Chrystia Freeland - Plutocrats

Peterson is no wide-eyed provincial naïf, nor can she be accused of succumbing to the politics of envy. But even from her gilded perch, it is obvious that something striking is happening at the apex of the economic pyramid.

“If you look at the original movie Wall Street , it was a phenomenon where there were men in their thirties and forties making two and three million a year, and that was disgusting. But then you had the Internet age, and then globalization, and money got truly crazy,” she told me.

“You had people in their thirties, through hedge funds and Goldman Sachs partner jobs, people who were making twenty, thirty, forty million a year. And there were a lot of them doing it. They started hanging out with each other. They became a pack. They started roaming the globe together as global high rollers and the differences between them and the rest of the world became exponential. It was no longer just Gordon Gekko. It developed into a totally different stratosphere.”

Ms. Peterson’s dinner party observations are borne out by the data. In America, the gap between the top 1 percent and everyone else has indeed developed into “a totally different stratosphere.” In the 1970s, the top 1 percent of earners captured about 10 percent of the national income. Thirty-five years later, their share had risen to nearly a third of the national income, as high as it had been during the Gilded Age, the previous historical peak. Robert Reich, the labor secretary under Bill Clinton, has illustrated the disparity with a vivid example: In 2005, Bill Gates was worth $46.5 billion and Warren Buffett $44 billion. That year, the combined wealth of the 120 million people who made up the bottom 40 percent of the U.S. population was around $95 billion—barely more than the sum of the fortunes of these two men.

These are American billionaires, and this is U.S. data. But an important characteristic of today’s rising plutocracy is that, as Ms. Peterson put it, today’s super-rich are “global high rollers.” A 2011 OECD report showed that, over the past three decades, in Sweden, Finland, Germany, Israel, and New Zealand—all countries that have chosen a version of capitalism less red in tooth and claw than the American model—inequality has grown as fast as or faster than in the United States. France, proud, as usual, of its exceptionalism, seemed to be the one major Western outlier, but recent studies have shown that over the past decade it, too, has fallen into line.

The 1 percent is outpacing everyone else in the emerging economies as well. Income inequality in communist China is now higher than it is in the United States, and it has also surged in India and Russia. The gap hasn’t grown in the fourth BRIC, Brazil, but that is probably because income inequality was so high there in the first place. Even today, Brazil is the most unequal of the major emerging economies.

To get a sense of the money currently sloshing around what we used to call the developing world, consider a conversation I recently had with Naguib Sawiris, an Egyptian telecom billionaire whose empire has expanded from his native country to Italy and Canada. Sawiris, who supported the rebels on Tahrir Square, was sharing with me (and a dinner audience at Toronto’s Four Seasons hotel) his mystification at the rapacious ways of autocrats: “I’ve never understood in my life why all these dictators, when they stole, why didn’t they just steal a billion and spend the rest on the people.”

What was interesting to me was his choice of $1 billion as the appropriate cap on dictatorial looting. In his world, I wondered, was $1 billion the size of fortune to aim for?

“Yes, to cover the fringe benefits, the plane, the boat, it takes a billion,” Sawiris told me. “I mean, that’s my number for the minimum I want to go down—if I go down.”

Meanwhile, the vast majority of American workers, who may be superbly skilled at their jobs and work at them doggedly, have not only missed these windfalls—many have found their professions, companies, and life savings destroyed by the same forces that have enriched and empowered the plutocrats. Both globalization and technology have led to the rapid obsolescence of many jobs in the West; they’ve put Western workers in direct competition with low-paid workers in poorer countries; and they’ve generally had a punishing impact on those without the intellect, education, luck, or chutzpah to profit from them: median wages have stagnated, as machines and developing world workers have pushed down the value of middle-class labor in the West.

Through my work as a business journalist, I’ve spent more than two decades shadowing the new global super-rich: attending the same exclusive conferences in Europe, conducting interviews over cappuccinos on Martha’s Vineyard or in Silicon Valley meeting rooms, observing high-powered dinner parties in Manhattan. Some of what I’ve learned is entirely predictable: the rich are, as F. Scott Fitzgerald put it, different from you and me.

What is more relevant to our times, though, is that the rich of today are also different from the rich of yesterday. Our light-speed, globally connected economy has led to the rise of a new super-elite that consists, to a notable degree, of first- and second-generation wealth. Its members are hardworking, highly educated, jet-setting meritocrats who feel they are the deserving winners of a tough, worldwide economic competition—and, as a result, have an ambivalent attitude toward those of us who haven’t succeeded quite so spectacularly. They tend to believe in the institutions that permit social mobility, but are less enthusiastic about the economic redistribution—i.e., taxes—it takes to pay for those institutions. Perhaps most strikingly, they are becoming a transglobal community of peers who have more in common with one another than with their countrymen back home. Whether they maintain primary residences in New York or Hong Kong, Moscow or Mumbai, today’s super-rich are increasingly a nation unto themselves.

The emergence of this new virtual nation of mammon is so striking that an elite team of strategists at Citigroup has advised the bank’s clients to design their portfolios around the rising power of the global super-rich. In a 2005 memo they observed that “the World is dividing into two blocs—the Plutonomy and the rest”: “In a plutonomy there is no such animal as ‘the U.S. consumer’ or ‘the UK consumer’ or indeed ‘the Russian consumer.’ There are rich consumers, few in number but disproportionate in the gigantic slice of income and consumption they take. There are the rest, the non-rich, the multitudinous many, but only accounting for surprisingly small bites of the national pie.”

Within the investing class, this bifurcation of the world into the rich and the rest has become conventional wisdom. Bob Doll, chief equity strategist at BlackRock, the world’s largest fund manager, told a reporter in 2011, “The U.S. stock markets and the U.S. economy are increasingly different animals,” as the prior surged, while the later stagnated.

Even Alan Greenspan, the high priest of free markets, is struck by the growing divide. In a recent TV interview, he asserted that the U.S. economy had become “very distorted.” In the wake of the recession, he said, there had been a “significant recovery… amongst high-income individuals,” “large banks,” and “large corporations”; the rest of the economy, by contrast, including small businesses and “a very significant amount of the labor force,” was stuck and still struggling. What we were seeing, Greenspan worried, was not a single economy at all, but rather “fundamentally two separate types of economy,” increasingly distinct and divergent.