How countries treat their ultra-rich

This is an important factor reshaping globalisation

In the recent period, some rich and powerful people have faced trouble in countries such as the US, Russia, China, and Saudi Arabia. When the rule of law is lacking, wealth protects the rich when it comes to threats from goons and other rich people. But they are not protected from the state. The richest people are at the greatest risk. The life strategies of the wealthy are reshaped by this problem. This is an additional channel of influence shaping the third globalisation, which inhibits the possibilities for low rule-of-law countries.

Jeff Bezos owns The Washington Post. The Washington Post was an important part of the full-throated criticism by the free press in the US of former president Donald Trump. We know there is rule of law in the US because Mr Trump was not able to induce investigations or orders by federal agencies against Mr Bezos, his associates or firms.

The US has a score of 83 and is classified as “Free” in the “Freedom in the World” index of Freedom House (https://bit.ly/FHindex). Rich people in the US can oppose the government without fear of death, jail, exile, expropriation or commercial harm. Things look different in less free countries.

In Saudi Arabia (score of 7, regarded as “Not Free”), on November 4, 2017, about 500 people were locked up in the Ritz-Carlton Hotel by the “anti-corruption agency”. Many victims were forced to buy their freedom by giving up their wealth. Government officials said they hoped to get between $300 billion and $400 billion, and consolidation of political power, from this assault.

China has a score of 9 and is also under the “Not Free” category. Once Chinese President Xi Jinping took office in March 2013, he deployed state power against the source of China’s success — the private sector — thus damaging Chinese growth in the 2013-22 period. The “anti-corruption program” generated outcomes like an 18-year prison sentence for a real estate executive who criticised Mr Xi in a private email. Billionaire Jack Ma was worth $60 billion in late 2020, and lost a lot of the shareholding in his empire last week.

Illustration: Ajay Mohanty

In Russia (score of 19, “Not Free”), a different dynamic has played out. There has been tremendous economic stress since the Ukraine war began. For example, the rouble has lost its hard-currency status: They now have detailed capital controls analogous to the Indian rupee. In this turmoil, rich people have been dying under mysterious circumstances (https://bit.ly/deadRB), at an average rate of three per month.

Affluent individuals had suffered a wave of death, jail, exile, and expropriation in the early decade of the Putin regime, in the populist playbook of anti-corruption campaigns. By the time the war started, Russian President Vladimir Putin had consolidated power: The surviving rich were generally those allied to the regime. So the recent wave of killing rich people is not about opposition to the invasion. It is more about the heightened conflicts for money at a time when the pie has shrunk. We are reminded of the question: “Why do you rob banks?”, and the answer: “Because that’s where the money is”. When times are tough, the toughs try to grab from the rich.

The American politician Adlai E Stevenson once said: “My definition of a free society is a society where it is safe to be unpopular.” A free society is one where it is safe to be rich. Even when the rule of law is weak, the rich are privileged: They are protected from attacks by private persons. Goons and rich people are able to torment normal people, but not the wealthy class. But the rich are not protected from the coercive power of the state.

Two kinds of selection bias shape our knowledge on this problem. When the regime attacks Ant Group’s Ma, it makes waves, while in many other cases, the reporting might be limited or absent. Alongside this, the extremes of wealth attract covetous eyes, so the probability of expropriation is correlated with the level of wealth.

People respond to incentives, including the wealthy. It is important to understand the optimisation of the rich. There was a time when there was optimism about how the world would work out. After the Berlin Wall was brought down, the journey of the future was supposed to be one of inevitable progress towards capitalism and freedom. While many things went wrong in the way, there was confidence in the basic trajectory: “Though the course may change sometimes, rivers always reach the sea.”

Things didn’t work out like this, and the world is cleaving into a “third globalisation” (https://bit.ly/thirdG), where there is true globalisation within the ranks of the free countries but caution when engaging with the rest of the world. This caution is visible at three levels: First, the use of state power in ways that are inimical to globalisation (for instance, the US government blocking Chinese de facto public sector undertakings like Huawei from operating in its country); second, the higher risk premia demanded by financial investors in the first world when investing in unsafe places; and third, the narrowing of global value chains to emphasise production in safe places.

The third globalisation is also being fuelled by the subject of this article, the modified optimisation of the very rich. Uneasy lies the head that wears a Forbes rank. Several wealthy families in places like China and Russia are systematically moving assets, businesses, homes, and loved ones into rule-of-law havens like London.

This is not the old notion of home bias that was designed to think about developed market (DM) decision makers and over-emphasising familiar DM assets. Here, we have capital flowing uphill through the optimisations of emerging market decision makers. The growth and the redistribution camp see eye to eye on this. Whether the rich are the target of taxation or the engine of growth, their exit is harmful for both camps.

The writer is a researcher at XKDR Forum