Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else

by Chrystia Freeland

  “The relative fall in the incomes to be earned” Marshall, Principles of Economics, Book VI, Chapter XII, Section 11.

  China’s Ming Dynasty, which ruled the Middle Kingdom Patricia Buckley Ebrey, The Cambridge Illustrated History of China (Cambridge University Press, 2010), p. 201.

  “A striking instance is that of writing” Marshall, Principles of Economics, Book VI, Chapter XII, Section 9.

  “The number of persons who can be reached” Ibid., Section 11.

  “Even adjusted for 1981 prices” Sherwin Rosen, “The Economics of Superstars,” American Economic Review 71:5 (December 1981), p. 857.

  In 1900, nearly all spectator entertainment Gerben Bakker, “Time and Productivity Growth in Services: How Motion Pictures Industrialized Entertainment,” LSE working paper 119/09, March 2009, p. 7 and table B1. http://eprints.lse.ac.uk/27866/1/WP119.pdf.

  $670,000 to produce Ted Okuda and David Maska, Charlie Chaplin at Keystone and Essanay: Dawn of the Tramp (iUniverse, 2005).

  In 1859, Anthony Trollope Francis Evans Baily, Six Great Victorian Novelists (Kennikat Press, 1969).

  “an entirely new economic model” Chris Anderson, “The Long Tail,” Wired, October 2004.

  “I’m a pilot, so I understand airplane economics” CF interview with Eric Schmidt, February 23, 2011.

  median salary for American lawyers William D. Henderson, “Three Generations of U.S. Lawyers: Generalists, Specialists, Project Managers,” Maryland Law Review, vol. 70, no. 1, 2011.

  In 2011, a year when top partner paydays See Nathan Koppel and Vanessa O’Connell, “Pay Gap Widens at Big Law Firms as Partners Chase Star Attorneys,” Wall Street Journal, February 8, 2011; and Vanessa O’Connell, “Big Law’s $1,000-Plus an Hour Club,” Wall Street Journal, February 23, 2011.

  David Boies’s hourly rate Vanessa O’Connell, “With Oracle and Dodgers Waiting, Boies Not Ready to Retire,” Wall Street Journal, August 1, 2011.

  average starting salary for a law school graduate See the National Association of Law Placement’s Employment Report and Salary Survey for the Class of 2010. http://www.nalp.org/uploads/Classof2010SelectedFindings.pdf.

  average lawyer earned May 2011 National Occupational Employment and Wage Estimates, Bureau of Labor Statistics. http://www.bls.gov/oes/current/oes231011.htm.

  The most advanced example of this trend is e-discovery See John Markoff, “Armies of Expensive Lawyers, Replaced by Cheaper Software,” New York Times, March 4, 2011.

  (Meanwhile, DLA Piper, one of the law firms) See Nathan Koppel and Vanessa O’Connell. “Pay Gap Widens at Big Law Firms as Partners Chase Star Attorneys,” Wall Street Journal, February 8, 2011.

  In the age of the global super-elite, even dentists Joan Juliet Buck, “Drill, Bébé, Drill,” New York Times T Magazine, August 10, 2011.

  Her 2011 single “Born This Way” Dorothy Pomerantz, “Lady Gaga Tops Celebrity 100 List,” Forbes, May 18, 2011; “The Celebrity 100,” Forbes, June 6, 2011.

  Between May 2010 and May 2011 According to the Census Bureau, real median household income was $49,445 in 2010.

  Mrs. Billington’s fabulous £10,000 income CF e-mail correspondence with Peter Lindert, June 25, 2012.

  Mickey Mantle, the New York Yankees star hitter Baseball Almanac, www.baseball-almanac.com/players/player.php?p=mantlmi01.

  Compare that with Alex Rodriguez USA Today Salaries database, http://content.usatoday.com/sportsdata/baseball/mlb/salaries/player/alex-rodriguez.

  Adjusted for inflation, Rodriguez’s earnings According to the Major League Baseball Players Association, the average salary for a Major Leaguer was $3,095,183 in 2011.

