How the super-rich just get richer
By Helen Williamson
BBC Money Programme
Britain has more rich people than ever before, and it is not just footballers like David Beckham and Wayne Rooney.
With a global economy, successful people in all sorts of professions can now command global-scale pay packets.
The mega-successful at the top of their profession are taking advantage of a phenomenon known as the "Superstar Premium".
Advances in multi-media technology mean that today's superstars operate in a global marketplace.
By being the best in their field, they attract a disproportionate amount of business compared to less successful competitors.
Global exposure
Economist Sherwin Rosen developed the idea of the Superstar Premium in the early 1980's to explain why some musicians were earning so much money.
Before recording technology, even the most popular artists had their earnings limited by the number of people who could hear them perform live.
But with the advent of records, CDs and now the internet, the most popular artists can reach a much wider audience, and therefore earn much more money from doing the same amount of work.
Vanessa-Mae is the world's most popular violinist, but unlike violinists 50 years ago, she has a global fan base.
She has been able to take advantage of the Superstar Premium and is aware how the life of a musician has changed.
"The exposure that you get around the world is only thanks to technology," she says.
"If I had to flog my albums 50 years ago by taking a boat, I mean, it would have taken me five years to promote one album."
It has allowed her to sell more than 10 million records world-wide and has subsidised the super-rich lifestyle she dreamed of as a child.
"When I was about seven, I said to my mother 'how much money do I have to earn to be able to eat caviar every day?'"
Television means that today's top footballers are also economic superstars.
When England captain Bobby Moore lifted the World Cup in 1966 he earned £100 a week.
Today's England captain, John Terry, holds the same position, but reportedly earns over £130,000 a week.
As economist Prof Danny Quah, from the London School of Economics points out the English Premier League is "a global franchise".
"It is watched by half a billion people in the world, more people than we've lifted out of poverty in the last 20 years," he says.
And the top players don't just get huge salaries for their performance on the pitch. Their famous faces are found on advertising billboards across the globe - adding even more to their incomes.
David Beckham earned over £11m from endorsements alone last year.
It is not just the famous who are affected by the superstar premium.
Demand for luxury
Technology has enabled humble bookies to become financial superstars.
By setting up an online betting agency, the founders of Betfair serve punters around the world and co-founder Edward Wray is aware of the superstar premium:
"It's very important for us to be number one," he says. "I mean, ours is a model that in many ways the bigger you are, the more efficient the model becomes."
And because they are number one they pull in the most punters - earning Wray and his partner Andrew Black superstar fortunes.
With personal fortunes of tens and sometimes hundreds of millions of pounds, economic superstars have plenty of cash to splash.
Superstars are boosting the luxury goods market, with worldwide sales in the sector topping £75bn last year.
"Aston Martin has gone from a cottage industry to a global one. We've gone from selling 200 cars a year to 7,000" says Craig Davison, from Broughton's Aston Martin in Cheltenham.
Similarly, private jet firm NetJets, whose cheapest deal is £85,000 for 25 hours flying time, has seen its business expand rapidly.
"Five years ago we had 18 aircraft and 89 customers, whereas today we have 135 aircraft and 1500 customers," says its marketing executive Robert Dranitzke.
"If you compare us to the airlines, we have the 7th largest fleet in Europe and we're growing faster than anybody else."
'Trickling down?'
But what is the impact of all this wealth on the rest us?
Not all of these fortunes are being spent or invested in Britain, says Peter Charrington, head of Citi's UK private banking arm.
"Although these are people who will clearly have significant interests here in the UK and invest here in the UK, they're also looking to place their money around the world," he says.
Mr Charrington says the super-rich are looking for opportunities in China, India and Latin America "whether that be in private equity or hedge fund businesses".
"That's particularly important to our types of clients."
There are some who think the Superstar Premium does benefit society thanks to the "trickle down effect".
"Big spenders will have to spend their money on the things that the rest of society provides," says Professor Quah.
"So almost mechanically, the marketplace disseminates that wealth."
So whether we love them or hate them, the fortunes of the superstars are only set to increase as the opportunities of the global marketplace grow and grow.
Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/7118991.stm
Published: 2007/11/29 16:25:10 GMT
© BBC MMVII