Somebody ought to sit down and think about this, because your corporate types are soon going to be a stateless superclass, people who live for deals and golf dates and care a lot more about where you got your MBA than the country you were raised in. It’s the Middle Ages all over again, these little unaffiliated duchies and fiefdoms, flying their own flags and ready to take in any vassal who will pledge his life to the manor. Everybody busy patting himself on the back because the Reds went in the dumper is going to be wondering who won when Coca-Cola applies for a seat in the U.N.
Henry George is the most famous American popular economist you’ve never heard of, a nineteenth-century cross between Michael Lewis, Howard Dean, and Ron Paul. Progress and Poverty, George’s most important book, sold three million copies and was translated into German, French, Dutch, Swedish, Danish, Spanish, Russian, Hungarian, Hebrew, and Mandarin. During his lifetime, George was probably the third best-known American, eclipsed only by Thomas Edison and Mark Twain. He was admired by foreign luminaries of the age, too—Leo Tolstoy, Sun Yat-sen, and Albert Einstein, who wrote that “men like Henry George are rare, unfortunately. One cannot imagine a more beautiful combination of intellectual keenness, artistic form and fervent love of justice.” George Bernard Shaw described his own thinking about the political economy as a continuation of the ideas of George, whom he had once heard deliver a speech.
In 1886, the year the Statue of Liberty was erected, George came second in the New York mayoral race, attracting an official tally of 68,110 votes and beating the Republican candidate, a rambunctious young patrician named Theodore Roosevelt. George’s supporters alleged that if it were not for vote rigging by the Tammany Hall machine—whose candidate, Abram Hewitt, was the winner—George would have been elected mayor. But even as runner-up, George is credited by many with ushering in the Progressive Era in American politics. Friedrich Engels called the vote “an epoch-making day” and St. Louis labor leaders predicted it would become “the battle cry for all the enslaved toilers from the Atlantic to the Pacific.” George’s unexpected effectiveness at creating a working-class electoral coalition both inspired progressive politicians—including the twenty-eight-year-old Roosevelt—and helped convince business elites of the prudence of compromise. Abram Hewitt, son-in-law of millionaire Peter Cooper and the successful Tammany Hall man, himself recognized “that 68,000 people have deliberately declared that they have grievances which ought to be redressed.” George ran for mayor of New York again in 1897, but died four days before election day. He was given a statesman’s send-off—his coffin lay in state at Grand Central Station, where more than one hundred thousand people came to pay their respects. It was the largest crowd of mourners in New York City since Abraham Lincoln’s funeral in 1865. The New York Times quoted one George fan who said, “Not even Lincoln had a more glorious death.”
George’s personal journey to the public arena was typical of the hard and adventurous lives of nineteenth-century Americans. Born in Philadelphia in 1839, the second in a family of ten, he left school at fourteen and took a job as a seaman on the Hindoo, a full-rigged ship of 586-ton register with a crew of twenty men and a cargo of five hundred thousand feet of lumber. The ship sailed to India, where he was struck by the poverty rather than the exotica that beguiled many of his contemporaries, and to Australia, where he discovered, and eventually imported back to America, the secret ballot. When George came home, he apprenticed as a printer, then worked his way to gold rush–frenzied San Francisco on the Shubrick, which sailed to the West Coast by way of Cape Horn. George didn’t find gold, so he supported himself and what soon grew to be a family of six by setting type, writing editorials, and—his cushiest job—working as a gas meter inspector. The family’s fortunes were often precarious. Here is how George described the day his second son, who grew up to become a New York State congressman, was born: “I stopped a man [on the street]—a stranger—and told him I wanted five dollars. He asked what I wanted it for. I told him that my wife was confined and that I had nothing to give her to eat. He gave me the money. If he had not, I think I was desperate enough to have killed him.”
For all his peripatetic and odd-jobbing early years, intellectually George turned out to be what Isaiah Berlin would have called a hedgehog, a thinker focused intensely on a single question. For George, that question was what he saw as the central and troubling paradox of the Gilded Age, the puzzling coexistence of, as he put it in the title of his bestseller, progress and poverty.
As he said during the 1886 mayoral campaign, the two key questions were “Why should there be such abject poverty in this city?” and “What do we propose to do about it?”
Like most Americans of his era—a time when the industrial revolution was coming into full flower and the American frontier was being settled—George thrilled to the self-evident progress of the times. “The present century has been marked by a prodigious increase in wealth-producing power,” he writes in the opening of Progress and Poverty. “The utilization of steam and electricity, the introduction of improved processes and labor-saving machinery, the greater subdivision and grander scale of production, the wonderful facilitation of exchanges, have multiplied enormously the effectiveness of labor.” George goes on to list some of the amazing transformations of his age: “the steamship taking the place of the sailing vessel, the railroad train of the wagon, the reaping machine of the scythe, the threshing machine of the flail… the great workshops where boots and shoes are turned out by the case with less labor than the old-fashioned cobbler could have put on a sole, the factories where, under the eye of a girl, cotton becomes cloth faster than hundreds of stalwart weavers could have turned it out with their hand looms.”
Today, “the wealth-producing power” of those inventions is indisputable. Even at a time of weak economic growth, and after decades of stagnant wages, middle-class Americans enjoy a standard of living beyond the reach of the robber barons of George’s day—electricity, plumbing, hot running water, cars, jet travel, and a life expectancy that has increased by nearly thirty years for white men (and much more for blacks and women). But in March 1879, when Progress and Poverty was published, the Long Depression, a sixty-five-month-long period of economic contraction that afflicted both the United States and Europe, was just whimpering to an end. From that perspective, the perplexing reality was that the industrial revolution wasn’t delivering: “We are coming into collision with facts which there can be no mistaking. From all parts of the civilized world come complaints of industrial depression; of labor condemned to involuntary idleness; of capital massed and wasting; of pecuniary distress among businessmen; of want and suffering and anxiety among the working classes.”
What George found most mysterious about the economic consequences of the industrial revolution was that its failure to deliver economic prosperity was not uniform; instead it had created a winner-take-all society. “Some get an infinitely better and easier living,” he wrote, “but others find it hard to get a living at all. The ‘tramp’ comes with the locomotives, and almshouses and prisons are as surely the marks of ‘material progress’ as are costly dwellings, rich warehouses and magnificent churches. Upon streets lighted with gas and patrolled by uniformed policemen, beggars wait for the passer-by, and in the shadow of college, and library, and museum, are gathering the more hideous Huns and fiercer Vandals of whom Macaulay prophesied.”
George’s diagnosis was beguilingly simple: the fruits of innovation weren’t widely shared because they were going to the landlords. This was a very American indictment of industrial capitalism. At a time when Marx was responding to Europe’s version of progress and poverty with a wholesale denunciation of private property, George was an enthusiastic supporter of industry, free trade, and a limited role for government. His culprits were the rentier rich, the landowners who profited hugely from industrialization and urbanization but did not contribute to it.
George had such tremendous popular appeal because he addressed the obvious inequity of nineteenth-century American capitalism without disavowing capitalism itself. George wasn’t trying to build a communist utopia. His campaign promise was to rescue America from the clutches of the robber barons and to return it to “the democracy of Thomas Jefferson.” That ideal—as much Tea Party as Occupy Wall Street—not only won support among working-class voters and their leaders, like Samuel Gompers, but also resonated with many small-business owners. Robert Ingersoll, a Republican orator, attorney, and intellectual, was a George supporter. He urged his fellow Republicans to back his man and thereby “show that their sympathies are not given to bankers, corporations and millionaires.”
George’s popularity is an example of the appeal of the rentier critique—a vision of capitalism without the cronies. That’s something we can all subscribe to. It is also one reason coming to terms with today’s super-elite is trickier than it was in the age of the robber barons. The crony class is, of course, still alive and well. But one of the striking characteristics of modern-day plutocrats is that, in contrast with their nineteenth-century predecessors, they are largely the working rich. Even today’s rent-seeking plutocrats work for a living—Carlos Slim or the Russian oligarchs owe their fortunes to rents they captured themselves, not to estates conquered by distant ancestors.
We are mesmerized by the extravagance of the super-elite: the personal jet owned by hedge funder Ken Griffin, which is large enough to include its own nursery; or Microsoft cofounder Paul Allen’s 414-foot yacht, The Octopus, which is home to two helicopters, a submarine, and a swimming pool. But if their excesses seem familiar, even archaic, in other ways today’s plutocrats represent a new phenomenon. The wealthy of F. Scott Fitzgerald’s era were shaped, he wrote, by the fact that they had been “born rich.” They knew what it was to “possess and enjoy early.” These were the great-grandchildren of the rentier elite John Stuart Mill had described half a century earlier: “The ordinary progress of a society which increases in wealth, is at all times tending to augment the incomes of landlords; to give them both a greater amount and a greater proportion of the wealth of the community, independently of any trouble or outlay incurred by themselves. They grow richer, as it were in their sleep, without working, risking, or economizing.”
That’s not the case for much of today’s super-elite. “Fat cats who owe it to their grandfathers are not getting all of the gains,” Peter Lindert, the economic historian, told me. “A lot of it is going to innovators this time around. There is more meritocracy in Bill Gates being at the top than the Duke of Bedford.” Even Saez, the pioneering economic data jock who is deeply worried about the social and political consequences of rising income inequality, concurs that a defining quality of the current crop of plutocrats is that they are the “working rich.” He has found that in 1916 the richest 1 percent of Americans received only one-fifth of their income from paid work; in 2004, that figure had risen threefold, to 60 percent. “As a consequence, top executives (the ‘working rich’) have replaced top capital owners (the ‘rentiers’) at the top of the income hierarchy during the twentieth century,” Saez and Piketty write in their seminal paper on the subject.
Michael Lindsay, a professor at Rice University who has interviewed more than five hundred American leaders as part of the multiyear Platinum Study of the background and behavior of the nation’s bosses, has reached the same conclusion. Speaking at a Columbia University conference on elites in the fall of 2010, Lindsay said that nowadays most of America’s business, nonprofit, and academic chiefs hadn’t inherited their money or come from privileged backgrounds.
An October 2011 study of income inequality in the United States by the Congressional Budget Office, the nonpartisan government research unit, tells the same story of a shift at the top from income earned on capital—getting rich in your sleep—to income earned through wages. The contrast isn’t just between today’s super-elite and those of the Gilded Age; there has been a marked switch to wages since the end of the 1970s. As the gap between the top and everyone else has grown, so has the reliance of the 1 percent on wage income, rather than capital. Here’s how the CBO describes the transition:
Capital income excluding capital gains—in other words, interest, dividends and rents—has generally been a declining source of income among the highest-income households. Its share dropped from 42 percent of market income excluding capital gains in 1979 to 21 percent in 2002…. The changing composition of income for the highest-income households reflects a much longer trend. Over the entire twentieth century, capital income declined sharply in importance for high-income taxpayers. The labor share of income for the top income groups was higher in 2007 than before World War II, as highly compensated workers have replaced people whose income is from property or securities at the top of the income distribution.
