What Lottery Winners and Tom Perkins Have in CommonBy
Tom Perkins, co-founder of venture capital firm Kleiner Perkins Caufield & Byers, is back in the news. Having infamously compared the rising antagonism toward the richest 1 percent in America to Nazi Germany’s assault on Jewish people, he followed up at a Silicon Valley discussion last week with the observation that high taxes and the social safety net (which, he said, led to births out of wedlock) are to blame for rising inequality in the U.S.
Perkins had a successful career as a corporate executive before he co-founded his VC firm. Given that he made the bulk of his money gambling on startups, he should understand the role that luck plays in wealth accumulation. For example, what if Kleiner Perkins’s first investment had been to plow $38 million into Segway, the personal transportation flop? Or $100 million in Fisker Automotive, which recently laid off most of its staff? What if the firm had backed solar panel manufacturer MiaSolé, sold to a Chinese clean-energy company at a huge loss? The venture fund did make all those investments—and, as a result, has had lackluster returns over the last decade (although Perkins hasn’t been involved in investment picks for a while). Indeed, Perkins wouldn’t have his soapbox today if his VC firm had been similarly unlucky in its early years—it probably wouldn’t have survived that long.
And, of course, Perkins had the chance to be a successful executive in the first place because he was born privileged enough to enter the Massachusetts Institute of Technology as an undergraduate in 1953, when a little more than 5 percent of Americans aged 25 to 29 had a bachelor’s degree. If he had been born in Liberia, perhaps to a single mother, all bets of billionaire status would be completely off. He surely worked hard, and took risks informed by smarts and insight, but he was incredibly lucky to start where he did and end up where he is now, with enough money for a classic car collection and a massive yacht.
Yet Perkins is far from alone in thinking he’s rich because he earned it and the poor are poor because they didn’t. Indeed, the view seems to be an almost unavoidable side effect of becoming wealthy. A study by British economists Nattavudh Powdthavee and Andrew Oswald released last week looked at lottery winners involved in a general survey of attitudes in the U.K. Comparing views before and after lottery wins, the economists looked at winners’ political allegiances and views toward income distribution. Those surveyed were asked if they agreed or disagreed with the statement “ordinary people get a fair share of the nation’s wealth,” and if they supported the (more right-wing) Conservative Party or the (left-leaning) Labour Party.
A win of just £500 (about $840) made survey respondents 5 percent more likely to change their vote to Conservative from Labour and significantly more likely to think that the current distribution of income was fair. The larger the lottery win, the bigger the impact on the respondents’ beliefs—even though their income rankings rose purely by chance. Considering that Perkins’s earnings from betting on tech startups are more than 1 million times the £500 that Powdthavee and Oswald found sufficient to shift attitudes, and since he did far more to earn his wealth than the lottery winners did, his views on redistribution aren’t surprising.
But the widespread sense among some of America’s most powerful people that incomes are largely the result of just deserts, rather than luck and accidents of birth, is a problem. For one, it turns them against programs that could make everyone—including the rich—better off. Entrepreneurs benefit from America’s comparatively generous safety net for company owners, such as bankruptcy laws that protect many of their assets. You might think that would make them sensitive to the need for a safety net for unlucky individual workers, too. But all too often it doesn’t, thanks to the attitude that poor people’s bad luck is their own fault. If we invested in worker retraining, made sure every child had access to decent health care and education from pre-K through college, and enabled people to move to where the good jobs are, not only would those children and employees be better off, America as a whole would be richer and more productive.
Perkins closed out his comments with a proposal that democratic influence should be distributed like it is in corporations—one dollar, one vote. He suggested later that the comment was a joke, but it highlighted a reason for optimism about the possibilities for greater equality of opportunity in the future. With America’s richest 1 percent now taking home 19 percent of national income, while 10 percent of Americans share slightly less than half of total earnings, it’s risible to suggest that “ordinary people get a fair share of the nation’s wealth.” Perhaps more people—even lottery winners—will begin to see that and start voting for politicians who are going to do something about it.