Elites don’t sabotage the system that created them on purpose. But even smart, farsighted plutocrats can be betrayed by their own short-term self-interest into undermining the foundations of their own society’s prosperity. In 1343, La Serenissima petitioned the pope for permission to trade with the Muslim world. Here is how the city made its case: “Since, by the Grace of God, our city has grown and increased by the labors of merchants creating traffic and profits for us in diverse parts of the world by land and sea and this is our life and that of our sons, because we cannot live otherwise and know not how except by trade, therefore we must be vigilant in all our thoughts and endeavors, as our predecessors were, to make provision in every way lest so much wealth and treasure should disappear.”
Intel founder Andy Grove, with his faith in the virtue of paranoia, could not have made a better argument for the importance of trade and traders to the city’s continued prosperity. But it was this same elite who, a few decades earlier, had begun the process of economic exclusion that would eventually transform La Serenissima from a trading power to a museum. Gus Levy, who was the senior partner of Goldman Sachs between 1969 and 1976, a decade we are coming to look back on as that firm’s golden era, said his philosophy was one of “long-term greed.” If the plutocrats are smart, that’s the philosophy they’ll adopt today. But, as even Levy’s successors at mighty Goldman Sachs are learning, that can be harder than it sounds.
ACKNOWLEDGMENTS
All the errors and oversights in this book are, of course, my own. But its virtues build on the work I’ve done over the past two decades as a journalist and the people who taught me while I did it. In particular, this book draws on my work for the Financial Times covering Russia, Ukraine, and Eastern Europe, and on Sale of the Century, my book about the rise of the oligarchs. Work I did for the Financial Times in the United States, particularly a profile of George Soros and an essay on Canadian banks, also inform this book. My Atlantic cover story on the global super-elite was my first public articulation of the ideas in this book; research I did for my Atlantic essay on Skolkovo, the Russian Silicon Valley, also proved useful. My weekly column for Reuters and the International Herald Tribune was a valuable space for working out my thinking, as were Reuters video interviews and the Reuters magazine.
I am grateful to many colleagues, editors, and sparring partners. Chief among them: Martin Wolf, Alison Wolf, John Lloyd, David Hoffman, John Gapper, Felix Salmon, Jim Impoco, Jim Ledbetter, Mike Williams, Stuart Karle, Alison Smale, Anatole Kaletsky, David Rohde, David Wighton, Gary Silverman, Francesco Guerrera, John Thornhill, Alan Beattie, Krishna Guha, Robert Thomson, Annalena McAfee, Andrew Gowers, Richard Lambert, Daniel Franklin, Sebastian Mallaby, Fareed Zakaria, David Frum, Arianna Huffington, Eliot Spitzer, Steve Brill, Anya Schiffrin, Steve Clemons, Susan Glasser, and Ali Velshi. Dennis Gartman and Joshua Brown, two business thinkers whose work I admire, generously allowed me to quote their writing at length. Steve Adler, my boss, has been uniquely and crucially supportive, providing vital intellectual guidance and emotional encouragement. I owe a special debt to Don Peck, who edited my 2011 Atlantic essay and read and improved a first draft of this book; James Bennett, who commissioned the piece; and to David Bradley.
This book draws on a vast body of academic research. Some scholars have become important sounding boards and advisers, too. They include Larry Summers, Daron Acemoglu, Emmanuel Saez, Jacob Hacker, Alan Krueger, Branko Milanovic, Daniel Kaufmann, Ian Bremmer, Peter Lindert, Michael Spence, Joe Stiglitz, Theda Skocpol, Anders Aslund, Roman Frydman, Rob Johnson, Sergei Guriev, Michael McFaul, Ernesto Zedillo, John Van Reenen, Raghuram Rajan, Shamus Khan, and the late Yegor Gaidar.
I sometimes describe my own political philosophy as being simply “Canadian,” and my Maple Leaf community has been central to my thinking. Important friends and teachers are Roger Martin, Geoff Beattie, Mark Carney, Diana Carney, Paul Martin, Dominic Barton, Mark Wiseman, David Thomson, John Stackhouse, Anne McLellan, Annalise Acorn, Don Tapscott, and Morris Rosenberg.