  In a study of concert ticket prices Alan B. Krueger, “The Economics of Real Superstars: The Market for Rock Concerts in the Material World,” Journal of Labor Economics 23:1 (2005).

  “very, very lucrative” Chrystia Freeland, “The Rise of Private News,” Columbia Journalism Review, July/August 2010.

  As late as 1920 Mary Schenck Woolman, Clothing—Choice, Care, Cost (Lippincott, 1922).

  “For much of the twentieth century, labor and capital” Roger L. Martin and Mihnea C. Moldoveanu, “Capital Versus Talent: The Battle That’s Reshaping Business,” Harvard Business Review, July 2003.

  “In the knowledge society the employees” Drucker, “The Age of Social Transformation.”

  Wall Street investors, such as hedge fund managers Steven N. Kaplan and Joshua Rauh, “Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?,” Review of Financial Studies 23:3 (March 2010). pp. 1004–50.

  “When I graduated from college” CF interview with David Rubenstein, April 27, 2011.

  But the real mass revolution sparked by the rise of entrepreneurial finance Christine Harper, “Goldman CEO Blankfein Gets $67.9 Million Bonus, New Pay Record,” Bloomberg News, December 24, 2007; David Segal, “$100 Million Payday Poses Problem for Pay Czar,” New York Times, August 1, 2009.

  We got a glimpse of that way of thinking when federal agents Suzanna Andrews, “How Rajat Gupta Came Undone,” Bloomberg Businessweek, May 23, 2011.

  twenty thousand people competed Michael Klein and Michael D. Schaffer, “City Slivers Seen on Philly ‘Idol,’” Philadelphia Inquirer, January 17, 2008. Just 0.1% of Philadelphia contestants made it to the next round of American Idol auditions; in contrast, 7.1% of applicants to Harvard were admitted that year.

  Merton found that scientists who published frequently Merton, “The Matthew Effect,” pp. 56–63.

  You can see the same power of accidental celebrity at work Alan T. Sorensen, “Bestseller Lists and Product Variety,” The Journal of Industrial Economics 55:4 (December 2007), pp. 715–38.

  Matthew Salganik and Duncan Watts tested Matthew Salganik and Duncan Watts, “Leading the Heard Astray: An Experimental Study of Self-Fulfilling Prophecies in an Artificial Cultural Market,” Social Psychology Quarterly, vol. 71, no. 4, 2008, pp. 338–355.

  sent a memo Jeffrey Katzenberg, “The World Is Changing: Some Thoughts on Our Business,” Walt Disney Company memorandum, January 11, 1991. http://www.lettersofnote.com/2011/11/some-thoughts-on-our-business.html.

  The ideas Katzenberg laid out in his 1991 memo Eduardo Porter and Geraldine Fabrikant, “A Big Star May Not a Profitable Movie Make,” New York Times, August 28, 2006.

  The terms of the deal were undisclosed Bernard Weinraub, “Disney Settles Bitter Suit with Former Studio Chief,” New York Times, July 8, 1999. Dick Tracy cost Disney $47 million to produce. See James B. Stewart, DisneyWar (Simon & Schuster, 2005), p. 111.

  “the stewards of a rich man” Smith, Wealth of Nations, Book V, Chapter I, Section 107.

  a seminal paper published in 1931 Gardiner C. Means, “The Separation of Ownership and Control in American Industry,” The Quarterly Journal of Economics,1931.

  “the princes of industry” Adolf Augustus Berle and Gardiner Coit Means, The Modern Corporation and Private Property (Transaction Publishers, 1932), p. 4.

  “different from and often radically opposed to” Ibid., p. 114.

  Berle and Means were leading architects of the New Deal Glenn Fowler, “Gardiner C. Means, 91, Is Dead; Pricing Theory Aided U.S. Policy,” New York Times, February 18, 1988.

