Embedded with the .01 Percent
In her new book, Plutocrats, journalist Chrystia Freeland reveals the troubling hegemony of the world’s most exclusive club: billionaires
In December 2007, just months before Wall Street’s leading investment banks disappeared into a gaping sinkhole of their own making, a wealthy New York investor named David Rubenstein bought the last privately owned copy of the Magna Carta at auction for $21.3 million (US). Apparently, it was something of an impulse buy. Rubenstein had heard that the 715-year-old manuscript was for sale and reckoned the United States should have its own copy. It is, after all, democracy’s foundational document—not to mention an early example of successful lobbying by the striving rich. “When he tells this story,” writes journalist Chrystia Freeland in her intriguing new book, Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else, “Rubenstein’s favorite moment is talking to his wife at the end of the day and offering a humdinger of a punchline to the classic conjugal question ‘What did you do today, darling?’ Rubenstein’s answer: ‘I bought the Magna Carta.’”
The Canadian-born Freeland writes a widely read column for Reuters about the global economic roller coaster and its entangled relationship to what one might call the .01 percent, the tiny collection of multimillionaires and billionaires who play an outsized role in determining the patterns of international trade, technology, and finance, and whose American members are fond of reminding policy-makers that they pay a disproportionate share of all taxes.
Ever since she covered the emergence of Russia’s oligarchs for the Financial Times during the 1990s, she has gravitated toward the habits and haunts of the super-duper-rich: the workaholic alpha geeks in Silicon Valley, Wall Street’s private equity wizards, and the acquisitive industrialists of China, India, and Brazil. She finds them at Manhattan dinner parties, in the five-star hotels where they alight during punishing travel schedules, and at confabs like the World Economic Forum in Davos, Switzerland, where the thinking rich mingle with captivating minds, including some prominent journalists whom she once described as the “geishas” of our age.
A Canadian billionaire once told me you can never spend it all, but the plutocrats who cross Freeland’s radar seem determined to try. She describes a notorious sixtieth birthday party, at which a Wall Street mogul dropped $3 million that covered, among other things, 2,500 orchids and a half-hour performance by Rod Stewart (whose fee consumed a third of the evening’s budget, and amounted to twenty times the median American household income). She also relates a show-stopping conversation at a midtown dinner party, where the guests lamented that thirtysomethings earning $20 million or $30 million were finding it tough to stretch their incomes to cover four houses and the part ownership of a Learjet. One guest, reports Freeland, turned to her neighbour and intoned, “‘You know, the thing about twenty is’—by this she means $20 million per year—‘twenty is only ten [after taxes].’ And everybody at the table is nodding.”
But Freeland’s interest in the ultra-rich is serious—not just another helping of prurient wealth-porn. Plutocrats is an attempt to delve inside the thinking of this most elite class, as a way of understanding why in so many countries twenty-first-century capitalism has produced what she calls a “winner-take-all” economy.
Indeed, Plutocrats is the income inequality story of our age, but reported from behind the redoubts of the .01 percent. The global economy may have stalled since the 2008 credit crunch, but the wealth of the global plutocracy has risen dramatically, making Freeland’s scrutiny timely. As she argues, the broadly distributed benefits of postwar prosperity have given way to a second gilded age in the developed world, while industrialists in the emerging markets are experiencing their first. “The pulling away of the plutocrats from everyone else,” she writes, “is a new reality that will shape the future.”
The concentration of wealth is extraordinary: the world’s billionaires would fit into a mid-size high school. At one point, Russia’s 101 billionaires controlled a quarter of the country’s GDP. Carlos Slim, the world’s richest man, is said to receive a piece of almost every consumer transaction in Mexico. In the US, where executive compensation is a red-hot topic, public companies collectively paid their top five executives a whopping 10 percent of all profits between 2001 and 2003. In fact, America’s wealthiest citizens contribute so much in taxes—the 1 percent account for almost one-sixth of Washington’s revenues—that many are absolutely convinced they, or their appointed standard-bearer, Mitt Romney, should call the piper’s tune.
So while she describes herself as an unabashed fan of capitalism and trade liberalization, Freeland argues that the full-throttle globalization of the past decade, driven by brilliant entrepreneurs and investment hotshots, aggressive outsourcing and rapid technological change, has created a deeply lopsided economy characterized by severe social strains, such as the collapse of the middle class. “Benign economic forces,” she says, “are leading to a malign political result.”
