The Real Secrets to Billionaire Status

The moneymaking techniques today generating mega millions and more, the global business analyst Sam Wilkin is wittily making plain, almost all rest on schemes for defeating the forces of honest market competition.

Our wealthiest today, meanwhile, have amassed fortunes Benjamin Franklin could never have imagined.

These two phenomena related? Of course not. None of our contemporary billionaires started their road to riches in their local bookstore business book aisle. No one gets really rich reading how-to-get-rich handbooks.

So how do our billionaires make their billions? Business analyst Sam Wilkin offers up the real scoop in his new Wealth Secrets of the One Percent: A Modern Manual to Getting Marvelously, Obscenely Rich, a delicious — and insight-packed — send-up of the genre old Ben Franklin bequeathed upon us all those many generations ago.

Wilkin has a day job that helps uncover the real-life secrets he’s sharing. He’s currently serving as a senior adviser at Oxford Economics, a forecasting venture the Oxford University business school helped create in 1981. Wilkin used to direct business research at the venture, and these days he also advises at Oxford Analytica, a network of experts that extends geopolitical and strategic advisory services to a broad roster of global corporations and world governments.

Wilkin lives in both New York and Oxford. Too Much editor Sam Pizzigati caught up with him last month for an exchange on his new book — and our deeply unequal world.

Too Much: Behind every great fortune, Honoré de Balzac quipped back in the 19th century, lies a great crime. How might you edit that aphorism for today?

Sam Wilkin: Balzac was onto something. Most of the best wealth secrets from back in the age of the “robber barons” — Rockefeller, Carnegie, Morgan — would today be illegal.

The vast fortune of the Rockefeller clan, to somewhat oversimplify a fascinating story, was arguably built on cartels — not illegal at the time, but made illegal shortly thereafter. Pierpont Morgan’s “money trust,” which helped make Andrew Carnegie the world’s richest man, was constructed in part via interlocking directorships that were, shortly thereafter, outlawed.

A lot of what went on in the modern banking sector in the 2000s, and that to some extent still goes on today, probably won’t be legal five to ten years from now.

So, to update Balzac: “Behind every great fortune lies something that was not a crime when it happened, but probably should have been.”

Too Much: When did you first start suspecting that maybe sheer brilliance doesn’t explain why people can become fabulously wealthy?

Wilkin: Well, it all comes down to economics, so I suppose I came to this realization when I started studying economics some 25 years ago.

Competition ought, in most cases, prevent people from becoming fabulously wealthy. The way competition works, people copy the most successful people, and this rampant copying of leading products, business methods, and business strategies inevitably brings profitability down to earth.

Because of competition, it’s pretty hard, indeed probably impossible, to become marvelously rich just by being smarter than everyone else. After all, people don’t have to be as smart or innovative as you to copy what you’re doing. They just have to be able to understand what you’re doing and replicate it.

That means to get rich by being smart, you’d really have to be unbelievably smart, so smart that no one could even understand what you’ve done. Or so smart that you can come up with a new idea no one’s ever thought of, just as soon as people have replicated your last idea.

Not many people are that smart. In my book, I tell the story of LTCM, a hedge fund started by probably the greatest team of financial geniuses ever assembled. These geniuses had an amazing track record beating the markets, and two of them would go on to win the Nobel Prize in economics. They came up with new trading strategies that were spectacular breakthroughs.

But despite the unbelievably clever math involved, it only took other financial market players on Wall Street about two years to figure out what they were doing at their hedge fund, reverse-engineer the math, and crush LTCM in a way that was both tragic and kind of satisfying. Nobody likes a know-it-all.

Too Much: Much of what you write in Wealth Secrets of the One Percent revolves around a basic paradox of our current economic existence. Flacks for our fabulously rich love to laud the glory of competition. But real-life rich business people, as you detail, have always detested competition.

Wilkin: In our robber baron days, we had men suddenly starting to make fortunes larger than any had ever been made before, through businesses that typically operated as monopolies or near-monopolies. Then we had a political backlash, and the robber barons had to explain themselves to the public.

With what, in retrospect, now seems like refreshing honesty, the robber barons tried to argue that competition was bad.

“The man who puts up a second factory when the existing factory will supply the public demand,” Carnegie wrote, is “unnecessarily introducing heartache and misery into the world.”

Carnegie regarded “all money spent in increasing competition as wasted, and worse.”

Today, you’ll rarely find a captain of industry publicly belittling competition. Instead, the new monopolists like to claim that they face competition when really they don’t.

Google senior vice president Kent Walker, for instance, recently called European Union antitrust charges against Google “wrong as a matter of fact, law, and economics,” in part because companies have “many ways to reach consumers on the Internet.” True enough, companies can reach consumers in many ways, but Google in much of Europe still has a nearly 90 percent market share for Internet search.

The book Zero to One, by the PayPal billionaire Peter Thiel, came out just as I was finishing my book. At first I was annoyed, because Thiel says a lot of the same things I say about technology businesses, and he’s already a billionaire, so why does he need to make more money writing books?

But lately, I’ve come to appreciate Thiel, because having a billionaire saying the same things you’re saying tends to give your comments more credibility. And Thiel, to his credit, does not mince words.

