Explained (2018–…): Season 2, Episode 2 - Billionaires - full transcript

[narrator] Money is a little different
for a billionaire.

For a billionaire compared
to an average American,

a trip on a private jet is like
a New York City subway ride.

A Lamborghini is like a Little Tike car.

And buying a private island is like
a down payment on a house.

Billionaires aren't the 1%.

They're more like the .0001%.

What's the worst thing
about being a billionaire?

Nothing.

Nothing at all.

They can just make a call
and meet with a world leader.



At least a dozen are world leaders.

[in Spanish] ...better times are coming.

[cheering]

[narrator] There are roughly a hundred
billionaires in the Chinese parliament.

Billionaires are booming.

In 1987, there were
an estimated 140 billionaires.

In 2019, there are 15 times
as many billionaires

with almost 30 times more wealth,

totaling almost nine trillion dollars.

If today's billionaires formed a country,

it would be
the eighth wealthiest in the world.

It's an extraordinary amount of wealth
that these people hold

and they influence
so many parts of the world.

[narrator] That influence has made them
symbols of inequality and a rigged system,



fueling protests and
political movements around the world.

I think people are sick and tired
of living in a nation and a world

where so few have so much
and so many have so little.

[narrator] But many of these billionaires

made their fortunes by inventing things
that changed our lives.

Some more so than others.

So why are there
more billionaires than ever?

And are they good or bad
for the world?

[man] The wealthy enjoy
a life of ease and elegance.

[man 2] Money's too valuable to spend.

- Sold!
- [cheering]

The gap between the super rich
and the middle class

widens in dramatic fashion.

Well, I'm looking forward to
my next million.

[man] What will you do
with those extra dollars?

I build companies and I support people
who are building new things,

from social networks to rocket ships.

[Obama] There's only so much you can eat.
There's only so big a house you can have.

[man] What this country needs is
a little more Golden Rule

and a little less rule of gold.

I'm embarrassed to admit how long I have
been covering wealthy people.

[narrator] Luisa Kroll helps create

one of the most
popular billionaire rankings in the world.

Around 1981, at the time
that the list was started,

there were some obvious places
to look for wealth in the country.

Places like Texas where you have
the huge oil fortunes.

And then Silicon Valley where
tech was just starting to take off.

And then in New York City,

they literally walked around the city
figuring out who owned this or that.

[narrator] It turned out it's
incredibly hard to track down wealth.

Very few people thought
that they'd be able to pull it off,

but in the end, in September 1982,
they published the first Forbes 400.

[narrator] On that first-ever
wealth ranking

were 11 heirs of John D. Rockefeller.

He lived in the late 1800s
in the United States,

an era called the Gilded Age,

which saw the world's first-ever
self-made billionaires.

In today's dollars,
Rockefeller and Carnegie

are estimated to be
more than twice as wealthy

as the richest person in the world today.

This age was characterized not only
by this astounding wealth,

but massive corruption.

[narrator] Mark Twain coined
the term Gilded Age,

because while the wealth was glittering
on the surface, it was rotten underneath.

Carnegie, Vanderbilt, and Rockefeller
got rich from their political connections,

consolidating industries into trusts
and exploiting workers

and they were barely taxed.

Before this time,
wealth is hard to compare,

but to be extremely wealthy,
you probably controlled an empire,

like Augustus Caesar, emperor of Rome,

or Empress Wu of China

or Mansa Musa, ruler of the Mali Empire,

who controlled
one of the largest sources of gold.

His wealth was so legendary,

his image was printed on one of the most
important medieval maps.

But the Gilded Age tycoons made
their money a different way.

They founded successful companies.

What caused that massive
rise of wealth at the time

was the creation for the first time
of a continental-scale economy

in the United States
and the rise of major corporations.

[narrator] Like Vanderbilt's railroads,

which formed part of the more
than 200,000 miles of new track

that connected
the continent for the first time,

helping turn the U.S. into
an economic superpower.

And billionaires are booming today

because of an increasingly
global-scale economy.

And that's helped
the whole world get wealthier.

At a global level,
inequality has been declining.

This is mainly driven by the fact that...

some of the poor countries
are growing fast.

[narrator] And in the last few decades,

no country
has been growing as much as China.

China, 40 or 50 years ago, was a country

with the vast majority of people
in extreme poverty.

[reporter] The Communist government
is pursuing

what they call socialist modernization.

[Sachs] Extreme poverty
is almost gone from China.

Before 1978,
there were no Chinese billionaires.

[narrator] By 2017, China was minting
two new billionaires a week

and had the second highest number of
billionaires in the world after the U.S.

[Huang] Then it's not surprising to see
entrepreneurs become very rich,

accumulating wealth very, very fast.