Many plutocrats have helped me to understand their world and some have become friends (though that does not mean we always agree). They include: George Soros, Eric Schmidt, Victor Pinchuk, David and Mary Boies, Nikesh Arora, Jeff Immelt, Peter Weinberg, Mark Gallogly, Roger Altman, David Rubenstein, Bill Ford, Bob Rubin, Klaus Schwab, Aditya Mittal, Mikhail Fridman, Vladimir Gusinsky, and Igor Malashenko.
My editors, researchers, and agents have been amazingly committed. Above all, the wise and brilliant Ann Godoff has steered this book through many iterations and tolerated my efforts to appoint her my surrogate mother. Peter Rudegeair, my erudite and fastidious researcher, has done a huge amount of research and has been an essential intellectual sounding board. Ben Platt, Ann’s assistant, will one day run Penguin. He has been terrifically supportive together with Peter and rescued the endnotes. From Olympus, Marjorie Scardino and John Makinson blessed this project early on. My agents, first Pat Kavanagh and Zoë Pagnamenta and now Andrew Wylie, found an audience for me and encouraged me to keep going. Andrew, who never sleeps, read my drafts seemingly before they were written.
Several colleagues and friends went above and beyond the call of duty to help pin down elusive facts. I am especially grateful to my colleagues Amy Stevens and Nate Raymonds for their legal expertise and to Kieran Murray, Dave Graham, Cyntia Barrera, and Krista Hughes in Latin America. Mark MacKinnon, a colleague from the Globe and Mail, generously shared his China expertise. Boris Davidenko, of Forbes Ukraine, helped with facts about my second homeland. Four professional fact-checkers—Rachael Brown, Ellie Smith, Nicole Allen, and Esther Yi—combed through the book collaboratively, meticulously, and at very short notice.
My best friends have been unflagging cheerleaders and sources of great ideas. Thank you Alison Franklin, Roberta Brzezinski, Lucan Way, Annette Ryan, Karen Berman. The Ukrainian women of Nannies, Inc., particularly Nadiya Basaraba and Ira Andreychuk, have kept my kids alive during the gestation of this book, which has often seemed to be my fourth child.
Finally, I am more dependent on my extended family than anyone else I know. My aunts Natalka Chomiak, Maria Hopchin, and Chrystia Chomiak, and my mother-in-law, Barbara Bowley, have been mothers and intellectual supporters throughout this project. My father, Don Freeland, and my sister Natalka Freeland have been critical intellectual and moral influences. My sister Anne Freeland and my cousin-sisters Katrusia Ensslen and Eva Himka have taken care of me and my brood. Above all, whatever is good about this book is thanks to my husband and writing comrade, Graham Bowley, and the three most important people in our lives—Natalka Bowley, Halyna Bowley, and Ivan Bowley.
NOTES
INTRODUCTION
“The poor enjoy what the rich” Andrew Carnegie, “Wealth,” North American Review 148:391 (June 1889).
“I was once told” Branko Milanovic, The Haves and the Have-Nots: A Brief and Idiosyncratic History of Global Inequality (Basic Books, 2011), p. 84.
“I didn’t attack them for their success” Bill Clinton, Back to Work: Why We Need Smart Government for a Strong Economy (Knopf, 2011), p. 93.
“often the word ‘rich’” Graeme Wood, “Secret Fears of the Super-Rich,” The Atlantic, April 2011.
“If one looks closely” Alexis de Tocqueville, Memoir on Pauperism: Does Public Charity Produce an Idle and Dependent Class of Society? 1835.
“Americans grew together” Claudia Goldin and Lawrence F. Katz, The Race Between Education and Technology (Belknap Press, 2008), p. 87.
Ariely showed people Michael I. Norton and Dan Ariely, “Building a Better America—One Wealth Quintile at a Time,” Perspectives on Psychological Science 6 (2011).
“for the first time since the Great Depression” For a more developed take on this, see Lawrence Summers, “The fierce urgency of fixing economic inequality,” Reuters, November 21, 2011.