“Monopolists lie to protect themselves,” he writes, “since they very much want their monopoly profits to continue unmolested, they tend to do whatever they can to conceal their monopoly — usually by exaggerating the power of their (nonexistent) competition.”

Too Much: The two most lucrative words in the English language these days, Wealth Secrets of the One Percent suggests, may be “intellectual property.” Why?

Wilkin: The most lucrative wealth secret — the most effective technique for defeating the forces of market competition — may well be the combination of intellectual property rights with technology business models. It’s so lucrative, in fact, that the technology sector alone accounts for a quarter of the 20 largest fortunes in the world.

Intellectual property rights — copyrights, brands, and especially patents — turn information into a product you can sell, a very strange product, profoundly unlike most other things that get sold in our economy. Information products can be replicated almost instantly and infinitely, at next to no additional cost. With a product that can be replicated at next to no cost, you tend to get monopolies.

In the book, I tell the story of how Bill Gates managed to get intellectual property rights protections applied to software, a major wealth secrets breakthrough. Software, like other forms of intellectual property, can be copied for next to nothing. But software also tends to create so-called “network effects” that reinforce the tendency of markets for information products to trend toward monopoly.

We do have, to be sure, many clever people in Silicon Valley. But cleverness on its own isn’t making these people rich. The economic characteristics of their industry — the natural monopolies this industry produces — are creating their great fortunes.

Too Much: You travel the business world, from New York to New Delhi, advising major companies and governments alike on the global economy. You must find yourself among 1 percenters — and 0.1 percenters — all the time. Do they know what you’re saying about them?

Wilkin: That’s one reason, I’ll admit, why I wrote the book as a somewhat tongue-in-cheek manual on getting rich, rather than as a polemic. I wanted to leave the book open to interpretation, not force my own views onto readers.

That said, I do expect that many of the one-percenters I meet through my work will probably understand my book’s underlying message. So I do sometimes worry how they’ll receive it. Two weeks ago I gave a speech to a corporation’s board of directors, and the CEO offered to buy a copy of the book for all the attendees. I am somewhat ashamed to say that I declined. I was worried about offending people.

Still, I do think that senior corporate executives are often more aware of the existence of unfair strategies to defeat competition than most other people. I recently wrote a short piece for the Harvard Business Review on the growing economic impact of wealth secrets, and it wasn’t the first such article that journal had published by any means.

Too Much: Most people who write about grand concentrations of private wealth either celebrate those fortunes or rage against them. You’re more likely to crack a joke. What makes humor so attractive to you?

Wilkin: Humor makes for a more fun and readable book. Another reason I use humor may be humility. I advise businesses on how to respond to economic and geopolitical trends. I’m not a theorist or a policy analyst, so I didn’t want to write a book advising how to change the world.

In the book, I’m writing what I know when I tell these stories about how people have used law and regulation to make vast fortunes. I’d be far less comfortable writing a polemic on what ought to be done about these fortunes.

But I did include in the book two chapters — on the Roman era and the robber barons — that serve as a warning about what can happen if wealth secrets spiral out of control.

In the chapter on ancient Rome, I argue that the tools used to create vast fortunes for people like Marcus Crassus eventually contributed to the fall of the Roman Empire. Don’t be too worried, though. As I point out in the book, in the years leading up to the fall of Rome, the parties were amazing.

Too Much: Anyone who writes a book about grand fortunes these days is writing under the shadow of the French economist Thomas Piketty. How does your emphasis differ from his?

Wilkin: Thomas Piketty concentrates on the aggregation of inherited wealth, already the main driver of income inequality in Europe. But, as he himself notes, most inequality in Britain and the United States is driven by differences in wages, rather than differences in wealth.

So that’s why I’ve focused on wealth secrets and the fortunes they produce.

I’m not saying that the aggregation of inherited wealth is not a serious issue. But I think that the rise of techniques that defeat market competition, and the possible political responses to them, are potentially more serious and immediate concerns.

Too Much: Anyone can read Wealth Secrets of the One Percent, your book observes at one point, as either a guide to great riches or a social critique of those same riches. Would you let one of your loved ones marry somebody who really saw your book as a guide to getting super rich?

Wilkin: Oh, absolutely. This is a book about making a rigged system work for you. I would be disappointed if some readers didn’t find their own flaws in the system and make themselves rich in the process.

And one thing that became very apparent as I was writing the book is that people who get rich using wealth secrets aren’t necessarily the bad guys.

Take an apparently open-and-shut case: Carlos Slim, the world’s second richest man, who was awarded a monopoly on telecom services by the government of Mexico. The OECD has calculated that by the mid-2000s high prices for telecom services were costing the Mexican economy nearly 2 percent of economic output each year. That’s an extraordinary high price to pay for one man’s fortune, and Slim tends to have a bad reputation as a result.

But it wasn’t Slim who was to blame. He won the auction for the telephone monopoly fair and square. And the Mexican government deliberately created the monopoly, because it knew that if it auctioned off a monopoly, the sale would raise more money.

Basically, the Mexican government auctioned off the right to exploit the Mexican people in order to plug a budget hole. That wasn’t really Slim’s fault, as far as I can tell.

So if you want to read the book as a guide to getting rich, I’m not going to assume that I have any right to criticize you. Especially if you’re going to be one of my in-laws and will be sharing the loot.