The wealth of Canada’s new billionaires is the result of speculation, subsidies, low interest rates, and leveraged investment. Money that could be used for the public good in this time of crisis is instead being hoarded by racketeers and profiteers.
Stewart Butterfield, cofounder of Slack and Flickr, saw his net worth rise $1.4 billion at the start of this year. (Drew Angerer / Getty Images)
Since March 2020, while hundreds of thousands of workers were left dependent on paltry unemployment support, and many were killed by cases of COVID contracted at their workplaces, the Canadian economy minted fifteen new pandemic billionaires. These new members of the plutocratic class emerge overwhelmingly from real estate, software, and commodity monopolies.
Because of a common cognitive distortion, the actual magnitude of a billion is not readily understood. People often conceive of a billion as just one number placement up from a million — and a million is already beyond the ability of our minds to properly comprehend. Here’s a little trick to help get some sense of the enormous difference between a million and a billion: one million seconds is twelve days, whereas one billion seconds is thirty-one years. The idea that any one person should command quantities of money that large is absurd.
The capital that underpins the status of Canada’s new billionaires is, across the board, an enormous waste of resources. In all instances, the hoarded wealth that has minted these new billionaires would be better spent on health care, education, and almost anything else. A new Oxfam report that catalogs the spike in Canadian billionaires during the last several years puts on display a grotesque and indefensible upward transfer of wealth.
Billions More for New Billionaires
When, in mid-2020, Canada suffered the deepest recession in its history, and hundreds of thousands were thrown out of work, the money that covered their livelihoods didn’t disappear. It went to Canada’s billionaires.
Much of that wealth was hoarded by the usual plutocrats: the Westons, Jim Pattison, the Irvings, Hal Jackman, the Zekelmans, and the like. But the pandemic also created fifteen new billionaires, with combined fortunes of almost $40 billion.
Free-market champions insist that allowing a tiny layer to hoard billions is what it takes to incentivize the best and brightest to transform our collective daily lives for the better. The genius entrepreneurs among us, so the thinking goes, will only be moved to invent wonderful gizmos and new approaches to production if they can earn a gazillion dollars. But this thinking presupposes that invention is a solitary, not collaborative, pursuit, and that entrepreneurs are actually inventing things. More often than not, they are not inventors — they are rentiers.
Growing Fat on the Public Dime
Aside from the ill-fated Nortel, Canada’s heavily subsidized tech sector has been remarkably unimpressive for decades. And the sector’s pandemic billionaires inspire even less confidence in their control over increasingly dubious enterprises.
For example, among the new entrants to the billionaire list are Grammarly cofounders Max Lytvyn and Alex Shevchenko. Combined, their net worth is around $8 billion, partially as a result of the company’s valuation rising to $13 billion as it drew in surplus capital from large institutional investors like BlackRock. Lest one think $13 billion is being wasted on little more than refurbished spell-checking software, the company’s CEO has claimed its rising cap will allow it to focus on “tone.”
Flickr and Slack founder Stewart Butterfield also saw his net worth rise $1.4 billion at the start of this year. Butterfield suggests that social media apps like Slack could spur a big change in “what we are as a species” and, perhaps, even other species: “If snakes had our technology, then we would be toast.” In spite of the potential threat of tech-savvy serpent overlords, Butterfield is cavalier about the fact that, in his quest to supersede email, his enterprises simply take advantage of software that is “essentially free.”
Ryan Cohen, the founder of the pet-food e-commerce retailer Chewy, also joined the list this year, with a reported net worth of $2.1 billion. Reflecting on the company he sold to PetSmart, he told Forbes: “I saw an opportunity to differentiate from the pack and convert fanatical pet parents, like myself, into die-hard customers. Our customers got the local pet store experience with the convenience of shopping online.” Since he cashed in on his digital pet-food fortune, Cohen has taken on Bed Bath & Beyond as an “activist investor” and become CEO of GameStop.
PokerStars cofounder Mark Scheinberg, as one of the world’s most prominent “gambling entrepreneurs,” also made the billionaire list. These days, the online gambling impresario makes most of his money from shares in the Ritz-Carlton Yacht Collection and a chain of Toronto and Madrid hotels.
All told, these billionaires are hoarding over $10 billion.
But there may be storm clouds ahead for these tech titans. The Financial Post notes that Canada’s “tech bubble” is showing signs of weakness. Its players “are about to find it more difficult to raise money to finance their rapid — and often unprofitable — growth strategies.” Throughout the pandemic, these firms had a “great run” drawing in public and private money, but, as the Post notes, higher interest rates and fewer subsidies will likely dampen spirits in the tech sector.
Canada has one of the world’s largest housing bubbles, with home prices having risen by 375 percent in the last two decades. During the pandemic, speculative housing investment went through the roof.
Much of the wealth accrued by these billionaires owes to money flowing away from useful investment.
Claridge Homes CEO Bill Malhotra, the Ottawa region’s wealthiest real estate developer, made Oxfam’s list. Much of his company’s brand relies on recommissioning old government buildings to create hip, craft-beer pubs for the upwardly mobile in gentrifying neighborhoods. Reportedly, he has a net worth of $1.2 billion.
Asked about the secret of his success by the Ottawa Citizen, Malhotra said: “The market has been on my side and timing has been on my side. Better still, the banks have been on my side and it is a most beautiful thing.”
Another new addition to the billionaire list is Colliers CEO and FirstService founder Jay Hennick. Hennick first emerged on the real estate scene as a manager of residential properties with the motto “Creating value one step at a time.”
