[Didier Jacobs] recently explored this issue in my paper Extreme Wealth Is Not Merited, and found that American industries that produce more billionaire wealth than average relative to their size share one of three characteristics:

• They depend heavily on the state whether through government procurement, licenses, or subsidies, and are therefore prone to rent-seeking. This category includes for instance oil, gas and mining, gambling, or forestry.
• They are plagued by market failures such as imperfect information, like finance, or by the combination of intellectual property and so-called “network externalities”, which create monopolies like those that pervade the IT industry and industries prone to fads like fashion and music.
• The billionaire wealth they have generated is largely inherited.

Building on that finding, I calculate that the billionaire wealth generated by these industries in excess of what other industries (considered here as competitive industries) generate represents 74% of America’s billionaire wealth.

The table below shows that the industries that are neither dependent on the state nor prone to market failures have a self-made “billionaire wealth intensity” (that is, non-inherited billionaire wealth divided by industry value added – a measure of industry size) of 3%. (So the self-made billionaire wealth we observe in the competitive industries equals 3% of annual production in those industries, or in other words you might say that it has taken 33 years-worth of production to generate today’s billionaire wealth in the competitive industries.) If the whole economy had produced billionaire wealth at that rate, the total American billionaire wealth would have been $427 billion in 2012 instead $1,626 billion, or just 26% as high.

USA, 2012	Value added (%GDP excl. government)	Billionaire wealth ($billion)	% self-made	Self-made billionaire wealth intensity (%value added)	Adjusted billionaire wealth4 ($ billion)
State-dependent industries1	24%	$298	69%	6%	$89
Market failure-prone industries2	26%	$711	88%	17%	$95
Competitive industries3	50%	$474	39%	3%	$186
Diversified wealth	n.a.	$143	61%	n.a.	$575
TOTALAVERAGE	100%	$1,626	68%	8%	$427

_{Sources: Author’s calculations based on data from Forbes and US Bureau of Economic Analysis. See Extreme Wealth Is Not Merited for methodological details and data for each industry.}

_{¹ Industries of the cronyism index, namely: casinos; forestry; defense; real estate and construction; ports, airports, infrastructure and pipelines; oil, gas, coal and mining; steel and other metals; utilities and telecoms. Although also in the cronyism index, banking is in the market failure-prone industries.}

_{² Industries prone to asymmetries of information, namely finance, health care services, and law, and industries prone to network externalities, namely IT, apparel retail, art dealing, broadcasting, motion picture and music, and sports.}

_{³ All other industries.}

_{⁴ Assuming that all industries had a billionaire wealth intensity equal to the self-made billionaire wealth intensity of competitive industries, namely 3%.}

_{⁵ Assuming that diversified wealth is invested in each industry according to its weight in GDP.}

There are, of course, all sorts of reasons why billionaire wealth intensity varies across industries, not all of which involve rents. However, Joseph Stiglitz counters that the very existence of extreme wealth is an indicator of rents. Competition drives profit down, such that it might be impossible to become extremely rich without market failures. Every good business strategy seeks to exploit one market failure or the other in order to generate excess profit. I discuss in my paper how some of these strategies are more or less harmful than others. While not all the excess billionaire wealth generated by state-dependent or market failure-prone industries may be due to rents, it is also possible that my figure underestimates the proportion of rent in billionaire wealth. After all, the perfect competition of economics textbooks rarely exists in reality and there must be many pockets of rents in what I call the “competitive industries” as well. Given the current state of research in the field, 74% is the best estimate of the proportion of US billionaire wealth derived from rents.

The bottom-line is that extreme wealth is not broad-based: it is disproportionately generated by a small portion of the economy. Economic theory predicts that activities that are prone to rent-seeking or market failures will concentrate wealth, and that is what we observe.

ARE BILLIONAIRES FAT CATS OR DESERVING ENTREPRENEURS?
http://www.populareconomics.org/are-billionaires-fat-cats-or-deserving-entrepreneurs/