Inside Story

The case for banning billionaires

Should there be a limit on how rich you can be?

Peter Mares Books 29 April 2024 3102 words

Tax the rich: a message projected onto a New York wall by the Patriotic Millionaires group during this month’s meeting of G20 finance ministers. Manuela Salgueiro Lourenço

When I read that Harrods, “the world’s leading luxury department store,” sells a 250-gram jar of Western Australian honey for £750 (A$1430), I nearly choked on my muesli. At about $40 per teaspoon that would make for a very expensive breakfast — though you do get to drizzle the honey with a handcrafted glass dipper from a jar inlaid with 22-karat gold.

It turns out such excesses are not the preserve of upmarket British retailers catering to the aristocracy. To celebrate its 185th birthday, Australia’s David Jones is offering a “truly remarkable limited edition” 230-gram jar of honey for $1600 — that’s close to $50 per teaspoon. It’s sold as “some of the worlds [sic] highest potency manuka honey” (whatever that means) and comes from New Zealand forests “so remote, they are only accessible via helicopter.”

The word “obscene” springs to mind, and not just because harvesting honey by helicopter seems calculated to accelerate an ecological crisis that will wipe out bees for good. How can anyone be so carefree with cash that they would squander $1600 on a jar of honey and some superfluous extras? And if not honey, then wine, truffles, caviar, handbags, watches, suits, cars, space flights… Whatever the chosen luxury, some people seem to have more money than (moral) sense.

According to Oxfam, the carbon released into the atmosphere by the consumption habits of the richest 1 per cent of the world’s population is equivalent to the amount emitted by the five billion people who make up the poorest two-thirds. If we’re looking for quick wins on the climate front, banning private jets and super yachts seems like a good place to start.

Some might accuse me of indulging in the politics of envy. But even if I did wish I could spread the world’s most potent honey on my toast, that would be beside the point. As Dutch philosopher Ingrid Robeyns writes in her new book, Limitarianism: The Case Against Extreme Wealth, we should consider the substance of an argument, not the attitude ascribed to the person advancing it.

Besides, what’s really at stake are not so much personal lifestyles as the social, economic and legal systems that shape and enable (or constrain) them. As Tom Malleson put is in Against Inequality: The Practical and Ethical Case for Abolishing the Superrich, the point is not that high net worth individuals are evil but that their existence is “structurally immoral.”

While accepting that some people will always be better off than others, both these books argue that we should put a cap on the amount that anyone can earn or own — hence the term limitarianism. We’re familiar with the concept of a minimum wage, writes Malleson, so why not a maximum wage? In effect, Robeyns and Malleson want to ban billionaires (and most multimillionaires too).

Inequality is generally measured using what’s called the Gini coefficient, which produces a number from zero to one for each country, where zero represents absolute equality (everyone has the same share) and one represents absolute inequality (one person has everything). If we accept that neither of these extremes is feasible and neither necessarily desirable, then a core task for democratic societies is to determine what level of inequality is feasible and desirable. In other words, how big should we allow the gap between rich and poor to be?

In Australia, the Gini coefficient for household income is about 0.32, which puts us around the middle of the OECD pack. Australia’s tax and welfare systems do a better job of smoothing disparities than those in Britain (0.35) and the United States (0.4) but we lag more egalitarian European nations like Austria (0.28) and Denmark (0.27). Wealth is generally less equally distributed than income, and this is true in Australia too — at 0.61, our Gini coefficient for wealth is almost double that for income.

Malleson make this abstract figure more meaningful by imagining a parliament with 100 seats distributed according to wealth. In the United States, the richest third of Americans would have 92 seats. The picture in Australia is almost as alarming. Extrapolating data from the latest ACOSS inequality report suggests that the wealthiest 20 per cent of Australians would fall just shy of a two-thirds majority, commanding sixty-two seats. The next 60 per cent — the middle classes if you like — would share the other thirty-eight seats, while the poorest 20 per cent of citizens would have no seats at all.

