WealthSpike: Wealth, Apple, zero-sum games, and family businesses

Does one person’s wealth gain lead to another person’s wealth loss? The common sense view would most likely say no – wealth creates more wealth, leading to a virtuous cycle and economic growth. At a more personal level – if Bill Gates wasn’t a multi-billionaire and the founder of Microsoft, would the person cleaning the toilets at Microsoft be better off? No, indeed, he or she would probably be worse off because Microsoft wouldn’t be around to find employment from, so creating fewer employment opportunities.

Nevertheless, the zero-sum argument around tax and wealth is a little bit more nuanced, or at least in some people’s eyes it is. If wealth is completely transferred over to the entrepreneur, employees and shareholders linked to the business without any tax being paid then the zero-sum argument on wealth might have some legitimacy. The winners are those connected to the successful business, and the losers are those outside of the business who gain no tax receipts and consequently have less money to spend on hospitals, schools and other public services.

This approach to wealth is very relevant to the ongoing saga around the European Union’s back tax demand from the tech giant Apple. The EU sees Apple’s tax position in relationship to Ireland as a zero-sum game – the winner has been Apple and the loser has been European citizens not working for Apple who have missed out in tax receipts to pay for public services.

Of course, a libertarian would argue the wealth created by Apple isn’t a zero-sum game even if it isn’t taxed. Successful businesses create more businesses, making society wealthier, without the need for governments to tax citizens and corporations in order to spread the wealth around.

To add to the complication around wealth and the zero-sum argument – what about inherited wealth, is there more of a zero-sum link to wealth when it’s passed down to one generation to the next? And here the arguments are especially of interest to family businesses.

It would appear that society is increasingly at ease with the notion of founder wealth – entrepreneurs making vast sums of money due to their tenacity, hard work, and innovation. Isn’t  the wealth created by Bill Gates, Mark Zuckerberg, and Warren Buffett generally viewed as virtuous by society?

If it is, that’s probably because there’s very little zero-sum game involved in the creation of their wealth, or least most of us feel that way. And another thing that makes their wealth more acceptable to us is that many of these founder billionaires pledge to give away most of their wealth in the form of charitable donations when they die. They appear to be little interested in creating dynasties – although Buffett has employed one of his sons at Berkshire Hathaway.

But when wealth is transferred to the next generation, society, in general, takes more of a zero-sum game approach to wealth – that view is contained in the old English pejorative adage: “born with a silver spoon in their mouth”. And, of course, such a view is of uppermost concern for family businesses, which are passed onto one generation to the next.  

Of course, a libertarian would see no contradiction in inherited wealth when it comes to the zero-sum view. Inherited wealth still needs to be spent and as such creates more economic activity as a result and more wealth. And that view is even more of the case for family businesses – which are not only spending more money through the surplus cash generated from their businesses but also creating more wealth through their company’s activities.

But here’s a thought to end with – are family businesses influenced by the idea of stakeholder values, i.e. the concept that all of us benefits from their activities, by concerns around the idea of the zero-sum interpretation of inherited wealth?