Look more closely at the data Emmanuel Saez, “Striking It Richer: The Evolution of Top Incomes in the United States (Updated
with 2009 and 2010 Estimates),” March 2, 2012. http://elsa.berkely.edu/~saez/saez-UStopincomes-2010.pdf
“This association of poverty with progress” Henry George, Progress and Poverty: An Inquiry in the Cause of Industrial Depressions and of Increase of Want with Increase of Wealth; The Remedy (Cambridge University Press, reprint, 2009), p. 8.
CHAPTER 1: HISTORY AND WHY IT MATTERS
USA Today advised its readers Deirdre Donahue, “Able, Entertaining The Manny Does Triple Duty,” USA Today, June 18, 2007.
“There’s so much money” Several CF interviews with Holly Peterson, 2009–2010.
In 2005, Bill Gates was worth Robert Reich, Supercapitalism: The Transformation of Business, Democracy, and Everyday Life (Knopf, 2007), p. 113.
A 2011 OECD report showed “Divided We Stand: Why Inequality Keeps Rising,” OECD report, December 2011.
“I’ve never understood in my life” CF interview with Naguib Sawiris, November 18, 2011.
“the World is dividing into two blocs” Ajay Kapur, Niall Macleod, and Narendra Singh, “Plutonomy: Buying Luxury, Explaining Global Imbalances,” Citigroup Global Markets Equity Strategy report, October 16, 2005.
“The U.S. stock markets and the U.S. economy” James Freeman, “The Bullish Case for the U.S. Economy,” Wall Street Journal, June 4, 2011.
“very distorted” Alan Greenspan, interview on NBC’s Meet the Press, August 1, 2010.
“consumer hourglass theory” Ellen Byron, “As Middle Class Shrinks, P&G Aims High and Low,” Wall Street Journal, September 12, 2011.
On February 10, 1897, seven hundred members Sven Beckert provides an excellent description of the Bradley Martin ball in The Monied Metropolis (Cambridge University Press, 2001) in his smart and highly readable account of New York City and the consolidation of the American bourgeoisie, pp. 1–2.
“British history is two thousand years old” Walter L. Arnstein, “Queen Victoria’s Diamond Jubilee,” American Scholar, September 22, 1997.
“It is here; we cannot evade it” All Andrew Carnegie quotations come from “Wealth,” North American Review 148:391 (June 1889).
“We have no paupers” Thomas Jefferson, letter to Dr. Thomas Cooper, September 10, 1814. http://www.yamaguchy.com/library/jefferson/cooper.html.
“nothing struck me more” Alexis de Tocqueville, Democracy in America (Penguin Classics, 2003), p. 11.
Data painstakingly assembled by economic historians Peter Lindert and Jeffrey Williamson. “American Incomes Before and After the Revolution” (NBER Working Paper No. 17211, July 2011).
“In America nearly every man” Mark Twain and Charles Dudley Warner, “Author’s Preface to the London Edition,” The Gilded Age: A Tale of Today (Chatto & Windus, 1897).
In 1980, the average U.S. CEO “CEO Pay and the 99%,” AFL-CIO Executive PayWatch report, April 19, 2012.
Milanovic, the World Bank economist Branko Milanovic, “Global Inequality: From Class to Location, from Proletarians to Migrants” (World Bank Development Research Group Policy Research Working Paper 5820, September 2011).
“Britain’s classic industrial revolution” Chrystia Freeland, “The Rise of the New Global Elite,” The Atlantic, January/February 2011.
“The rate of technological change” CF interview with Joel Mokyr, August 19, 2010.
“The Treaty of Detroit” to the “Washington Consensus” Frank Levy and Peter Temin, “Inequality and Institutions in 20th-Century America,” MIT Economics Department Working Paper No. 07-17, June 2007.
“The bottom line: we may not be able” Conversation with author at Yale conference on the budget and inequality, April 30, 2012.
“It is structurally much more extreme” Chrystia Freeland, “Some See Two New Gilded Ages, Raising Global Tensions,” International Herald Tribune, January 23, 2012.
“We are seeing much more rapid growth in developing countries” Ibid.
