Wealth Secrets, three years on

“I do not understand what this book is supposed to be,” said the New York Times, in its review. Neither did my publishers, placing a book about income inequality in the self-help section of bookshops.

And, to be fair, I was soon at a loss myself, even though I wrote it. I intended the book as satire, which the Telegraph reporter who came to interview me during a layover in Amsterdam clearly understood.

But in his writeup of our interview, he decided to play it straight, and the book’s rather shocking suggestions on how to get rich became a series of chatty tips.

“If you can’t beat ‘em, join ‘em,” I thought, and on my personal website, I began pitching the book as a series of rags to riches tales.

So what was the book supposed to be?

Three years on, that is a lot easier to explain, because a lot of very clever people have started to say similar things, more clearly than I did.

At the time I wrote Wealth Secrets, most of the talk about income inequality focused on Thomas Piketty’s insights regarding capital accumulation and inherited wealth.

But Wealth Secrets was about another source of inequality: what economists call “rent seeking.” Rent seeking is the pursuit of monopoly profits for monopoly’s sake. While most pursuit of profit tends to enhance the wealth of society, rent seeking is unproductive, detracting from economic progress.

Wealth Secrets attributed much of the recent growth in inequality in the US and UK to rent seeking, particularly in the financial and technology sectors – and more broadly, argued that many of the world’s most extreme fortunes were attributable to rent seeking of one kind or another.

As the Nobel prize-winning economist Angus Deaton put it, in the spring of 2017: “A lot of the inequality in the U.S. comes from rent seeking. It comes from firms and industry seeking special protection or special favors from the government.”

Another Nobel Prize winner, Joseph Stiglitz, chimed in: “This increase in market power helps explain simultaneously the slowdown in productivity growth, the sluggishness of the economy, and the growth of inequality — in short, the poor performance of the American economy in so many dimensions.”

In the autumn of 2017, a political scientist and a lawyer published what one might consider the serious version of Wealth Secrets, a book called The Captured Economy. The book focuses on rent seeking in finance, technology, occupational licensing and real estate.

But perhaps the most notable opinion shift in favor of a Wealth Secrets view has been in regard to the technology sector. In 2015, Wealth Secrets exposed the rent seeking behind the rising tide of tech fortunes. At the time the book was published, few would have described the sector as anything other than a great boon to the US economy.

Today, the technology sector is slowly morphing into a public enemy (as I predicted in a June 2016 article for the Harvard Business Review online). Mainstream columnists like Roula Khalaf in the Financial Times routinely rail against the monopoly power of the tech titans.

One journalist dubbed Facebook, Microsoft, Google, Amazon and Apple the “Frightful Five.” As I write, an Economist magazine leader on the topic of “How to Tame the Tech Titans” has just been published (subtitle: “The dominance of Google, Facebook and Amazon is bad for consumers and competition”).

That said, I would not say that the idea of rent seeking has yet gone mainstream. While rent seeking is a concept that appeals to economists, for most people, it does not make sense.

For instance, people on the left have led the charge against big tech, but usually seem to think that large profits are bad, no matter how they are made. People on the right have tended to defend big tech, assuming that when very clever people are working very hard, they must be contributing to the wealth of the nation – even if economic theory tells us that some business activity can be detrimental.

Moreover, even if one can agree that rent seeking is a problem, the solution is far from obvious.

Reviewing my book, Kirkus Reviews said Wealth Secrets was “sure to make libertarian heads explode,” probably because the reviewer felt that the problems identified in the book would need to be addressed via higher taxes.

But the authors of The Captured Economy have advocated the opposite approach to the same problem. They support libertarian solutions: removing the regulations that enable companies to dodge competition.

And they have a point. Most of the instances of rent seeking I talk about in the book involve businesses that exploited government regulation to create competitive barriers. And, according to Deaton, higher taxes do not really help, in that case: “I don’t think that rent seeking, which is incredibly profitable, is very sensitive to taxes at all,” he said.

Indeed, that was one reason I wrote Wealth Secrets as a satire: frankly, although I know rent seeking is a problem, I have no idea what to do about it.

So, what did readers think? In the US, many were disappointed. The US Amazon rating for Wealth Secrets has hovered between three and four; a lot of readers complained that the tips are hard to understand or difficult to implement – and they had a point.

I tended, unfairly, to play down the effort and cleverness involved in coming up with rent seeking strategies. While rent seeking is, by definition, unproductive, it is not easy.

In the UK, people liked the book a lot better – the UK Amazon rating has hovered close to a perfect five. The British like satire, I guess.

But my favorite reader response came from the Middle East, where I met a gentleman who wanted to start an Academy where future business leaders could be trained in Wealth Secrets methods.

Whatever I initially intended, his reading of the book is probably closest to what it actually is: a manual for success in a world of rent seeking.

Which, I am afraid, is increasingly the world we live in today.