How Slim Got Huge

Bill Gates is no longer the world's richest man. That honor now goes to Mexican billionaire Carlos Slim. But Slim's incredible fortune -- $59 billion and climbing -- is more than a story of one man's rise to riches. He is one of a growing list of tycoons from countries like China, India, and Russia who represent a new wave of wealth, power, and influence. Many are skilled businesspeople. But, in these fast-developing economies, being able to seize a political opportunity may count for a lot more.

Come back, Bill Gates! After some initial misgivings, the world had largely grown comfortable with the Microsoft founder as the closest thing capitalism has to a mascot -- the No. 1 spot on Forbes magazine's list of the world's wealthiest people. We liked that Gates was a self-made Harvard dropout; that he helped make computers easier to use; that, due largely to him, it was suddenly cool to be a geek. Anger over Microsoft's near monopoly status had subsided in recent years due in part to Gates's stunning philanthropy and the emergence of Apple as a hip corporate alternative. Having Gates atop the Forbes list told us a lot about the world we lived in -- that we were all part of a "new economy," an ideas-driven society where technology, innovation, and intellectual capital were the keys to getting filthy rich.

What, then, to make of the man who in the summer of 2007 appears to have replaced Gates as the world's richest person? His name is Carlos Slim Helú. Today, his fortune stands at more than $59 billion -- and grew, on average, more than $1 billion a month last year. What kind of world are we living in now? Slim has been widely accused of monopolistic practices; he catapulted himself to the top spot on the back of his company Teléfonos de México, or Telmex, which has a 92 percent stranglehold on his country's local fixed-line market. Slim's business empire, the scope of which is largely unprecedented in modern economic history, ranges from cigarettes to airlines, from electric cables to floor tiles. In all, Slim's net worth is equivalent to a stunning 6.6 percent of Mexico's gross domestic product (GDP), easily eclipsing Gates (0.4 percent of U.S. GDP) and even John D. Rockefeller at his peak (slightly less than 2 percent in 1937). Although it may be unsurprising to see such gross wealth disparity in Latin America, what do we make of the growing list of billionaires in countries such as China, India, and Russia that supposedly represent the global economy's future? Are we entering a new era of robber barons? Does the shift of investment and production to emerging markets herald a rise in "crony capitalism" worldwide? Or does the rapidly accumulating wealth of Slim and his ilk merely signify an undesirable byproduct of a very desirable process -- the spread of free-market capitalism around the globe?


Recently, Slim has behaved a bit bashfully, like a man who knows he is not popular. Described by some who have met him as disarming, austere, and even humble, he seems to be aware that much of the world isn’t exactly thrilled to have an alleged monopolist in the No. 1 spot. Long scornful of charity -- he once criticized Gates and others for acting like Santa Claus because they gave away too much money -- Slim recently announced plans that will make him one of the world's leading philanthropists. Meanwhile, Slim has gone out of his way to be understated. Other Latin American tycoons tend to ride around in black SUVs with tinted windows and security details, even when they're abroad. On a recent trip to Washington, Slim rented a modest Ford sedan at Ronald Reagan National Airport and chauffeured himself around D.C. -- alone -- while dropping in, unannounced, on business leaders and bureaucrats. Some of this is due to Slim's apparently genuine frugality; he has lived in the same relatively modest house for three decades (Gates, for the record, lives in a 66,000-square-foot waterfront compound with a pool that has an underwater sound system). Yet when you hear Slim repeatedly brag that he owns no homes outside Mexico, he does sound a bit defensive. Then again, if your net worth on paper had increased by a rate of more than $2 million an hour during the past year, you’d probably be looking over your shoulder, too.

To that end, Slim only this year has given up a long habit of cultivating anonymity. He has even begun talking regularly to the press. Perhaps he realized his ascension to Forbes' No. 1 spot would fan public interest; perhaps he has grown less protective of his privacy as he retires and bequeaths his business interests to his children; or, perhaps, as with so much else with Slim, he just acted on a rather eccentric whim. When Slim granted an interview to USA Today in April, he made the reporter promise he would deliver to his editors an "improved" baseball box score design that Slim had specially created for the newspaper's sports pages. Whatever his motives, Slim worked the media circuit like a Hollywood star this summer, detailing his passion for baseball (favorite team: the New York Yankees), showcasing his art collection (he owns several Rodin sculptures and Renoir paintings), and talking proudly of how he inherited his business acumen from his father (a Lebanese immigrant named Yusef Salim who invested in real estate and opened a general store at the height of the Mexican Revolution). Above all, Slim loudly professes one obsession: "I like numbers," he says. "Words speak to some people; to others of us, it's numbers." He credits this trait with his success as a financier. Slim buys up companies on the cheap, manages them intelligently, and turns them into cash cows; his operating philosophy is less Bill Gates than Warren Buffet (now likely the world's third richest person). Indeed, at this advanced, almost incomprehensible stage, it would seem that Slim is accumulating wealth not out of greed but just to make the numbers dance in his head.