Plutocrats will cause ripples, because Freeland has risen to the pinnacle of American business journalism and political commentary. Globe and Mail editor-in-chief John Stackhouse, who first met her when she did a stint at the paper during the 1999 newspaper war, says she is “without question one of the hungriest, most driven journalists I’ve met anywhere.” He describes her as an accomplished networker who is “remarkably good at drawing people out and making them feel comfortable and at ease. She shows up ready to talk with her subjects at their level.” Which, when you’re dealing with high-flying billionaires, is a useful skill.
Freeland has come a long way from her childhood home on a farm in Peace River, Alberta. I met her recently at the toy-and book-strewn Fifth Avenue apartment she shares with her husband, New York Times correspondent Graham Bowley, and their three young children. They have a complicated Manhattan lifestyle. Freeland, who is petite, self-assured, and solicitous, travels constantly, often to the other side of the world. On this day, her two youngest were with a babysitter, while the eldest was in Ukraine with relatives (she speaks mostly Ukrainian to the children). Bowley was in Afghanistan covering the war. When I arrived at her home, she had just come back from a run and looked a bit flushed. “Okay,” she said, “now I’m relaxed.”
Like many successful journalists, she owes her career to that happy mixture of brains, inquisitiveness, and the good fortune of being in the right place at the right time. In 1991, then twenty-three and just out of Harvard, she settled in Kiev and set herself up as a stringer for the Financial Times, The Economist, and the Washington Post. One day, she had a chance encounter with financier George Soros that would forever shape her understanding of the ways of the super-rich. A successful hedge fund investor, Soros had travelled to the Ukrainian capital to investigate the possibility of bankrolling nascent pro-democracy groups, and he wanted to talk to someone with an ear to the ground. Freeland, whose mother’s family fled Ukraine and settled in Alberta after World War II, not only spoke the language but had also forged links with student activists. “I was a young, ignorant kid,” she recalls. “I had no idea who he was. It was still Soviet times and a bit dangerous to talk indoors, so we went for a walk in a park. But it wasn’t me interviewing him; it was him getting information from me. I remember the way he asked questions. I thought, ‘Wow, this is one of the smartest people I’ve ever met.’”
The Financial Times soon hired her as its Moscow bureau chief. The Soviet Union was collapsing, and she recalls that she was “intensely conscious” of the fact that she had found herself in the midst of the story of a lifetime—a “hinge of history.” Post-Communist Russia was three stories in one: the wrenching political realignment, the nation’s military confrontations with the breakaway republics, and the messy birth of capitalism. Reckoning that the New York Times and the Washington Post would dominate coverage of the first two, she decided to focus on the third, writing about the massive privatization program, the economic reforms, and the emergence of the Russian oligarchs, many of whom she met on their way up.
She frequently travelled with Post reporter David Hoffman—a Pulitzer Prize–winning former White House correspondent she describes as “my great intellectual companion”—to the corners of the empire in search of a defrosting economy. “You were writing about things no one else had ever written about,” she says. It was “frontier journalism. You were talking to people who had never spoken to a Western journalist before.” The local apparatchiks would roll out the red carpet, which happened once, literally, when they arrived to interview the mayor of Krasnouralsk in the Soviet hinterland.
She was also fearless. Hoffman recalls driving with her in a battered car through an eerily abandoned oil refinery near Chechnya, a Russian offensive looming and the surrounding pastures littered with dead cattle: “She said, ‘We’ve got to see this.’” He continues: “All of this shit was going on, and there was no road map—for the country, or for us.” In fact, no one, including the Moscow press corps and academic Kremlinologists, had a clue. In the fall of 1990, Freeland had been awarded a Rhodes Scholarship in Slavonic studies at Oxford, but persuaded the admissions committee to let her postpone it, which was exceedingly rare. However, the professors at Oxford were reading her reportage and agreed that it made more sense, at that moment in history, for her to stick with the story.
Along the way, she came to know many of the rapacious entrepreneurs who accumulated extraordinary wealth as the state sold its assets at fire sale prices. “When I first met my Russians, they were, like, schmucks,” she says. “They considered it an honour to be interviewed by a Western journalist, and they were probably not as well dressed as the Western journalist. Now they’re all billionaires.” The encounters helped her formulate her thinking about the habits and methods of such staggeringly wealthy people.
Her first book, Sale of the Century, was based on almost a decade of reporting in Russia. While it is now a very different country—some of the billionaires are in jail, others are in exile, and Vladimir Putin has re-established the czarist system in all but name—the book remains an engrossing work, full of finely observed details about a chaotic, fleeting, history-changing moment. Hoffman, who wrote his own book about the oligarchs, is still jealous about an anecdote at the beginning of Freeland’s in which she relates how, at one of the sumptuous Moscow restaurants that catered to the nouveau riche, a single fresh rose was ritually auctioned at midnight. One night, a man in a shiny suit bid $110 and then proudly presented the flower to his girlfriend. “He bought it,” she writes, “because after a lifetime of standing in line for milk and sausage, of greasing black-market palms to get a new pair of blue jeans, of waiting 10 years for a telephone line and 15 years for a lemon of a Lada, money finally meant something—and he could use it to buy whatever he wanted.”
