More than 100 years ago, J.D. Rockefeller became the world’s first billionaire — and changed our economy forever. Today’s richest people affect our daily lives, from the phone we use to the price tag on our lawn mower.
It’s been just over a century since American oil tycoon John D. Rockefeller became the world’s first confirmed U.S. billionaire.
Now he would find himself in good company among the 1,810 people in 67 countries who topped the Forbes magazine’s richest billionaires last year.
But luxury only money can buy isn’t just for billionaires in the modern economy. It’s about the top-quarter of the population who have done well, said Bob Guell, professor of economics. Those at the bottom three-quarters of the economic income scale have seen no inflation-adjusted increases in income, he added.
It’s not like Henry Ford, John D. Rockefeller or other historical entrepreneurs whose fortunes were made through hiring employees at wages that created what today is described as the middle class.
“Companies like IBM, 3M or Monsanto created a lot of pretty good jobs, because the old style of an entrepreneur making money required a lot of people whose wages helped them climb into the much-celebrated American middle class,” Guell said. “What billionaires like Jeff Bezos at Amazon or Mark Zuckerberg at Facebook have done is create a few very wealthy employees.”
The Pew Research Institute defines the middle class as households making between 67 percent and 200 percent of the state’s median income. In today’s dollars, that’s somewhere in the mid-$30,000 or mid-$40,000 up to $125,000, Guell said.
Then came Sam Walton and a basic logistics model that made Walton billions with Walmart and boosted the effectiveness of Walmart and other big box stores to get an item from the manufacturer to the consumer without employing a middle man.
“What Sam Walton did was entirely eliminate in-store inventory by just putting it all in the store, but that cuts out an entire wing of employees in the backroom,” Guell said. “He would buy a ton of already cut, packaged and priced meat, and the logistics ability was to get it into place and never have to have it in inventory and know from cash register to production line how much he needed.”
Ingenuity that made billions for Walton and his offspring left some workers out to dry.
“Now the Brigs and Stratton made lawnmower engines in Milwaukee in the ’70s can no longer make lawn mower engines paying middle-class workers in Milwaukee, so those jobs have to go to China in order for Walmart to sell a $125 lawnmower,” Guell said. “The televisions that used to be made in Bloomington and created middle-class jobs in Bloomington are gone. The middle-class jobs in Evansville making Whirlpool washing machines are gone.
“The non-college educated person who works hard and plays by the rules can’t have one income and a family and generate a middle-class income between $40,000 and $125,000. Without a college education, they’re going to be working in a service or retail job, and a food service job has never been enough to pull an entire family into the middle class.”
Times have changed and so has the way of getting rich. Take Amazon’s founder, chairman and chief executive officer Jeff Bezos, for example.
“The billionaire that is Jeff Bezos wants to take the job of delivering his products out of the hands of UPS, FedEx and the U.S. Postal Service and put it into the hands of automated, driverless cars and flying drones,” Guell said. “The billionaire mind says, ‘I need to hire programmers who can make drones that are self-loading, self-unloading and self-piloting while simultaneously obeying FAA rules.’ It doesn’t take a lot of people to do that.”
The new way to become a billionaire may not be to post “help wanted” signs, but the consumer-buying public isn’t necessarily worse off.
“Steve Jobs did not screw me by investing in this thing,” Guell said, holding up his smartphone. “And Walmart didn’t screw me by selling me a $125 lawnmower. They sold me what I wanted at the price I wanted.”
In doing so, places where much of the employee-base seeks to make things with their hands have struggled, including Terre Haute and Indiana, while states like California and New York have watched income disparities widen because the best jobs require only a few good, handsomely compensated minds.
And there isn’t likely to be a reversal in this trend, unless there’s a new type of thing that gets made with their hands, rather than with minds.
“The great, happiness-enhancing inventions of the last 15 years — smartphones, Facebook, Netflix — simply don’t require people working hard with their hands,” Guell said. “If you can get those items the machines are making delivered by other machines with claws, that means the only cost to the manufacturer or retailer are the purchase of the machines. Part of the reason eliminating employees has been the way to make money is because people are really expensive, and you’re only going to hire people when the only thing you can do is hire people.”
What the machine can’t do, though, is buy the goods it produces.
“That’s where the problem in this person-less world exists, because the only people who can afford the goods will be the minds who are creating the machines that are making the goods, like the software writer, designers and engineers. The only people for whom the once middle-class jobs will exist are the people who know how to fix the machine when it breaks,” Guell said.
“You’ll have that 20 to 25 percent of the population who does really well. There will be a much smaller middle class, and a lot of people who have to cobble together a bunch of part-time jobs while their incomes are dependent on how well the 20 to 25 percent of the population are doing. That is no prescription for social happiness.”
When there is a sizeable middle class as it existed in the ’50s-’80s, it creates a social phenomenon where people at the low end of the income scale are largely responsible for their status.
“But in a world in which you have a much narrower wing of well-to-do, it’s harder to say that people at the bottom are there because of things they did and they should just alter their direction. The thing is, they can’t,” Guell said. “That requires going from finishing high school to a graduate degree in engineering, and that’s a large leap for people. What we’ve done is create a system that allows those at the high end of the income scale to preserve for their children avenues to get to the higher end of the income scale.”
What that means for the average child growing up in the 21st century is that they need a great education and top-notch math and writing skills to make it into the middle class.
“Kids cannot be allowed to think they can’t do math anymore,” Guell said. “It needs to be that they may not be able to do math right now, but they will learn how to do math. Same thing with basic writing skills. Unless someone is extraordinarily talented in music or art, those skills alone simply won’t cut it.”
It has much to do, Guell believes, with a public school system that produces much less equal outcomes than it once did.
“In the 1950s, ’60s and ’70s, public schools used to be far more equally funded on a per child basis. So, if you went to the worst school in your community, you still had a pretty good shot of moving into the middle class, because it wasn’t that much worse than the best school in your community,” he said. “In a more equal education system, it was the hardworking kids that move up and the not-so-hardworking kids who move down. Your life was not dictated by the circumstances of your birth.”
Studies of a measure often used to predict child income at a certain age based solely on parental income at that same age have shown that the correlation between parental income and childhood income in the U.S. has gotten tighter.
“That means there used to be rich families that had children who ended up not being rich and poor families who had children who ended up rich. Anymore, that’s at least a lot less true,” Guell said. “The U.S. has gotten a whole lot less like ‘The Land of Opportunity’ that earlier generations grew up in.”