Why Is There Wealth Inequality?

It’s not a huge statistic but there is wealth inequality all over the US.  There is all over the world.  In some places, it’s because of caste systems or because one political class inflicts its will over another like in Venezuela.  In the US, it’s not as clear.  It troubles me because in the US, while we always have had different outcomes, the opportunities for getting wealthy are harder to see.

In the book “Alienated America”, a lot of people feel like there is no American Dream. This is sad. I understand why they feel that way.  The American Dream does live and you can find several examples of it.  The other interesting part about wealth in America is it is more fluid than other countries.  Once you earn a lot of money doesn’t mean you will always earn and have a lot of money.

One of the themes in my investing is to figure out ways to enable entrepreneurs to bring financial opportunity to people. This is one aspect of cryptocurrency that is really interesting to me.  There is untapped potential in that asset to bring light and efficiency to markets that are dark.  Bringing transparency means more people have more opportunity.

At the Chicago Booth Management Conference, I went to a panel on corporate boards.  One fact jumped out at me.  In 1996, we had double the number of public companies that we have today.  Double.  Let that roll in your mind a bit.

I invest in startups.  I am an accredited investor by SEC regulations.  People who aren’t accredited can’t invest.  If I wanted to invest in a private equity fund, or a hedge fund, or some other type of investment I can because I am accredited but that option isn’t open to other people simply because of public policy.  The policy is stopping them from assuming the risk to build wealth because why?

Now, non-accredited investors can only invest in the public market which is half the size it was twenty years ago.  It has also gotten a lot more efficient in the last twenty years.

Combine this with the fact that most startups are staying private longer.  Microsoft went public at less than a billion dollars in enterprise valuation.  All the startups that went public or will go public this year are doing so at valuations in the multiple billions of dollars.  The public missed out on all that growth.

When you hear about public company boards, you can see why companies stay private or go private.  The rules and regulations are a thicket of cover your ass.  Meetings are 2-3 days and can be 6-12 times a year depending on the industry.  Financial services company boards meet more often.  Often, entire half days can be chewed up going over legal regulations on things like human resources.  To a board member, it’s gobblygook.  But, the corporate attorneys force the company through this process because if they didn’t they’d get sued.  Most of the time, it’s not pertinent to the business or making more money for shareholders.  It’s so bad, one executive said they would never be CEO of a public company again.

Our government needs to change the rules.  We need more access.  We need more companies in the public, not the private marketplace.  We need to think in terms of “wealth opportunity”.