This is true even at the very, very top. When three economists, one of whom works in the Office of Tax Analysis at the U.S. Treasury, crunched the numbers for 2005, they found that even among the top 0.01 percent—true plutocrats who earn at least $10 million a year—wages are far more important than rents. Salary income and business income accounted for 80 percent of their income excluding capital gains and 64 percent including capital gains. And, as with the 1 percent, the shift toward wages has coincided with the emergence of the winner-take-all economy. These figures were a quarter lower in 1979: 61 percent and 46 percent.
You can see that change in the life stories of today’s plutocrats. Pete Peterson, for example, is the son of a Greek immigrant who arrived in America at age seventeen and worked his way up to owning a diner in Nebraska; his Blackstone cofounder, Steve Schwarzman, is the son of a Philadelphia-area retailer. Leon Cooperman, a Goldman Sachs veteran and hedge fund billionaire who has become an outspoken critic of the White House, made a point of his own humble background in an open letter to the president that he circulated in the autumn of 2011: “While I have been richly rewarded by a life of hard work (and a great deal of luck), I was not to-the-manor-born. My father was a plumber who practiced his trade in the South Bronx after he and my mother emigrated from Poland. I was the first member of my family to earn a college degree. I benefited from both a good public education system (P.S. 75, Morris High School and Hunter College, all in the Bronx) and my parents’ constant prodding.”
Forbes classifies 840 of the 1,226 people on its 2012 billionaire ranking as self-made. It’s true that few of today’s plutocrats were born into the sort of abject poverty that can close off opportunity altogether—a strong early education is pretty much a precondition, and it is very useful to have a father who is an affluent professional—but the bulk of their wealth is generally the fruit of hustle, intelligence, and a lot of luck. They are not aristocrats, by and large, but rather economic meritocrats, preoccupied not only with consuming wealth but also with creating it.
Nor is this true only in America, with its national faith in the Horatio Alger story. The global capitalist boom has allowed some people at the bottom of even the most traditionally stratified societies to rise to the top. Consider the small but growing community of plutocratic Dalits, the Indian caste once known as the untouchables. In some parts of rural India, Dalits are still not allowed to drink from the village well, and Dalit children are segregated in a special corner of their schoolrooms, lest their spiritual taint contaminate their higher-caste classmates. But India now has Dalit multimillionaires, like Ashok Khade, owner of a company that builds and refurbishes offshore drilling rigs, and subject of a recent front-page profile in the New York Times. As one Dalit businessman told a reporter, “We are fighting the caste system with capitalism.”
Being self-made is central to the self-image of today’s global plutocrats. It is how they justify their luxuries, status, and influence. One way to eavesdrop on the way plutocrats talk to each other is to read the glossy limited-edition magazines written just for them. An example is the rather unimaginatively titled Luxos, which calls itself “Your local guide to global luxury” and can be found in the rooms of very fancy European hotels. One recent issue included an interview with Torsten Müller-Ötvös, the CEO of Rolls-Royce. Here is what he had to say about his buyers: “We have witnessed substantial changes over the last years. The Rolls-Royce generation of today has become much younger. Our youngest Rolls-Royce customer for example is a twenty-eight-year-old entrepreneur from India. We find that many of our customers have earned their success through their own work, and they want to reward themselves with a Rolls-Royce.”
Indeed, if you are looking to define the archetypal member of the super-elite, he isn’t Jane Austen’s Mr. Darcy, with his gorgeous acres of Pemberley. He—and they are almost all still men—is an aggressive, intensely educated mathematician, the son of middle- or upper-middle-class parents, who made his first fortune young.
The rise of the alpha geeks is most obvious in Silicon Valley, a culture and an economic engine they created. But you can find them everywhere you find the plutocracy. The alpha geeks are the dominant tribe in Bangalore, the Indian city that invented technology outsourcing. In their incarnation as engineers, they overwhelmingly populate the Communist Party leadership in China, where political nous is a surer path to wealth than filing patents. The Russian oligarchs are a textbook example of crony capitalism, yet six of the original seven earned degrees in math, physics, or finance before becoming natural resource tycoons. Carlos Slim, who studied engineering in college and taught algebra and linear programming as an undergraduate, attributes his fortune to his facility with numbers. So does Steve Schwarzman, who told me he owed his success to his “ability to see patterns that other people don’t see” in large collections of numbers.
People inside the super-elite think the rise of the data geeks is just beginning. Elliot Schrage is a member of the tech aristocracy—he was the communications director for Google when it was the hottest company in the Valley and jumped to the same role at Facebook just as it was becoming a behemoth. At a 2009 talk he gave to an internal company meeting of education and publishing executives, Schrage was asked what field we should encourage our children to study. His instant answer was statistics, because the ability to understand data would be the most powerful skill in the twenty-first century.
The rise of the alpha geeks means the 1 percent is more fiercely educated and the returns on elite education are higher than ever before. One way to understand why we are living in a golden age of the nerds is with a metaphor invented by Jan Tinbergen, joint winner of the first Nobel Prize in economics: the race between education and technology. That idea is the title of and conceptual framework for a recent book by Larry Katz and Claudia Goldin, the Harvard pair who study how the interplay between new technologies and education shapes income distribution.
In the nineteenth century, as the first gilded age was reaching its peak, technology raced ahead of education. As a result, if you were what counted as highly educated in that age—which was finishing high school (remember, bestselling author Henry George left school at fourteen)—you could command a premium compared to unskilled workers. Over the next fifty years, as America invested massively in public high schools, education caught up with technology, and the nerd premium narrowed. For Americans born from the 1870s to about 1950, every decade was accompanied by an increase of about 0.8 years of education. As Goldin and Katz write, “During that 80-year period the vast majority of parents had children whose educational attainment greatly exceeded theirs.”
But about thirty years ago, that increase in education stopped while technology continued to race ahead. The result is the rise of the geeks. In one example, the wage premium earned by young college graduates compared to young high school graduates more than doubled between 1979 and 2005. Getting a college degree adds almost a full million dollars to your lifetime earnings. Economists Thomas Philippon and Ariell Reshef, who have studied the connection between deregulation and soaring incomes in finance, found that the wage premium for a college education increased from 0.382 in 1970 to 0.584 in 2005, an increase of more than 50 percent—a figure that goes a long way in explaining why income inequality has soared. As another economist, Thomas Lemieux, concluded in a 2006 study of the subject, “Most of the increase in wage inequality between 1973 and 2005 is due to a dramatic increase in the return to post-secondary education.”
Moreover, broad measures of the return on education understate the rise of the super-smart in one crucial respect. Just as the winner-take-all economy rewards those at the very top much more richly than those one rung beneath them, a super-elite education has outsize rewards.
Any middle-class parent living in a city that is home to a significant community of the 0.1 percent—and that means not just the obvious centers of New York, San Francisco, and London, but also emerging metropolises like Mumbai, Moscow, and Shanghai—knows that the perceived high value of an elite education has prompted a Darwinian pedagogical struggle that begins in nursery school. That contest has prompted absurdities like the story of Jack Grubman, the Citigroup tech analyst who made positive recommendations about companies he thought were weak in exchange for support from his boss, Sandy Weill, for his twin two-year-olds’ application to attend the 92nd Street Y, probably the most sought-after nursery school in Manhattan.
It is easy to dismiss these contortions as nouveau riche excess or a neurotic example of a child-centered culture run amok. But the reality is more disturbing. In a recent essay, University of Queensland economist John Quiggin calculated that the total first-year class of the Ivy League universities—around twenty-seven thousand—is just under 1 percent of the U.S. college-age population of around three million. And in our education-driven, winner-take-all economy, that 1 percent of eighteen-year-olds has a huge edge in forming the 1 percent as adults. “With those numbers in mind,” Quiggin writes, “the ferocity of the admissions race for elite institutions is unsurprising. Even with the steadily increasing tuition fees, parents and students correctly judge that admission to one of the ‘right’ colleges is a make-or-break life event, far more than a generation ago.”
To understand how hard it is to get into an elite university, the lengths students go to be admitted, and the extent to which the biggest perk of being born rich isn’t inheriting a trust fund—it is being expensively educated—consider this story from inside the Harvard admissions process. When he was president of the university, Larry Summers liked to drop in on the deliberations of the admissions committee.
He was struck by one particularly difficult case. He explained: “There’s a kid. You know, Harvard gets huge numbers of really strong applications. Kid comes from a good private school in a major city. Kid’s got good grades—not unbelievable grades, but really strong grades. Kid’s got test scores—really good test scores, but not remarkable test scores. So he looks like a kid that would do fine at Harvard. But we’ve got seven thousand kids like him and we’ve got two thousand slots. But the kid did have one thing that was really quite special. And that was this. Kid spoke Mandarin. The reason the kid spoke Mandarin was that he had done a really terrific and dedicated job working with his Mandarin tutor three days a week after school since he’d been in ninth grade. And he was serious about it and he had really worked at it and he was fluent in Mandarin. Not many people are. And he hadn’t done it as part of a school program, he’d done it as an activity that he had chosen himself. But what’s the right way to react to that? One way to react, which I think on balance in that particular case was probably the right one, was this really is an impressive achievement that counts for a lot. On the other hand, what fraction of families in the United States or Canada would have the wherewithal to get for their child a Mandarin tutor three days a week for four years? How do you think about that? And were we perpetuating privilege? Or were we recognizing merit?”
Getting into the “right” college is just a start. As the baby boomers aged into the commencement address generation, their standard advice to graduates was, as Steve Jobs memorably enjoined, to “have the courage to follow your heart and intuition,” to “love what you do,” and never to “settle.” Drew Faust, in her third commencement address as president of Harvard University, urged the graduating students to adopt her “parking space theory of life”: “Don’t park ten blocks away from your destination because you think you’ll never find a closer space. Go where you want to be. You can always circle back to where you have to be.” But the winner-take-all economy turns out to be unforgiving of people who spend too long finding themselves. A 2011 study by Ad Age, the advertising trade magazine, found that to break into the 1 percent in your lifetime, you need to be earning an annual income of $100,000 by the time you are thirty-five.
What’s new isn’t so much the pure power of getting an early start. That’s both easy to intuit and well reported. One example is a 1968 study of Nobel Prize winners by social scientist Robert Merton. He found that one striking shared characteristic of the future Nobelists was being talented enough and focused enough at a young age that they were able to find their way into the labs of the most eminent scientists in their fields—“of 55 American laureates, 34 worked in some capacity as young men under a total of 46 Nobel Prize winners.”
