Joining the 0.1% through Opportunity Arbitrage

The winner-takes-all dynamism of free market capitalism is not only concentrating wealth in the world’s top 0.1%, but it is leading to shifts in the geographical patterns of millionaires. The past few decades of rapid technological progress and globalization has enabled the fortuitous and talented to prosper more than ever before whilst the vast majority (including the global middle-class) have struggled more. The wealthiest that already occupy places at the apex do not need to move. It is the ones underneath that would benefit from the idea of “opportunity arbitrage” by moving to less saturated markets.

Singapore

In 2012, there were 63,000 people with US$100 million or more in liquid, investable assets and 12 million people worldwide with more than US$1 million. The latter number was a 9.2% increase from 2011. In total, the 12 million people or this 0.1% possessed US$47.2 trillion, 39% of the world’s wealth. Breaking this down, 3.4 millionaires are located in North America, 3.3 million in Asia, and 3.1 million in Europe. Meanwhile in Singapore 16% of their population are millionaires. Currently, there are 18,000 centa-millionaires in the Asia-Pacific, more than both North America with 17,000 and Europe with 14,000.

Tokyo

So what’s the secret to joining this elite 0.1%? I would promulgate ‘opportunity arbitrage’. Arbitrage exists as a result of market inefficiencies. In the world today, the litany of regulations governing movement of workers, capital and entrepreneurs ensures the existence of a significant gap between potential profit and ‘fair value profit’ within and between different countries. Potential profit is the unknown quantity of cash that one could generate in a given country, whilst ‘fair value profit’ is the estimated and quantifiable amount of cash that one should generate in a typically competitive market for the respective good/service that one can provide. Thus, opportunity arbitrage is a strategic move to a different country in order to exploit different market conditions between countries in order to increase one’s potential profit greater than the fair value profit. Different market conditions could include the competitiveness of the specific market, the regulatory burden, tax burden and incentives, consumer tastes and preferences, etc. The current problem is that the rise of the wealthy 0.1% worldwide is coinciding with the whittling away of the global middle-class. The solution here is, as German Chancellor Angela Merkel suggested for unemployed young Europeans, get mobile and engage in “opportunity arbitrage”. Find that country where your individual skills and experiences can best unlock your ‘fair value profit’ to enable you to join the world’s 0.1%.

London

There has been concern that labour productivity has increased significantly faster than real wages, whereas in the past the two have moved in tandem. Opportunity arbitrage can potentially ensure a more efficient global labour and enterprise market, which should enable labour productivity and real wages to re-engage. What’s more, opportunity arbitrage should have a positive influence on global social mobility which has stagnated in the past decade, with the top 1% globally retaining wealth generation through generation whilst those at the bottom find it more difficult to escape the cycle of poverty. It is worth remembering too that much of the opportunity arbitrage should occur in the fast-growing emerging markets of Asia, Africa and Latin America. The world’s economic centre of gravity is shifting towards Asia. This is where for example 50% of Chinese who are classed as millionaires today weren’t in 2009 and where 60% of 2019’s millionaires are currently not affluent to that degree. Asia and Africa is also where you find the youngest average age of millionaires, at 35 years old for Africa and 37 years old for Asia, suggesting that opportunity arbitraging to these regions could make you wealthier sooner. Also by 2016, Asia will have 26,000 centa-millionaires, North America will have 21,000 and Europe will have just 15,000.

Riyadh

One worry that people may have is of a growing income inequality. Yet, entrepreneurs’ innovations are desirable. They positively disrupt society by introducing a product that everyone in society desires to purchase. Yet because everybody desires to purchase the product and there is only one entrepreneur (seller), economic well-being is unequal. However, theoretically everybody has exchanged cash for the product because it will make them economically better-off. Yet there are also examples of wealthy individuals profiting by seizing control of natural resources, lavishing investment banker bonuses on themselves, and benefiting from corporate excesses linked to continually soaring CEO pay and abuse of non-executive directorships. But the simple point is that most of the world’s wealthy are entrepreneurs that have enriched the world with their contributions.

More millionaire mansions?

It would be beneficial for many in the saturated Western economies to uproot and employ ‘opportunity arbitrage’ in emerging markets in Asia where their expertise and entrepreneurship may achieve ‘fair value profit’. Yet most will likely not, burdened as they are by the familiar. It is here that an oft-quoted adage is apt, “It is not the strongest that succeed, but those most adaptable to change”. Here’s to an avant-garde conception of entrepreneurial Darwinism where a global entrepreneurial class arbitrages business opportunities by moving seamlessly across borders.