January 4, 2013 |
Reviewed:Plutocrats: The Rise of the New Super-Rich and the Fall of Everyone Else, by Chrystia Freeland (Doubleday, Canada 2012)
Last
year the Occupy movement brought the subject of inequality into public
debate, and especially the inequality between those of us in the 99 per
cent and the happy few in the one per cent. But Chrystia Freeland has
been studying the happy few for years, and has spent many hours talking
with some of their most famous and powerful members.
The result is
a book full of surprises and insights. Today's plutocrats are the
latest variation on an old theme, and at the same time they're
strikingly new in many ways.
Societies have supported plutocratic
classes at least since ancient Rome, and the Gilded Age of the US after
the Civil War presaged our own: A rising class of self-made men,
imaginative exploiters of new technology and wider trade. Then it was
the telegraph and the railroad; now it's the internet and the container
ship.
Freeland's plutocrats are mostly self-made also, and
overwhelmingly male; one very rich man suggested to her that women lack
the "killer instinct" needed for real success. But they are not the idle
heirs of rich parents. The "working rich" are a distinct class: smart,
ambitious and often outsiders.
What's more, they represent a
dramatic change from the 19th and early 20th century, Freeland argues.
Then, the conflict was between capital and workers, with workers doomed
to lose because they couldn't own the means of production.
The
communist revolutions were supposed to transfer those means to the
workers, but instead transferred them to a new class of upstart
intellectuals and technical experts. She cites Milovan Djilas, Tito's
second in command in communist Yugoslavia. In the 1960s Djilas wrote
"The New Class" to describe this phenomenon as a corruption of communist
orthodoxy; Tito threw him in jail.
They didn't come entirely
out of the blue. Freeland documents the gradual but decisive shift in
fields like finance, which since the age of the superstar had been
regulated to the point of boredom. This came along with a new struggle:
Now it wasn't capital versus labour, but capital versus talent.Even more
ironically, the same new intellectual class now runs capitalism -- with
the exception of the princelings of the Chinese Communist Party, the
billionaire sons and grandsons of Mao's old proletarian comrades. But
elsewhere, smart young men got jpossession of ex-Soviet resources, or an
operating system for newfangled personal computers, and within months
were rich beyond imagining.
The age of the superstar
Companies
were no longer stuck with local workers and their high wages.
Globalization meant they could outsource the work to anywhere in the
world, whether Chinese special economic zones or Mexican maquiladoras.
And
by the 1970s we were in the age of the superstar: the baseball player,
singer, or CEO whose talent could make the difference between corporate
success and failure. Talent couldn't be bolted to the shop floor, and
superstars in any field could name their price.
Hence, says
Freeland, CEOs' salaries began to rise while their workers' pay
stagnated or fell. Financial superstars set up their own hedge funds,
and drew investors by the sheer power of their reputations. The
superstar entrepreneurs thrive in a globalized economy, equally at home
in Beijing, Moscow, New York or London.
In fact, they are now so
rich that they form their own economy, a "plutonomy" producing goods and
services just for them: private jets, monster yachts, and armies of
professionals dedicated to making them comfortable.
Freeland's
interest in this super-elite is infectious. They really are smart
people, superbly educated and culturally sophisticated. They attended
the best universities in the world and did brilliantly in fields like
mathematics and physics. They understand their own success; coming often
from working-class or middle-class backgrounds, they embody the old
Horatio Alger dream of rags to riches. Modestly, they think anyone could
have done the same, with a lucky break or two and a lot of hard work.
This
is where the plutocrats really part company from the rest of us --
including the bottom 0.9 of the top one per cent. Living in their own
higher world, with its own economy, they have only a fading sense of
what non-plutocrats are like. Mitt Romney's famous dismissal of the 47
per cent was actually an understatement. The plutocrats don't think much
even of the mere multimillionaires scrambling about in hopes of
breaking into the billionaires' circle.
Freeland is keenly aware
of the impact of inequality, but she doesn't see the 99 per cent as the
plutocrats' biggest enemies; it's the aspiring plutocrats who are
beginning to see how the deck is stacked against them. It will be
interesting to see if they decide to take serious steps against their
superiors.