The bigger shift has been that, in a time of rapid economic change, there are fewer second chances for those who don’t take off from the starting blocks at a sprint, or who run in the wrong direction for their first few laps. That was true during the industrial revolution. As Alfred Marshall, the pioneering nineteenth-century English economist, wrote, “The conditions of industry change so fast that long experience is in some trades almost a disadvantage, and in many it is of far less value than a quickness in taking hold of new ideas and adapting one’s habits to new conditions. A man is likely to earn less after he is fifty years old than before he is thirty.”
Marshall, who transformed economics by going out and doing field research, made that observation in 1890. A century and a quarter later and on another continent, you could hear remarkably similar comments from leaders of the Internet revolution. “A lot of professional writers apply here,” Keith Griffith, the director of editorial recruiting at Groupon, the Chicago-based Internet sales site, told a reporter in 2011, five months before the start-up’s $700 million IPO. “I’ve had applicants from Rolling Stone, the Wall Street Journal. But it’s really hard to get them to do what we’re looking for. It’s easier to teach people than unteach them.”
This volatility makes us unhappy. Carol Graham, a researcher at the Brookings Institute, has identified what she calls the paradox of the happy peasant and the miserable millionaire—ambitious members of the middle class in fast-growing economies are actually less happy than poor people in more stable societies. One reason for the distress of the group Graham calls the “frustrated achievers,” she believes, is the uncertainty of their economic position. They worry that at any moment they could lose their jobs and savings and drop back down to the bottom.
By contrast, early super-success is a useful hedge against the vagaries of an unpredictable economy. Many of today’s plutocrats stumbled a decade or two into their careers, but by then they had already accomplished so much that they were poised to seize even larger opportunities.
The premium on early success means that the alpha geeks of the super-elite have been driven from a young age. The dorm room incubation of our most important technology companies is common knowledge. That’s where hedge funds are starting, too. Bill Ackman, the most influential activist investor in America today, whose targets have included J.C. Penney and Target, founded his first hedge fund with a classmate right after graduating with an MBA from Harvard. Ken Griffin, the billionaire founder of Citadel, the Chicago-based hedge fund, started trading bonds out of his college dorm room.
The pattern holds for many of the emerging markets plutocrats, too. Carlos Slim, who bought his first share when he was twelve, started to make serious money straight out of college, when he was one of Los Casabolseros, or Stock Market Boys, a group of aggressive young men who traded shares on the Mexican stock market and played dominoes together after the market closed. Many of the Russian oligarchs first ventured into commerce while they were students taking advantage of Mikhail Gorbachev’s tentative perestroika reforms to open businesses as diverse as window washing and computer programming.
The result is a super-elite whose members have been working to join it for most of their conscious lives—if not since nursery school, certainly since high school, when the competition for those elite college places begins in earnest. College, which boomers may fuzzily recall as a halcyon season of parties and self-discovery, has become, for the future 1 percent, a grueling time to found your start-up or to build a transcript that will earn a first job at an elite firm like Goldman Sachs or McKinsey. One sign of the shift is the illicit drug of choice among the gilded youth—Adderall. Its great virtue, one Princeton engineer told me, is that you can study for twenty-four hours without losing your concentration or needing to sleep.
For those who make it, the relentless pace continues. One badge of membership in the super-elite is jet lag. Novelist Scott Turow calls this the “flying class” and describes its members as “the orphans of capital” for whom it is a “badge of status to be away from home four nights a week.” The CEO of one of the most prestigious multinationals recently climbed Mount Kilimanjaro with his daughter to celebrate her graduation from college. He told a friend the two-week expedition was the longest they had ever been together.
“They make a lot of money and they work incredibly hard and the husbands never see their children,” Holly Peterson said of the financiers of the Upper East Side. Their lives are driven not by culture or seasons or family tradition, but by the requirements of the latest deal or the mood of the markets. When Mark Zuckerberg rebuffed Yuri Milner’s first approach, the Russian investor, who was already a multimillionaire, turned up at the Internet boy wonder’s office in Palo Alto the next day, a round-trip journey of twelve thousand miles. In November 2010, the number two and heir apparent of one of the top private equity firms told me he was about to make a similar journey. I was a having a drink with him near Madison Park on a Wednesday night. He told me he needed to leave by eight p.m., because he had to fly to Seoul that evening. He planned to make the fourteen-thousand-mile round-trip for a ninety-minute meeting. His putative partners had invited him to Korea just forty-eight hours before, on the Monday of that week. It was, he told me, “a test of our commitment.” When the European sovereign debt crisis came to dominate the markets in 2011, New York traders started to set their alarm clocks for two thirty a.m., in time for the opening bell in Frankfurt. Some investors in California didn’t bother going to bed at all.
Wall Street e-mail in-boxes give you a flavor of the working lives of financiers, at least as they perceive them. In the spring of 2010, when the Obama administration first proposed a millionaires’ tax, an anonymous screed pinged its way around trading desks and into the electronic mail of a few journalists. It begins with the declaration “We are Wall Street,” and goes on to describe the intense workdays of traders: “We get up at 5 a.m. and work till 10 p.m. or later. We’re used to not getting up to pee when we have a position. We don’t take an hour or more for a lunch break. We don’t demand a union. We don’t retire at 50 with a pension. We eat what we kill.”
Even when they are not traveling, the super-elite inhabit a volatile world. Jobs at the top are very insecure, and becoming more so. The average tenure of a Fortune 500 CEO has fallen from 9.5 years to 3.5 years over the past decade. That’s true lower down the food chain, too. Thomas Philippon, the economist who documented the connection between deregulation and soaring salaries on Wall Street, also found that the jobs of financiers were very insecure. Nor does being your own boss protect you from the uncertainty of the markets. At a 2011 seminar at the Central European University in Budapest devoted to the psychology of investing, George Soros told the gathered academics that “the markets are a machine for destroying the ego.” Popular culture has taught us to imagine the chiefs of Wall Street as strutting masters of the universe. That’s partly true. But they are also chronically exhausted men terrified that their latest trade will turn out to be a multimillion-dollar mistake that costs them their job. Soros, secular to his fingertips, describes investing mistakes as “sins” when he talks about them with his team.
“If you push towards an Apple world, a Google world, that’s all about brutal efficiencies. The guys on the top are constantly updating their models. It’s a brutal world, actually. You have to be really on the ball and fast,” Eike Batista, the oil and mining magnate who is the richest man in Brazil and one of the ten richest men in the world, told me. “A year and a half ago, we didn’t know about tablets, right? Tablet is basically killing the PC world. So, you know, congratulations to Apple, which had the vision that it would create a dramatic change. Everybody has to change now. Look at the brutal change that is being used through that thing. And so, if the others don’t move, they’re going to be dead tomorrow.”
Batista used the Apple analogy as a way to communicate with me, a North American, in an idiom he thought I would understand. But he was really talking about a Darwinian struggle at the very top in Brazil, one of the fastest-growing economies in the world: “Of the 10 percent wealthiest, you know, 70 percent of this 10 percent wealthiest made their money in the last ten years. Voilà. So, a massive social movement.” Batista is one of those arrivistes, and the old guard doesn’t like him or his ilk one bit, he told me. “You have to accept criticism—that’s part of a democratic system like we have in Brazil,” he said, half triumphantly, half ruefully.
None of which is meant to make you pity the super-elite. The famous Whitehall study of the British civil service documented something humans have suspected for centuries: power is good for your health. The UK research, which was launched in 1967, found that the higher up in the bureaucracy you were, the longer you lived. That’s equally true of today’s super-elite. They may be anxious and overworked. But it is still a lot better to be a trader or a CEO earning several million dollars a year—and guaranteed a golden parachute—than a minimum-wage cleaner working those same sixty hours a week but without the comforts of a private jet, a housekeeper, or medical insurance. Still, to understand the mind-set of the super-elite, your starting point should be the reality—and their own self-perception—that they, too, lead anxious, overworked, and uncertain lives.
The money certainly helps justify those long hours. But the super-elite also bask in a culture that, at least until the 2008 financial crisis, was happy to regard them as the heroes of our age. Their virtue need not manifest itself in any of the traditional Judeo-Christian values—Steve Jobs, who currently dominates the iconostasis, was an egotistical jerk who often treated employees, family (including his daughter), and ordinary mortals who dared to e-mail him with cruelty or disdain. But we do need them to succeed in business because of their sheer superiority to everyone else—part of the appeal of the Jobs story is his second coming at Apple, when he showed up the mediocrities who had ousted him.
Most important of all, the plutocrats, and their chorus in the popular culture, are keen to believe they are not engaged on an entirely selfish mission. Carnegie asserted that knights of capitalism like himself “and the law of competition between these” were “not only beneficial, but essential to the future progress of the race.” No one would talk like that today, but our champions of capital do like to describe their work in strikingly moral terms. Google’s company motto is “Don’t be evil,” and at a recent company conference, Larry Page, Google’s cofounder and now its CEO, said earnestly that one of Google’s greatest accomplishments was to save lives—thanks to the search engine, for instance, people can type in their symptoms, learn immediately they are having a heart attack, and get life-saving help sooner than they would have otherwise. The self-driving car, one of Page’s pet projects, would eventually, he argued, save more lives than any political, social, or humanitarian effort.
“It’s not possible in tech to frame your ambitions aside from those who are making the world a better place,” Eric Schmidt, former CEO of Google, told me. “I think it has a lot to do with the way Silicon Valley was formed and the university culture. The egalitarian culture. The liberal culture there. People are often surprised by that…. And I always try to explain to people that people actually came to Google not to get wealthy, but to change the world. And I genuinely believe that.”
Another way to believe our plutocrats are heroes battling for the collective good is to think of capitalism as a liberation theology—free markets equal free people, as the editorial page of the Wall Street Journal asserts. One of the most convincing settings for this vision is Moscow, where in October 2010 you could hear it ringingly delivered by Pitch Johnson, one of the founders of the venture capital business in Silicon Valley, in a public lecture to business school students about capitalism and innovation.
Johnson, who was a fishing buddy of Hewlett-Packard cofounder Bill Hewlett, is a genial octogenarian with a thick white head of hair, glasses, and a Santa Claus waistline. He has made something of a project of Russia, having traveled there twenty times since 1990 (he got a particular kick out of flying his private jet into what was then still Soviet airspace). As Johnson tells it, capitalism is about more than making money for yourself—it is about liberating your country. “Those of you who practice economic freedom will also cause your country to have more political freedom,” Johnson promised with great enthusiasm. “I would call you the revolutionaries of this era of your country.”
