United for a Fair Economy
From Rich to Richer
Forbes Magazine likes to herald its reports on the wealthiest Americans as demonstrating the realization of the American dream: that one can go from rags to riches. For Forbes, the Horatio Alger story is the true story of America.
But careful identification of how Forbes' centi-millionaires and billionaires attained their wealth tells a different account of the plebeian origins of the richest Americans. Half of those on the Forbes 400 list started their economic careers by inheriting businesses or substantial wealth. Of these, most inherited sufficient wealth to put them immediately into Forbes' heaven. Only three out of ten on the Forbes list can be regarded as self-starters whose parents did not have great wealth or own a business with more than a few employees.
The data, then, do not support the assumption that the United States is a true meritocracy where the most able rise to their rightful positions. Nor do they defend the contention that the United States is structured so that authentic equality of opportunity prevails. Inheritances undermine the achievement-reward equation.
In 1995, it took only $340 million to break into to the Forbes 400. In 1996, the hurdle was raised to $400 million. By 1997, it was $475 million. The net worth of the wealthiest of the wealthy is increasing much faster than that of the rest of us.
Underlying Forbes' and others call for dramatically lowering taxes on the wealthy and decreasing or eliminating taxation of capital gains is the belief that we need wealthy people so that they can save, become entrepreneurs and provide jobs for the rest of us who are not as wise, energetic or risk-taking as they are. What proportion of the Forbes 400 established successful companies? Perhaps a quarter. We lack data on employment and other benefits of these enterprises.
Rather than concocting fables about our supposed "opportunity society," the editors of Forbes really ought to be examining the starting-gate advantages that the bulk of the Forbes 400 enjoyed. And while they're at it, perhaps they could delve into a few other questions: Exactly how does the great wealth of a very few benefit ordinary people? Do great concentrations of wealth block out opportunities for others to innovate? Do the consumption patterns of the wealthy distort the values and ambitions of many others? Are materialism and commercialism promoted by the display of enormous wealth? Is the power of big money corrupting political democracy?
S.M. Miller is Senior Fellow at the Commonwealth Institute and Research Professor of Sociology at Boston College.
Each year, Forbes Magazine releases its round-up of the four hundred wealthiest individuals in the United States. The list usually captures people's interest and leads to accolades for the prowess of U.S. entrepreneurs. Forbes Magazine usually indicates which of the four-hundred are "bootstrappers" ó folks who started with nothing yet rose to the ranks of the nation's wealthiest individuals.
But the Forbes analysis leaves many questions unanswered. Researchers at United for a Fair Economy were curious about where the Forbes 400 started life. How many grew up in families with no substantial savings or wealth? How many inherited wealth or companies ó and grew them into greater fortunes? And how many simply inherited their way onto the Forbes 400?
Baseball and making money are truly America's favorite pastimes ó and each October the publication of the Forbes list coincides with the post-season of America's great game. But how many of our wealthiest citizens actually started life in the batter's box and faced the pitcher? And how many started life on first, second or third base? How many were born crossing home plate and inherited their way directly onto the Forbes 400 list?
"Born on Third Base: The Sources of Wealth of the 1997 Forbes 400" examines the other side of the bootstrapper coin. Through extensive research, we examined the starting place of the 400 individuals and 50 families that Forbes highlights.
I. Summary of ResultsView Data
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United for a Fair Economy analyzed the 400 individuals and 50 families on the 1997 Forbes 400 list and grouped those listed into five categories borrowed from our national pastime. Those "born on home plate" inherited their way onto the Forbes 400. At the other end of the spectrum, those "born in the batters box" had no discernible special advantages. Keeping with the baseball rule that "the tie goes to the runner," the study team gave list members the benefit of the doubt. For example, if researchers couldn't be sure whether a member belonged on second or third base, they assigned him to second base. Initial analysis of the 1997 Forbes 400 shows:
42 % Born on Home Plate ó inherited sufficient wealth to rank among the Forbes 400. This percentage is higher than that listed by Forbes for inheritors. The reason: Forbes listed as "self-made" people who actually inherited substantial sums or property and then later built that stake into a greater fortune. One example is Philip Anschutz (1997 net worth: $5.2 billion) who is listed as "self-made" even though he inherited a $500-million oil and gas field.
