THE month of December began with something to like: a post on Facebook in which its founder, Mark Zuckerberg, and his wife, Priscilla Chan, promised to use the vast majority of their vast fortune to support charitable causes. (More than 1.5m people responded with a thumbs-up.) In celebration of the birth of their first child, the pair announced the creation of the Chan Zuckerberg Initiative, which will eventually receive 99% of the shares they own in Facebook, a pile currently valued at $45 billion.

Mr Zuckerberg has already added to the lives of more than a billion people by creating an extraordinarily popular social network. Now he is compounding that good with an act of generosity that can only be applauded. Nonetheless, the donation—and others like it—raise two thorny questions. The first concerns how such a staggering fortune could ever have been accumulated; the second whether philanthropy can salve the sting of the increasingly unequal distribution of wealth that it exemplifies.

That the rich are getting richer, and the richest are getting richer fastest, is beyond doubt. Research* by Emmanuel Saez and Gabriel Zucman of the University of California, Berkeley, suggests that the share of American wealth held by the richest 0.1% of households rose from 7% in 1979 to 22% in 2012; that of the richest 0.01% (about 16,000 households, with average wealth in 2012 of $371m) jumped from 2% to 11%. Even the 1% of Facebook shares Mr Zuckerberg plans to retain is worth $450m—400 times the lifetime income of the median college graduate.

Economists worry about such highly unequal distributions of resources for reasons that go beyond questions of fairness. One concern is that as wealth concentrates, democratic societies will lose faith in the fairness of liberal, market-oriented government. That, in turn, could lead to political crises—a point made most recently by Thomas Piketty, an economist at the London School of Economics, in his book “Capital in the Twenty-First Century”. But another fear is that unequal wealth may be a sign of inefficiency, accumulated not just through economically beneficial innovation, but also by exploiting market power.

In recent years the gap between the haves and the have-nots seems to have grown among individuals in part because it has been growing among companies. A recent paper by Jason Furman, Barack Obama’s chief economic adviser, and Peter Orszag, a former lieutenant of Mr Obama’s now at Citigroup, a bank, notes that the return on investment at the most profitable non-financial firms in America is at record levels. It tops 100% for firms in the 90th percentile, compared with just over 20% 30 years ago. Returns at the most profitable firms are now about ten times those in the middle of the distribution; in the 1990s they were just three times larger. This gap has boosted the fortunes of their owners.

To some extent, outsize returns are the reward for innovation. Apple achieved its dominant market position thanks largely to the superiority of products like the iPhone. But the modern corporate landscape is a winner-take-all environment. Tech titans are often supported by network effects—the fact, for instance, that a social network becomes more valuable to potential users as the user base grows. Facebook’s users (like Uber’s drivers and passengers, and Amazon’s buyers and sellers) benefit from being on the same platform as everyone else. Consequently, Facebook’s technology and strategy only needed to be a bit better than the second-best social network to push it into the market-dominating position it now occupies.

Network effects may not be the only forces at work. Many businesses have become more concentrated in recent years: ten of the 13 sectors into which government statisticians divide American industry were more top-heavy in 2007 than in 1997. The biggest firms have not been bashful about buying up rivals. America’s pharmaceutical companies are in the midst of a trillion-dollar merger blitz. Facebook has acquired a number of popular social networks, such as Instagram and WhatsApp, turning their owners into moguls while defusing competitive threats.

One solution—to break up the tech behemoths—seems like an extreme response in an industry that evolves at lightning speed anyway. Incumbents argue that their dominant market position has been good for consumers. People love free e-mail and cheap music downloads, after all. But in some respects, Facebook and its ilk resemble utilities—the kind of firm whose profits are normally limited by regulation.

Spending review

Many will view donations like Mr Zuckerberg’s as a reason not to worry about the intense concentration of wealth, whatever its source. Gifts of extraordinary size are increasingly common, thanks largely to the efforts of Bill and Melinda Gates, whose foundation is supported by a $44 billion trust. Warren Buffett, America’s second-richest person, is a big donor, too. Messrs Buffett and Gates have so far recruited more than 100 billionaires to join them in pledging to give away most of their fortunes. If billionaires are giving money away, that is redistribution of a sort.

Yet extreme philanthropy, as laudable as it is, is no answer to worries about inequality. For one thing, it is hard to spend enormous sums both quickly and well. The Gates Foundation is among the world’s most ambitious charities. It chooses its donations carefully; as a result, the $5 billion it gave away in 2014 was less than the $7.4 billion it accumulated thanks to new contributions, investment income and rising asset values.

Mr Zuckerberg, Mr Gates and others seem to be doing their best to put their wealth at the service of humanity. But humanity is also served by markets that support healthy competition.

Sources:

"Wealth inequality in the United States since 1913: evidence from capitalised tax data", Emmanuel Saez and Gabriel Zucman, NBER Working Paper 20625, October 2014.

"A firm-level perspective on the role of rents in the rise in inequality", Jason Furman and Peter Orszag, October 2015.

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