The Rise of the New Global Super-Rich and the Fall of Everyone Else
A Financial Times Best Book of the Year
Shortlisted for the Lionel Gelber Prize
There has always been some gap between rich and poor in this country, but recently what it means to be rich has changed dramatically. Forget the 1 percent—Plutocrats proves that it is the wealthiest 0.1 percent who are outpacing the rest of us at breakneck speed. Most of these new fortunes are not inherited, amassed instead by perceptive businesspeople who see themselves as deserving victors in a cutthroat international competition. With empathy and intelligence, Plutocrats reveals the consequences of concentrating the world’s wealth into fewer and fewer hands. Propelled by fascinating original interviews with the plutocrats themselves, Plutocrats is a tour de force of social and economic history, the definitive examination of inequality in our time.
The poor enjoy what the rich could not before afford. What were the luxuries have become the necessaries of life. The laborer has now more comforts than the farmer had a few generations ago. The farmer has more luxuries than the landlord had, and is more richly clad and better housed. The landlord has books and pictures rarer and appointments more artistic than the king could then obtain.
Branko Milanovic is an economist at the World Bank. He first became interested in income inequality studying for his PhD in the 1980s in his native Yugoslavia, where he discovered it was officially viewed as a “sensitive” subject—which meant one the ruling regime didn’t want its scholars to look at too closely. That wasn’t a huge surprise; after all, the central ideological promise of socialism was to deliver a classless society.
But when Milanovic moved to Washington, he discovered a curious thing. Americans were happy to celebrate their super-rich and, at least sometimes, worry about their poor. But putting those two conversations together and talking about economic inequality was pretty much taboo.
“I was once told by the head of a prestigious think tank in Washington, D.C., that the think tank’s board was very unlikely to fund any work that had income or wealth inequality in its title,” Milanovic, who wears a beard and has a receding hairline and teddy bear build, explained in a recent book. “Yes, they would finance anything to do with poverty alleviation, but inequality was an altogether different matter.”
“Why?” he asked. “Because ‘my’ concern with the poverty of some people actually projects me in a very nice, warm glow: I am ready to use my money to help them. Charity is a good thing; a lot of egos are boosted by it and many ethical points earned even when only tiny amounts are given to the poor. But inequality is different: Every mention of it raises in fact the issue of the appropriateness or legitimacy of my income.”
The point isn’t that the super-elite are reluctant to display their wealth—that is, after all, at least part of the purpose of yachts, couture, vast homes, and high-profile big-buck philanthropy. But when the discussion shifts from celebratory to analytical, the super-elite get nervous. One Wall Street Democrat, who has held big jobs in Washington and at some of America’s top financial institutions, told me President Barack Obama had alienated the business community by speaking about “the rich.” It would be best not to refer to income differences at all, the banker said, but if the president couldn’t avoid singling out the country’s top earners, he should call them “affluent.” Naming them as “rich,” he told me, sounded divisive—something the rich don’t want to be. Striking a similar tone, Bill Clinton, in his 2011 book, Back to Work, faulted Barack Obama for how he talks about those at the top. “I didn’t attack them for their success,” President Clinton wrote, attributing to that softer touch his greater success in getting those at the top to accept higher taxes.
Robert Kenny, a Boston psychologist who specializes in counseling the super-elite, agrees. He told an interviewer that “often the word ‘rich’ becomes a pejorative. It rhymes with ‘bitch.’ I’ve been in rooms and seen people stand up and say, ‘I’m Bob Kenny and I’m rich.’ And then they burst into tears.”
It is not just the super-rich who don’t like to talk about rising income inequality. It can be an ideologically uncomfortable conversation for many of the rest of us, too. That’s because even—or perhaps particularly—in the view of its most ardent supporters, global capitalism wasn’t supposed to work quite this way.
