WE ARE living through a revolution. Technology and globalisation are changing everything. They created the financial crisis but they are also lifting tens of millions of people out of poverty. They are also making a small class of people richer than anyone has ever been.
Chrystia Freeland compares pop star Lady Gaga to the superstar of the early 19th century, the opera singer Mrs Billington.
In 2010, Lady Gaga earned $90m, 18,000 times the annual income of a typical US family. In 1801, Mrs Billington’s £10,000 was 200 times that of a British farm labourer.
Technology could bring Lady Gaga to a limitless audience. Mrs Billington’s audience was limited to the capacity of a theatre.
Plutocrats: The Rise of the New Global Super Rich shows that Occupy Wall Street is wrong to obsess about the “one percent”. The super-rich are a much smaller group. The top 2% of the 1% made 13% of the financial gains in 2008, and their share is going up.
The super-rich all know each other and they live in a parallel universe. Freeland writes hilariously about a ‘festival of ideas’ in Aspen, Colorado, which featured a feast ‘narrated’ by a famous food writer, with pork so ethical it had almost asked to be killed, and rare sour cherries ‘bravely’ sourced in a San Francisco market though the harvest had been a write-off.
But what’s so refreshing about Plutocrats is that it doesn’t just slag the rich. It explains them, and, therefore, us. Freeland shows that we are living in paradigm shift and this creates huge opportunities for risk-takers. Today’s development is at a different pace to anything experienced in our history. Take, for example, the fact that 800m Indians are connected by mobile phone.
“Capitalism works”, says Freeland. And globalisation is working, too. It is reducing poverty for tens of millions of people in the ‘fast developing’ world. It is stripping some people in the developed west of their middle-class status.
One CEO told Freeland that for four people in China and India taken out of poverty, one American loses middle-class status, and “that’s not a bad trade”.
Fundamentally, she writes, an equalisation is occurring that decades of well-meaning charity couldn’t achieve: “You had your golden period; now, hopefully, we’ll have ours”, India’s largest exporter of motor parts tells Freeland.
The US is not even the dominant player among the super-rich any more. Freeland names the investors in One Hyde Park, a fabulous London apartment building in which the biggest flat cost $223m. The buyers were oligarchs from the Ukraine, Kazakhstan, Qatar, Russia, and Ray Grehan, the Irish property developer who is now bankrupt and accused of selling his pad at a knock-down price to put it beyond the reach of his creditors.
Interestingly, Freeland says the super-rich have mostly zoomed out of the financial collapse. There is no sense that the brave new world has been unmade. There is no going back.
By just carrying on as we did before, the paradigm shift is not going to work in such a rapidly changing world. It’s a case of adapt or die.
But scenting the trends of the future is not easy. One of the best stories in the book is of the lunch that Wall Street investor George Soros hosted at his Long Island estate in the summer of 2007, for 20 other senior investors.
The European Central Bank had just pumped billions into the global money markets after BNP Paribas had frozen withdrawals from three of its funds. In hindsight, this was the start of the global credit crisis. But the consensus at Soros’s lunch was that this was a minor correction and we were not going to have a recession.
This level of group-think spooked the 77-year-old Soros so much that he came out of semi-retirement and invested to counterbalance his firm’s exposure. He ended up with a 10% dividend in 2008, a year that, in Freeland’s words, “saw the global destruction of wealth on the most colossal scale since the Second World War.”
George Soros just has it. His father had been in the Austro-Hungarian army during the Russian revolution and had learned never to under-estimate the power of paradigm shifts. He was Jewish and living in Budapest at the outbreak of the Second World War and he saved his family by sending them into hiding immediately.
George has inherited, or learned, the same ability to sniff danger — and opportunity.
Freeland says that countries with a high degree of immigration naturally have many risk-takers, people who have taken the risk of leaving their home countries.
Reading this book makes it clear that our own financial woes — and the massive development which preceded them — are only understandable in an international context.
It’s no use ringing Liveline and saying, “They’re all the same, Joe.” You have to make an effort to understand the international paradigm shift and how it affected this country.
Freedland pairs Ireland with South Korea as a “miracle economy”. Interestingly, she says that the growth period of such economies is psychologically distressing for its people, but that people are happier overall in richer countries.
Her description of the corruption in fast-growing economies also fits Ireland in a small way. The sell-off of rights by governments all over the world in the wake of the collapse in communism exposed politicians to the charge of corruption when the people who bought the rights got rich. Nowhere is this more obvious than in telecommunications. The richest man in the world is Mexico’s Carlos Slim, who bought the telecommunications monopoly, Telnex, and its only mobile phone licence, in what some have suggested was a rigged auction.
In this country, Michael Lowry was found by the Moriarty Tribunal to have favoured the bid of businessman and Fine Gael donor Denis O’Brien’s Esat Digifone for a mobile phone licence.
Freedland’s description of boom-time India is a little more troubling. “You could be a billionaire if you moved to India, too”, a local businessman tells her. “All you need is the luck to meet the right government official and a willingness to risk going to jail.”
But does the end justify the means? Sometimes, says Freeland.
The US railways were built by the “robber barons” of the mid-19th century and the US state still has them. However, her “golden era” is Roosevelt’s post-Depression New Deal, which drove the benefits of industrialisation into the homes of the 99%. By 1944, the top income tax rate in the US was 94%.
But this is where her argument breaks down.
How can you take such extreme tax measures in a globalised world? Your “wealth creators” will simply relocate to somewhere the tax regime favours them more.
Freeland doesn’t ask this question, but I must: In a globalised world, is world government the only path to an egalitarian society that respects nature’s limits?