The Rise of the New Global Elite
By
Chrystia Freeland
F.
Scott Fitzgerald was right when he declared the rich different from you and me.
But today’s super-rich are also different from yesterday’s: more hardworking
and meritocratic, but less connected to the nations that granted them
opportunity—and the countrymen they are leaving ever further behind.
If you
happened to be watching NBC on the first Sunday morning in August last
summer, you would have seen something curious. There, on the set of Meet the
Press, the host, David Gregory, was interviewing a guest who made a
forceful case that the U.S. economy had become “very distorted.” In the wake of
the recession, this guest explained, high-income individuals, large banks, and
major corporations had experienced a “significant recovery”; the rest of the
economy, by contrast—including small businesses and “a very significant amount
of the labor force”—was stuck and still struggling. What we were seeing, he
argued, was not a single economy at all, but rather “fundamentally two separate
types of economy,” increasingly distinct and divergent.
This diagnosis, though alarming, was hardly
unique: drawing attention to the divide between the wealthy and everyone else
has long been standard fare on the left. (The idea of “two Americas” was a
central theme of John Edwards’s 2004 and 2008 presidential runs.) What made the
argument striking in this instance was that it was being offered by none other
than the former five-term Federal Reserve Chairman Alan Greenspan: iconic
libertarian, preeminent defender of the free market, and (at least until
recently) the nation’s foremost devotee of Ayn Rand. When the high priest of
capitalism himself is declaring the growth in economic inequality a national
crisis, something has gone very, very wrong.
This widening gap between the rich and
non-rich has been evident for years. In a 2005 report to investors, for
instance, three analysts at Citigroup advised that “the World is dividing into
two blocs—the Plutonomy and the rest”:
In a plutonomy there is no such animal as
“the U.S. consumer” or “the UK consumer”, or indeed the “Russian consumer”.
There are rich consumers, few in number, but disproportionate in the gigantic
slice of income and consumption they take. There are the rest, the “non-rich”,
the multitudinous many, but only accounting for surprisingly small bites of the
national pie.
Before the recession, it was relatively easy
to ignore this concentration of wealth among an elite few. The wondrous
inventions of the modern economy—Google, Amazon, the iPhone—broadly improved
the lives of middle-class consumers, even as they made a tiny subset of
entrepreneurs hugely wealthy. And the less-wondrous inventions—particularly the
explosion of subprime credit—helped mask the rise of income inequality for many
of those whose earnings were stagnant.
But the financial crisis and its long, dismal
aftermath have changed all that. A multibillion-dollar bailout and Wall Street’s
swift, subsequent reinstatement of gargantuan bonuses have inspired a narrative
of parasitic bankers and other elites rigging the game for their own benefit.
And this, in turn, has led to wider—and not unreasonable—fears that we are
living in not merely a plutonomy, but a plutocracy, in which the rich display
outsize political influence, narrowly self-interested motives, and a casual
indifference to anyone outside their own rarefied economic bubble.
Through my work as a business journalist,
I’ve spent the better part of the past decade shadowing the new super-rich:
attending the same exclusive conferences in Europe; conducting interviews over
cappuccinos on Martha’s Vineyard or in Silicon Valley meeting rooms; observing
high-powered dinner parties in Manhattan. Some of what I’ve learned is entirely
predictable: the rich are, as F. Scott Fitzgerald famously noted, different
from you and me.
What is more relevant to our times, though,
is that the rich of today are also different from the rich of yesterday. Our
light-speed, globally connected economy has led to the rise of a new
super-elite that consists, to a notable degree, of first- and second-generation
wealth. Its members are hardworking, highly educated, jet-setting meritocrats
who feel they are the deserving winners of a tough, worldwide economic
competition—and many of them, as a result, have an ambivalent attitude toward
those of us who didn’t succeed so spectacularly. Perhaps most noteworthy, they
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.
The Winner-Take-Most Economy
The rise of the new plutocracy is
inextricably connected to two phenomena: the revolution in information
technology and the liberalization of global trade. Individual nations have
offered their own contributions to income inequality—financial deregulation and
upper-bracket tax cuts in the United States; insider privatization in Russia;
rent-seeking in regulated industries in India and Mexico. But the shared
narrative is that, thanks to globalization and technological innovation,
people, money, and ideas travel more freely today than ever before.
Peter Lindert is an economist at the
University of California at Davis and one of the leaders of the “deep history”
school of economics, a movement devoted to thinking about the world economy
over the long term—that is to say, in the context of the entire sweep of human
civilization. Yet he argues that the economic changes we are witnessing today
are unprecedented. “Britain’s classic industrial revolution was far less
impressive than what has been going on in the past 30 years,” he told me. The
current productivity gains are larger, he explained, and the waves of
disruptive innovation much, much faster.
From a global perspective, the impact of
these developments has been overwhelmingly positive, particularly in the poorer
parts of the world. Take India and China, for example: between 1820 and 1950,
nearly a century and a half, per capita income in those two countries was
basically flat. Between 1950 and 1973, it increased by 68 percent. Then,
between 1973 and 2002, it grew by 245 percent, and continues to grow strongly
despite the global financial crisis.
