It came to me as a total surprise. On a cold Sunday afternoon, I was walking with my friend Ruud Scheerens in the centre of Utrecht. All of a sudden, we came across a big group of people in the middle of Utrecht, with big VVD balloons around them. There was a charismatic buzz coming from the center of the group. Immediately, I was curious. I found out that core of that lively buzz was Mark Rutte himself. He looked as charming and important as on television. A ‘normal’ guy, with an approachable radiance and a nice tan. As he was posing with little babies and taking selfies with teenagers, (and this happened in seconds) I thought of my strategy. I thought about what I should say to him, knowing I don’t agree with him fundamentally on many issues. (I vote for PVDD and he is the leader of the biggest mid-right party of the Netherlands, the VVD)
So I decided to go in, picking the topic of rampant global inequality as it is something I care about deeply. After I shook his hand, my first question was what he thought about it. His manner was attentive but also sharp and straightforward. He answered it was ‘zorgwekkend’ or ‘worrying’. And then of course I asked what he thought about Picketty, and whether he had read it.
The basic statement of Picketty’s book is the following:
Whenever the rate of return on capital is significantly and durably higher than the growth rate of the economy, it is all but inevitable that inheritance (of fortunes accumulated in the past) predominates over saving (wealth accumulated in the present)…. Wealth originating in the past automatically grows more rapidly, even without labour, than wealth stemming from work, which can be saved.
Mark admitted he didn’t read it (he read the summary), but opposed his conclusions. By his ‘conclusions’ I assumed that he meant his progressive tax proposals on wealth. At this point it started to become a political debate (which I was totally unprepared for but happy to challenge). I asked him why he opposed his conclusions (with this he was referring to Picketty’s ideas on progressive tax; taxing more on capital or wealth, rather than income). He said quite literally that he believed if you were an entrepreneur who invented Google deserves to have lots of money. I couldn’t agree less. This meritocratic attitude is exactly which is exacerbating inequality and is highly problematic. It is also a diversion tactic.
Let’s zoom in on this statement and dissect it.
Let’s look at one of Google’s founding entrepreneurs. Larry Page. In 1998 Larry Page and his companion Sergey Brin rented a garage, and received a 100,000 dollar check from Andy Bechtolsheim (co-founder of sun microsystems). They built one of the worlds first search engine with a mission of “to organising the world’s information and make it universally accessible and useful.” Indeed a genius idea. But what if he never got that 100,000 dollar check and no one ever invested in him? He wouldn’t be the billionaire that he is today. Now, Larry Page’s is the ninth-richest person in the world with a net worth of 53.8 billion dollars.
Then comes the next question: what the hell do you do with 53.8 billion dollars? I’ll give it to him that he worked hard and had a genius useful idea. But no single human being in this world, needs that much wealth to survive. Moreover, no single human being could spend money on a daily basis, to really pump the attained wealth back into the world, to be really beneficial. His wealth (probably mostly invested in (Google) stocks) can have a much high return, without spending time or energy on it. He could sleep for the rest of his life and get substantially richer.
Mark was smart to pick out an successful entrepreneur as a case to argument against taxation of the wealthy. But what he did not talk about, very smartly, is wealth that is inherited, which Picketty says will be an increasingly influential factor to one’s wealth. From the 1950s onwards, inheritance played an increasing role in determining one’s net worth. Due to the economies slow growth (1.7 %) and high returns on capital (3 %), he predicts that inheritance flows will rise to around 16-17 % of national income (in this case in France). More pessimistically 1 % growth and 5 percent return will ensure the ratio will go to 24-25 %. A rate reminiscent of aristocratic pre-1914 France. Anybody smell a revolution?
According to the economist, “in this latter case, inherited wealth would be 90% of all wealth.” Even more so, opposed to Forbes’ claims that most wealthy individuals were ‘self-made’ research from United for a Fair Economy (UFE) most people on the list, already inherited large portions of their wealth which enabled them to invest more. UFE identified 3 ‘bases’ to which these high net worth’s have an competitive advantage.