While acknowledging that it operates a “thin-margin business,” Hennick says that his firm has been kept afloat by its brokerage business. That, he said, “is a little more cyclical, it rises and falls with the changes of real estate, it’s impacted by real estate, but again, the diversification of this particular company gives us the advantage of ebb and flow with the changes of the market.”
Other new finance and real estate figures on the billionaire list include Naomi Azrieli of the Azrieli Group with $1.5 billion, “angel investor” John Phillips with $1.1 billion, and crypto-currency speculator Changpeng Zhao with $17.4 billion.
Combined, these billionaires are hoarding over $20 billion. But these fortunes rest on shaky foundations.
Profiting Off Inflation and Sweatshops
There are a few new billionaires who collect their wealth from firms that produce tangible things. This does not mean, however, that their profiteering is any more beneficial to the public interest than their tech and real estate confreres.
For example, the list includes Spin Master cofounders Ronnen Harary and Anton Rabie. Together, they represent $2.2 billion. While Rabbie claims that his life’s work is about “helping others achieve greatness,” numerous reports have linked his enterprise to dangerous sweatshop labor and other human rights violations. Since 2020, the company has launched an acquisition spree, purchasing smaller toy companies. They have also embarked on a series of efforts to cut costs.
One of the only other new billionaires linked significantly to a tangible product is Michael McCain, CEO of Maple Leaf Foods, worth $1.1 billion. Through 2021, the firm’s revenues rose 5.1 percent, to $4.5 billion, and this year could be just as lucrative. While McCain acknowledged that ordinary Canadians face “terrible food insecurity,” he refused to query the widespread practice of hiking up prices. “The magnitude of these increases is such that it’s going to be very difficult to restrict putting prices up,” he said. Tellingly, he also noted that “food inflation is probably for the food retailing industry a friend and not an enemy.”
Another new entrant to the billionaire list is Augusta Gold CEO Richard Warke. The gold-mining company and Warke himself have found the pandemic quite lucrative. In part, this is thanks to rich people parking their money in gold to avoid inflation. Indeed, Augusta Gold’s most recent corporate presentation highlights plans to expand its mining operations to meet rising prices.
Yet Phillip Streible, chief market strategist at Blue Line Futures, told Reuters a correction is likely coming. “There’s no safety trade anywhere, so gold will be liquidated,” he said. “There’s a massive correction going on, and when volatility gets that high, you can’t find safety or comfort anywhere.”
The Melt-Up and Oligopolies
While it makes sense that food and entertainment would see increased sales during lockdowns, much of the wealth accrued by these billionaires undoubtedly also owes to money flowing away from useful investment. At various times during the crisis, economists warned of a “melt-up” — a speculative frenzy typically seen when there are no clear, sustained guaranteed returns in the real economy. The Financial Times called it the “everything rally.”
The efforts of central banks to flood markets with cheap money failed to prompt hiring sprees and productive investments, instead prompting speculation on junk bonds, energy stocks, hotel stocks, airlines, Bitcoin, and gold. This behavior has driven up housing prices, bitcoin prices, and hotel stock prices, and, in the short term, made a few people very rich.
Meanwhile, actual manufacturing activity is at a seventeen-month low, and workers face persistent underemployment. And the schools, hospitals, and critical infrastructure used by the working majority continue to deteriorate.
Outside the orgy of investment in speculative bubbles, the enormous fortunes enjoyed by Canada’s other billionaires owes itself not so much to their competitive edge but to a lack of competition in general. Back in 2018, the Financial Post admitted that Canada’s economy is dominated — sector by sector — by long-standing oligopolies. This, the Post observed, is “great for investors.”
Globalive CEO Anthony Lacavera likewise noted in his 2019 book, How We Can Win: And What Happens to Us and Our Country If We Don’t, that
six companies dominate the Canadian banking industry. Four companies dominate the internet-service-provider market. Three companies dominate English-language television broadcasting, the supermarket industry, and wireless telecommunications. A duopoly dominates the airline industry. And so on. Oligopoly players are fat and happy.
There are many causes for the preponderance of monopoly power in the Canadian economy. Across the board, the overwhelming presence of monopoly helps to ensure that more and more wealth is concentrated in the hands of fewer and fewer people.
What to Do With Ill-Gotten Fortunes
In all cases, the wealth billionaires hoard is wealth not invested in production or socially useful projects. And in the case of the new billionaires — where money has gone to app designers and dog food e-tailing magnates — the opportunity cost to the broader social fabric is particularly pronounced.
Again, according to the report, Canada’s billionaires have seen their wealth rise $111 billion, to $307.9 billion, since March 2020. By contrast, Oxfam estimates that it would cost just $27.8 billion to provide the world’s population with COVID-19 vaccines.
The entire cost of Canada’s health transfer payments to the provinces did not rise above $45.5 billion last year, even while hospitals remained overwhelmed by patients after years of underfunding. Indeed, as Oxfam notes, the COVID-19 support for unemployed workers, despite media hysteria, only actually cost $109 billion. Education in Canada is funded to the tune of roughly $56 billion per year. This amounts to about one-sixth of Canadian billionaire wealth.
These billionaire pandemic profiteers are squatting atop modern-day dragon hoards that should be expropriated. In most cases, the owners of these fortunes are facing headwinds in the form of market volatility and rising interest rates. This money would be better redirected toward any form of social investment where it could actually accomplish useful ends and enjoy protections from the capricious fluctuations of the market. In particular, Canada’s threadbare education, housing, and health care systems surely could use the money.Original post