The Spectator is the house newsletter of Britain’s conservative establishment, the product of a literary and political hothouse whose writers are known for throwing the best parties in London and causing the occasional political scandal with their high-profile extramarital high jinks. Don’t be deceived by its modest circulation of less than sixty-five thousand; three editors of the Spectator have gone on to serve in the cabinets of Tory prime ministers, and one, Boris Johnson, is currently the mayor of London. The phrase “young fogey” was coined on the pages of the Spectator in 1984, and the magazine remains proud to speak in a posh accent—you’ll learn more in the Speccie, as its devotees call it, about fox hunting than you will about pop stars.
That’s why the Spectator’s pronouncements on elite English culture should be taken seriously. And in a cover story published in June 2011, the magazine announced a sea change. “Who Sold Summer?” the headline asked, with the answer in the subhead: “On how a very English social season became the property of the international elite.”
The author’s point was that the hoary old fixtures of English cultural life—horse racing at Ascot or Epsom, cricket at the Oval or Lord’s, opera at Covent Garden or Glyndebourne—which had once belonged to the Spectator community, had been taken over by the global super-elite. “For the super-rich, the world isn’t divided into countries any more; just rich and poor parts. And, like swallows, their favoured rich parts in summer are now their English bolt-holes in the north,” writes Harry Mount, the author of the essay, who also happens to be a second cousin of David Cameron, Britain’s aristocratic Conservative prime minister, a graduate of Westminster, one of Britain’s most exclusive private schools, and a former member of the Bullingdon Club, the exclusive and controversial private society at Oxford. “Britain now has a Wimbledon economy: we provide the charming venue, and foreigners come over to enjoy themselves on Centre Court. The paradox is that the recession has accelerated the globalisation of England. The English have been hard hit: with half a million jobs lost, and our rich stung—or chased abroad—by the 50p tax and the tax on bank bonuses. But the globalised elite, with their money parked offshore, have emerged almost untouched: their assets diversified, their wealth hitched to the booming East.”
Mount chronicles the global super-elite’s takeover of the English rituals that until very recently belonged to his class and clan. But what he has observed on the playing fields of Eton is actually a worldwide phenomenon. The plutocrats 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.
“There’s an interaction between the global elite, as you call them, and the media, as follows, which has to do with sort of the, for lack of a term, sexiness of it all,” Eric Schmidt told me in his Google office in Mountain View. “Magazines are now publishing the destinations that everyone goes to. So, there’s a list, okay? So let me tell you what the list is. There’s Davos. There’s the Oscars. There’s the Cannes Film Festival. There’s Sun Valley. There’s the TED conference. There’s Teddy Forstmann’s conference. There’s UN Week, Fashion Week. In London, there is Wimbledon Week, which is the last week of June.
“These have become global events, when they were local events,” Schmidt explained. “They’re not nearly as much fun as they were when I was reading about them in the paper. Because the pictures were much better than the reality. But because I see myself as a global citizen, I go anyway…. The math is that people want to be where other smart and interesting people are…. There’s a perception you have to be there. And globalization, air travel, allows you to do this. So, the people that you’re describing travel a lot. And they also have multiple homes, right? So, the rigors of travel are not so bad if you have a home in London. I don’t have these things, by the way.”
No one studies the super-elite more assiduously than their would-be bankers. Like its rivals, every year Credit Suisse publishes a Global Wealth Report, an address book, health checkup, and love letter to the world’s money. In its 2011 edition, Credit Suisse noted the difference between the world’s rising middle class, which remains rooted in and defined by nationality, and the increasingly shared and global character of people at the very top:
The base of the wealth pyramid is occupied by people from all countries of the world at various stages of their life-cycles; in contrast, HNW [high net worth, defined as people with an investable income of between $1 million and $50 million] and UHNW [ultra high net worth, defined as people with an investable income of at least $50 million] individuals are heavily concentrated in particular regions and countries, sharing a much more similar lifestyle. Even members at other locations tend to participate in the same global markets for high coupon consumption items. The wealth portfolios of individuals are also likely to be similar, dominated by financial assets and, in particular, equity holdings in public companies traded in international markets.
The UHNWIs themselves describe the same experience. As Glenn Hutchins, cofounder of the private equity firm Silver Lake, puts it, “A person in Africa who runs a big African bank and went to Harvard Business School has more in common with me than he does with his neighbors, and I have more in common with him than I do with my neighbors.” The circles he moves in, Hutchins explains, are defined by “interests” rather than “geography”: “Beijing can look a lot like New York. You see the same people, you eat in the same restaurants, you stay in the same hotels. We are much less place-based than we used to be.”
Aditya Mittal, the CFO of ArcelorMittal and son of its billionaire founder, is one of the foreign-born plutocrats who have taken over the Spectator’s traditional England. Mittal was born in Indonesia, educated in the United States, holds an Indian passport, and today lives in London.
“I think, in a sad sense, these cities are so similar now because of globalization,” Mittal told me over coffee in Manhattan. “I mean the difference in identity is not as significant as it used to be. For a global businessman, you can achieve almost the same set of objectives whether you’re in London, New York, or a place like Singapore. You have access to talent, you have access to bankers, lawyers, you have access to good restaurants, good hotels. I mean, the main components of running a business can be found in any big city. So you can live in any of these cities and it’s not such a big change anymore to move from, say, London to New York. Of course, that’s a good thing in many ways, but I hope they don’t lose their individual identity too much.”
“There are more and more global CEO meetings in the emerging markets, especially China,” Dominic Barton, managing director of McKinsey, told me over breakfast in midtown Manhattan. Barton, a Canadian who lives in London but whose secretary is based in Singapore, was due to see Steve Schwarzman, the private equity investor, later that day. “The last time I saw Steve was in China,” where Blackstone had held a partners meeting the previous fall, Barton recalled. Barton himself was traveling to Chile later in the week, and then on to São Paolo, where McKinsey was holding a board meeting. Schwarzman, meanwhile, was about to move his primary residence to Paris for six months (he already owned one home in that country, in the south of France, of course), the better to oversee what he believed would be significant investment opportunities in Europe and Asia.
Schwarzman spends about half his time traveling. Blackstone, which he cofounded, has offices around the world in cities including Shanghai, Mumbai, London, Paris, and Düsseldorf, and the firm both invests in and raises money outside the United States.
“There is an emergent power in people whose shared experiences are more to each other than to their local context and their local governments. I think that’s basically true,” Schmidt told me. “The people you’re describing see themselves as global citizens first. That’s a relatively new phenomenon. So, while they’re certainly patriotic about their countries and patriotic about where they grew up, and they love their mothers and so forth—but they see themselves as global citizens. And so, when something happens in the globe that’s bad, it bothers them.”
“This is the new wave, the new trend,” Wang Huiyao, founder and president of Beijing’s Center for China and Globalization, told me. “We had the globalization of trade, we had the globalization of capital, and now we have the globalization of talent.
“It is no longer about brain drain, or even brain gain,” Dr. Wang said. “It is about global brain circulation.”
Dr. Wang recalled that three decades ago, when he first came to North America as a student, there was only one flight a day to China. Today, he said, “there are two or three dozen, if not more.”
As a result, instead of immigration being a single journey with a fixed starting point and end point, Dr. Wang said many Chinese have become what he calls “seagulls,” going back and forth between San Francisco or Vancouver and Beijing or Shanghai. He is a seagull himself: I spoke over the phone to Dr. Wang while he was in Washington, D.C.; he is spending the academic year at Harvard’s Kennedy School in Cambridge, Massachusetts; his institute is in Beijing; and he still owns an apartment in Vancouver, where he once lived.
In a similar vein, the wife of one of America’s most successful fund managers offered me the small but telling anecdote that her husband is better able to navigate the streets of Davos than those of his native Manhattan. When he’s at home, she explained, he is ferried around town by a car and driver; the snowy Swiss hamlet, which is too small and awkward for limos, is the only place where he actually walks. One international media executive, who traveled 120 nights out of the past 365 days, described the group this way: “We are the people who know airline flight attendants better than we know our own wives.” An investment banker born and educated in Scandinavia, who built his career working as an investment banker with multinational firms in London and New York and who today works for an emerging markets plutocrat, told me that his family’s recent move from London to Hong Kong was easier than moving from one borough of New York to another.
The globalization of the super-elite starts before the deals do—in school. The plutocracy doesn’t have its own passport, but it does have its alma maters—America’s Ivy League, plus Stanford and Oxbridge, and the world’s top business schools, mostly an American group, but also including Europe’s INSEAD. This is a world, as Turow puts it, where the province of your MBA matters more than your nationality. You can find quite a few plutocrats who were educated entirely in their home countries—this is, remember, largely a self-made group—but it is rare to come across one whose children don’t attend one of these top global universities. Many start earlier, sending their children to boarding schools, especially the fancy English ones, where Russian oligarchs landing their helicopters on the sports fields for parent visiting day has become commonplace. China’s plutocrats, who devote more than a fifth of their annual spending to their children’s education, are enthusiastic globalizers. According to Rupert Hoogewerf, publisher of the Hurun Report and the premier chronicler of the culture of the Chinese super-elite, “Four out of every five Chinese entrepreneurs today are considering sending their children to school overseas.” Middle Kingdom billionaires prefer to send their children abroad for high school, where British public schools are the preferred destination. For college, when the children of Chinese millionaires join the plutonomy, too, the most elite universities are America’s Ivy League. As a European multimillionaire explained to an eastern European billionaire, over a meal I shared with them at Davos, the advantage of the British public school their children both attended (thanks to the help of the same international education placement adviser) was that, “in addition to learning the language, they will make the right international friends.”
The global takeover of these elite international institutions is beginning to be reflected in the name above the door—Oxford is today home to both the Blavatnik School of Government, a would-be rival to Harvard’s Kennedy School, endowed with a £75 million gift from Russian-born metals and oil baron Len Blavatnik (a truly global plutocrat who was born in Odessa, earned an MBA from Harvard, and has homes in New York and London), and the Saïd Business School, founded with a £20 million gift from Wafic Saïd, who was born in Syria, made his fortune in Saudi Arabia, and maintains his primary homes in Paris as well as tax-friendly Monaco.
Like any country, the plutonomy is not uniform: its tribes have distinct national customs and its individual members make their own choices about how to live. The plutocrats whose native countries are repressive or volatile, like the Russians or the Middle Easterners, tend to be the most thoroughly global. Some, like the Chinese or the Indians, cultivate powerful community networks even when they live and work outside their home country. Some countries have built their national economy in large part by providing a physical haven for the globe-trotting members of the plutocracy—this has been the business of Switzerland and Monaco for generations. More recently, Singapore and Hong Kong have gotten into the act. Dubai is a newly minted, air-conditioned contender. English is the lingua franca of the super-elite, which means that, along with its elegant buildings and favorable tax treatment of foreigners, Britain, too, is a popular spot: nearly 60 percent of the properties in London worth more than £2.5 million are owned by foreigners.