Those moderate Canadian plutocrats
Freeland
gives sympathetic attention to former prime minister Paul Martin
(himself a multimillionaire) and outgoing Bank of Canada head Mark
Carney, who sympathize with the Occupy movement and support the bank
regulation that most plutocrats still reject. But such attitudes are
rare among the plutocracy.
In the meantime, the plutonomy is not
just booming, but skewing the still-depressed economy the rest of us
live in. Many of the plutocrats reflect soberly on Andrew Carnegie's
comment that the man who dies rich dies disgraced. Many, including
George Soros, Bill Gates, and Warren Buffett, are giving away their
billions to various causes and charities.
Individually, those
causes may be admirable (Soros has worked hard to promote democracy in
eastern Europe). Collectively, those causes may be compromised and
diverted from their original purposes by the sheer quantity of
plutocratic money available. And of course many billionaires like the
Koch brothers are pumping money into political causes that promise to
keep their taxes low while suffocating government programs for the rest
of us.
This is just one form of plutocratic "rent-seeking" --
getting one's businesses into a monopoly position, or lowering their
operational costs, through favourable legislation. Every business, after
all, wants to improve its own working conditions, just as every worker
does.
But what is good for one's business is not always good for
the country. Rent-seeking simply runs up the plutocrats' revenues while
doing nothing for their customers. And it never occurs to such
plutocrats that their success ultimately stems from the system created
and maintained by the rest of society. As Barack Obama observed, "You
didn't build that."
Freeland makes a useful contrast between
plutocrats who are pro-market and those who are pro-business: In the
market, companies compete, innovate, or die if they can't. This is the
"creative destruction" that brings genuine improvements in living
standards, and it's still at work. As one plutocrat told Freeland, the
big companies used to eat the little ones. Now the swift eat the slow.
But
in business, one tries to protect one's own company by eliminating the
competition (and the innovation). Historically, innovators become
consolidators and rent-seekers, creating a new privileged class of their
children and hangers-on.
Plutocracy 2.0
That
second generation, Plutocracy 2.0, is already with us, especially in
the U.S. Freeland notes that until the 1970s, sizable numbers of Ivy
League graduates went into science, the arts, and public service. Few
went into finance, because it paid little better than most other fields.
But as superstars came to dominate finance, and their incomes rose,
more bright young graduates migrated to the field.
Now, she says,
the median earnings for Harvard men in 2005 were $162,000. "But almost
eight per cent of the men had labor market income above $1 million,
putting them in the top 0.5 per cent. An important driver of the gap was
the split between the bankers and everyone else, with financiers
earning 195 per cent more than their classmates."
In effect, the
plutonomy is drawing the next generation's best and brightest into its
orbit, leaving everything else (including higher education) to the fools
and saints willing to stay in the 99 per cent. More and more of those
graduates are themselves the children -- bright or not -- of plutocrats.
I
saw this, without understanding it, as an alumnus-recruiter for
Columbia University in the 1990s. The teenage applicants I interviewed
here in Vancouver were smart, well travelled, and positively placid
about the cost of tuition (then around $30,000 a year; now, much more).
What was more, they considered Columbia as a fallback if they couldn't
get into Harvard or Yale, where the real connections could be made.
So
it's the plutocracy's world; we just live in it. It funds our politics,
shapes our societies, owns our universities, and outsources our jobs.
Many individual plutocrats are personally admirable, but their
collective efforts inevitably crowd the rest of us into poverty. Their
offspring may do well, but most will regress to the mean, becoming
merely rich mediocrities. Unless some talented political superstar
emerges (perhaps the renegade child of a plutocrat) and turns our
society around, such mediocrities will flourish for the next generation
or two.
Perhaps the Chinese have the only way to limit the
plutocracy. As Freeland says, "China's plutocrats don't fight the state
because they are the state -- and when any of them forget that, they are
treated with summary brutality: between 2003 and 2011, at least 14
Chinese billionaires were executed."
Crawford Kilian is a contributing editor of The Tyee.
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