6 % Born on Third Base ó inherited substantial wealth in excess of $50 million or a large and prosperous company and grew this initial fortune into membership in the Forbes 400.
7 % Born on Second Base ó inherited a medium-sized business or wealth of more than $1 million or received substantial start-up capital for a business from a family member.
14 % Born on First Base ó biography indicates wealthy or upper-class background that was to our knowledge less than $1 million, or received some start-up capital from a family member. Due to the study team's conservative coding rule, it is likely that some of those listed as born on first base actually belong on second or third base.
31 % Born in the Batter's Box ó individuals and families whose parents did not have great wealth or own a business with more than a few employees.
Between 1996 and 1997, the total combined net worth of the Forbes 400 increased from just over $476 billion to just under $624 billion –a gain of 31 percent. There was a 25% increase in the number of billionaires over this one year period.
Inherited fortunes are disproportionately represented in the top half of the list. There is a higher percentage of inheritors, those Born on Home Plate, in the top 50% of the list than the bottom 50% of the list.View Data
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II. ExamplesView Data
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The following is a list of some of the more well-known members of the Forbes 400 list and their origins.
Born on Home Plate
People Born on Home Plate inherited sufficient wealth to rank among the Forbes 400.
J. Paul Getty, Jr. ($1 billion) inherited the family oil fortune from his father.
David Rockefeller ($1.8 billion) is the grandson of Standard Oil founder John D. Rockefeller.
S.I. and Donald Newhouse ($4.5 billion each) inherited the nation's largest private newspaper chain plus Condé Nast Publications from their father in 1979.
Samuel Curtis Johnson ($2.8 billion) is the great-grandson of the flooring salesman who founded the floor-wax giant S.C. Johnson and Sons.
Born on Third Base
People Born on Third Base inherited substantial wealth in excess of $50 million or a large and prosperous company and grew this initial fortune into membership in the Forbes 400.
Kenneth Feld ($650 million) inherited Ringling Brothers Circus in 1982 when it was worth tens of millions.
Edward Crosby Johnson III ($1.7 billion) inherited Fidelity Investments from his father but was involved in growing it into the "pace car" of the mutual fund industry.
Walter Annenberg ($3.8 billion) took over his father's publishing business and took TV Guide national.
Michel Fribourg ($2.4 billion) inherited his family's Continental Grain Co. in 1944 and has reaped a bountiful harvest.
Born on Second Base
People Born on Second Base inherited a medium-sized business or wealth of more than $1 million or received substantial start-up capital for a business from a family member.
Forest Mars, Sr. ($3.3 billion) took over a small European candy business from his parents and invented the Milky Way bar.
Donald Tyson ($1.2 billion) inherited a small company, Tyson Foods, from his father in 1967 but then built it up into a substantial business.
Poultry magnate Frank Perdue ($825 million) inherited his father's egg farm and hatched millions in chickens.
The Born on First Base category includes individuals whose biographies indicate wealthy or upper-class background that was to our knowledge less than $1 million, or received some start-up capital from a family member.
Bill Gates' ($39.8 billion)parents were comfortable professionals and he went to private school and then Harvard University, but quit for better prospects. He and Paul Allen transformed their childhood fascination with computers into a global empire.
Ted Waitt ($3 billion) got financial help from his grandmother to secure a $10,000 loan and start the computer mail-order business that blossomed into Gateway 2000.
Bud Hostetter ($1.3 billion) got a $4,000 boost from his stockbroker father to start Continental Cablevision.
Born in the Batters Box
Includes individuals and families whose parents did not have great wealth or own a business with more than a few employees.
Includes individuals and families whose parents did not have great wealth or own a business with more than a few employees.
H. Ross Perot ($3.3 billion) was the son of a horse trader and born into a comfortable but not affluent family.
Wayne Huizenga ($1.7 billion) got his start by buying a garbage truck and starting a waste-hauling company. He took over the 19-store Blockbuster video-rental chain and built it into an industry leader.
John Werner Kluge ($7.8 billion) immigrated to Detroit with his mother at age 8 and was raised in a tenement. Started his $7.2 billion Metromedia empire after World War II by buying a radio station.