America’s business elite, by contrast, is something of a latecomer to this transnational community. In a study of British and American CEOs, for example, executive headhunter Elisabeth Marx found that almost a third of the former were foreign nationals, compared to just 10 percent of the latter. Similarly, more than three-quarters of the Brits had worked abroad for at least two years, whereas just a third of Americans had done so.
But despite the slow start, American business is catching up. Today’s American chief executives are twice as likely to have worked abroad as their predecessors of a decade ago, and the number of foreign and foreign-born CEOs of U.S. companies, while still relatively small, is rising. The shift is particularly evident on Wall Street. In 2006, each of the eight leading banks on the Street was run by a native-born CEO; today, their number is down to five, and two of the survivors—Citigroup and Morgan Stanley—are led by men who were born abroad.
In fact, Jeff Immelt, the CEO of General Electric, recently told me his successor might well come from an emerging market, because that’s where GE’s future, and the future of American business more generally, lies.
In Immelt’s view, the financial crisis marked the end of the age of America’s economic dominance. “I came to GE in 1982,” Mr. Immelt told me. “For the first twenty-five years, until the bubble crashed in 2007, the American consumer was the definitive driver of the global economy.” But the future will be different, Mr. Immelt said. For the next twenty-five years, he said, the U.S. consumer “is not going to be the engine of global growth. It is going to be the billion people joining the middle class in Asia, it is going to be what the resource-rich countries do with their newfound wealth of high oil prices. That’s the game.
“There are going to be one billion consumers joining the middle class in Asia. I think for us to reduce unemployment, exports are going to be a key way to do it,” Immelt told me. “It’s this country’s only destiny just because most of the consumers are some place other than here.”
As a cautionary counterexample, Immelt cited inward-looking Japanese firms. “Look, when I was a young guy, when I first started with GE, Jack Welch sent us all to Japan because in those days Japan was gonna crush us,” he said. “And we learned a lot about Japan when we were there. But over the subsequent thirty years the Japanese companies all fell behind. And the reason why they fell behind is because they didn’t globalize. They didn’t have to go out and sing for their dinner in every corner of the world. That’s not the case with GE. It’s not the case with other American multinationals.”
At the 2010 Aspen Ideas Festival, Michael Splinter, CEO of the Silicon Valley green-tech firm Applied Materials, confessed that if he were starting from scratch, only 20 percent of his workforce would be domestic. “This year, almost 90 percent of our sales will be outside the U.S.,” he explained. “The pull to be close to the customers—most of them in Asia—is enormous.” Speaking at the same conference, Thomas Wilson, CEO of Allstate, told a similar story: “I can get [workers] anywhere in the world. It is a problem for America, but it is not necessarily a problem for American business…. American businesses will adapt.”
Paul Volcker, the legendary inflation-fighting former head of the Federal Reserve, told me that at a 2012 dinner with a group of chief financial officers in Manhattan he had been struck by the global outlook of what he described as “so-called American companies”: “Implicitly, they don’t think of themselves as American anymore,” he said. “They are international companies. If the American government doesn’t treat them right they will move their headquarters abroad. These companies are more likely to man their foreign branches with foreigners than they are Americans, and they send foreigners to run their American operations.”
Mohamed El-Erian, the CEO of Pimco, the world’s largest bond manager, is typical of the global nomads gradually rising to the top echelons of U.S. business in this international age. The son of an Egyptian father and French mother, El-Erian had a peripatetic childhood, shuttling between Paris, Cairo, New York, and London. He was educated at Cambridge and Oxford and now works for a U.S.-based company that is owned by the German financial conglomerate Allianz SE.
Though El-Erian lives in Newport Beach, California, where Pimco is headquartered, he says that he can’t name a single country as his own. “I have three passports,” El-Erian told me on a recent visit to New York. “I don’t belong to any one country. I belong to many and to the world.” As he talked, we walked through midtown, which El-Erian remembered fondly from his childhood, when he’d take the crosstown bus each day to the United Nations School. That evening, El-Erian was catching a flight to London. Later in the week, he was due in St. Petersburg.
Indeed, there is a growing sense, at GE and beyond, that American businesses that don’t internationalize aggressively risk being left behind. For all its global reach, Pimco is still based in the United States. But the flows of goods and capital upon which the super-elite surf are bypassing America more often than they used to. Take, for example, Stephen Jennings, the fifty-two-year-old New Zealander who cofounded the investment bank Renaissance Capital. Renaissance’s roots are in Moscow, where Jennings maintains his primary residence (he also has farms in Oxfordshire and New Zealand, and his children go to school in England), and his business strategy involves positioning the firm to capture the investment flows between the emerging markets, particularly Russia, Africa, and Asia. For his purposes, New York is increasingly irrelevant. In a 2009 speech in Wellington, New Zealand, he offered his vision of this post-unipolar business reality: “The largest metals group in the world is Indian. The largest aluminum group in the world is Russian…. The fastest-growing and largest banks in China, Russia, and Nigeria are all domestic.”
As it happens, one of the fellow tenants in Jennings’s high-tech, high-rise Moscow office building recently put together a deal that exemplifies just this kind of intra-emerging-market trade. In the spring of 2010, Digital Sky Technologies (DST), Russia’s largest investment firm, entered into a partnership with the South African media corporation Naspers and the Chinese technology company Tencent. All three are fast-growing firms with global vision—in the fall of 2010, a DST spin-off named Mail.ru went public and instantly become Europe’s highest-valued Internet company, with a market capitalization of $5.71 billion—yet none is focused on the United States. A similar example of the intra-emerging-market economy was Indian telecom giant Bharti Enterprises’ acquisition of most of the African properties of Kuwait-based telecom Zain. A California technology executive—himself a global nomad who has lived and worked in Europe and Asia—explained to me that a company like Bharti has a competitive advantage in what he believes will be the exploding African market: “They know how to provide mobile phones so much more cheaply than we do. In a place like Africa, how can Western firms compete?”
Just as the railroad created new cities, private jets and private jet time-shares like NetJets have contributed to the globalization of the super-elite—owning homes and doing deals around the world becomes feasible when you can travel the planet as easily as the middle class steps into a car. New technologies have helped, too—instant and mobile communication makes it possible to live on the move and around the world. So have the political revolutions that have opened up so many of the world’s borders over the past twenty years.
The most important shift, however, was the one foreseen by Adam Smith in The Wealth of Nations. Writing in 1776 at the very beginning of the industrial revolution, he predicted that as fortunes shifted from acres to shares they would become more mobile: “The proprietor of land is necessarily a citizen of the particular country in which his estate lies. The proprietor of stock is properly a citizen of the world, and is not necessarily attached to any particular country.”
Smith could see that manufacturing companies, and the disaggregated owners of their stock, would eventually eclipse land as the engine of the economy. The technology revolution, which has created a new and powerful sphere of economic activity that has almost no physical manifestation at all, has taken that trend exponentially further. The result, as Smith anticipated, is an elite driven by its economic interests to think global: “He [the owner of stock] would be apt to abandon the country in which he was exposed to a vexatious inquisition in order to be assessed to a burdensome tax, and would remove his stock to some other country where he could either carry on his business or enjoy his fortune more at his ease.” But while capital—and capitalists—have gone global, governments and most of their middle-class citizens operate within national boundaries. Figuring out how the plutocrats are connected to the rest of us is one of the challenges of the rise of the global super-elite.
Harry Mount, the Spectator essayist, is grudgingly grateful to the global super-elite for “buying” the traditional summer social calendar of English high society and sprucing it up—“the rackety, amateurish, faded charms of English high summer have been replaced by a professionalised, slick operation, supercharged by oceans of international cash.”
But the irony of this overseas acquisition is that while the debutante balls and hunts and regattas of yesteryear may not be quite obsolete, they are certainly headed in that direction. The real community life of the twenty-first-century plutocracy occurs on the international conference circuit. “We don’t have castles and noble titles, so how else do you indicate you’re part of the elite?” Andrew Zolli of PopTech, an ideas forum and social innovation network, told New York magazine.
The best known of these events is the World Economic Forum’s annual meeting in Davos, Switzerland, invitation to which marks an aspiring plutocrat’s arrival on the international scene—and where, in lieu of noble titles, an elaborate hierarchy of conference badges has such significance that one first-time participant remarked that the staring at his chest made him realize for the first time what it must be like to have cleavage. The Bilderberg Group, which meets annually at locations in Europe and North America, is more exclusive still—and more secretive—though it is more focused on geopolitics and less on global business and philanthropy. The Boao Forum, convened on Hainan Island each spring, offers evidence both of China’s growing economic importance and of its understanding of the culture of the global plutocracy. Bill Clinton is pushing hard to win his Clinton Global Initiative a regular place on the circuit. The annual TED conference (the acronym stands for Technology, Entertainment, Design) is an important stop for the digerati, as is the DLD (Digital-Life-Design) gathering Israeli technology entrepreneur Yossi Vardi cohosts with publisher Hubert Burda in Munich each January (so convenient if you are en route to Davos). Herb Allen’s Sun Valley gathering is the place for media moguls, and the Aspen Institute’s Ideas Festival is for the more policy-minded, with a distinctly U.S. slant. There is nothing implicit, at these gatherings, about the sense of belonging to a global elite. As Chris Anderson, the curator of the TED talks, told one gathering: “Combined, our contacts reach pretty much everyone who’s interesting in the country, if not the planet.”
Recognizing the value of such global conclaves, some corporations have begun hosting their own. Among these is Google’s Zeitgeist conference, where I have moderated discussions for several years. One of its recent gatherings was held in May 2010 at the Grove, a former provincial estate in the English countryside whose three-hundred-acre grounds have been transformed into a golf course and whose high-ceilinged rooms are now decorated with a mixture of antique and contemporary furniture. (Mock Louis XIV chairs—made, with a wink, from high-end plastic—are much in evidence.) Cirque du Soleil offered the five hundred guests a private performance in an enormous tent erected on the grounds; the year before that, to celebrate its acquisition of YouTube, Google flew in overnight Internet sensations from around the world.
Yet for all its luxury, the mood of the Zeitgeist conference is hardly sybaritic. Rather it has the intense, earnest atmosphere of a gathering of college summa cum laudes. This is not a group that plays hooky: the conference room is full from nine a.m. to six p.m. on conference days, and during coffee breaks the lawns are crowded with executives checking their BlackBerrys and iPads.