Until the past few decades, the received wisdom among economists was that income inequality would be fairly low in the preindustrial era—overall wealth and productivity were fairly small, so there wasn’t that much for an elite to capture—then spike during industrialization, as the industrialists and industrial workers outstripped farmers (think of China today). Finally, in fully industrialized or postindustrial societies, income inequality would again decrease as education became more widespread and the state played a bigger, more redistributive role.
This view of the relationship between economic development and income inequality was first and most clearly articulated by Simon Kuznets, a Belarusian-born immigrant to the United States. Kuznets illustrated his theory with one of the most famous graphs in economics—the Kuznets curve, an upside-down U that traces the movement of society as its economy becomes more sophisticated and productive, from low inequality, to high inequality, and back down to low inequality.
Writing in the early years of the industrial revolution, and without the benefit of Kuznets’s data and statistical analysis, Alexis de Tocqueville came up with a similar prediction: “If one looks closely at what has happened to the world since the beginning of society, it is easy to see that equality is prevalent only at the historical poles of civilization. Savages are equal because they are equally weak and ignorant. Very civilized men can all become equal because they all have at their disposal similar means of attaining comfort and happiness. Between these two extremes is found inequality of condition, wealth, knowledge—the power of the few, the poverty, ignorance, and weakness of the rest.”
If you believe in capitalism—and nowadays pretty much the whole world does—the Kuznets curve was a wonderful theory. Economic progress might be brutal and bumpy and create losers along the way. But once we reached that Tocquevillian plateau of all being “very civilized men” (yes, men!), we would all share in the gains. Until the late 1970s, the United States, the world’s poster child of capitalism, was also an embodiment of the Kuznets curve. The great postwar expansion was also the period of what economists have dubbed the Great Compression, when inequality shrank and most Americans came to think of themselves as middle class. This was the era when, in the words of Harvard economist Larry Katz, “Americans grew together.” That seemed to be the natural shape of industrial capitalism.
Even the Reagan Revolution rode on the coattails of this paradigm—trickle-down economics, after all, emphasizes the trickle. But in the late 1970s, things started to change. The income of the middle class started to stagnate and those at the top began to pull away from everyone else. This shift was most pronounced in the United States, but by the twenty-first century, surging income inequality had become a worldwide phenomenon, visible in most of the developed Western economies as well as in the rising emerging markets.
The switch from the America of the Great Compression to the America of the 1 percent is still so recent that our intuitive beliefs about how capitalism works haven’t caught up with the reality. In fact, surging income inequality is such a strong violation of our expectations that most of us don’t realize it is happening.
That is what Duke University behavioral economist Dan Ariely discovered in a 2011 experiment with Michael Norton of Harvard Business School. Ariely showed people the wealth distribution in the United States, where the top 20 percent own 84 percent of the total wealth, and in Sweden, where the share of the top 20 percent is just 36 percent. Ninety-two percent of respondents said they preferred the wealth distribution of Sweden to that of the United States today. Ariely then asked his subjects to give their ideal distribution of wealth for the United States. Respondents preferred that the top 20 percent own just 32 percent of total wealth, an even more equitable distribution than Sweden’s. When it comes to wealth inequality, Americans would prefer to live in Sweden—or in the late 1950s compared to the United States today. And they would like kibbutz-style egalitarianism best of all.
But the gap between the data and our intuition is not a good reason to ignore what is going on. And to understand how American capitalism—and capitalism around the world—is changing, you have to look at what is happening at the very top. That focus isn’t class war; it’s arithmetic. Larry Summers, the Harvard economist and former secretary of the Treasury, is hardly a radical. Yet he points out that America’s economic growth over the past decade has been so unevenly shared that, for the middle class, “for the first time since the Great Depression, focusing on redistribution makes more sense than focusing on growth.”
The skew toward the very top is so pronounced that you can’t understand overall economic growth figures without taking it into account. As in a school whose improved test scores are due largely to the stellar performance of a few students, the surging fortunes at the very top can mask stagnation lower down the income distribution. Consider America’s economic recovery in 2009–2010. Overall incomes in that period grew by 2.3 percent—tepid growth, to be sure, but a lot stronger than you might have guessed from the general gloom of that period.
