Rising Demand for British Butlers by Emerging Market Super Rich

Super Chinese and Russian millionaires seem to have a penchant for English household workers.

Earlier I posted news which exhibited a surge in demand for British nannies, this time we are told that demand for English butlers have been the chic.

From the Bloomberg

English butlers, synonymous with Reginald Jeeves in the novels of P.G. Wodehouse, are answering more calls from super-rich Chinese and Russian clients as wealth shifts between east and west.

The Guild of Professional English Butlers has trained 20 percent more butlers this year than last, placing them with clients as soon as they are ready, according to Robert Watson, head of the firm in southern England, last week. The number of domestic staff registered with Greycoat Placements has trebled over the past three years, Managing Director Debbie Salter said.

“Demand is outstripping supply,” Watson said by telephone. “We deal with people who often are cash rich and time poor. The credit crunch did affect things for a time, but before you get rid of the butler, get rid of the Ferrari.”

As Europe struggles with a debt crisis and the U.S. tries to revive its economy, burgeoning growth in emerging markets is boosting spending on luxuries like never before, and creating opportunities for more people to look after them.

The ranks of millionaires in 10 major Asian economies will more than double to 2.8 million by 2015, according to a Julius Baer Group and CLSA Asia Pacific Markets report on Aug. 31. China’s economy grew 9.1 percent in the third quarter from a year earlier, compared with U.S. growth of 1.5 percent.

We need to qualify who the nouveau super rich Chinese and Russians are, because many of them have attained their status via political privilege.

Yet, shifting preference for Western household workers by EM super millionaires could also signify symptoms of the ongoing wealth convergence from globalization.

And such dynamic could be magnified by the continuing trend to adapt inflationist policies by the West, as Emerging Markets open their economies to the world and or to domestic entrepreneurship. Interesting signs of evolving times.

Global Wealth Convergence

Economist Timothy Taylor writes, (bold emphasis mine)

It is possible that although inequality within many countries is rising, global inequality is actually falling. After all, a number of countries with lower levels of per capita income, like China and India, have been experiencing rapid growth. Perhaps from a global viewpoint, the gap between high and low incomes is diminishing even though within countries, that gap has been rising.

What looks more like Aristotle’s the “whole is greater than the sum of its parts” is what I call as the global wealth convergence dynamic

Mr. Taylor quotes an IMF study suggesting that China and India has been key factors that have been led to this,

What is the evidence on global inequality? Branko Milanovic offers a useful figure, where inequality is measured by the Gini coefficient. For those not familiar with this term, the quick intuition is that it is a measure of inequality where 0 represents complete equality of income and 100 represents complete inequality (one person has all the resources). Here is a figure showing Gini coefficients for relatively equal Sweden, the less equal U.S. economy, the still-less-equal Brazilian economy, and the world economy.

Milanovic writes: "Global inequality seems to have declined from its high plateau of about 70 Gini points in 1990–2005 to about 67–68 points today. This is still much higher than inequality in any single country, and much higher than global inequality was 50 or 100 years ago. But the likely downward kink in 2008—it is probably too early to speak of a slide—is an extremely welcome sign. If sustained (and much will depend on China’s future rate of growth), this would be the first decline in global inequality since the mid-19th century and the Industrial Revolution.

One could thus regard the Industrial Revolution as a “Big Bang” that set some countries on a path to higher income, and left others at very low income levels. But as the two giants—India and China—move far above their past income levels, the mean income of the world increases and global inequality begins to decline."

My intuition is that globalization has functioned as one of the most critical variable contributing to the global wealth convergence.

China and India’s merchandise trade has ballooned from 10% in 1976 to over 50% and 30% respectively even after the 2008 crisis. That’s because trade is a mutually beneficial action which leads to prosperity.

From Ludwig von Mises, (Nation, State and Economy p.165)

Economic history is the development of the division of labor. It starts with the self-contained household economy of the family, which is self-sufficient, which itself produces everything that it uses or consumes. The individual households are not economically differentiated. Each one serves only itself. No economic contact, no exchange of economic goods, occurs.

