How to Tell Good Billionaires from Bad Ones: Trump, Zuckerberg, Gates, and Buffett

Global Financial Strategist

Ruchir Sharma, head of emerging markets at Morgan Stanley and a longtime columnist for Newsweek, the Wall Street Journal, and the Economic Times of India, is looking at economies in a unique way — he's studying certain nations' billionaires. “That really tells you about how a country is evolving, and where income and equality is becoming too big an issue, and where could the population really begin to revolt, in some way, against wrong kind of wealth creation,” he says.

He used three metrics to sort the billionaires: the number of billionaires in a country as a share of the total economy, whether the wealth being created is good or bad, and the number of inherited billionaires in that economy. If any one of these metrics is out of balance, Sharma believes it can hint at trouble on the horizon (if it isn’t present already).

The division of billionaires into good and bad categories is particularly interesting. What makes a billionaire good or bad? According to Sharma, good billionaires, like Bill Gates and Mark Zuckerberg, generate wealth through skill and innovation, which earns them respect. Bad billionaires typically come from industries such as real estate and finance markets, and their wealth is perceived to be a result of gaming the system, good government connections, and other unfair advantages. The balance of good and bad billionaires needs to be even, or ideally tipped towards good, for a society to thrive.

Sharma also points out that some of America’s wealthiest people, such as Warren Buffet, Donald J. Trump, and many a sneaker-wearing tech god, have succeeded in being ‘blue collar’ billionaires, able to speak and appeal to the masses despite the massive income inequality gap. In nations where the billionaires are dominantly bad, like Russia or Mexico, wealth creation is resented and it would be highly unlikely that a billionaire would run for office.

Ruchir Sharma's book is The Rise and Fall of Nations: Forces of Change in the Post-Crisis World.

  • Transcript

TRANSCRIPT

Ruchir Sharma: So let’s focus on good versus bad billionaires. What do I mean by this? The good billionaires in a country typically tend to be from industries such as technology, manufacturing, pharmaceutical. These are industries where it is all about that person’s skill and talent which is leading to this wealth creation. On the other hand, the bad billionaires tend to be from industries such a s real estate, mining. And what do I mean by that? In these industries a lot of the wealth creation is done by giving the system or by having good government connections. And I think that that any nation will have a few bad billionaires. But if you have too many bad versus good billionaires that is a problem. Now take the case of the United States. In the United States in fact the number of good billionaires far outnumber the number of bad billionaires in this nation.

And that is a good thing. Because even though the number of billionaires in this country is very large, even of the share of the total economy. But the fact that you have more good versus bad billionaires means that in general wealth creation is still respected in this country. So you have people like Bill Gates, Warren Buffet who are great philanthropists and so therefore they’re widely respected. Or you have the likes of the Mark Zuckerberg’s who create wealth by these kind of innovative applications, technologies and products. And that’s really what leads to them being respected as well. Now there’s the very interesting case of Donald Trump who we all like to speak about. There are a few people who would really dispute whether he’s really a billionaire. But I think let’s assume that he is one. And it’s true now that by the classic definition he would be a bad billionaire because a lot of the wealth comes from industries such as real estate and many people think he’s created this wealth by sort of being able to use government connections and other kind of unfair means.

But the good thing is that because in this nation there are more good than bad billionaires people still respect billionaires in general. There’s not a revolt against billionaires unlike Russia or Mexico. In those nations there is absolutely no chance that a billionaire would be able to run for office. That would be held against him or her. And the other good thing is that Trump has been able to sort of project himself as a blue collar billionaire. And I think that that is where it sort of gets interesting. That he’s able to project as someone who is again related to the masses, speak with the masses and that is why I think that he remains popular even though he is a billionaire whose wealth is arguably coming from not great sources and would typically be classified in the bad billionaire basket.