It comes as no surprise, then, that the numbers Slim knows best are the ones that he says acquit him of accusations that he is a monopolist; that he unfairly uses his clout to suffocate the competition; and that he exploited his close relationship with former President Carlos Salinas to acquire Telmex from the Mexican government in 1990. Interestingly, Slim defends the monopoly charges by comparing himself to Gates (Microsoft has a 95 percent market share, compared to 92 percent for Telmex); Slim complains that he is held to a different standard because he hails from the developing world. Meanwhile, the controversy over Telmex has less to do with the sale price -- Slim and his partners, Southwestern Bell and France Telecom, paid $1.76 billion for a more than 20 percent controlling stake, which was widely considered reasonable at the time -- than the sweetheart terms granted by the government, which essentially handed Telmex six years of exclusivity in Mexico's fixed-line market during a time when other companies were seeking to expand. The deal was so good, in fact, that shortly after the privatization, the opposition Democratic Revolutionary Party demanded that Salinas be impeached. A congressional committee (controlled by Salinas's party) found no wrongdoing. Slim dismisses the whole controversy as irrational. "We won because we paid more," he says, by about 8 cents per share. Reporters receive a statistical breakdown of this and other numbers on their way out the door; they are also available on Slim's slick new Web site, CarlosSlim.com.

This much is undeniable: Slim's share of his homeland’s wealth is truly gargantuan, especially considering that Mexico is in many other respects a modern economy, the world's 14th largest and one of Latin America's most prosperous, a manufacturing powerhouse that has signed free trade pacts with the United States and 17 other countries, plus the European Union. Slim owns majority shares in at least 222 companies. Telmex is indisputably the crown jewel of them all, the acquisition that transformed Slim from merely rich to outlandishly wealthy, and here again the numbers are staggering. For Bill Gates to control a share of the U.S. telephone market similar to Slim's reach in Mexico, Gates would have to own AT&T, MCI, Quest, Sprint, and Verizon -- and even then, Gates would still only have less than 80 percent market share, well short of Telmex's 92 percent. To match Slim's overall market presence in Mexico, Gates would probably also have to own Alcoa, Phillip Morris, Sears, Best Buy, TGIFriday's, Dunkin' Donuts, Marriott, Citibank, and JetBlue. For his wealth to be on a scale in the United States similar to Slim's in Mexico, Gates would have to be worth $909 billion. That is a number even Carlos Slim might have trouble getting his head around.


This kind of enrichment was not what made people tear down the Berlin Wall. Countries from Eastern Europe to Latin America did not undergo painful reforms during the 1990s just so a handful of people could get very wealthy. Study after study has shown that the concentration of economic power in so few hands leads to a slower pace of technological innovation, unequal lending practices, and the stunted development of capital markets -- a corruption of the very institutions and practices we believed were so important during the "Gates Era." For example, Mexican investment in information and communications technologies, a field dominated by Slim, stands at 3.1 percent of GDP, badly lagging developed countries such as Japan (7.4 percent), the United States (8.8 percent), and even regional peers with healthier competition in telecoms such as Chile (6.7 percent) and Brazil (6.9 percent). Economic elites tend to abuse their country's political systems to retain their privileges; competition is squeezed out or, better yet, is never allowed to enter their home turf in the first place. For example, Vonage and Skype, companies that allow voice conversations to be held over the Internet, accused Telmex in 2005 of intentionally blocking access to their sites so that users in Mexico would have to keep using Telmex's long-distance services (Telmex denied the accusations). Apply this kind of anticompetitive model across the entire economy, and the rich get dramatically richer; the poor do only slightly better, if at all. Even Slim would probably agree that this is not what the world should be aspiring to.

