Bellerbys Economics - Mr Stephenson

Monday, April 24, 2006

Rich List

This weekend saw the publication of the annual UK Rich List and here are the top twenty:

1 Lakshmi Mittal
2 Roman Abramovich
Oil, industry and football
3 The Duke of Westminster
4 Hans Rausing and family
Food packaging
5 Philip and Tina Green
6 Leonard Blavatnik
7 Sri and Gopi Hinduja
Industry and finance
8 David and Simon Reuben
9 Sir Richard Branson
Transport and mobile phones
10 John Fredriksen
11 Charlene and Michel de Carvalho
Inheritance, brewing and banking
12 Kirsten and Jorn Rausing
Inheritance and investments
13 Bernie and Slavica Ecclestone
Motor racing
14 Mahdi al-Tajir and family
Oil, investments and water
15 Earl Cadogan and family
16 Joe Lewis
17 Russell De Leon and Ruth Parasol
Internet gambling
18= Poju Zabludowicz
Property and hotels
18= Sean Quinn and family
Quarries, hotels and insurance
18= Simon Halabi

It's easy to spot trends isn't it. Property is king. If you own property, you not only gain from increases in property values - which in the long-term always rise more quickly than GDP - but also from the rents gained on those properties. If you are lucky enough to own property in hot spots of economic activity such as the centre of London, property prices accelerate even more quickly. Once you own these assets, it's possible to then borrow more money against the value of these assets to invest in even more projects that generate profit. Not only that, but you can offer the value of your assets as surety against insurance deals through Lloyds of London and similar reassurance companies eg Swiss Re. Can you see what's happening here - the same asset (property) is gaining profit in FOUR different ways!!

The Duke of Westminster, by the way, owns most of central London (I bet you thought it was the government!) including the land on which Oxford Street, the West End, Mayfair, Belgravia, the Houses of Parliament and even Buckingham Palace stands. The Duke of Westminster doesn't play the board game 'Monopoly' - he IS the board game 'Monopoly'. Legend has it that this dates back to the time of William the Conqueror in 1066. The first Duke of Westminster was given the land by the king to say thank you for lending him his horse to go hunting. You can see now why it's important to be kind to your friends!

Secondly, there is indeed monopoly. The Lakshmi steel family have almost achieved monopoly-power worldwide on steel production AND distribution. This is partly because whole sections of the market are heavily-subsidised by national governments eg USA and France and are uncompetitive. Mittal's latest deal in Romania is currently being investigated by the EU - and his bid for Arcelor, the world's second-biggest steel company is being bitterly fought by the French government. Also, Mittal are a truly global enterprise - most of their production is in India and other developing countries with low labour costs - but most of their sales are to developed countries such as the USA, Japan and EU. Almost as an afterthought, Mittal recently bought about a third of the Chinese steel industry - including chunks of the two most famous names - Baoshan and Hunan - and gobbled up the Ukrainian industry. Lakshmi Mittal also spent £30m on his daughter's wedding and promised her a pension-for-life of £1m a year.

The Hinduja's have a similar tale to tell.

A third trend is oil - need I say more?

A fourth trend is the UK's very generous tax regime for foreign 'guests'. People live here in order to escape taxes from their own countries - also there is less business regulation in the UK than in many other European countries - also, we have a number of offshore financial centres, such as the Channel islands and the Isle of Man, where even the British rules of tax do not apply. Abramovitch, the Rausings are Blavatnik are examples of this. The two Russians are also an example of the growing influence of Londongrad - the community of 20,000 very rich Russians who live in London but whose businesses operate mainly in Russia. It's not unusual for many of these to leave their families in London and to commute to work from Mondays to Fridays - Moscow is only four hours away by plane.

Phillip Green is someone who it is quite easy to admire. Starting life by selling fabrics in a London market, he has worked his way up through the retail sector so that he now owns most of the clothing stores in the UK. Of course there are many different brand names - Debenhams, Bhs, Top Shop, Dorothy Perkins and so on - but they are all Phillip Green - a good example of the illusion of choice that we talk about in modules 1 and 5.

Notice also, the new influence of internet gambling. In 48 of the 50 American states, it is illegal to gamble, and Americans love to gamble - so they have turned to internet gambling. The first fortunes on the Internet were made from pornography, the second wave has been gambling. Most economists are predicting that the third wave will be drugs - legal drugs - as people turn away from expensive privatised healthcare systems and turn to self-medication by buying cheap but powerful painkillers and antidepressants produced in India, South Africa and Brazil.

I predict that the fourth wave will be Economics textbooks - invest in my company now while you still have a chance!!

Finally, if you think British people are rich, just look at this list of the World's richest people:

The Top Ten
William Gates
Warren Buffett
Carlos Slim Helú
Ingvar Kamprad
Lakshmi Mittal
Paul Allen
Bernard Arnault
Prince Alwaleed
Kenneth Thomson
Li Ka-shing

The last time I checked, Bill Gates was worth $50 billion. Carlos Slim Helu, by the way, owns most of the mobile and fixed-line phone companies evrywhere in South America - people love to talk!


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