In Britain today there are around 150 billionaires. These people have streams of income and holdings of wealth thousands of times greater than does the average person. So how does this come about?
One answer frequently put forward is that these very rich people are exceptional persons with abilities much greater than the rest of us and that they work extremely hard. The high rewards they receive for the efforts they put in are fully justified, it is claimed. Some of these “self-made” billionaires are household names – Richard Branson, James Dyson, Alan Sugar, Tim Martin, etc.. It is true that these individuals have become rich by means of setting up and running successful, profitable business enterprises from which they receive the lion’s share of the profits. But can their exceptional rewards be explained simply in terms of the outstanding personal qualities of these entrepreneurs?
In order to answer this question it is necessary to examine just how goods and services are created in contemporary capitalist economies. It is by means of work, people spending time and effort on producing concrete items, e.g. food, laptops, etc. and providing services e.g. health care, food distribution, etc. that other people need and want that wealth is created. These are called commodities, anything that is useful to at least some people and which can be sold for a money price. The reason that some commodities cost more than others is because more hours of human labour time have gone into producing them. The price of, say, a car is determined not just by the hours of labour time spent on assembling its parts into the finished vehicle but also by the hours of labour time spent on making the different parts. This is why the typical car costs much more than the typical bicycle.
Some people work harder and longer than do others and thus produce a greater volume of valued things, commodities. Thus their money earnings will usually be higher than those who work shorter hours. Some people are more skilful than others in a given line of work and so the commodities they produce in a given period of time are highly valued and thus fetch good prices. These people often receive higher earnings than people doing less skilful work.
But can differences in skill and application in work done account for the enormous gaps between the income and wealth of very rich people and those on average earnings? Let us assume that an exceptional person works three times longer per week than the average. In this case it would be reasonable for such a person to be paid three times average earnings. But rich proprietors receive hundreds if not thousands of times as much income as do typical workers. So hard work in itself cannot account for the enormous rewards received by some people.
Some people have got rich from the sales of technological innovations they have made. For example James Dyson invented a new type of vacuum cleaner and Bill Gates designed the Microsoft Windows computer programme. They have created products which are highly valued by millions of people and for which they are prepared to pay money. Surely, it can be argued, these innovators deserve monetary rewards much greater than the average? However, these inventions can only become a practical reality for masses of consumers if other people than their originators actually manufacture these products and distribute and sell them to those who want them. Thus it is only possible for the designers of these commodities to receive very high flows of income because other people are putting working time into manufacturing and distributing them. It follows that it can be claimed that the inventors are actually receiving part of the value created by the employees manufacturing and marketing these products. If this happens on a very large scale the flow of income to the originators is huge.
This takes us back to the origins of modern industrial capitalism. It was Richard Arkwright who introduced powered machinery into cotton spinning. He may not have been the inventor of the water frame machine he used. The design may have been stolen from its actual inventor. What Arkwright was good at was managing workers in factory production. By doing this on a large scale he became immensely rich. Another innovator in mechanical cotton spinning was James Hargreaves who invented the spinning jenny. Although this device was widely adopted Hargreaves received little in the way of monetary rewards. This was because he did not own the enterprises employing workers to operate the spinning jennies and thus was not in a position to receive part of the value these workers created.
In many large business firms it is possible for senior executive managers, who do not actually own the firms in which they work, to receive massive monetary awards. This is because they are in a position to grab a large share of the profits made by these firms. For example, Jeff Fairburn, Chief Executive Officer of builders Persimmon, was awarded a bonus of 128 million pounds in addition to his large salary. Some of the firm’s shareholders thought that this was excessive so the bonus was reduced to 75 million pounds! With large firms these executives are a strong position with respect to the shareholders because the latter consist of many thousands or even millions of different people for whom it is difficult to get organised at shareholders’ meetings and thus curb the senior executives’ greed.
Another way in which people can get very wealthy is through the management of investment funds. An example is the notorious Neil Woodford. Money from the savings of people on modest incomes is placed in funds to be invested by fund managers in stocks and shares. Many people save in this way to provide themselves with pensions in later life. The fund managers charge fees for the service they are providing. If there are a large number of investors then the managers reap very high incomes. The fees come from the profits on the shares that have been bought on behalf of the investors. Thus the fund managers’ high incomes constitute part of the profits made from the workers in the companies whose shares have been bought by the funds.
Some people inherit considerable wealth from their parents and other relations. An example is the Tory MP Jacob Rees-Mogg and his wife. They have around 100 million pounds between the two of them. The investments in which this wealth is held provides them with a very considerable income. People in this situation do not usually spend all of their income so some of it is reinvested thus tending to increase the money value of their total wealth holdings. Even so, people like this constitute only a fairly small minority of the rich in Britain today, perhaps around ten percent. The great majority of billionaires are in fact “self-made” men and women.
What all this boils down to is that however clever and hardworking a person is it is not possible for he/she to get seriously rich except by, one way or another, receiving part of the value created by other people. In other words the possession of great wealth is impossible without participating in the capitalist exploitation of large numbers of other people. In Britain today differences in incomes received and wealth held are widening. Society is steadily becoming more unequal. At one end a very few people have so much money they don’t know what to do with it at the other end a growing number are homeless and living on the streets. This system has got to go!