She stayed at the Globe for just two years (her tenure as the paper’s twentysomething deputy editor did not endear her to some of her colleagues), and then returned to the Financial Times, which dispatched her to New York in 2006 to build its US franchise. Among her coups: inviting the Clinton-era treasury secretary Lawrence Summers, whom she knew from her days at Harvard, to contribute a regular column. As the New York Times noted, “[it] became such an attraction that the paper soon promoted it with his picture atop the front page. Mr. Summers offered prescriptions for the deepening economic trouble including huge fiscal stimulus and measures to prevent unnecessary foreclosures. A primary theme of his column was that too many people were falling behind, a point he cast in political as well as economic terms.”
Reuters recruited Freeland in 2010 to bulk up its online presence (her position is digital editor), write an economics column, and host a web-based interview show. Like the influential tycoons who appear on The Freeland File, she travels constantly, trawling for insights from the alpha males who make the global economy rock and roll. But she also remains acutely aware of the risk of succumbing to the arrogance and bubble-think that envelops the members of this self-satisfied class and the pundits who keep them entertained. To remain grounded, she regularly checks in with her father, a farmer in Peace River. “He doesn’t live in New York and doesn’t go to dinner parties on the Upper East Side,” she says. “I think he is much smarter than many people who do. Knowing that is knowing that not all wisdom is found within Manhattan or inside the Beltway.”
In the bonus-fuelled craziness of pre-2008 New York, Freeland observed that, despite their vast social differences, Russia’s oligarchs and America’s private equity tycoons got on quite well; it was a thread that should be pulled, she thought. Then, in the aftermath of the credit crisis, with its narrative of public humiliation for bankers such as Lehman Brothers’ Dick Fuld, she decided to write a book tentatively titled Survivors, about the moguls who didn’t lose their shirts. But the real story, as she came to realize, is that in the four economically tumultuous years since the global credit system almost imploded, the billionaire class not only survived; it actually grew larger, richer, and more politically dominant. Plutocrats is about trying to account for this paradox and understanding the lessons it teaches us.
She begins with a taxonomy of the various species of the ultra-rich, but includes enough historical and economic context to buttress her thesis that global capitalism has fallen under the sway of a small group of powerful and talented individuals who have deceived themselves, and us, into believing the future is bright. As she told me, “The temptation, both for them and for us, is to assume, first of all, that the skills that made them successful business people will automatically translate into a vision for what is right and good for society; and, second, that they won’t be biased by their profound self-interest. This is a cognitive error that runs through our society.” Exhibit A: a McKinsey study, released by Michael Bloomberg and US senator Charles Schumer about ten minutes before Lehman Brothers collapsed, calling for looser regulations for a financial services industry that was careening out of control precisely because it wasn’t regulated enough.
Freeland also reminds us that the .01 percent exist not just because of their ingenuity and entrepreneurial savvy, but also because our society has created the legal soil in which their fortunes can take root. “Political decisions helped create the super-elite in the first place,” she writes, “and as the economic might of the elite class grows, so does its political muscle. The feedback loop between money, politics, and ideas is both cause and consequence.”
While she continues to believe in capitalism as the best means of improving living standards, Freeland argues that governments should beware of listening too closely to those who have drunk the Kool-Aid. History suggests that radically unequal societies, in which the ruling class kowtows to the wealthiest citizens, can rapidly self-destruct. Indeed, she closes Plutocrats with a pointed parable about the wealthy Venetian merchant princes who fought to protect their own interests and in so doing strangled the city’s economic future. “The right,” she observes, “wants us to believe we shouldn’t worry so much about this moment of economic transition because everything will be okay, just as it was when we adjusted to the Industrial Revolution. But people who make that argument forget that the adjustment to the Industrial Revolution involved two world wars and a communist revolution in Russia and China. So it was hardly an easy transition.”
These days, she finds herself reflecting on the fact that Karl Marx began sketching out the case for a new society at precisely the moment when industrializing Britain was in the throes of unparalleled wealth creation and technological innovation. “I’m not a believer in blithely assuming it will all be okay,” she muses. “The short run can become a lot longer than you think.”
This appeared in the December 2012 issue.