Look more closely at the data, though, as economist Emmanuel Saez did, and it turns out that average Americans were right to doubt the economic comeback. That’s because for 99 percent of Americans, incomes increased by a mere 0.2 percent. Meanwhile, the incomes of the top 1 percent jumped by 11.6 percent. It was definitely a recovery—for the 1 percent.
There’s a similar story behind the boom in the emerging markets. The “India Shining” of the urban middle class has left untouched hundreds of millions of peasants living at subsistence levels, as the Bharatiya Janata Party discovered to its dismay when it sought reelection on the strength of that slogan; likewise, China’s booming coastal elite is a world apart from the roughly half of the population who still live in villages in the country’s vast hinterland.
This book is, therefore, an attempt to understand the changing shape of the world economy by looking at those at the very top: who they are, how they made their money, how they think, and how they relate to the rest of us. This isn’t "Lifestyles of the Rich and Famous", but it also isn’t a remake of Who Is to Blame?, the influential nineteenth-century novel by Alexander Herzen, the father of Russian socialism.
This book takes as its starting point the conviction that we need capitalists, because we need capitalism—it being, like democracy, the best system we’ve figured out so far. But it also argues that outcomes matter, too, and that the pulling away of the plutocrats from everyone else is both an important consequence of the way that capitalism is working today and a new reality that will shape the future.
Other accounts of the top 1 percent have tended to focus either on politics or on economics. The choice can have ideological implications. If you are a fan of the plutocrats, you tend to prefer economic arguments, because that makes their rise seem inevitable, or at least inevitable in a market economy. Critics of the plutocrats often lean toward political explanations, because those show the dominance of the 1 percent to be the work of the fallible Beltway, rather than of Adam Smith.
This book is about both economics and politics. Political decisions helped to create the super-elite in the first place, and as the economic might of the super-elite class grows, so does its political muscle. The feedback loop between money, politics, and ideas is both cause and consequence of the rise of the super-elite. But economic forces matter, too. Globalization and the technology revolution—and the worldwide economic growth they are creating—are fundamental drivers of the rise of the plutocrats. Even rent-seeking plutocrats—those who owe their fortunes chiefly to favorable government decisions—have also been enriched partly by this growing global economic pie.
America still dominates the world economy, and Americans still dominate the super-elite. But this book also tries to put U.S. plutocrats into a global context. The rise of the 1 percent is a global phenomenon, and in a globalized world economy, the plutocrats are the most international of all, both in how they live their lives and in how they earn their fortunes.
Henry George, the nineteenth-century American economist and politician, was an ardent free trader and such a firm believer in free enterprise that he opposed income tax. For him, the emergence of his era’s plutocrats, the robber barons, was “the Great Sphinx.”
“This association of poverty with progress,” he wrote, “is the great enigma of our times. . . . So long as all the increased wealth which modern progress brings goes but to build up great fortunes, to increase luxury and make sharper the contrast between the House of Have and the House of Want, progress is not real and cannot be permanent.”
A century and a half later, that Great Sphinx has returned. This book is an attempt to unravel part of that enigma by opening the door to the House of Have and studying its residents.
A Financial Times Best Book of the Year
Shortlisted for the Lionel Gelber Prize
“Just in time – if not too late – comes this definitive examination of inequality in our time. I think it’s the bookend to the Hacker-Pierson book, Winner-Take-All Politics. These two are essential reading for anybody who wants to understand where we are.”