A. The Forbes Study and the Myth of Opportunity
With a few notable exceptions (Donald Trump springs to mind), most of the Forbes 400 are low-key about their wealth. Warren Buffet (number two on the list) reminded his Berkshire Hathaway shareholders at this year's annual meeting he had enjoyed a significant advantage simply by being born white and male at a time when opportunities for women and minorities were slim.
For the editors of Forbes, on the other hand, the Forbes 400 is a chance to roll out the age-old Horatio Alger myth that America is a land of opportunity for those willing to work hard enough. "Forget America's 50 families," the 1996 Forbes Magazine survey begins. "Forget old money. Forget silver spoons. Great fortunes are being created almost monthly in the U.S. today by young entrepreneurs who hadn't a dime when we created this list 14 years ago."
Don't forget old money too fast, though, according to Born on Third Base: The Sources of Wealth of the 1997 Forbes 400. Half of those 400 individuals and 100 families listed started their business lives with at least $50 million in family wealth or by inheriting a large company. This is what most people might call a "head start."
Forbes is right in one respect. There are dramatic cases of entrepreneurial success. In 31 percent of the cases family money and opportunity was unrelated to the listed person's attainment of wealth. In the language of America's pastime, these individuals were born in the batter's box and hit their own home run. Ross Perot would be an example, the son of horse trader, born into a comfortable but by no means affluent family. These modern day Horatio Algers, like the popular pulp novels of poor boys rising from rags to riches, come largely from the computer, communications and entertainment industries.
On the other hand, 42 percent of those listed were born crossing home plate, inheriting their way onto the Forbes list. They include familiar names like Rockefeller, Getty, Bass, and du Pont ó as well as descendants from founders of the next generation of retail fortunes like Wal-Mart and The Gap.
It is important to remember, in these billionaire boom days, that the key to great wealth in America still has more to do with what your father did for a living than your IQ, years in the workforce or level of education. Of course there are examples of mobility ó within the Forbes 400 or anywhere on the U.S. economic ladder. But these are the exceptions, not the rule. Americans do not have an equal opportunity to become wealthy.
The theory of economic mobility in the U.S. is that people move up the economic ladder over their lifetimes, shifting from one quintile to the next. However, a 1996 study conducted by economist Steven J. Haider from the University of Michigan's Population Studies Center found that there has actually been an increase in inequality in relation to lifetime earnings.
B. The Forbes Billionaire Boom in Context: The Asset Gap and Economic Anxiety
Behind the headlines proclaiming growing economic insecurity is the widening asset gap between "haves and have-nots." Many people's fear for the future is directly tied to "asset poverty" ó the inability of growing numbers of lower- and middle-income households to pay off debts, buy a home, build a retirement nest-egg or maintain financial reserves to weather a layoff or loss of income.
Meanwhile, at the top end of the U.S. socio-economic pyramid, wealth has concentrated at a dizzying rate. The percentage of wealth owned and controlled by the wealthiest one percent of households now equals that of the bottom 92 percent of the country combined.
1997 was a boom year for billionaires. Yet prosperity at the top is not trickling down to the bottom or middle. Key barometers of security for working families are declining. Twenty percent of U.S. households now have zero or negative assets. Personal indebtedness is at an all-time high, involving both home mortgage debt and credit card debt. Personal bankruptcies hit a new high every year. The number of households with savings and retirement security is dropping along with the opportunity for working families under 35 years old to purchase a home.
The true measure of economic security is not only the future of one's job, but the financial reserves one has to fall back on. Fewer households now have the financial net reserves to survive a loss of income. In Black Wealth, White Wealth, authors Melvin Oliver and Thomas Shapiro found that 50 percent of all households have less than six months of financial reserves to survive at the poverty level in the face of income loss. Over 83% percent of black households and 77% of Latino households are living on the edge with less than six months reserves. They are "asset poor."
This widening income and asset gap is in part the result of twenty years of public policies that enhanced the asset power of the wealthiest two million households at the expense of the security of the bottom two hundred million.
As a nation, we have been captivated by the "trickle-down" theory of treating asset-owners as the sole generators of wealth. This summer, Democrats and Republicans joined forces to cut the capital-gains and estate taxes while raising taxes on the bottom 20 percent of households.