Some argue that these are just growing pains, a natural phase in the evolution of young capitalist economies. In this sense, Slim may be guilty of nothing more than playing the game by the existing rules with more skill than everyone else. At its peak in the 1890s, Standard Oil held a Slim-like 88 percent market share in the United States. After its founding in 1901, U.S. Steel accounted for 67 percent of steel production. The U.S. economy eventually worked its way through this monopolistic phase, thanks to strong antitrust enforcement (and a crippling depression that brutally illustrated the shortcomings of a purely market-driven economy). Some theories hold that large, state-nurtured conglomerates lay the groundwork for prosperous medium-sized companies that eventually outmaneuver and then topple the titans. Companies that survive the onset of competition later prosper and generate jobs worldwide; Airbus, Telefónica de España, and Daewoo are all global companies that benefited from a period of state protection. Even Slim's stewardship of Telmex has had some positive effects. Getting a phone line in Mexico now takes a matter of days; prior to its privatization, it often took years and required customers to pore through classified newspaper ads placed by Mexicans selling their own connection. Yet, even if this is just a phase, it's certainly a painful one, with consequences that extend across the entire economy. Telmex's business telephone rates (factoring in installation costs, monthly fees, and per-minute rates) are more than three times those of Argentina and four times those of Brazil. More broadly, Mexico's central bank president, Guillermo Ortiz, has said that Mexico's annual economic growth rate is 1 percentage point less than it could be with more robust competition in all sectors. For this and other reasons -- poor education, crumbling infrastructure, and tax evasion among them -- Mexico's growth has badly lagged behind countries such as China, India, and Chile for nearly a decade. The resulting lack of jobs has driven millions of Mexicans to seek opportunities in the United States.

Whether young, developing-world conglomerates such as Slim's are good or bad, they're here, and they're on the rise. In 1990, there were only a handful of multinationals based in emerging-market countries on the Fortune 500 list of companies; in 2006, there were 52. Their influence and wealth are growing by the day -- and not just within the developing world. The Indian tycoon Lakshmi Mittal (No.5 on the Forbes list) is now the biggest steelmaker in North America with 20 percent of production. Cemex, controlled by the Mexican billionaire Carlos Zambrano, has, through acquisitions, become one of the world's largest cement makers, going from revenues of around $300 million in the mid-1980s to more than $18 billion today. The influence of these companies, and the individuals who run them, grow with each dollar they send abroad; the amount of foreign direct investment coming from emerging economies reached $133 billion in 2005, representing 17 percent of the world's outward investment flows, an all-time high. The wealth of these emerging-market billionaires is growing, too: The 10 Mexicans on Forbes' billionaires list in 2007 had a total net worth of $74.1 billion, almost three times the $24.9 billion that Mexican Forbes billionaires had in 2000. Mexico is certainly not alone; the aggregate wealth of a country's billionaires as a percentage of GDP is even higher in Chile, Kuwait, Malaysia, Russia, and Saudi Arabia. The number of Indian and Chinese billionaires on the Forbes list nearly doubled during the past year; indeed, India now has the second-most billionaires among the top 20, behind only the United States.

How did this happen? Here, again, the case of Mexico and Slim is instructive. A study published last year showed that half of the billionaires in Mexico benefited in some way from the privatization process of the 1980s and 1990s. Indeed, the success of Slim and other new billionaires often seems less attributable to their skill as businessmen than to their bona fides as politicians. In many cases, their true savvy was to move quickly when opportunities presented themselves and to cultivate the connections among bureaucrats, regulators, and politicians that they needed to take advantage of economies that were either in transition or changing fast. In India, Mittal transformed himself from a small-time steel magnate by buying up steel conglomerates in failed communist states from the mid-1990s. Nowhere was the economic liberalization process more famously fraught with peril than in Russia -- and, by no coincidence, among the top 20 billionaires on the Forbes list who hail from emerging markets, more than half of them are Russian. Many of them, including Roman Abramovich and Mikhail Fridman, derive their fortunes from oil and gas companies that were ceded to them amid the chaos that reigned shortly after the fall of the Soviet Union.

Not all privatizations around the world were conducted badly, of course, just as there are a great many emerging-market companies such as Orascom, Mittal (now ArcelorMittal), and Infosys that built their fortunes on such old-fashioned pillars as innovation and competitive advantage. However, the same process that produced many of today's titans has taught us, rather painfully, that starting points matter. In too many countries, it was assumed that embracing free-market capitalism was an end in itself; that the first wave of reforms (slashing tariffs, encouraging foreign investment, privatization) was sufficient to simply coast to broad prosperity.

In the best-case scenario, this means that the world is now witnessing the fallout from mistakes that were made during the 1990s. The other, far more depressing conclusion is that, as the core of the global economy shifts to countries with weak rule of law and institutions, connections to government, rather than entrepreneurial skill, are becoming the quickest and most effective path to wealth.


What, if anything, can we do about it? The truth is that most of the tools available to untangle an empire such as Slim’s, or at least encourage more competition, are either too blunt or too susceptible to manipulation and delays. The mechanisms readily available in a market economy can be rather traumatic, even under the most ideal circumstances. Enforcing anti-trust regulations earlier this decade against Microsoft took years of litigation, and that was in the supposedly "mature" economies of the United States and Western Europe. It is unclear whether that model can function in a place like Mexico, against a man like Slim. Theoretically, Telmex could be split up into lots of Baby Telmexes, à la the AT&T breakup; but how do you confront a man who could, on a whim, single-handedly throw your economy into a depression?