[narrator] It's a similar story in India.

Their emerging economy lifted tens
of millions of people out of poverty

and created over 100 billionaires.

These are today's billionaires.

Even for them, there's a huge wealth gap.

The vast majority, 94%,

are worth ten billion dollars or less.

Five percent of them are worth
between 10 and 30 billion dollars

and one percent of the list
are mega-billionaires,

worth 30 billion dollars or more.

Yeah, I look at people and go,

"Damn, they have
so much more money than me."

Then I kind of catch myself
and say, "Shut the fuck up, you idiot."

[narrator] And while the tech industry
doesn't have

the most billionaires overall,

it's made the most mega-billionaires.

There's something called,
"Winners Take All."

[narrator] Digital products like websites
or apps don't take much manpower to build

and can instantly reach a global market.

There's a reason Google is synonymous
with searching the internet.

That's where more than 90%
of all searches happen

and its founders are the 10th and 14th
wealthiest people in the world in 2019.

Facebook has more users than
any other social media platform,

even excluding the ones they own,

and its founder is the eighth
wealthiest person in the world.

And almost 50% of all U.S. online shopping
happens on Amazon.

In 2019, Amazon's founder Jeff Bezos
was the richest man on Earth.

The celebrity billionaires
like Oprah, Kylie Jenner,

and Michael Jordan are low
in the billionaire rankings,

and none of them are on the list
for the work that first made them famous.

Michael Jordan made
90 million dollars playing basketball.

But his corporate partnerships
were worth about one billion dollars

and so was his ownership stake
in a basketball team.

He became a millionaire through his labor,

but he became a billionaire
by owning capital.

Capital is anything you own
that can make you money.

A house can be capital.

Stocks are capital.

Your likeness can be capital...

if you're Michael Jordan.

Patents are capital,
like for drugs or technology.

And copyrights, like for Mickey Mouse.

I grew up around Disney
and all that came with that.

You're not going to earn a billion dollars
pulling down regular income

and paying regular income tax on it.
Just not going to happen.

So ownership is what creates wealth.

[narrator] Most wealthy people make
their money like everyone else

through labor.

But the richer you are,
the less your income comes from labor

and the more it comes from capital.

The .0001% are
an exceptional example of this.

So, broadly speaking,
income produced in the economy

is shifted away
from labor towards capital.

That's the most basic underpinning.

[narrator] And that's because global
brands don't just have global markets.

They have a global labor pool

and increasingly no need
to pay for labor at all.

Take the textile industry.

A series of innovations transformed it
over the last two centuries.

Each one boosted productivity and profits.

Today, almost all garment workers

are in developing countries
where labor is cheaper.

And now machines are starting
to replace human workers altogether.

This is called the Sewbot.

It automates what once took
delicate hand dexterity

and can sew as many shirts per hour
as 17 factory workers.

This can lower costs for consumers

and bring more profits
to the owners of capital.

The ownership of capital,

particularly in the share ownership
of corporations,

is very highly concentrated.

Like the billionaire owners

of the global brands H&M,
Zara, and Walmart.

And once someone has capital like that,
it just grows.

Money just makes money.

It's like you put it in a room,
close the door

and it has sex,
and then more money babies grow.

That's kind of how it works.

[narrator] As Edgar Bronfman Sr.,
heir to the Seagram's fortune, put it,

"To turn $100 into $110 is work.

To turn 100 million dollars
into 110 million dollars is inevitable."

That's because if you
only have $100 in savings,

it's hard not to spend
and it's hard to invest.

But 100 million dollars
becomes 110 million dollars

if you let it sit in the stock market for
an average year without lifting a finger.

Very quickly, in a matter
of a couple of generations,

you're going to find yourself
with a dynasty or multiple dynasties.

And given the power of money
to control politics,

it's just not something
that we want to see.

[narrator] According to one estimate,

13% of billionaires
inherited their billions

and 56% are self-made.

But it's hard to draw
a clean line between them

because most people
who inherit money work to grow it.

That describes another
30% of the world's billionaires.

In 2014, we came up with
what we called a self-made score.

And it ranged anywhere from one,
which was where you inherited your money

and you pretty much
did nothing with it, you sat around

and, you know,
ate bonbons or what have you.

And then number ten were
the rags to riches story.

Someone like Oprah Winfrey
would fall into that category.

This year, we had Kylie Jenner
which was highly controversial.

She basically figured out a way
to monetize her Instagram followers

and her family's fame.

There is a new youngest
self-made billionaire.

However, some people think Kylie's title
needs to come with an asterisk.

When you don't get it
from someone else,

that's self-made.