The 2010 lineup of Zeitgeist speakers included such notables as Archbishop Desmond Tutu, London mayor Boris Johnson, and Starbucks CEO Howard Schultz (not to mention, of course, Google’s own CEO, Eric Schmidt). But the most potent currency at this and comparable gatherings is neither fame nor money. Rather, it’s what author Michael Lewis has dubbed “the new new thing”—the insight or algorithm or technology with the potential to change the world. Hence the presence of three Nobel laureates, including Daniel Kahneman, a pioneer in behavioral economics. One of the business stars in attendance was then thirty-six-year-old entrepreneur Tony Hsieh, who had sold his Zappos online shoe retailer to Amazon for more than a billion dollars the previous summer. And the most popular session of all was the one in which Google showed off some of its new inventions, including the Nexus phone.
This geeky enthusiasm for innovation and ideas is evident at more intimate gatherings of the global elite as well. Take the elegant Manhattan dinner parties hosted by Marie-Josée Kravis, the economist wife of private equity billionaire Henry Kravis in their elegant Upper East Side apartment. Though the china is Sèvres and the paintings are Old Masters, the dinner table conversation would not be out of place in a graduate seminar. Mrs. Kravis takes pride in bringing together not only plutocrats such as her husband and Michael Bloomberg, but also thinkers and policy makers such as Richard Holbrooke, Robert Zoellick, and Financial Times columnist Martin Wolf, and leading them in discussion of issues ranging from global financial imbalances to the war in Afghanistan.
In fact, the idea conference is so trendy that a couple of New Yorkers recently hosted an ideas wedding. When David Friedlander and Jacqueline Schmidt married in Brooklyn in December 2011, their guests were issued name tags that asked them to declare a commitment. Another card urged, “Name one action you can take in the next twenty-four hours that is aligned with your commitment.” Instead of boozy speeches about the bride and groom delivered by nervous family and friends, the main entertainment was a series of TED-style talks, complete with PowerPoint presentations, about issues the couple cares about—neuroscience, the environment, and holistic healing.
A thought-leadership wedding just might be going a step too far—the Friedlander/Schmidt nuptials were snarkily chronicled in the New York Times and panned by Gawker, although the more earnest Huffington Post gave the pair a thumbs up. But in this age of elites who delight in such phrases as “out of the box” and “killer app,” arguably the most coveted status symbol isn’t a yacht, a racehorse, or a knighthood; it’s a philanthropic foundation—and, more than that, one actively managed in ways that show its sponsor has big ideas for reshaping the world.
George Soros, who turned eighty in the summer of 2010, is a pioneer and role model for the socially engaged billionaire. Arguably the most successful investor of the postwar era, he is nonetheless most proud of his Open Society Foundations, through which he has spent billions of dollars on causes as diverse as drug legalization, civil society in central and eastern Europe, and rethinking economic assumptions in the wake of the financial crisis.
Inspired and advised by the liberal Soros, Pete Peterson—himself a Republican and former Nixon cabinet member—has spent $1 billion of his Blackstone windfall on a foundation dedicated to bringing down America’s deficit and entitlement spending. Bill Gates, likewise, devotes most of his energy and intellect today to his foundation’s work on causes ranging from supporting charter schools to combating disease in Africa. Facebook founder Mark Zuckerberg has yet to reach his thirtieth birthday, but last fall he donated $100 million to improving Newark’s public schools. Insurance and real estate magnate Eli Broad has become an influential funder of stem cell research and school reform; Jim Balsillie, a cofounder of BlackBerry creator RIM, has established his own international affairs think tank; the list goes on and on. It is not without reason that Bill Clinton has devoted his postpresidency to the construction of a global philanthropic “brand.”
The super-wealthy have long recognized that philanthropy, in addition to its moral rewards, can also serve as a pathway to social acceptance and even immortality. Andrew “The Man Who Dies Rich Dies Disgraced” Carnegie transformed himself from robber baron to secular saint with his hospitals, concert halls, libraries, and universities; Alfred Nobel ensured that he would be remembered for something other than the invention of dynamite. What is notable about today’s plutocrats is that they tend to bestow their fortunes in much the same way they made them: entrepreneurially. Rather than merely donate to worthy charities or endow existing institutions (though they of course do this as well), they are using their wealth to test new ways to solve big problems.
Their approach is different enough to have inspired a new phrase, “philanthro-capitalism,” which is also the title of a book by Matthew Bishop and Michael Green. Bishop and Green explain: “The new philanthropists believe they are improving philanthropy, equipping it to tackle the new set of problems facing today’s changing world…. [They] are trying to apply the secret behind their money-making success to their giving.”
“What they are doing is much more trying to copy business techniques and ways of thinking,” Bishop told me. “There is a connection between their ways of thinking as businesspeople and their ways of giving. If you compare it with previous eras, in each era going back to the Middle Ages the entrepreneurs have been among the people leading the response to the destruction caused by the economic processes that made them rich. You saw it in the Middle Ages, you saw it with the Victorians, you saw it with Carnegie and Rockefeller. What is different is the scale. Business is global and so they are focusing on global problems. They are much more focused on how do they achieve a massive impact. They are used to operating on a grand scale and so they want to operate on a grand scale in their philanthropy as well. And they are doing it at a much younger age.”
A measure of the importance of public engagement for today’s super-rich is the zeal with which even emerging market plutocrats are developing their own foundations and think tanks. When the oligarchs of the former Soviet Union first burst out beyond their own borders, they were a Marxist caricature of the nouveaux riches: purchasing yachts and sports teams and surrounding themselves with couture-clad supermodels. Fifteen years later, they are exploring how to buy their way into the world of ideas.
One of the most determined is the Ukrainian entrepreneur Victor Pinchuk, whose business empire ranges from pipe manufacturing to TV stations. With a net worth of $4.2 billion, Pinchuk is no longer content merely to acquire modern art. In 2009, he launched a global competition for young artists run by his Pinchuk Art Centre in Kiev, conceived as a way of bringing Ukraine into the international cultural mainstream. Pinchuk hosts a regular lunch on the fringes of Davos (Chelsea Clinton was the celebrity moderator in 2012) and has launched his own annual “ideas” forum, a gathering devoted to geopolitics that is held, with suitable modesty, in the same Crimean villa where Stalin, Roosevelt, and Churchill conducted the Yalta Conference. The September 2010 meeting, where I served as a moderator, included Dominique Strauss-Kahn, then head of the International Monetary Fund; Polish president Bronislaw Komorowski; and Alexei Kudrin, then the Russian deputy prime minister and finance minister. At a gala dinner, keynote speaker Bill Clinton addressed, ironically enough, the economic consequences of growing inequality.
As an entrée into the global super-elite, Pinchuk’s efforts seem to be working. On a visit to the United States in 2010, the oligarch met with top Obama adviser David Axelrod in Washington and schmoozed with Charlie Rose at a New York book party for Time magazine editor Rick Stengel. On a previous trip, he’d dined with Caroline Kennedy at the Upper East Side town house of HBO chief Richard Plepler. Back home, he has entertained fellow art enthusiast Eli Broad at his palatial estate outside Kiev (which features its own nine-hole golf course and Japanese garden, built by Japanese carpenters), and has partnered with Soros to finance Ukrainian civil society projects.
One of the tensions in the life of the plutocrat that philanthropy lays bare is how hard it can be figuring out where to give back. If you are a global nomad, do you direct your charitable efforts at the place where you were born, the place where you live now (if that is even possible to define), or the place where you do the most business? Or perhaps the right approach isn’t to think about tribal or emotional connection; rather it is to use the same objective logic you would apply to a business investment and to try to find the place in the world where you can make the biggest difference.
I listened to a couple of members of the global 0.1 percent think through these issues over supper in Dar es Salaam. We were there, appropriately enough, thanks to the World Economic Forum, which was hosting one of its regional summits over a few muggy days in May 2010 in the Tanzanian city. One participant in the conversation was an Australian who lived in Hong Kong and had made a career largely working in Southeast Asia and China. The second was an Asian-born technologist who had earned a fortune working in Silicon Valley.
The Australian had no doubts about where it was best to target one’s philanthropy, and that was neither birthplace nor adopted city: “I always focus on where you have the biggest impact and where people need it the most—so that is always, always poor, uneducated girls in the developing world.” The Asian entrepreneur felt a greater obligation to the communities with which he had a personal connection, so his philanthropy was directed in two places: building schools in his native country and supporting the education of poor children in California.
This dual focus, working with the poorest of the poor abroad and also doing something for the people at the bottom in your own neighborhood, is the balance a lot of the plutocrats strike. You could see another example on the lawns of Kensington Palace. The redbrick mansion was once home to Princess Diana and today is a home for her sons, but the most lavish celebration held on its grounds in the summer of 2011 was the annual gala auction hedge fund manager (and supermodel-dater) Arpad Busson organizes to raise money for ARK, the children’s charity he founded.
Busson is a vocal proponent of philanthro-capitalism. ARK stands for Absolute Return for Kids, a play on the language of the hedge funds and their pursuit of absolute returns, often using aggressive techniques such as short selling, in contrast with generally more conservative mutual funds and their pursuit of relative returns, which is to say they aim to keep abreast of the wider investment pack. Busson thinks ARK needs to be run like a hedge fund. “If we can apply the entrepreneurial principles we have brought to business to charity, we have a shot at having a really strong impact, to be able to transform the lives of children,” he told The Observer.
When it comes to picking which children, Busson, a true global nomad—he was born in France of a French father and an English mother, he has worked in New York and Paris as well as London, and his own two boys are the sons of Australian model Elle Macpherson—targets his efforts at the children of the world. ARK has projects in eastern Europe, Africa, and India, as well as in the UK. That mix would not have occurred to philanthropists of a previous generation, for whom poor neighbors belonged to a very different category from the poor of the third world. But to the globe-trotting plutocrat, there isn’t much difference between the poor child in the London estate (Britspeak for housing projects) and the New Delhi slum.
Busson’s belief in applying business techniques to philanthropy is characteristic of the global super-elite’s approach to doing good. No one does this more effectively than Bill Gates, whose foundation, with its $33 billion war chest and rigorously analytical mind-set, has transformed charity, and sometimes public policy, around the world.
Within the plutocracy, the Gates Foundation has had a decisive cultural impact. Gates and his co-donor Warren Buffett—not accidentally two of the world’s most visible and most admired billionaires—have made it de rigueur not only to give away a lot of your money but to be actively engaged in how it is spent. Gates has become an evangelist for this idea that capitalism must do good, and do-gooders must become more capitalist. He even has a name for it, “creative capitalism,” a term he unveiled in a speech at Davos—where else?—at the 2008 meeting of the World Economic Forum.
