Billionaire Industrial Complex

Firms are still the right place to start

Cameron Murray has become one of my favourite economists lately. He has shifted a lot of priors on the housing market, but that is a story for another day. Recently, he wrote that:

Elon Musk has lost billions of dollars for nearly a decade trying to make electric vehicles at Tesla in a way that has never been done before.

In the new tech-billionaire space-race, where Musk has also been active with his SpaceX company, his competitor Blue Origin, run by Amazon CEO Jeff Bezos, has been running at an enormous financial loss, requiring Bezos to sell over a billion dollars of Amazon stock a year to fund his space venture.

In both of these sectors, electric vehicles and space transport, there is no guarantee of any long-term profit - there are threats from multiple new entrants as well as incumbents in both sectors. Yet billions of dollars are being poured into these experimental investments.

Facebook burned through $80 billion on its Metaverse, which is as real a loss for the economy as if the government wasted $80 billion on a failed technology misadventure.

But there is nothing “market-like” about long-term, long-shot gambles like these. This behaviour falls outside any core economic theory about the efficiency of markets in allocating resources. After all, most billionaires don’t spend their fortunes on privately-funded industrial policy with only a fleeting chance of any future payoff.

If a country wishes to expand its production capabilities, it seems foolish to rely on the type of luck that the United States finds itself with. Australia’s billionaires, for example, are busy fighting to keep their generous tax loopholes and government-protected monopolies, innovating more in their lobbying and corruption than in production.

Australia’s rich list is peppered with billionaires who made their fortune on the back of favourable government deals that handed them economic windfalls. There is barely a single innovator amongst them.

I find this relevant because, whether stated in those terms or not, the average Nigerian consciousness is trying to decide how to evaluate its billionaire class. The questions very often descend into a straw man. Whenever questions are asked about the developmental impact of the businesses of our favourite billionaires, their fans and defenders reframe them in ways designed to confuse and misinform. Should African industrialists be supported? Should governments protect national champions? These are not the right questions.

Much like Murray on Australia, I find the current Nigerian billionaire class to be a product of a predatory political economy. People who got rich through proximity to power, restricted markets, and the control of scarcity. But this is nothing against billionaires or any particular billionaire. This also does not mean that our current class of billionaires cannot become necessary agents of industrialisation and development.

In a similar vein, the Africatalyst substack writes:

Africa is poor because its elites, by and large, have chosen the path of least resistance. They have preferred brokerage, arbitrage, and proximity to power over building, industry and productive risk. Until that changes, the continent will remain trapped in a low-growth equilibrium, recycling the same tired narratives about its stasis.

This is an important point, and one that should be taken seriously. But it needs one further qualification. It is not enough for business elites simply to choose “industry” over trade, brokerage, or property. An industrial venture can reproduce the same political economy in a different form: protected markets, state-backed scarcity, inflated prices, weak competitive pressure, and returns secured through regulatory privilege rather than productive improvement. A factory does not become developmental merely because it exists, or because its owner is local. The more important transition is from firms that convert political access into industrial rents to firms that build capabilities while reducing costs, improving quality, training workers, developing suppliers, absorbing technology, and eventually competing beyond the shelter of protection.

Who Are the Elites?

It is relevant to understand who becomes an elite in Africa and what the usual routes to the top are. This will help us understand why our elites behave the way they do and what incentives need to change. Economic historian Rebecca Simson is doing some good work in this area. In one of her recent essays, she showed that African elites have never emerged through a single, neutral meritocratic route. Education, chiefly authority, political office, minority trading networks, urban property, and inherited social capital have all shaped who reaches positions of influence. The rapid expansion of schooling around independence initially opened an important route for people from relatively modest backgrounds into the civil service and political class, but she suggests that this period of relative openness may be narrowing as educational and cultural advantages become more strongly inherited. She also stresses that elite reproduction increasingly turns on ownership of capital, especially urban property and financial wealth. She also notes that Africa still lacks adequate data on who owns that capital and how it is transmitted across generations.

The way people accumulate wealth shapes the kinds of firms they build, the risks they are prepared to take, the networks they rely upon, and what they expect from the state. Someone whose fortune was made through import licences, public contracts, urban land, or political brokerage may enter manufacturing. Still, they do not suddenly cease to be shaped by the skills and incentives that made them successful. They may transport the established practices of scarcity, protection, and access into an industrial setting. The deeper issue, then, is not whether elites enter industry, but whether the economy produces elites whose route to wealth depends on building firms that learn, compete, and become more capable over time.

Ambition is Political

Furthermore, the question of elite ambition cannot only apply to the business class. Political elites matter as much because they shape the environment in which businesses are built and the incentives through which capital learns what is worth doing. They determine whether the highest returns lie in production or proximity; whether firms are rewarded for lowering costs and building capacity, or for securing licences, contracts, protection, and access to foreign exchange. Development has rarely emerged from private ambition alone. It has depended on political leaders willing to treat industrialisation as an exercise in nation-building — to build institutions, coordinate investment, absorb short-term political costs, and direct rents toward firms capable of learning and competing. The relevant question, therefore, is not only whether business elites possess the ambition to build, but whether political elites possess the ambition and discipline to create an economy in which building is more rewarding than extraction.

Focus on Firms

My final point here will be that the focus on individual wealthy people is a distraction. The right unit of focus for development should be the firm. Firms are where productive knowledge is organised and retained. They are where engineers learn by solving problems, workers acquire transferable skills, managers develop routines, suppliers are drawn into more demanding standards, and investment becomes a capacity that can outlast any one owner. A country does not industrialise because it produces wealthy individuals. It industrialises when it produces firms that can repeatedly turn capital, labour, and technology into better products, lower costs, better skills, and new productive possibilities. The goal of a political economy of development should be the growth and proliferation of productive firms across the economy.