Of the over 60 percent, all grew up in substantial privilege. Those “born on first base” — in upper-class families, with inheritances up to $1 million — make up 22 percent of the 400. On “second base,” households wealthy enough to run a business big enough to generate inheritances over $1 million, the new UFE study found another 11.5 percent.The narrative of wealth and achievement that Forbes is pushing ignores the other side of the coin. On “third base,” with inherited wealth over $50 million, sit 7 percent of America’s 400 richest. Last but not least, the “born on home plate” crowd. These high-rollers, 21.25 percent of the total Forbes list, all inherited enough to “earn” their way into top 400 status.” Sam Pizzigati http://toomuchonline.org/the-self-made-myth-our-hallucinating-rich/
Even more so, according to Oxfam 82 % of wealth created this year went to the wealthiest 1 percent. Next to that 2017 saw the biggest increase in billionaires in recorded history. This is a trend which cannot be ignored. Inequality in itself is not a problem, but when your neighbour earns substantially more, you rent is going up, and your wages are stagnating, you are bound to be pissed off, and lean towards populist politicians (as Nick Hanauer states in this article)
Now why do I care about this personally? One could say that I am part of this second group. I am 26 and I do not have any money-making-world-changing entrepreneurial ideas (if only). I am just a young filmmaker. A profession which is notoriously underpaid. But I did get something from my parents, an investment portfolio of stocks and bonds. (I am currently making a film about the sustainable reinvestment of this: http://www.cinecrowd.com/petroldollars) And while I am definitely not rich enough to be part of the 1 %, I am definitely part of the 20%.
Next to that I am also a stubborn believer in the moralistic purpose of solidarity and the functional purpose of taxes. (and yes, I am aware that I am not speaking for my financial benefit) Specifically so,the dividend tax in the Netherlands, which was scandalously removed cancelled cutting a government income of 1,4 billion euros. 1,4 billion that doesn’t go to healthcare, doesn’t go to education, doesn’t go to helping those not fit to work etc. A total shame, and a total shock: it was in none of the coalition parties’ agendas. It was rather funny to see the opposition parties question VVD and CDA about this crazy move (dubbed as ridiculous move by 9/10 economists interview by the Telegraaf). VVD and CDA leaders embarrassingly failed to come up with strong evidence that this would job creation and making the Netherlands a good host for international companies.
Mark even said that it could be a ‘risk’ for which we don’t really know the outcome. I would say it is a rather expensive bet.
To fill this gap, in America you see how millionaires and billionaires increasingly try to fill the gap of the government. I don’t believe public services should be run by billionaire charities, and I worry that the Netherlands is slowly moving in that direction. Billionaires are people with specific world views and are not democratically elected and don’t necessarily represent collected views of a society. Although many billionaires do engage in charitable causes (and largely influence politics in America), they are not impartial. For example, Larry Page donated tens of millions of dollars to research into vocal cord paralysis at the Voice Institute. He suffers from a rare vocal chord disease, though in this interviews he does not believe in charity, and would rather give his money to Elon Musk. Although there are of course other billionaires which do engage in a lot charitable giving, such as Bill Gates. Though there is no guarantee that every billionaire is benevolent.
Therefore I believe that billionaires (or millionaires) are not necessarily the right people to distribute wealth, this is a task the government should keep. (unless corruption is rampant). One of the key ways to redistribute wealth is to make sure that passive income from dividends and passive investments are taxed to go to the weaker in society, which can they help contribute to the productive economy (i.e. not the speculative financial industry, which is already much larger than it should be). Next to that I believe that income should be taxed less.
I believe that billionaires (or millionaires) are not necessarily the right people to distribute wealth, this is a task the government should keep.
So this will be the basic premise of my letter to my dear friend Mark. I am doing research at the moment to make sure that I have all my arguments lined up, in case he wants to debate again. Please let me know if there are particular factual articles that I shouldn’t miss. In any case I’m looking forward to have a nice cup of coffee with Mark, gezellig. 🙂