Our billionaire problem is getting worse. Any market-oriented economy creates opportunities for new fortunes to be built, including through innovation. More innovation is likely to take place where fewer rules encumber entrepreneurial creativity. Some of this creativity may lead to processes and products that are actually detrimental to public welfare. Unfortunately, by the time the need for legislation or regulation becomes apparent, the innovators have their billions – and they can use that money to protect their interests.

    This billionaire problem is not new. Every epoch, dating at least from Roman times, produces versions of it whenever some shift in market structure or geopolitics creates an opportunity for fortunes to be built quickly. Writing in the 1830s, as the Industrial Revolution gathered pace, Honoré de Balzac anticipated the broader social concern: “The secret of great fortunes without apparent cause is a crime that has been forgotten, because it was properly carried out.” Or, in the more popular paraphrase: behind every great fortune lies a great crime.

    Prominent historical examples include the British East India Company, the Europeans who built vast fortunes based on African slave labor in the West Indies, and coal mine owners. All became rich fast, and then used their political clout to get what they wanted, including impunity for horrendous abuses. At their peak in the nineteenth century, railway interests held sway over many or perhaps even most members of the British parliament.

    The United States has long exhibited a particularly potent strain of the billionaire problem. This is partly because America’s founders, in their pre-industrial innocence, could not imagine that money would capture politics to the extent that it has (or that was fully apparent just a few decades later). Moreover, US leaders were long willing to let private enterprise take on new projects that elsewhere fell into the hands of the state.

    The German post office, for example, built one of the most extensive and efficient telegraph systems in the world. Samuel Morse urged Congress to do the same (or better). But US telegraph communication was instead developed privately – as was the telephone system that followed, all of iron and steel, the entire railroad network, and just about every other component of the early industrial economy.

    When the US government did become involved in economic activity, it was mostly to open up new frontiers – creating more opportunity for individuals and private business. In the aftermath of World War II, Vannevar Bush – a Republican who was also a top adviser to President Franklin D. Roosevelt – cleverly argued that science represented the next frontier, and hence constructed a winning political argument for the government to act as a catalyst.

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    © Project Syndicate

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