What it means
In a plutocracy, political influence follows money. Wealthy individuals or families can shape rules, elections or appointments to protect and grow their wealth.
The outcome is that the interests of the rich may count for more than those of ordinary citizens. Plutocracy is different from democracy, where each citizen has an equal vote, and from aristocracy, where power passes through noble birth.
It is also related to oligarchy, which means rule by a few. A plutocracy is usually an oligarchy based on wealth.
No modern country officially calls itself a plutocracy. The word is mostly used by critics to describe a situation they dislike, such as large political donations, lobbying or close links between business and government.
Supporters of a free market often reply that wealth gives influence only where rules allow it, and they argue for open competition. Economists use measures of inequality to discuss the issue.
The Gini coefficient, for example, runs from 0, where everyone has the same income, to 1, where one person has everything. A high figure does not prove a plutocracy, but it shows how unevenly wealth is spread.
For business readers, the concept links to governance and reputation. Companies that spend heavily on lobbying may gain advantages, but they can also attract public criticism and regulation.
Investors consider political risk in countries where connections matter more than competition. Sound institutions limit the power of money.
Examples include rules on political donations, transparent public contracts, independent courts and a free press. Companies that follow high standards in dealing with governments protect themselves against scandals, fines and legal risks.
In practice
Real-world examples.
Example
A policy analyst studies how campaign donations vary across the political system and finds that a small share of donors provide most of the money. She argues that this gives them a louder voice than ordinary voters, even though each person has only one vote. Her report calls for tighter limits on donations and more public disclosure, and it includes a simple chart of the figures for each party.
Example
A multinational company is asked to bid for a government contract in a country where officials often favour friends of powerful families. Its compliance team reviews the risks of bribery and political exposure before any bid is prepared. The board decides to bid only if the process is open and fair, and it records that decision in the minutes.
Example
An economics teacher asks students to compare a democracy with a plutocracy using real and imagined examples. The students list who holds power, how decisions are made and how an ordinary citizen can change the outcome. They conclude that rules and transparency make the difference, more than any label, and they agree that no country is perfectly free of money's influence.
Case study
Seen in the real world.
Valdoria is a fictional country, and this story is illustrative. Its ten richest families owned most of the land, banks and newspapers, and they donated heavily to political parties during every election.
When the government proposed a new tax on large property holdings, the families funded a campaign against it, and the bill was withdrawn within weeks. Smaller businesses complained that they had no similar way to be heard, and several moved their operations abroad. A study showed that the top 1% of earners held 45% of the national wealth, while the bottom half held only 5%.
Foreign investors became concerned that contracts were awarded to friends of the families, so they demanded higher returns to compensate for the risk. Credit rating analysts also cited weak governance as a concern when reviewing the country's debt. The cost of government borrowing rose by 2 percentage points, which on $5,000,000,000 of debt meant an extra 2% x $5,000,000,000 = $100,000,000 a year. Honest businesses that had no ties to the families paid higher rates on their loans as well. The illustrative lesson is that concentrated power can raise the cost of capital for everyone.
Watch out
Common mistakes.
- Using the word loosely to describe any country with wealthy people, when it requires wealth to control government decisions and not merely to exist alongside them.
- Confusing plutocracy with oligarchy, which is rule by a few for any reason, such as family, military power or wealth, and not only wealth.
- Assuming that a high Gini coefficient alone proves a plutocracy, when it measures inequality and not political control.
Questions
People also ask.
What does plutocracy mean?
It means rule by the wealthy, from Greek words for wealth and power, and it is usually used as a criticism of a system.
Is the word a technical term in economics?
It is mainly a political and historical term, though economists study the links between wealth, lobbying and influence over public policy.
How can countries limit the influence of money?
Through donation limits, transparency, independent courts, open public contracts and a free press, which together make it harder to buy decisions in secret.
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