[woman] If you're born on third base
and you hit a home run,

you're not really self-made.

[narrator] Other types of self-made wealth
are controversial too.

[Kroll] When we began to put
the Russian billionaires on the list,

the oligarchs, we weren't quite sure
what else to call these people.

[narrator]
Some people call them kleptocrats.

It's from the Greek kleptes meaning thief
and kratos meaning power.

It refers to politically-connected people

who get rich off a country's
natural resources.

That's what happened when
the Soviet Union fell in 1991.

Russia now has nearly 100
so-called self-made billionaires.

There wasn't a category for,
well, kind of helped

get these assets on the cheap by stealing
or colluding with the government

or whatever you want to call it.

Good and bad has to do
with how you obtain your wealth.

Do you obtain your wealth
at the expense of everybody else?

Or do you create additional wealth

creating great products
for the rest of the society?

These are two fundamentally
different ways of wealth creation.

[narrator] In the Gilded Age, billionaires
gave much of their wealth back to society,

like Andrew Carnegie.

[Carnegie] The public verdict
will then be...

the man who dies thus rich

dies disgraced.

He said it was actually a shame for
a rich person to die with their wealth.

That's why wherever you go,

you see Carnegie Institutes,
Carnegie Libraries, Carnegie Hall,

Carnegie Mellon University.

You see a legacy of giving back the money.

[narrator] That tradition continues today.

At least 200 billionaires
have signed the Giving Pledge,

vowing to give away
at least half of their wealth.

And they're doing things
that governments traditionally do

like fighting infectious diseases,

funding the construction
of Olympic facilities,

as several Russian billionaires did for
the Sochi Winter Games in 2014,

and ensuring college is affordable.

And my family is making a grant
to eliminate their student loans.

[cheering]

[narrator]
Or repairing critical infrastructure.

Where the state of Michigan
and the city of Flint have failed,

billionaire Elon Musk...

...is pledging to fix the water crisis...

...is vowing to get clean water
to every home in the city. Good for him.

[Disney] There was a lot of talk about
how we could just raise $55 million

among rich people and
fix the Flint water problem.

And I was ferociously against that.

There has been, of course,
a great deal of philanthropy and charity

and that's great,

but the problem here
is a structural problem.

You do not want our citizens
to be at the mercy

of private unaccountable individuals

who might or might not
fix the problems that you have

with your infrastructure,
with your governments,

with your basic human rights.

[narrator] Governments raise money
for these public services through taxes,

but in most wealthy countries,

individual's labor income is taxed higher
than their capital income.

So, already what the tax system
has decided to do

is to tax work at a higher rate
than it taxes ownership.

I don't have a problem writing
a check for more money. I really don't.

I'm not here to say that
I should pay 90% taxes

because then that's
going to change what I do

from investing in entrepreneurs
and investing in start-ups

and investing in philanthropy.

[narrator] And even if a country
increases its taxes on the wealthy,

in a globalized world,
that's hard to enforce.

I think the best analogy
for the offshore financial system is...

it's like an... an ecosystem.

It's a series of small countries,
sometimes large countries,

and they each carve out
a little realm of the law.

[narrator] Like avoiding income taxes.
That's a specialty of the Cayman Islands.

So you got a building
in the Cayman Islands,

one building,

which hosts, "hosts", 20,000 companies.

It's a postal address
that allows them to take advantage

of the Cayman Islands' tax breaks.

[narrator] For shirking corporate taxes,
you can go to Luxembourg

or the U.S. state of Delaware.

And for avoiding inheritance taxes,

one of the most popular spots is
the European island of Jersey.

[Harrington] The Cook Islands,
sometimes known as the "Crook Islands",

specializes in helping people
hide assets from creditors

and that's really all that they do.

[narrator] The world got
a glimpse into this system in 2016.

New revelations on how
the rich and powerful hide cash

are rocking countries around the world.

Now being called the Panama Papers.

Eleven million Panama Papers
to be precise.

It's a leak from a Panama law firm
called Mossack Fonseca.

These Paradise Papers, it's another leak...

...exposing how some of the world's
wealthiest and most powerful people

...hide their money in offshore accounts.

[Harrington] I think one of the...
big lessons was this rogue's gallery

of faces that came out of it.

It was this motley crew of
sports stars like Lionel Messi

and entertainers like Jackie Chan

and then Queen Elizabeth
and some members of the House of Lords.

[narrator] But the big shock came
when people crunched the numbers.

An analysis of Scandinavian countries
found that on average

most people avoid paying
5% or less of their taxes.

The wealthiest .01% don't pay about 25%.

In total, the equivalent of 10%
of the world's GDP

was stashed in offshore bank accounts.