Recognition that work performed under the division of labor is more productive than work performed without the division of labor puts an end to the isolation of the individual economies. The trade principle, exchange, links the individual proprietors together. From a concern of individuals, the economy becomes a social matter. The division of labor advances step by step. First limited to only a narrow sphere, it extends itself more and more. The age of liberalism brought the greatest advances of this sort.

Marc Faber: Asia to Benefit from Imploding Welfare States of the West

Dr. Marc Faber has been an indirect mentor of mine. It has been through his writings which has led me to learn of Austrian Economics, the major pillar of my analytical methodology.

Nevertheless, recently he says that imploding welfare states of the West should be positive for Asia.

The Asian Investor quotes Dr. Faber, (bold emphasis mine)

“Asia should send a thank-you letter to [Federal Reserve chairman Ben] Bernanke” for stimulus policies that have been an “utter failure” for the US but beneficial to Asia.

"We had, essentially, a bank failure in 2008 and the financial system in the Western world went bankrupt. Then it was bailed out by governments and the banks have learned nothing. “

Government intervention in private finance will have a damaging effect to the US and European economies over the long run, he predicts. “In 2008, the financial sector [went] bust, and in the future, the [Western] governments will go bust.”

In contrast, “the Asian banks are in a good shape”, says Faber. “Asia reacted well in the 1997-1998 crisis. A period of deleveraging followed. Businessmen became conservative. They paid down debts and the banks became very cautious in terms of their lending.”

As a result, he has more confidence in Asian banks than their Western counterparts. “I would deposit money with a Thai bank, no problem. They will pay me back. They don’t know what derivatives [are], because the derivatives salesmen never get through the traffic in Bangkok,” he quipped.

“I would rather stick to emerging economies than Europe and the US.”

For as long as Asia resists the siren song of the welfare based political economy and shun protectionism, the policy divergences between the West and the East should imply for a wealth convergence, where Asia’s potential higher returns on investments emanating from the declining relative trend of interference from the region’s governments should attract more of the savings from the West.

The above would compliment domestic growth dynamics for as long as Asian governments continue to ease on economic restrictions or regulations.

This also implies that the current contagion based financial market meltdown in Asia—mainly transmitted from the boom bust cycle policies of Western governments which have been aimed at the preservation of the unsustainable state of incumbent political institutions—is likely a temporary event.

And given the right conditions (not yet today) would present as ‘buy’.

Graphic: Distribution Share of World Market Cap

…of select countries.

Below is another deck of wonderful and telling charts from Bespoke Invest

Basically, the above charts say that the % share of developed economy equity markets has been declining overtime as Asian and emerging markets have been increasing.

What we are seeing is simply a deepening of the convergence trend and a rebalancing of roles which previously had been dominated by the former.

Of course there are many factors driving this, one of the principal factor would be globalization. But the point is: market dynamics, which essentially is about acting humans, has been about constant changes.

Here Comes the British Nannies

Step aside Filipina domestic helpers, here comes the British Nannies.

This looks like a reversal of roles, as emerging market elites have commenced on hiring Western household help.

From the Business Insider,

Lucky London nannies are earning insanely high salaries thanks to an influx of wealthy Russians, Chinese and Indians, who want their children to learn English from a native, according to The Times of London.

The starting pay at the elite agency Imperial Nannies is $75,000, typically including room and board in an upscale neighborhood and extraordinary perks like a car, clothes and luxury travel. One Russian family reportedly offered $200,000 to lock down a top nanny.

Of course the work isn't easy. Founder Sarajane Ambrose tells The Times:

“You’re walking into a completely different culture and environment of extraordinary wealth and different family values. Russian families require you to be on call 24 hours a day, 6 days a week. The children are always accompanied by bodyguards. There are cameras everywhere. They have a jet-setting lifestyle, which means you spend a lot of time packing and unpacking. They’re very ambitious for their children and because they dress them in designer clothes, they’re not allowed to get dirty. Russian children don’t wear Gap.”