Marx famously observed that early generations of philosophers had sought to describe the world; he wanted to change it. Gates and his plutocratic peers are having a similarly dramatic impact on the world of charity. They don’t want to fund the social sector, they want to transform it. One example is their impact on education in America. With their focus on measurable results, Gates and his fellow education-focused billionaires have spearheaded a data-driven revolution. The first step was to put tests at the center of education, so that the output—student learning—could be measured. The next step is to try to make the job of teaching more data- and incentive-driven. As Gates said in a speech in November 2010, “We have to figure out what makes the great teacher great.” That effort includes videotaping teachers in the classroom and paying them based on how they perform.
Strikingly, the ambition of the philanthro-capitalists doesn’t stop at transforming how charity works. They want to change how the state operates, too. These are men who have built their businesses by achieving the maximum impact with the minimum effort—either as financiers using leverage or technologists using scale. They think of their charitable dollars in the same way.
“Our foundation tends to fund more of the up-front discovery work, and we’re a partner in delivery, but governmental funding is the biggest,” Gates told students at MIT on a visit there in April 2010.
“Take delivering AIDS medicine. We did the pilot studies in Botswana to prove that you could deliver ARBs [angiotensin II receptor blockers] in Africa, and then PEPFAR [the U.S. President’s Emergency Plan for AIDS Relief], the U.S. government program, which is five billion [dollars] a year, which is way more than our whole foundation, just that one U.S. government help program—just one country—came in and scaled up based on some of the lessons from that.”
It is a measure of the financial and intellectual power of plutocrats in the world economy that their goal is to guide the state. Indeed, the muscle of the philanthro-capitalists is such that they can sometimes unintentionally distort the social safety nets of entire nations. That has been a complaint in some African countries, where the richly funded, relentlessly focused Gates programs on AIDS medicine and tuberculosis and malaria vaccines have lured local doctors and nurses away from providing desperately needed, but less glamorous, everyday care. Dr. Peter Poore, a pediatrician who has worked in Africa for three decades, warned Los Angeles Times investigative reporters, “They can also do dangerous things. They can be very disruptive to health systems—the very things they claim they are trying to improve.” Rachel Cohen, a Western aid worker in Lesotho, agreed: “All over the country, people are furious about the incentives for ART staff [as the Gates-funded health workers are known],” who can earn more than double what other health care workers are paid.
The impact of the philanthro-capitalists on global health and U.S. education is occasionally controversial—not everyone believes in more testing in schools, or the particular approaches to AIDS care in Africa. But there is little debate about the aims—it is hard to find anyone who argues that U.S. schoolchildren need less education or that Africans deserve fewer doctors and less medicine. But some idea-driven plutocrats venture into more obviously contested terrain.
The plutocrat-as-politician is becoming an important member of the world’s governing elite, ranging from pragmatic problem solvers with a yen for the public stage, such as Mike Bloomberg or Mitt Romney, to emerging market billionaires whose wealth emboldens them to challenge authoritarian rulers, like Russia’s Mikhail Khodorkovsky or Egypt’s Naguib Sawiris. The plutocratic politician can use his own money to bankroll his campaign directly, and also to build a network of civic support through the less explicitly political donations of his personal foundation.
Some farsighted plutocrats try to use their money not merely to buy public office for themselves but to redirect the reigning ideology of a nation, a region, or even the world. Soros’s Open Society Foundations may not have toppled communism, but they had a powerful impact on the emergence of democracy and pluralism in much of Eastern Europe and the former Soviet Union. At the other end of the ideological spectrum, conservative billionaires like the Koch brothers have assiduously nurtured a right-wing intellectual ecosystem of think tanks and journals that has had a powerful impact on electoral politics and the legislative agenda in the United States and beyond.
Your own view of these explicitly political plutocratic ventures depends on your own politics. If you support drug legalization, you are probably a fan of the Soros millions dedicated to that cause. If you back gay marriage, you likely cheered Republican billionaire Paul Singer’s contribution to the campaign to legalize it in New York state.
Where things get really complicated is when the philanthro-capitalists use their money to finance a political agenda that dovetails with their personal business interests or with the interests of the plutocratic class as a whole. The Koch brothers, for instance, have pushed for less government regulation of industry, including state efforts to protect the environment. They are lifelong libertarians who are genuinely skeptical about climate change. They also happen to own a company whose assets include oil refineries, oil pipelines, and lumber mills—all businesses that would benefit from a weakened EPA.
Then there are the class interests of the plutocrats more generally. Balancing the budget isn’t an idea that belongs to a particular socioeconomic group or political party—the Germans, with their generous social safety net, are as hawkish about deficits as the U.S. Tea Party. But cutting so-called entitlement spending is a policy that would have a disproportionate impact on the poor, who depend most on these programs—and it is also an idea that plutocrat Pete Peterson has devoted $1 billion of his fortune to advance.
Jeffrey Winters, a political scientist at Northwestern University, believes America’s super-elite has been particularly effective at using the tools of a political democracy—where, in theory, the majority should rule—to protect its minority privilege. The first permanent federal income tax in the United States was explicitly devised as a tax on plutocrats. When it was first mooted in 1894, it was to be levied on the top 0.1 percent—eighty-five thousand of the sixty-five million Americans. Resistance in Congress, whose members included two millionaires, was predictably intense. One representative warned that this “was not Democracy, it was Communism.” Another fumed, “It is a shame that the successful should be made the legal prey of the unsuccessful.” It took nineteen years and an amendment to the Constitution, but the tax did eventually become law in 1913. This was, after all, the height of the Gilded Age and the dawn of the Progressive Era. America was getting rich, but it was also getting worried about the disproportionate wealth and power of its plutocrats.
Over the subsequent century, though, the 0.1 percent fought back. Driven up by the costs of World War I, the initial tax rate on the very rich was high, reaching a peak of 77 percent in 1918. By the early twenty-first century, the effective tax rate at the very top had fallen to less than a third of that level. Strikingly, as the tax rate at the top fell, it rose on those lower down the income distribution—in the political fight over tax rates, the plutocrats have outfoxed the merely wealthy. In 1916, millionaires—that era’s super-rich—were hit with a published income tax rate of 65 percent, nearly 35 points higher than the rate for the merely affluent. Capital gains were taxed at the same level as ordinary income, and most Americans paid no income tax at all. Today, that fiercely progressive curve has been reversed. Within the 1 percent, the richer you are, the lower your effective tax rate: in 2009, the top 1 percent paid over 23 percent of their income in tax, the top 0.1 percent paid just over 21 percent, and the top four hundred taxpayers paid less than 17 percent. Capital gains, an important source of income for the plutocrats but less significant the lower you go down the income distribution, were taxed at just 15 percent in 2012.
Winters argues that America’s oligarchs have achieved these low effective tax rates thanks to the services of a professional army of lawyers, accountants, and lobbyists. Collectively, he calls this group of courtiers the “income defense industry.” They certainly benefit from the intellectual antitax agenda elaborated over the past several decades at some of the think tanks financed by plutocrats.
But if America really is ruled by an oligarchy, it is a very badly disciplined clique indeed. After all, some of the most prominent plutocrats, most notably Warren Buffett, have highlighted the low effective tax rate they pay and have called on politicians to raise it. As he likes to put it, “There’s class warfare, all right. But it’s my class, the rich class, that’s making war, and we’re winning.”
When Anders Aslund, a Swedish economist who has studied and advised most of the leaders in the former Soviet Union, visited Kiev in late 2004, at the height of the Orange Revolution, he returned to his home in Washington, D.C., with a surprising observation.
Most reports depicted the Orange Revolutionaries, with their determined, subzero encampment in the capital city’s central square, either as western Ukrainians rebelling against the government’s pro-Russian stance or as idealistic students who were unwilling to stomach political repression. Both characterizations were true, but Aslund saw a third dynamic at play. The Orange Revolution, he told me, was the rebellion of the millionaires against the billionaires. Ukraine’s crony capitalism worked extremely well for the small, well-connected group of oligarchs at the very top, but it was stifling the emerging middle class. This rising petite bourgeoisie was finally fed up and it was fighting for more equitable rules of the game.
That battle of the millionaires versus the billionaires has been playing out across the world. It was a decisive factor in the Tahrir Square protests, whose most visible organizer was Wael Ghonim, an MBA-trained Google executive based in Dubai, which quickly won the support of the country’s well-heeled military elite. It was on show in India, where veteran social activist Anna Hazare’s anticorruption hunger strike was hailed as the political awakening of the prospering Indian middle class. And it can be seen in Moscow, where the unexpected revolt against Vladimir Putin’s “party of crooks and thieves” was catalyzed by a blogging real estate lawyer and drew fur-clad professionals onto the streets.
In the United States, Occupy Wall Street has drawn the political battle lines somewhat differently—between the 99 percent and the 1 percent. But when you drill down into the data, you can see another, even steeper division inside the 1 percent itself. The ultrarich of the 0.1 percent have pulled far ahead of the merely rich, who make up the other 0.9 percent at the tip of the income pyramid. The divide is cultural and it is economic—and if it becomes political it could transform the national debate.
The wider public discussion about income inequality hasn’t much touched on the divisions within the 1 percent. That is partly because it can be a little stomach churning to consider the gradations of wealth at the very top at a time when unemployment is close to 9 percent and working-class families are being hammered. But within the 1 percent, the awareness of the different tiers of wealth is as keen as an Indian matchmaker’s sensitivity to the finer divisions of caste.
Holly Peterson, the daughter of Pete Peterson and herself a sly and eloquent chronicler of the 1 percent, tells a similar story of the tension at the very top.
“I think people making $5 million to $10 million definitely don’t think they are making enough money,” she told me. “‘Wouldn’t it be nice to fly private?’ There are so many things you can aspire to, even making $5 million a year. For the lower rung of this crowd, these people set up lives for themselves they can’t afford. These people are broke and maxed out on their credit cards in December, just like middle-class couples living on $100,000. I don’t think they feel that rich. They are trying to play with the high rollers and there are things they can’t do and they feel deprived, which is completely sick and absurd, but that’s the truth of the matter.”
One way to understand what is happening at the top of the income distribution is to look at the numbers. Brian Bell and John Van Reenen, two economists at the Centre for Economic Performance at the London School of Economics, have done a careful study of Britain’s super-rich. Peering inside the top 1 percent, they found a distribution almost as skewed as that within the economy as a whole—the top 2 percent of the 1 percent took 11 percent of the wage share of that cohort in 1998 and 13 percent in 2008. Among financiers, who are disproportionately represented within the British and American 1 percent, the tilt toward the very top is even more pronounced.