We may accept that inequality is an inevitable outcome of a market-based economy, and possibly believe it is necessary to drive efficiency and encourage competition, but it is always a question of degree.

Back in 1965 the typical American chief executive earned about twenty times as much as the average worker. By 2022 the ratio was 344:1. As Malleson writes, it “stretches credulity” to believe that such a huge jump in executive remuneration reflects real increases in productivity, especially when the multiples are much lower in other industrialised countries. Japanese chief executives typically earn less than a fifth of their American counterparts and pay substantially higher marginal tax rates. This doesn’t stop Japanese companies trading successfully.

In Australia too, the divide between workers and bosses is less extreme than in the United States, and marginal taxes higher. Still, there’s little evidence to suggest that paying chief executives in ASX 100 companies fifty-five times average adult earnings produces better corporate results, let alone more positive social outcomes.

Criticism of excessive riches often provokes knee-jerk defences, including from supposedly left-of-centre politicians. Responding to a journalist’s question about chief executives’ bonuses in 2010, Barack Obama said he didn’t begrudge other people their success or wealth, because that’s part of the free market.

In a democratic society we should debate the question of how much inequality is reasonable, but it’s not a conversation we are keen to have. As Ingrid Robeyns comments, poverty is a politically safe topic, whereas inequality raises uncomfortable questions about societal structures, political choices and power differences.

In Australia, Labor politicians talk constantly about tackling disadvantage and increasing opportunities but rarely mention entrenched privilege or unequal outcomes. This is in keeping with the conventional view, that, as Robeyns puts it, “poverty is what really matters; inequality is just a distraction.” In a similar vein, Malleson quotes eminent moral philosopher Harry Frankfurt, who wrote in a famous 1987 article: “If everyone had enough, it would be of no moral consequence whether some had more than others.”

But Frankfurt was wrong. As Robeyns writes, “inequality is bad because it has bad consequences.” She and Malleson marshal plenty of evidence to back up this assertion.

Excessive inequality damages the economy because the affluent hoard most of their riches. If more of their money were redistributed to people on lower incomes, they would be much more likely to spend it on goods and services, boosting demand, creating jobs, reducing poverty and smoothing economic volatility.

Malleson argues that more equal societies “grow faster and more sustainably than less equal ones” and have greater social mobility. Innovation and productivity rise because more people develop skills: “It is hard to believe that an egalitarian society in which the money of the superrich is not spent on yachts, personal jets, and vacation homes, but is instead invested in excellent, state-of-the-art education for everyone, including poor, previously marginalized children, would not perform significantly better in terms of developing general capabilities.”

Malleson cites “extensive empirical evidence” that inequality undermines social cohesion by making people less generous and less willing to help their neighbours: “The bottom looks up with anger and resentment while the top looks down with contempt and mockery.” This echoes the views of American philosopher John Rawls, who held that the attitudes engendered by inequality were great vices: “deference and servility on one side and a will to dominate and arrogance on the other.”

Highly unequal societies are generally lower-taxing societies and invest less in public goods like healthcare, education and infrastructure. Carbon emissions and crime rise with inequality, while mental and physical health declines.

Then there is the distorting effect of inequality on politics. Robeyns cites the outsize influence of the Koch brothers in the United States. In Australia we have the likes of Clive Palmer and Gina Rinehart, and both countries have Rupert Murdoch to contend with. “The rich,” writes Malleson, “are a Trojan horse within the walls of our democracy.” Even if we were to restrict donations, cap election spending and regulate lobbying, wealth would still shape policy and opinion because many facets of the political process — disseminating ideas, communicating opinions, mobilising organisations — are facilitated by money.

Malleson calls this the paradox of liberal democracy and illustrates it with an equation:

economic inequality + freedom of expression (including normal market freedoms) = unequal political influence

This leaves us with a stark choice. Either we restrict political speech (a “terrifying prospect” that would mark the end of liberalism) or we tackle rampant inequality. To leave things as they are is to give up on democracy and the ideal of political equality and allow the thought experiment of a parliament of wealth to become the reality of how we are governed. Malleson reckons it’s already much closer than we think: “It is quite stunning to reflect on the fact that although the majority of every country is composed of workers and caregivers, the system of electoral democracy has practically never produced a government wherein the majority of legislators themselves come from such groups.”