The above dynamic has been symptomatic of what has been happening in the world today.

Yet this trend could intensify or deepen, if the West-East wealth transfer or wealth convergence persists, which will be magnified by sustained policies of inflationism by the sitting authorities of western nations.

Paradigm Shift: The Growing Role of Emerging Markets

In the graphs below the Economist shows of the growing importance of emerging markets relative to the world economy.

The Economist writes, (bold highlights mine)

The combined output of the emerging world accounted for 38% of world GDP (at market exchange rates) in 2010, twice its share in 1990. If GDP is instead measured at purchasing-power parity, emerging economies overtook the developed world in 2008 and are likely to reach 54% of world GDP this year. They now account for over half of the global consumption of most commodities, world exports, and inflows of foreign direct investment. Emerging economies also account for 46% of world retail sales, 52% of all purchases of motor vehicles and 82% of mobile phone subscriptions. They still punch well below their weight in commerce and finance, but they are catching up fast. Almost a quarter of the Fortune Global 500 firms come from emerging markets; in 1995 it was only 4%. The chart below shows more detail of how the economic clout of emerging economies has risen over time:

Except for the ‘consumption of most commodities’ which functions as an effect more than the cause, “world exports, and inflows of foreign direct investments” represent as forces of globalization as further shown below.

Chart from Google’s Public Data

One would note that growth in the share of merchandise trade relative to GDP has more than doubled since 1960s and has breached the 50% level in 2007. But fell below 50% during the last crisis. (chart hasn’t been updated)

The updated chart shows that world trade has now surpassed the previous highs (courtesy of Professor Mark Perry)

And emerging markets' trade liberalization has been leading to hefty increases in the growth trend of imports (chart from ADB) and foreign direct investments.

Bottom line: World trade has played a very significant role in the convergence dynamics of emerging markets and developed economies.

The World’s Top Billionaires: List of Emerging Market Billionaires Grows

A little over half of the world’s new billionaires hail from Emerging Markets, particularly from the BRIC (Brazil,Russia, India, China)

According to Forbes,

Brazil, Russia, India and China produced 108 out of the 214 new names added. Lakshmi Mittal of ArcellorMittal fame topped the list at No. 6 among the rich guys in the BRIC countries. His net worth was put at $31.5 billion. ArcellorMittal is the world’s largest steel maker. Brazilian investor and owner of a number of oil and mining companies, Eike Batista, will probably forever be known as the man who helped bring the 2016 Summer Olympics to Rio de Janeiro. His net worth is around $30 billion. Not bad being the son of the guys behind the world’s leading iron ore exporter, Brazilian multinational Vale.

Others in the Top 20:

9. Mukesh Ambani, India, Reliance Industries, $27 billion
11. (This name is perfect…with a name like this, you have to be filthy rich) Li Ka-Shing, China, Hutchinson Whampoa, $26 billion
14. Vladimir Lisin, Novolipetsk Steel, $24 billion

see list here

Let me add that among the top 500, there are lots of non-BRIC emerging markets billionaires. The distribution appears diffused where some are from Latin America (Columbia, Chile, Mexico, Argentina) MENA (Saudi Arabia, South Africa) and ASEAN.

For ASEAN region we have:

Malaysia: Robert Kuok, Lee Shin Cheng, Quek Leng Chan, Teh Hong Piao, Syed Mokhtar AlBukhary and Yeoh Tiong Lay & family

Philippines: Henry Sy (ranked 173rd)

Indonesia: Michael Hartono, Peter Sondakh, Martua Sitorus and Low Tuck Kwong

Thailand: Charoen Sirivadhanabhakdi

The growing list of Emerging Market billionaires are just symptomatic of the wealth convergence happening from today’s ‘globalized’ environment.