Winters, the U.S. political scientist, has devised another way to appreciate the difference between the merely rich and the super-rich. He has created a “material power index,” which measures the income of the top 10 percent of Americans as a multiple of the average income of the bottom 90 percent. His material power index shows that, like a mountain whose cliffs become steeper as you ascend to the peak, income polarization in America gets sharper the richer you are: the top 10 percent have an MPI of 4—meaning their average income is four times that of the bottom 90 percent—while the top 1 percent have an MPI of 15. But when you get to the top 0.1 percent, the MPI jumps to 124. That is the line, in Winters’s view, that separates the affluent from the oligarchs. “There were about 150,000 Americans whose average annual incomes were $4 million and above in 2007,” Winters writes of the 0.1 percent. “This is the threshold at which oligarchs dominate the landscape.”
Another peek into the dynamic within the 1 percent comes from inside one of America’s elite institutions. Claudia Goldin and Lawrence Katz, the Harvard economists, compiled a data set chronicling the family and career choices of twelve Harvard classes between 1969 and 1992. Their purpose was to understand the impact of gender on life and work, but their numbers turned out to tell a nuanced and unexpected story about the elite overall. One of the biggest surprises was how far, even among the gilded graduates of Harvard, the top had pulled away from everyone else—in 2005, median earnings for Harvard men were $162,000, comfortably in the top 10 percent of the national income distribution. But almost 8 percent of the men had labor market income above $1 million, putting them in the top 0.5 percent. An important driver of the gap was the split between the bankers and everyone else, with financiers earning 195 percent more than their classmates.
For the 1 percenters who didn’t switch majors from art history to economics and find themselves moored at the bottom of the top, the experience can be surprisingly hard to bear. One force at work is Carol Graham’s paradox of happy peasants and miserable millionaires. In international research that grew out of findings for Russia and Peru, Graham found that “very poor and destitute respondents report high or relatively high levels of well-being, while much wealthier ones with more mobility and opportunities report much lower levels of well-being and greater frustration with their economic and other situations.”
One source of that frustration, Dr. Graham told me, was when “the gains around them are much bigger than their own, and bigger than they can ever achieve in their lifetime.” Dr. Graham attributes this feeling of inadequacy vis-à-vis the 0.1 percent partly to greed. She points to work by economist Angus Deaton that shows the richer you are, the more covetous you become—the social science version of the biblical proverb about the eye of the needle. But she says crony capitalism is to blame, too. The middle-class achievers are the most frustrated in societies where getting to the top is seen as a function of connections rather than merit.
A more sympathetic rationale, advanced most prolifically by Cornell economist Robert Frank, is the problem of positional goods. These are products and services whose value is derived in part from their scarcity and how much everyone else wants them. If you have them, I don’t. A place in the Harvard first-year class or a home in a desirable public school district is a positional good. An iPhone or a Gmail account is not. An appetite for some positional goods is easy to dismiss as part of the greed effect—a reservation at the hottest new restaurant, or buying a limited-edition handbag. But what about an organ transplant? Or the positional good that causes some of the greatest angst in the foothills of the 1 percent, an elite education?
The gap between the 1 percent and the 0.1 percent could have serious political consequences. Even in America, there were just 412 billionaires in 2007, and 134,888 taxpayers in the 0.1 percent. The 1 percent is bigger—with 749,375 taxpayers—and, with an average annual income of $486,395, it is not that far away from the wider 10 percent, with its 7.5 million taxpayers earning an average $128,560. These people at the bottom of the top of the income distribution are financially essential to the country and politically essential to those at the very top. If the super-elite lose their loyalty, it could become very isolated indeed.
Historically, in America the merely rich have strongly identified with the very rich. The strivers at the bottom of the 1 percent were just one big idea or one big job away from the very top, and, anyway, everyone belonged to the same upper middle class. They might be struggling to support their middle-class lifestyles month to month, but the 1 percent have liked to think of themselves as “soon to be rich.” But there are a few signs that the nearly millionaires are starting to suspect the billionaires are getting an unfair deal. One sign is how “crony capitalism” has become the battle cry not just of Occupy Wall Street but also of Tea Party darling Sarah Palin and conservative intellectual Paul Ryan.
This nascent split between probusiness, promoney Americans of the bottom of the 1 percent and the 0.1 percent is in many ways more potentially incendiary than the antiestablishment idealism of Occupy Wall Street. We always knew the left was suspicious of high finance. What is surprising is that Wall Street’s yeomen have become suspicious of their bosses.
Here’s how Joshua Brown, a New York–based investment adviser to high-net-worth individuals, charitable foundations, and retirement plans responded to complaints by a number of Wall Street chiefs that they are being unjustly vilified in America today.
Brown’s tirade, which he posted on his blog, The Reformed Broker, quickly went viral: “Not only do we not ‘hate the rich’ as you and other em-bubbled plutocrats have postulated, in point of fact, we love them,” Brown wrote. “We love the success stories in our midst and it is a distinctly American trait to believe that we can all follow in the footsteps of the elite, even though so few of us ever actually do. So, no, we don’t hate the rich. What we hate are the predators…. America hates unjustified privilege, it hates an unfair playing field and crony capitalism without the threat of bankruptcy, it hates privatized gains and socialized losses, it hates rule changes that benefit the few at the expense of the many, and it hates people who have been bailed out and don’t display even the slightest bit of remorse or humbleness in the presence of so much suffering in the aftermath.”
In a democratic age, the super-elite can survive if every millionaire is convinced he has a billionaire’s baton in his knapsack. If that conviction breaks down, the battle of the millionaires versus the billionaires could move from Cairo and Kiev to London and New York.
For 47,745 of the 47,763 runners who competed in the New York Marathon in 2011, it was a co-ed race. Women ran alongside men, and as demanding sports such as endurance running have become socially acceptable for women, females formed an ever greater part of the pack. But for the first eighteen racers, the top 0.04 percent, the marathon is exactly as segregated as it was before 1971, when women were banned from racing more than ten miles on the theory that their delicate bodies weren’t up to the strain.
Becoming a plutocrat is like being one of those eighteen men. This is not to suggest that women are somehow biologically precluded from breaking into the plutocracy, in the way that the female physique may never run a marathon as quickly as the male one. But the image is a way of illustrating a significant and rarely remarked-on aspect of the rise of the super-elite: it is almost entirely male. Consider the 2012 Forbes billionaire list. Just 104 of the 1,226 billionaires are women. Subtract the wives, daughters, and widows and you are left with a fraction of that already small number.
What’s especially striking about this absence of women at the top is that it runs so strongly counter to the trend in the rest of society. Within the 99 percent, women are earning more money, getting more educated, and gaining more power. That’s true around the world and across the social spectrum. If you aren’t a plutocrat, you are increasingly likely to have a female boss, live in a household where the main breadwinner is female, and study in a class where the top pupils are girls. As the 99 percent has become steadily pinker, the 1 percent has remained an all-boys club. One way to understand the gap between the 1 percent and the rest is as a division of the world into a vast female-dominated middle class ruled by a male elite at the top.
Another window into how the gender divide sharpens at the very top comes from the Goldin and Katz Harvard study. College is one of the arenas the women of the middle class are conquering—more than half of all U.S. undergraduates are now female, and their grade point average is higher than that of their male peers. Young women are more likely to get their BAs and go on to graduate school. The recession has exacerbated the gender divide, with young women responding to a tough job market by going back to school and improving their skills. Young men have not. At Harvard, which released women from the apartheid of Radcliffe only in 1973, the incoming first-year class in 2004 included more women than men.
But as soon as they graduate, Harvard women’s chances of getting to the very top decline because of the jobs they choose. Goldin and Katz found that finance and management were overwhelmingly the most lucrative fields, with financiers earning that whopping 195 percent premium. Men have responded to this incentive strongly—of the class of 1990, 38 percent of the men worked in management and finance fifteen years after graduating, compared to just 23 percent of the women. By 2007, the number of women starting off in finance or management had jumped to 43 percent, but a staggering 58 percent of the men had made that same choice. You can see the difference in their incomes: in 2005, 8 percent of Harvard men earned more than $1 million; just 2 percent of the women crossed that threshold.
Not too many people talk about the absence of women at the very top. That’s partly because, in a fight that’s been going on since the famous debates between Lenin and Bolshevik feminist Alexandra Kollontai, the left has a history of bullying women who dare to talk about gender at the apex of power. Doing so has been framed as a selfish concern of upper-class women, who are urged to focus their attention on the more deserving problems of their sisters at the bottom. As for the right, it has historically preferred to avoid discussion of gender and class altogether.
But the absence of women in the plutocracy is an important part of the culture of the 1 percent and a crucial way the very rich differ from everyone else. It is a powerful force in the workplace, where most plutocrats have no female peers. And it shapes their personal lives as well. The year 2009 was a watershed for the American workplace—it was the first time since data was collected that women outnumbered men on the country’s payrolls. In 2010, about four in ten working wives were the chief breadwinners for their families.
The plutocracy, by contrast, still lives in the Mad Men era, and family life becomes more patriarchal the richer you get. In 2005, just over a quarter of taxpayers in the top 0.1 percent had a working spouse. For the 1 percent, the figure was higher, at 38 percent, but significantly lower than in the country as a whole. There’s not a lot of mystery to these choices of the wives of the 0.1 percent, as I discovered at a dinner party when I sat next to a private equity investor. He was in his late thirties with no children, and as we chatted I learned that he had met his wife when they were both students at Yale Law School. But when I asked which firm she now worked at, I realized I had committed a faux pas. If your husband is earning $10 million a year, choosing the treadmill of billable hours really is rather bizarre. (It turns out she spends her time investing part of the family portfolio, studying art history, and decorating their Upper East Side town house.)
And it is graduates of Yale Law School and the like who are the housewives of the plutocrats. In 1979, nearly 8 percent of the 1 percent had spouses the IRS described as doing blue-collar or service sector jobs—governmentspeak for bosses married to their secretaries. That number has been falling ever since. What economists call assortive mating—the tendency to marry someone you resemble—is on the rise. But while the aggressive geeks of the super-elite are marrying their classmates rather than their secretaries, their highly educated wives are unlikely to work.
My own suspicion is that most plutocrats privately believe women don’t make it to the top because something is missing. Most know better than to muse on this matter in public—they all remember, for instance, what that cost Larry Summers, who happens to have a sterling record of promoting the careers of his female protégés—but I can report an unguarded remark one private equity billionaire made to me. The problem, he said, wasn’t that women weren’t as smart or even as numerate as men; he had hired many women in starting positions who were as skilled as their male counterparts. But they still didn’t have the royal jelly: “They don’t have the killer instinct, they don’t want to fight, they won’t go for the jugular.” By way of evidence, he described a subordinate who had cried when he told her she had made a mistake. You can’t do that and win, he said.