This adds urgency to a question formulated by philosopher D.W. Haslett and quoted by Robeyns: “We abolished the inheritance of political power; why, then, should we not abolish the inheritance of economic power, too?” While philosophers disagree about many things, she says, “there is striking unanimity among them that inherited wealth is undeserved.” Malleson informs us that more than four in ten of the top 400 billionaires on the Forbes rich list inherited their fortunes and many of the rest started out with more than a million dollars.

Australia abolished all state and federal inheritance taxes more than four decades ago. Even though there’s no hint of Labor bringing them back, that doesn’t stop “death tax” scare campaigns. Inheritance taxes are a low priority for reformers anyway since they don’t raise much revenue. (They are only paid by a small fraction of the population — those who die each year leaving significant riches.) But the purpose of an inheritance tax is less to fill government coffers than to reduce the dynastic concentration of wealth and enhance social mobility.

Even if inheritance taxes might not raise substantial sums, taxing wealth could. Malleson calculates that an annual 2 per cent tax on the wealth of Jeff Bezos and Bill Gates alone would raise enough money to eradicate homelessness in the United States. Since their average return on capital is much higher than 2 per cent, their riches would keep mounting up anyway.

Translated to a global stage, a tax on the world’s estimated 2781 billionaires with a combined worth of $14.2 trillion could be transformative. As economist Jeffrey Sachs told a UN summit in 2021, “I have it on good authority that you don’t need more than $1 billion to live comfortably. Even if every billionaire kept $1 billion, that would leave around $10 trillion for ending hunger, poverty, and environmental destruction”

Attempts to reduce inequality run up against four main arguments, writes Malleson, two practical and two ethical.

The first practical argument is one of feasibility: that it is pointless to try because the rich will always find ways to evade and avoid taxes on their income and wealth, especially in a global economy. This is nonsense. They will try, but they won’t necessarily succeed, as is evident from the fact that some countries are far more successful at using the tax system to redistribute income and wealth than others.

It is more a question of effort. Most nations are more intent on policing the poor than the rich, a fact which has not escaped the notice of Austrian Marlene Engelhorn, who inherited a huge fortune, and who, like American Patriotic Millionaire Abigail Disney, is urging her government to “tax me now.” Engelhorn thinks the enormous bureaucratic energy focused on investigating whether poor people on government benefits are cheating should instead focus on wealthy people like her. She told Robeyns that tax evasion is estimated to cost Austria about one thousand times more than welfare fraud (€12–15 billion compared €14 million).

The second practical argument is that the costs of reducing inequality outweigh the benefits. If you penalise the rich with taxes, they will “work less, save less, and invest less, leading to slowed economic growth, unemployment, and ultimately reduced prosperity for all.” Again, there is little evidence to support this view, at least until tax rates become extremely punitive.

According to Robeyns, it is well established that there is a “riches line” in every society — a point beyond which additional money doesn’t increase your standard of living in any significant way. Beyond that, people work hard not to earn more but because their well-paid jobs tend to be “meaningful, exciting, influential, or intrinsically rewarding,” says Malleson. Such non-monetary rewards mean most top earners don’t reduce their effort when marginal tax rates go up. Robeyns quotes former Shell CEO Peter van der Veer, who admitted before leaving the job that he wouldn’t have done it any better if he’d been paid fifty per cent more, nor any worse if his salary had been halved.

The first ethical argument against addressing inequality is the merit argument — that people deserve to be rich because their wealth reflects their contribution to the economy or is a just reward for their talent, dedication, training or effort. Since some jobs are more difficult or risky than others, some require more years of study and some have greater social value, Robeyns thinks reasonable variations in pay are legitimate, but she says no amount of merit can justify the gulf between childcare workers and chief executives.