Trickle-down theory, especially popular among the large asset owners of our nation, implies that government should do everything to lift the burden from concentrated private capital. Yet this over-emphasis on helping private capital has overburdened and impoverished the other partners in creating wealth: workers, communities, small savers, small businesses, and the natural environment.
C. Remedies to Reduce the Growing Gap
Unfortunately, the policy directions of the last twenty years have served to expand the assets of the nation's wealthiest 1% of the population while diminishing the security and opportunity of the bottom two hundred million. Taxes on income from assets have shrunk ó while taxes on wage earners, especially Social Security, have risen steadily.
Changing the rules to benefit asset owners at the expense of wage earners has distorted the incentives of our economy. Doing well in American society should be a function of achievement, not determined by birth. We are in danger of becoming an "inheriting society" rather than an "achieving society" ó as those who get an early ticket on the asset train pull away, with government help, from those who rely on their work for a living.
If we are truly interested in closing the widening gap between haves and have-nots in the U.S., we will need to reverse a generation of public policies that have tilted the rules in favor of large asset-owners. We need to be concerned with "leveling up" remedies that build a ladder of opportunity and close the gap by lifting the income and asset floor of society. These include public policies that make work pay a living wage, give people access to higher education without lifelong indebtedness and promote asset accumulation through savings, homeownership and retirement security.
It means removing barriers to free unionization and instituting fair trade agreements that don't pit U.S. workers against countries that outlaw unions, violate human rights and fail to protect the natural environment. It means expanding employee ownership of corporate America.
To close the gap we must implement a number of "fair play" policies. Income from going to work should not be taxed at a higher rate than income from stocks, bonds and investment real estate. Corporations should not be allowed to deduct excessive executive compensation that exceeds 25 times their lowest paid workers' salaries. Corporations should not be able to soak up hundreds of billions in "corporate welfare" just because they have the political power to extract it.
The most controversial but necessary remedies involve breaking up over-concentrations of income and wealth within the top 2-3 percent of the population. To enable the bottom 80 percent of the population to save and build assets, the tax burden should be shifted back onto the wealthy, particularly concentrated asset-holders. A tax on assets in addition to income could be deployed to reduce our national debt, a debt that was fueled in part by the 1980s tax cuts for the wealthy.
An opportunity society should be measured not by the great wealth of people who reach the Forbes 400 ó but by the opportunity for all people to attain economically secure lives. The celebration of riches at the top, and the public policies that enrich them, weakens the eroding ladder of opportunity for virtually everyone else.
IV. Methodology and Researchers
Members of the Forbes 400 were placed into five categories based on information from, among other sources:
Forbes Magazine (October 16, 1995; Oct. 14, 1996 and Oct. 13, 1997);
Joseph Fucini, Entrepreneurs (Boston: G.K. Hall, 1985).
Joseph Fucini, Experience Inc. (New York: Free Press, 1987)
John N Ingham, Contemporary American Business Leaders: A Biographical Dictionary (New York: Greenwood Press, 1990)
A. David Silver, Entrepreneurial Megabucks (New York: Wiley, 1985).
The Who's Who of America
Because accurate information was not available on the precise value of assets previously held by the family of a current Forbes 400 member, the study team took a conservative approach to categorizing the Forbes 400, assigning each member to the lowest category that the data would support. It is likely, then, that the analysis understates the number of Forbes 400 members who belong in the "Home Plate" and "Third Base" categories.
This study was researched by Marc Bayard, Charles Collins, Chris Hartman, Aaron Lester, Meridith Levy, and Tara Watson from United for a Fair Economy in Boston, MA; S.M. Miller, Commonwealth Institute, Cambridge, MA; and Paul Elwood, independent researcher, Cambridge, MA.
 Michael M. Phillips, Inequality May Grow for Lifetime Earnings, The Wall Street Journal, December 23, 1996.
 Edward Wolff, Top Heavy (New York: Twentieth Century Fund, 1995).
 Melvin Oliver and Thomas Shapiro, Black Wealth, White Wealth (New York and London: Routledge, 1995).
 Edward Wolff, Time for a Wealth Tax, Boston Review, February-March, 1996.