That's trillions of dollars.

Russia was one of the worst hit.

The .01% stashed more than half

of their wealth in offshore accounts.

That's a lot of missing tax revenue
for public services...

or things like Olympic facilities.

And everyone who turned up
in these leaks likely got some help.

[Harrington] They're not sitting around
boning up on their yachts

on the tax code of the Cayman Islands.

Wealthy people hire folks to do that,

just like they hire folks
to clean and maintain their homes

or cook for them or nanny their children.

[narrator] Billionaires may be
the eighth wealthiest nation in the world,

but they're also, in many ways,
people without a nation at all.

With expert help,
they can pick and choose

the laws of whatever country they like.

Globalization has opened up all sorts
of addresses to hide the money.

[narrator]
This is known as Billionaires' Row,

an enclave of luxury high-rise towers
south of Central Park in New York City,

the city with the most billionaires
in the world.

And you see, in New York City,
these billionaires are buying

these luxury...
"Luxury" is the understatement.

These condos worth tens
and tens of millions of dollars.

[Lenz] Our average sale is
slightly over 18 million dollars,

and our average client

has a net worth in the hundreds
of millions to billions of dollars.

New York real estate is...
Is part of that global ecosystem

of hiding wealth from the law,

laundering money,
and doing all sorts of things

that really skirt the edges of legality.

[Lenz] People who wanted a store of value,

they wanted a safety deposit box
in the sky perhaps,

and they're buying property
to have their money secure,

perhaps away from their home country

where it may be taxed or taken or they
don't know what happens tomorrow.

[narrator] In early 2018,
72% of apartments that cost

more than 10 million dollars

were purchased using LLCs,

which often let the buyer
remain invisible.

You just have to set up an LLC or a trust

or an LLC owned
by another LLC owned by a trust.

So it would be almost impossible
for anyone to search out

who the ultimate owner is.

[narrator] And this is
just one reason it's hard to know

exactly where all the billionaires are

or how many there are,

or how many billions they have.

Governments don't track wealth
on a global scale,

so rankings like Forbes
are the best sources we have

and they're not reliable.

I think the Forbes 400 list

or any of the rich lists that get
published are highly misleading.

They are based on
publicly available information.

If an individual's
primary source of wealth

is stocks in a public company,

you just look up
the number of shares that they own,

multiply times the price
and if it's over a billion dollars, voilà!

But many people all over the world
are wealthy from other sources.

[narrator] For most billionaires,

around two thirds
of their wealth is private.

Billionaires may not even know
how much money they have.

Like the oil tycoon Nelson Bunker Hunt
once explained to the U.S. Congress.

Do you have any notion
of how much you're worth?

People who know how much they're
worth generally aren't worth too much.

[man] Well, that's...
You're absolutely right.

Once you buy an asset
that's not publicly traded,

it's really whatever you want
to value at.

There's people in the political arena
who've done that.

[Kroll] Donald Trump and his father
were listed on the very first Forbes 400.

And even in that very first listing,
there was a note that said

"They say they're worth 500 million."

[narrator] Entrepreneurs may want to be
on the cover of Forbes.

They have something to gain
from being known as wealthy,

but a lot of billionaires don't.

So even Forbes
acknowledges it underestimates

the amount of wealth in the world.

We always wonder just
how much wealth we're missing.

It's something that quite frankly
sometimes does keep me up at night.

[narrator] Back in the Gilded Age,

the first billionaires didn't
just give away their money.

The government stepped in.

[Sachs] The Progressive Era
began a new way of regulation,

breaking up the major trusts
like Standard Oil.

Teddy Roosevelt was famously
called the "trust buster" for this.

[narrator] In a globalized world, reining
in wealth looks a little different.

The European Union
has put tax havens on a blacklist.

But the results remain to be seen.

And in the U.S., politicians on the left
have started pushing

for much higher taxes on the wealthy,

which a majority of Americans agree with,

and even some billionaires do too.

I should be paying more taxes.

Should taxes on people like you be raised?

Of course.

The taxation system
has tilted toward the rich

and away from the middle class.
And I think it should be addressed.

The manner with which you accrue wealth

is a relevant public policy topic.

Morality...

that's their own thing.

That's between them and their priest.

[narrator] Our relationship
to billionaires is complicated.

We've made them celebrities
if they weren't already.

We've made them powerful.

And they do some incredible things
with their money,

sometimes more efficiently
than governments.

So it's not the individuals
that I'm worried about.

It is a system which allows this kind of
massive income and wealth inequality.

[narrator] That nation of billionaires
might soon be the richest in the world.

And while their money
might not live in one country,

we'll all live in theirs.

[theme music playing]