If we truly believed in merit, then we would bring back inheritance taxes, since no one “deserves” their parents. But even without the lottery of birth, merit is a flawed and pernicious concept. As philosopher Michael Sandel argues, merit encourages us to we view ourselves as self-made and self-sufficient, and to care less about those who struggle. “If my success is my own doing, their failure must be their fault.”

Merit also rests on a mistaken view of how the economy works. “Even geniuses are just the tips of broad social icebergs,” writes Malleson. “They may be eye-catching, but we should not overestimate their economic importance.” The successes of any individual are always due in large part to what Malleson calls the “understructure”: physical assets like roads and ports, institutions like the legal system, publicly funded research, natural resources and other factors that enable social and economic activity. The most important and most neglected part of the understructure is care — “the ladder of congealed, mostly feminine, and often racialised labour” that everyone climbs to reach their goals.

These arguments also serve to counter libertarianism, which Malleson cites as the second ethical objection to tackling inequality. For libertarians, redistribution via taxation is equivalent to theft and inherently tyrannical. Inequality is morally justified because, to paraphrases philosopher Robert Nozick, it arises from free and voluntary exchanges between informed adults. Perhaps this is what Jeff Bezos was thinking at the launch of his first space flight, when he thanked every Amazon employee and every Amazon customer “because you guys paid for all this.”

But even if you accept the proposition that selling your labour to the union-banning Amazon is a completely “free” exchange, this again ignores the fact that Bezos’s business success is enabled by public investment and collective goods. As Robeyns says, entrepreneurs build their wealth on the “bequest of past generations.” Often those bequests were not voluntary, as Nozick would have it, because the history of property acquisition is, as Malleson writes, “interwoven through and through will all kinds of brutal violence and injustice.”

In 2021 the Ukrainian-born British-American businessman Leonard Blavatnik topped the Sunday Times “rich list” as the wealthiest person in Britain, with a fortune of £23 billion. To give readers a frame of reference this mind-boggling sum, Robeyns calculates that to earn that amount in a lifetime — fifty hours a week from the age of twenty to sixty-five — you’d have to earn an hourly wage of £196,581.

Malleson offers a similar calculation. When Elon Musk was the world’s richest person, he was worth US$270 billion. To earn that much money, an American worker on the median wage would have to toil for seven and a half million years. To put it another way, every fourteen minutes Musk had accumulated as much money as a typical American earns in their lifetime.

Clearly, this is beyond the pale. But how much is too much? Plato reckoned the richest person should have only four times as much as the poorest; Aristotle thought the ratio should be five to one (though whether either would have considered slaves or women in their calculations is doubtful).

Robeyns offers two limits — one political, the other ethical. The political limit — the one she thinks governments should make law — would cap wealth to about ten million in the relevant currency. So, £10 million in Britain, €10 million in the Netherlands, US$10 million in the United States (and presumably A$10 million in Australia). The ethical limit, which is a matter of personal conscience, would be one tenth of that. In other words, you should give away anything beyond your first million pounds, dollars or euros. (Since you’ll be living in a limitarian system, Robeyns assumes that you have access adequate services including a reasonable age pension and a reliable public health system.)

Malleson is a bit more generous to the wealthy, suggesting that the highest income anyone can earn should be twenty times the minimum wage. In the United States, that equates to a maximum annual salary of $400,000. The most wealth Malleson would let anyone accumulate would be 400 times median wealth, capping personal fortunes at $40 million.

When I’ve mentioned this figure to friends, they’ve reacted with surprise. “Why so much?” they ask. At the moment, though, whether you opt for the lower limit suggested by Robeyns or the higher one proposed Malleson is an academic question. Both writers mount a strong ethical and pragmatic case for limiting extreme wealth. The challenge is how to get there. •

Limitarianism: The Case Against Extreme Wealth
By Ingrid Robeyns | Allen Lane | $44 | 336 pages

Against Inequality: The Practical and Ethical Case for Abolishing the Superrich
By Tom Malleson | Oxford University Press | £18.99 | 352 pages