  “The average salary plus bonus for top-quartile CEOs” Michael C. Jensen and Kevin J. Murphy, “Performance Pay and Top-Management Incentives,” Journal of Political Economy 98:2 (April 1990), pp. 225–64.

  The companies under their stewardship Roger Martin, “The Age of Customer Capitalism,” Harvard Business Review, January 2010. Figures on America’s GDP from 1932 to 1976 come from Angus Maddison.

  By one measure, the academic advocates of pay for performance Carola Frydman and Dirk Jenter, “CEO Compensation,” Annual Review of Financial Economics 2 (December 2010), pp. 75–102.

  Between 1993 and 2003 the top five executives Lucian Bebchuk and Yaniv Grinstein, “The Growth of Executive Pay,” Oxford Review of Economic Policy 21:2 (2005), p. 283.

&
nbsp; These were, of course, the decades when the 1 percent Marianne Bertrand, “CEOs,” Annual Review of Economics 1:1 (2009), p. 130.

  Until the early 1980s, the chief executive earned Kaplan and Rauh, “Wall Street and Main Street,” pp. 1004–50.

  “A 10 percent increase” Brian Bell and John Van Reenen, “Firm Performance and Wages: Evidence from Across the Corporate Hierarchy,” CEP Discussion Paper No. 1088, May 2012. http://cep.lse.ac.uk/pubs/download/dp1088.pdf.

  The surge in CEO salaries Kevin J. Murphy and Jan Zabojnik, “Managerial Capital and the Market for CEOs,” (Queen’s Economics Department Working Paper No. 10, October 2006. p. 1).

  “The six-fold increase of U.S. CEO pay” Xavier Gabaix and Augustin Landier, “Why Has CEO Pay Increased So Much?,” Quarterly Journal of Economics 123:1 (2008), pp. 49–100.

  “In the U.S., you can more or less do” Chrystia Freeland, “Capitalism Without the Capitalists,” International Herald Tribune, December 22, 2011.

  A decade ago, two young economists Marianne Bertrand and Sendhil Mullainathan, “Are CEOs Rewarded for Luck? The Ones without Principals Are,” Quarterly Journal of Economics 116:3 (August 2001), pp. 901–32.

  “We cannot continue to see chief executives’ pay” Julia Werdigier, “British Government Looks to Rein in Executive Pay,” New York Times, January 23, 2012.

  “The Lin story has broken out into the general culture” David Carr, “Media Hype for Lin Stumbles on Race,” New York Times, February 19, 2012.

  CHAPTER 4: RESPONDING TO REVOLUTION

  “A lesson from the technology industry” Reid Hoffman and Ben Casnocha, The Start-Up of You: Adapt to the Future, Invest in Yourself, and Transform Your Career (Crown Business, 2012), p. 71.

  Eight days later, George Soros hosted twenty Chrystia Freeland, “The Credit Crunch According to Soros,” Financial Times, January 30, 2009. Unless otherwise specified, all quotes in this section originally appeared in this piece.

  an average of 31 percent Charles Morris. The Sages. p. 3.

  According to a study by LCH Investments Rick Sopher, “Great Money Managers,” self-published by LCH Investments, November 2011. After retiring in 2010, Soros was overtaken the following year by Bridgewater’s Ray Dalio.

  “I converted my hedge fund into a less aggressively managed vehicle” George Soros. The Crash of 2008 and What It Means. p. 122.

  only one of them had foreseen Justin Lahart, “Bears Top List of Economic Forecasters,” Wall Street Journal, February 13, 2009. The fifty-one did even less well on unemployment—none came close to predicting it would rise to 6.9 percent by the end of 2008.

  “No one realized the extent and magnitude of these problems” Statement of Richard S. Fuld, Jr., before the United States House of Representatives Committee on Oversight and Government Reform, October 6, 2008.

  “I made a mistake” Transcript of House of Representatives Committee on Oversight and Government Reform Hearing on the Role of Federal Regulators, October 23, 2008.

  “we always assume regime stability” McFaul e-mail to CF, February 22, 2011.

