Meinung

Billionaire Economics is Driving the Tech Paradigm Shift

The combined wealth of all billionaires is bigger than the GDP of Japan. They drive a secular valuation boom in disruptive technology and health care innovations.

Myret Zaki
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Recently, I was intrigued to see two billionaire investors that were strongly recommending Tesla’s shares – only a week apart and on the same CNBC show.

Chamath Palihapitiya, CEO of Social Capital, gave a bullish talk on Tesla on October 6. Ron Baron, founder of Baron Capital, even outbid the former on October 14. The stock price of Tesla gained 12% over that seven-day period (after gaining 328% since January).

That may signal how «market-moving» investment moguls are. The billionaires' recommendations, which were also relayed by Business Insider, sounded like the ultimate buying argument. Nothing new here: billionaire ambassadors have always been powerful prescribers. Yet the biggest debacles were also the deed of some of them, as illustrated by Masayoshi Son’s sour investment in WeWork.

Still, billionaires have never been stronger: not only are they the major investors, but also the major shapers and disrupters of the economy. They stand at the peak of a wealth pyramid in which eight of them own as much wealth as 3,6 billion poor people combined. During this Covid crisis, billionaires are the only ones who actually got wealthier.

Tech is the great differentiator

But not all of them. The key differentiating factor is technology. Tech has drawn the line between success and stagnation. Tech billionaires’ total wealth rose 43,5% since 2018. Similarly, healthcare billionaires’ wealth grew by 50,3%, helped by drug discoveries, innovations in diagnostics and medical technology.

Those active in industries that managed to use technology to change their business models, products and services are the ones whose wealth shot up, while the wealth of those in more traditional industries actually fell, says a recent UBS/PwC report.

«Billionaires on the wrong side of economic, technological, societal and environmental trends are becoming less wealthy», states the UBS/PwC report. That is a radical change of pattern. During the last decade, all billionaires got wealthier, regardless of their sector; until tech became the game changer. Flush with cash, those disruptive billionaires are now riding the paradigm shift of the coming decade, investing in digital transformation, demographics and climate change.

Another interesting feature is that the world of billionaires has become a crowded space like never before in modern history. It is therefore intensely courted by private banks and family offices. Even plain asset managers rebrand themselves as «multi family offices» to attract them.

But they are no easy catch, as they are smart and demanding investors. This class of fast-growing billionaires is not a passive one, but an entrepreneurial class to be contended with in company creation, research and development, thought leadership and philanthropy.

There are more billionaires than ever

Thanks to major tech disruptions, cheap leverage and central banks’ constant support, the number of the 10/12-digit rich has grown fivefold in two decades. An historic acceleration, as can be seen in the following chart. As of 31 July 2020, there were 2189 billionaires across the world, up from 2058 in March: 131 new billionaires were added in just four months, thanks to the March-July market rebound.

Inside the billionaire-ecosystem, significant discrepancies can be found: the club in the 50-100 billion-$-bracket is light-years away from the 1-10-bn-$-club in terms of power, influence and investing capacities. Inside the very select 50-100 billion $ group itself, competition is on the rise, as each individual’s access to the corridors of power is all the more effective as there are less contenders. Similarly, too much capital chasing too few quality projects is a challenge.

But the 50-100 billion-$-club makes the difference, even in politics. Tech giants, the new «Big Five», are now a major lobbying force in the US and EU. «The giants of Big Tech such as Google, Amazon, Microsoft, Facebook and Apple are among the biggest individual corporate lobby spenders in Brussels», explains a recent report by Corporate Observatory Europe.

A combined €21 million was spent on lobbying in the EU in 2018/19. «The tech giants keep finding themselves in hot water with policy-makers and seem to have responded by increasing their lobby spending», notes the report.

In the United States, the GAFAM (Google, Amazon, Facebook, Apple and Microsoft) spent $50 million in 2017. This is meaningful as their capacity to influence legislation is decisive to their future wealth. Over ten years, Amazon, Facebook, Microsoft, Netflix, Apple, and Google have managed to avoid the equivalent of $100 bn in taxes, according to Fair Tax Mark.

This profusion of new billionaires, especially in tech, also illustrates the power of monetary policy to redistribute wealth through central bank asset buying: as billionaires are by far the most invested in markets, they profit disproportionately from quantitative easing policies.

According to Goldman Sachs, the richest 1% of Americans now account for more than half of the total value of equities owned by US households. As an additional bonus, most mutual funds have concentrated their recent buying in Nasdaq stocks, pushing Tesla, Nvidia, Paypal, Amazon or Netflix to new record high market capitalizations, and all the more favoring tech billionaires.

All sectors included, as of July 31, total billionaire wealth stood at $10,2 trillion, which makes this group the equivalent of the world’s third biggest economic power, if their wealth were combined.

In conclusion, this analysis points to concentrated, tech-driven industry transformations ahead. These are to be expected in areas where business innovators and disruptors are deploying technology for competitive advantage across all sectors. Ventures in the tech, and tech-disrupted healthcare and industrial sectors are growing the fastest since 2018 and accelerating this year.

New billionaires will be born from emerging technologies. As the UBS report predicts, «From AI to 3D printing, from nanotechnology to biotechnology, there is a wealth of emerging technologies that scientists and serial entrepreneurs are just beginning to apply, to develop radically new products and services, as well as to leapfrog incumbent businesses».

Time for a new catch phrase: follow the billionaires?

Myret Zaki

Myret Zaki started in 1997 as a junior analyst in a Geneva private bank where she learnt the basics of equity research, before joining the daily newspaper «Le Temps» in 2001, where she was in charge of the finance section for 9 years. When the financial crisis broke in 2008, she wrote the investigative book «UBS, am Rande des Abgrunds» (originally published in French as «UBS, les dessous d'un scandale»), for which she received the Schweizer Journalist prize. She joined «Bilan» magazine in 2010 where she became Chief Editor from 2014 to 2019. Between 2010 and 2016, she wrote three other bestselling books, about Swiss banking secrecy, the end of the Dollar reserve status, and the rise of the shadow banking system. She has a Political Science Bachelor from the American University in Cairo and an MBA from the Business School of Lausanne. She is now head of the Communication faculty at the School of Journalism and Media in Lausanne.
Myret Zaki started in 1997 as a junior analyst in a Geneva private bank where she learnt the basics of equity research, before joining the daily newspaper «Le Temps» in 2001, where she was in charge of the finance section for 9 years. When the financial crisis broke in 2008, she wrote the investigative book «UBS, am Rande des Abgrunds» (originally published in French as «UBS, les dessous d'un scandale»), for which she received the Schweizer Journalist prize. She joined «Bilan» magazine in 2010 where she became Chief Editor from 2014 to 2019. Between 2010 and 2016, she wrote three other bestselling books, about Swiss banking secrecy, the end of the Dollar reserve status, and the rise of the shadow banking system. She has a Political Science Bachelor from the American University in Cairo and an MBA from the Business School of Lausanne. She is now head of the Communication faculty at the School of Journalism and Media in Lausanne.