“Slim” Pickings?

In a follow-up to the previous blog on the need for clearer privatization and stock market rules and better corporate governance in China’s new multi-billion businesses, I’d like to mention this interesting Foreign Policy article. The article focuses on Carlos Slim, the owner of Mexico’s telecommunications giant Telmex, who is the world’s richest man with the net worth equivalent to whopping 6.6 percent of Mexico’s GDP. But it also explores the broader global trend of the emergence of super-rich in developing countries.

In 1990, there were only a handful of multinationals based in emerging-market countries on the Fortune 500 list of companies; in 2006, there were 52. Their influence and wealth are growing by the day—and not just within the developing world. … The 10 Mexicans on Forbes’ billionaires list in 2007 had a total net worth of $74.1 billion, almost three times the $24.9 billion that Mexican Forbes billionaires had in 2000. Mexico is certainly not alone; the aggregate wealth of a country’s billionaires as a percentage of GDP is even higher in Chile, Kuwait, Malaysia, Russia, and Saudi Arabia. The number of Indian and Chinese billionaires on the Forbes list nearly doubled during the past year.

A troubling aspect of this trend is that those emerging billionaires often came to their riches through liaisons between big business and less-than-transparent governments:

A study published last year showed that half of the billionaires in Mexico benefited in some way from the privatization process of the 1980s and 1990s. Indeed, the success of Slim and other new billionaires often seems less attributable to their skill as businessmen than to their bona fides as politicians. In many cases, their true savvy was to move quickly when opportunities presented themselves and to cultivate the connections among bureaucrats, regulators, and politicians that they needed to take advantage of economies that were either in transition or changing fast.

It is no wonder that such questionable mechanisms for wealth generation are often equated with a failure of free markets. But in fact the problem frequently lies in insufficient market reforms. The initial liberalization a la Washington Consensus in many developing countries was not followed by in-depth institutional reforms that would ensure transparency and accountability in business and politics alike. As long as murky privatizations and unclear connections with public officials prevail as the dominant mode of acquiring personal wealth, no level playing field exists for entrepreneurs to pursue their innovative visions and for businesses to compete on equal footing. If markets “work” only for select few, then no real market economy exists.