"There are no miracles," Fernando Henrique Cardoso, president of Brazil from 1995 to 2003, said in an interview for this article. "The only solution is to put these decisions in the hands of a regulatory system rather than individual people." Yet, regulators and anti-trust bodies only function if there is political will and a strong, independent judiciary. In Mexico, large companies frequently obtain amparos, or stays, that allow them to indefinitely ignore adverse rulings by regulatory agencies. From 2000 to 2006, Mexico's minister of communications and transport was a former Telmex employee. As recently as 2004, the World Trade Organization ruled that Mexico’s Federal Telecommunications Commission had looked the other way while Telmex fixed international rates, limited the supply of connections, and gouged U.S. companies trying to route calls to Mexico. Often, the most damaging measures come from the very democratic institutions that are, at least theoretically, supposed to act for the common good. Mexico's Congress frequently kills legislation that might be hostile to Slim's interests. It can’t be surprising, though, that the very governments that created many of these billionaires are later unable to rein them in.

The only immediate solution, particularly in a country like Mexico, might be to return to where the whole problem started: a smoke-filled room. A high-ranking representative of the Mexican government could informally, but firmly, tell Slim that, while he won’t be targeted, his days of unfettered expansion have come to an end. Several Mexico watchers believe this conversation has already taken place. "Nobody has told Slim to go buy Guatemalan real estate or anything, but apparently he has been very quietly informed that the rules have changed," said one source who meets frequently with senior Mexican officials. The problem with this approach is that it can be just as unfair and arbitrary as the situation that created the trouble in the first place. Enforcement can be uneven or nonexistent, particularly when weak governments have other, more pressing matters on their minds.

If the "Slim Era" goes on long enough, how much time will pass before society grows tired of it? Nobody is predicting a revolution in Mexico or anywhere else, but change via accepted democratic means can be equally dramatic: Just ask Hugo Chávez. In Mexico, Felipe Calderón won the 2006 election by just 243,934 votes, or .58 percent of the electorate -- the other candidate, a leftist former mayor of Mexico City, would surely have taken the country in a very different, more Chávez-like direction. If the Carlos Slims of the world keep getting more powerful, then what will happen in the next election in Mexico? What about other, less mature countries? Data show that, since the Berlin Wall fell, economic inequality has been on the rise in a great many countries, even in the developed world. It is a trend that policymakers seem unable or unwilling to address, and one that is unlikely to change anytime soon: China, one of the world's fastest-growing economies, is run by an authoritarian, largely unaccountable regime that seems likely to provide ever more lucrative opportunities going forward for "partnerships," official and unofficial, between government and private enterprise. Meanwhile, it is unclear whether societies will tolerate an eternally expanding gap between rich and poor. Public anger over the concentration of wealth could eventually lead to increased trade protectionism, barriers to foreign investment, more direct state control over key industries, or something altogether more dramatic. Whatever the outcome, it's possible that the Carlos Slims of the world could lead to one of the first great ideological battles of the 21st century.

At age 67, Slim may not ever see the consequences of such a debate, and he seems determined to ride off into the sunset with no intention of apologizing for his success -- not directly, anyway. In March, he pledged to inject $6 billion into his charitable foundations during the next four years. Slim has also given $100 million to the Clinton Global Initiative. This pales in comparison to the roughly $30 billion each pledged by Gates and Buffet to the Bill and Melinda Gates Foundation, but it’s a start. Meanwhile, he has launched a for-profit venture named IDEAL that seeks to build badly needed infrastructure projects such as toll roads and hospitals all over Latin America. That would seem like a noble goal, although some suspect another motive. Slim has quite cleverly parlayed IDEAL into opportunities to meet heads of state and high-ranking officials from around Latin America at just the same time that Telmex and América Movíl, now run on a day-to-day basis by his sons and sons-in-law, are making a big push into the rest of the region. Nobody ever accused Slim of not knowing how to make a deal.

To see what the future really holds, it may be best to watch Mexico itself. For the moment, many in Mexico seem relatively content with a middle class that is quietly, but confidently, expanding. Lost in the hype over the U.S. immigration issue is the expectation of many economists that Mexico will soon produce enough jobs to employ those entering the workforce. And yet, many Mexicans show a disturbing lack of enthusiasm for their own brand of capitalism; it is still unclear whether or when the country will produce the innovators and dynamism that are necessary for a true leap in living standards. For better or worse, almost nobody in Mexico ever tells their children, "One day, you can grow up to be just like Carlos Slim."


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