leaves "the masses" "worse off" (and every reason to assume the opposite). You cite energy as another example, but of course energy is simply a consumer good--the profits and benefits of which are about as widely distributed as any consumer good I can think of. In general, prices are a far more dynamic and responsive signal of preference than limited-slate binary choices made every 2-4 years (i.e. voting). You wouldn't discover/calibrate product-market fit that way, so there's no reason to suspend disbelief when it comes to regime-proffered goods and services--the "take it or take it" latter are undoubtedly less democratic than the alternative. Put another way, oligarchs, energy companies or individuals like Musk, are more beholden to their customers--democratic, if you will--than regime officials or other members of the ruling class. Oligarchs obtain power by giving the people what they want. The regime, by contrast, gives the people what *it* wants.
That people consume lots of fossil fuels reflects their preferences relative to the choices at hand, and not some coercive or manipulative scheme (which, such that they exist, largely favor alternative sources of energy, not oil). Now, it may be that you disapprove of the "mass" preferences and/or believe the masses ought to be protected from themselves through coercive measures adopted by a select group of people comprised of wiser, right-thinking people like you . . . but again, while that may be right and proper, it is neither democratic nor liberal. If anything, it reflects an erosion of power along a dimension that you seem to recognize as "bad."
In any event, trying to understand the "interdependent set of problems facing the world today" without any accounting of the world's most influential forces, including their motivations, limitations, and the nature of their interventions, seems unlikely to succeed. The glaring hole in your analysis (and not just yours) is shaped exactly like the rapacious wealth protecting constituency that is both illiberal and undemocratic--indeed, so much so (and so convinced of its own virtue), that it does not even include itself in its own factor model!