  “active inertia” Donald Sull, “Why Good Companies Go Bad,” Financial Times, October 3, 2005.

  “These failed firms” Clayton Christensen, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (Harvard Business School Press, 1997), p. xv.

  “vast, silent, connected” W. Brian Arthur, “The Second Economy,” McKinsey Quarterly, October 2011.

  Facebook’s Mark Zuckerberg Zuckerberg attended Ardsley High School for two years before transferring to Phillips Exeter Academy.

  “Dopamine, a pleasure-inducing” Ajay Kapur, Niall Macleod, and Narendra Singh, “Plutonomy: Buying Luxury, Explaining Global Imbalances,” Citigroup Global Markets Equity Strategy report, October 16, 2005.

  “I recognize that sometimes survival requires a positive effort” CF interviews with George Soros, May 2009 and December 2008.

  “My theory of bubbles was a translation” CF interview with George Soros, May 2009.

  “That experience has allowed him to see through artifice” CF interview with Jonathan Soros, July 14, 2009.

  “Whenever I read about people not seeing it coming” CF interview with Keith Anderson, June 26, 2009.

  “They have their own style and their own exposure” CF interview with George Soros, May 2009.

  Soros “didn’t interfere in the running of their accounts” Ibid.

  “Basically, it involved a large amount of hedging” Ibid.

  Soros was not only unfamiliar with fancy new derivatives Ibid.

  “In a time like this, where the uncertainty is so big” CF interview with George Soros, December 16, 2008.

  “That’s what makes this macro investing” CF interview with Keith Anderson, June 26, 2009.

  “I was very lucky” CF interview with Azim Premji, January 25, 2012.

  “India is growing at 8 percent” CF interview with Ashutosh Varshney, November 13, 2011.

  “You could start a business” Kaitlin Shung, “Chinese ‘Fugitive’ Lai Changxing Faces Deportation in Canada,” China Briefing, July 13, 2011.

  “Well, the U.S., like I said” CF interview with David Neeleman, September 14, 2010.

  “The next ten years” Chrystia Freeland, “Working Wealthy Predominate the New Global Elite,” International Herald Tribune, January 25, 2011.

  Following the model of Nucor, which revolutionized Ibid. pp. 101–8.

  “Yes, you need to be bold and extremely committed” Jennings, “Opportunities of a Lifetime.”

  “Slow or hesitant business leaders” CF interview with Aditya Mittal, November 11, 2010.

  “If Lai Changxing were executed” Mark Mackinnon, “Lai’s sentencing marks the end of China’s Great Gatsby,” The Globe and Mail, May 18, 2012.

  He calls that period his “lost years” Parmy Olson, “The Billionaire Who Friended the Web,” Forbes, March 28, 2011.

  “There was a period of time” Miguel Helft, “The Class That Built Apps, and Fortunes,” New York Times, May 7, 2011.

  “I felt, having been late” John Seabrook, “Streaming Dreams,” New Yorker, January 16, 2012.

  published a 143-page report “Big data: The next frontier for innovation, competition, and productivity,” McKinsey Global Institute, May 2011. http://www.mckinsey.com/insights/mgi/research/technology_and_innovation/big_data_the_next_frontier_for_innovation.

  “People have always asked me” CF interview with Larry Fink, October 20, 2010.

  “Firestone’s historical excellence” Donald Sull, “The Dynamics of Standing Still: Firestone Tire & Rubber and the Radial Revolution,” The Business History Review, vol. 73, no. 3 (Autumn 1999), pp. 430–64.

  “An ossified success formula” Donald Sull, “Ingrained success breeds failure,” Financial Times, October 2, 2005.

  “Basically, we are living in a world” Stephen Jennings, “Opportunities of a Lifetime: Lessons for New Zealand from New, High-Growth Economics,” Sir Ronald Trotter Lecture, April 7, 2009.

  “A disruptive event now needs” Michiyo Nakamoto and David Wighton, “Citigroup chief stays bullish on buy-outs,” Financial Times, July 9, 2007.