—Bill Moyers, Moyers & Company
“Freeland is an insightful and indefatigable reporter… Freeland concludes by reminding us of Venice, which 700 years ago made itself a wealthy imperial power through commerce. The city fell into decline when its own plutocrats tried to cement their advantages, thereby stifling the openness that accounted for the society’s dynamism. Today, of course, Venice is sinking. Freeland’s book will make people wonder if we are, too.” --Bloomberg Businessweek
“Timely and absorbing... this is no voyeuristic glimpse into the fabulous lifestyles of the rich and famous. Freeland charts the rise of this class by examining global trends and exploring the consequences of the creation of such a money-laden elite, shifting smoothly from dense academic studies and interviews with George Soros to grappling with the success of Lady Gaga… Her findings are fleshed out with fine research, strong statistics and neat nuggets of information.” --The Guardian (UK)
“Plutocrats isn’t a book about the lifestyles of the fabulously wealthy, but rather the global trends the book’s titular class surfed to success… it’s rife with impressive analysis. In a chapter on the so-called superstar effect—“the tendency of both technological change and globalization to create winner-take-all economic tournaments”—Ms. Freeland glides from the writings of Soviet intellectuals, MIT and Princeton economists and the apostle Matthew to the careers of 18th century diva Elizabeth Billington, Lady Gaga, white-shoe lawyer David Boies, Yves St. Laurent, DreamWorks CEO Jeffrey Katzenberg and Albert Einstein… the thoroughness with which Ms. Freeland surrounds the ideas is satisfying.” --The New York Observer
“A portrait of the ultra-rich that few other journalists have had the access to capture… Unlike some critics on the left, Freeland does not vilify her super-rich protagonists – a nonpartisan approach that helps make Plutocrats harder to ignore.” --USA Today
“Rising inequality is one of the most pressing issues of our time. Chrystia Freeland's Plutocrats provides us with a glimpse of the lives of America's elites and a disquieting look at the society that produces them. This well-written and lively account is a good primer for anyone who wants to understand one extreme of America today."
--Joseph Stiglitz, author of The Price of Inequality; University Professor, Columbia University
"Mix crisp economics, ripe history, and two pinches of salty gossip, and you have the flavor of Chrystia Freeland’s entertaining book. From the opulent Bradley Martin ball of 1897 to its modern echoes in Sun Valley and Davos, Plutocrats chronicles the habits of the workaholic overclass—its taste for British public schools, its immodest philanthropy, its fundamental rootlessness. Even as she describes this gilded tribe, Freeland advances a paradoxical warning. Open societies may allow super-achievers to pile up extraordinary riches—and to feel that they have more or less deserved them. But the more these meritocrats succeed, the more likely they are to entrench their own offspring at the top of the heap, negating the very meritocracy that afforded them their chances. Already in the United States, graduating from college is more closely linked to having wealthy parents than to grades in high school. When class matters more than going to class, Freeland’s message must be treated with the utmost seriousness."
--Sebastian Mallaby, author of More Money than God: Hedge Funds and the Making of a New Elite
"Our world increasingly revolves around global elites who not only have an oversized effect on our politics but also set the trends and furnish us with the dominant discourse. In this delightful book, Chrystia Freeland tells the story of how we got here and what distinguishes our elites from those of previous epochs. Most importantly, she explains why the elites' dominance, even when it appears benign, is a challenge to our institutions and gives us clues about how we can overcome it."
--Daron Acemoglu, co-author of Why Nations Fail; economics professor, Massachusetts Institute of Technology
“The world’s wealthy elite, is more wealthy, more knit together, more separate from their fellow citizens and probably more powerful than ever before. This very important book describes their lives and more important how their lives affect all of ours. It should be read by anyone concerned with how their world is being shaped and how it will evolve.”
--Lawrence Summers, Former U.S. Treasury Secretary; Charles W. Eliot University Professor, Harvard University
"Chrystia Freeland has written a fascinating account of perhaps the most important economic and political development of our era: the rise of a new plutocracy. She explains that today’s wealthy are different from their predecessors: more skilled and more global; and more often employees than owners, notably so in finance and high technology. By putting together stories of individuals with reading of the scholarly evidence, she gives us a clear view of what many will view as a not so brave new world."
--Martin Wolf, Chief Economics Commentator for the Financial Times
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