The Corporate Law Group

The Self-Made Score

The Self-Made ScoreForbes recently published its annual list of the 400 wealthiest people. We suggest you don’t put a whole lot of credence in this sort of thing. Any list like this is subject to all sorts of manipulation. Chuck Feeney (the billionaire founder of Duty Free Shops, not the former SF Giant’s batboy and President of MLB’s National League) was included on lists like this years after he had secretly given away most of his fortune to a charity he formed. (We recommend the book about Feeney; The Billionaire Who Wasn’t, by Conor O’Clery (2007)).

The thing we found most interesting in the Forbes list is the inclusion of a “Self-Made Score” which started last year and purports to rank to what degree the fortune is self-made. Forbes columnist Agustino Fontevecchia described the Self-Made Score as follows: “We gave each member of The Forbes 400 a score on a scale from 1 to 10 — a 1 indicating the fortune was completely inherited, while a 10 was for a Horatio Alger-esque journey.”

The interesting thing is how many of those on the list have a very high Self-Made score. Those on the list with Self-Made scores of 10 include Bernard Marcus of Home Depot, Howard Schultz of Starbucks, and Isaac Perlmutter, who saved Marvel Comics and sold it to Disney for $4 billion. The top four are Bill Gates with an 8, Warren Buffet with an 8, Larry Ellison with a 9, and Jeff Bezos with an 8.

Also interesting is the movement on and off the list. Around 40 people dropped off and around 25 new ones were added, including 5 founders of Airbnb and Snapchat. This indicates that the Forbes list of billionaires is highly dynamic. No one on the list is named Carnegie or Vanderbilt and only one is named Rockefeller (with a Self-Made Score of 3). All three of these family dynasties from arguably three of the wealthiest people who have ever lived, are basically absent. This is proof that downward income mobility is alive and well and we should all feel bad for those billionaires who are now only hundred-millionaires.

This points to that fact that we have high income mobility. If you can still make a fortune then the free market is basically still working. It is still possible to become a billionaire during your lifetime if that is what you want to do. If anyone can become a billionaire then complaints about income levels become whiny and base. You want a different income level, then change it.

Unfortunately interference in the market is the biggest threat to income mobility, and we’ve seen a lot of that recently. More market interference means less opportunity and makes income mobility harder. For the last several years business starts are down, and without them we’ll have less innovation and fewer billionaires. Income inequality has increased with market interference. You want everyone’s income to be uniformly low; bail out more failed cronies, guarantee more loans to bad ideas, increase the regulatory yoke, make business harder, and you’ll prevent any more billionaires.