A survey of nearly ten thousand Michael E. Porter and Jan W. Rivkin, “Prosperity at Risk: Findings of Harvard Business School’s Survey on U.S. Competitiveness,” Harvard Business School, January 2012.
“When a company is stressed and has issues” CF interview with Michael Porter, January 17, 2012.
“Although the overall pie is getting bigger” CF interview with John Van Reenen, January 13, 2012.
“Conservatively, it explains one-quarter” David Autor, David Dorn, and Gordon Hanson,“The China Syndrome: Local Labor Market Effects of Import Competition in the United States,” MIT working paper, May 2012.
“lousy and lovely” jobs Maarten Goos and Alan Manning, “Lousy and Lovely Jobs: The Rising Polarization of Work in Britain,” Review of Economics and Statistics 89:1 (February 2007).
A recent investigation of the direct employment impact of the iPod Greg Linden, Jason Dedrick, and Kenneth L. Kraemer, “Innovation and Job Creation in a Global Economy: The Case of Apple’s iPod,” Journal of International Commerce and Economics 3:1 (May 2011).
Even though the devices are made in China Greg Linden, Jason Dedrick, and Kenneth L. Kraemer, “Who Captures Value in a Global Innovation System? The Case of Apple’s iPod,” Communications of the ACM 52:3 (2007).
Consider, for example, the argument Caterpillar See James R. Hagerty and Kate Linebaugh, “In U.S., a Cheaper Labor Pool,” Wall Street Journal, January 6, 2012.
“Under the law of competition” Carnegie, “The Gospel of Wealth.”
“The economic theory is very clear” CF interview with Joe Stiglitz, January 26, 2012.
“Well, first off, as a citizen of the world” CF interview with Steve Miller, January 26, 2012.
“These things have been going on for a couple of decades” Freeland, “Some See Two New Gilded Ages.”
“India’s gilded age is going to be a combination” CF interview with Ashutosh Varshney, November 13, 2011.
The two gilded ages can also get in each other’s way See Mark Landler, “Chinese Savings Helped Inflate American Bubble,” New York Times, December 25, 2008.
“In the long run, we are in good shape” CF interview with John Van Reenen, January 13, 2012.
“This is an exciting story” Jim O’Neill, The Growth Map: Economic Opportunity in the BRICs and Beyond (Penguin, 2011), pp. 251–52.
“Wealth will be created but also spent” Reader feedback on “The Second Economy,” McKinsey Quarterly Facebook post, November 1, 2011. http://www.facebook.com/note.php?note_id=10150536805679908.
“I only hope you are right” Ibid.
Until a few years ago, the reigning theory Richard A. Easterlin, “Does Economic Growth Improve the Human Lot? Some Empirical Evidence,” in Nations and Households in Economic Growth: Essays in Honor of Moses Abramowitz, eds. Paul A. David and Melvin W. Reder (Academic Press, 1974).
“Surprisingly, at any given level of income” Angus Deaton, “Income, Health, and Well-Being Around the World: Evidence from the Gallup World Poll,” Journal of Economic Perspectives 22:2 (Spring 2008).
Two separate studies of China See John Knight and Ramani Gunatilaka, “Great Expectations? The Subjective Well-Being of Rural-Urban Migrants in China,” Oxford University Economics Department Working Paper 332, April 2007; and Martin K. Whyte and Chunping Han, “Distributive Justice Issues and the Prospects for Unrest in China,” paper prepared for conference on “Reassessing Unrest in China,” Washington, D.C, December 11–12, 2003.
Betsey Stevenson and Justin Wolfers have found Betsey Stevenson and Justin Wolfers, “Economic Growth and Subjective Well-Being: Reassessing the Easterlin Paradox” (Brookings Papers on Economic Activity, Spring 2008).
I caught a glimpse of it at a World Bank panel “Global Development Debate: Jobs and Opportunities for All,” World Bank Institute conference, Washington, D.C., September 22, 2011.
“If you join the union” Ariel Levy. “Drug Test: Can One Self-Made Woman Reform Health Care for India, and the World?,” The New Yorker, January 2, 2012.
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