But within nations, the fruits of this global
transformation have been shared unevenly. Though China’s middle class has grown
exponentially and tens of millions have been lifted out of poverty, the
super-elite in Shanghai and other east-coast cities have steadily pulled away.
Income inequality has also increased in developing markets such as India and
Russia, and across much of the industrialized West, from the relatively
laissez-faire United States to the comfy social democracies of Canada and
Scandinavia. Thomas Friedman is right that in many ways the world has become
flatter; but in others it has grown spikier.
One reason for the spikes is that the global
market and its associated technologies have enabled the creation of a class of
international business megastars. As companies become bigger, the global
environment more competitive, and the rate of disruptive technological
innovation ever faster, the value to shareholders of attracting the best
possible CEO increases correspondingly. Executive pay has skyrocketed for many
reasons—including the prevalence of overly cozy boards and changing cultural
norms about pay—but increasing scale, competition, and innovation have all
played major roles.
Many corporations have profited from this
economic upheaval. Expanded global access to labor (skilled and unskilled
alike), customers, and capital has lowered traditional barriers to entry and
increased the value of an ahead-of-the-curve insight or innovation. Facebook,
whose founder, Mark Zuckerberg, dropped out of college just six years ago, is
already challenging Google, itself hardly an old-school corporation. But the
biggest winners have been individuals, not institutions. The hedge-fund manager
John Paulson, for instance, single-handedly profited almost as much from the
crisis of 2008 as Goldman Sachs did.
Meanwhile, the vast majority of U.S. workers,
however devoted and skilled at their jobs, have missed out on the windfalls of
this winner-take-most economy—or worse, found their savings, employers, or
professions ravaged by the same forces that have enriched the plutocratic
elite. The result of these divergent trends is a jaw-dropping surge in U.S.
income inequality. According to the economists Emmanuel Saez of Berkeley and
Thomas Piketty of the Paris School of Economics, between 2002 and 2007, 65
percent of all income growth in the United States went to the top 1 percent of
the population. The financial crisis interrupted this trend temporarily, as
incomes for the top 1 percent fell more than those of the rest of the
population in 2008. But recent evidence suggests that, in the wake of the
crisis, incomes at the summit are rebounding more quickly than those below. One
example: after a down year in 2008, the top 25 hedge-fund managers were paid,
on average, more than $1 billion each in 2009, quickly eclipsing the record
they had set in pre-recession 2007.
Plutocracy Now
If you are looking for the date when America’s
plutocracy had its coming-out party, you could do worse than choose June 21,
2007. On that day, the private-equity behemoth Blackstone priced the largest
initial public offering in the United States since 2002, raising $4 billion and
creating a publicly held company worth $31 billion at the time. Stephen
Schwarzman, one of the firm’s two co-founders, came away with a personal stake
worth almost $8 billion, along with $677 million in cash; the other, Peter
Peterson, cashed a check for $1.88 billion and retired.
In the sort of coincidence that delights
historians, conspiracy theorists, and book publishers, June 21 also happened to
be the day Peterson threw a party—at Manhattan’s Four Seasons restaurant, of
course—to launch The Manny, the debut novel of his daughter, Holly, who
lightly satirizes the lives and loves of financiers and their wives on the
Upper East Side. The best seller fits neatly into the genre of modern “mommy
lit”—USA Today advised readers to take it to the beach—but the author
told me that she was inspired to write it in part by her belief that “people
have no clue about how much money there is in this town.”
Holly Peterson and I spoke several times
about how the super-affluence of recent years has changed the meaning of
wealth. “There’s so much money on the Upper East Side right now,” she said. “If
you look at the original movie Wall Street, it was a phenomenon where
there were men in their 30s and 40s making $2 and $3 million a year, and that
was disgusting. But then you had the Internet age, and then globalization, and
you had people in their 30s, through hedge funds and Goldman Sachs partner
jobs, who were making $20, $30, $40 million a year. And there were a lot of
them doing it. I think people making $5 million to $10 million definitely don’t
think they are making enough money.”
As an example, she described a conversation
with a couple at a Manhattan dinner party: “They started saying, ‘If you’re
going to buy all this stuff, life starts getting really expensive. If you’re
going to do the NetJet thing’”—this is a service offering “fractional aircraft
ownership” for those who do not wish to buy outright—“‘and if you’re going to
have four houses, and you’re going to run the four houses, it’s like you start
spending some money.’”
The
clincher, Peterson says, came from the wife: “She turns to me and she goes,
‘You know, the thing about 20’”—by this, she meant $20 million a year—“‘is 20
is only 10 after taxes.’ And everyone at the table is nodding.”
[I felt compelled to insert this story about how some Veterns are being treated at this time. the original article The Rise of the New Global Elite will finish after this]
***************************
When
wounded soldiers return from Iraq, they are sent to Walter Reed Army Medical
Center. Then their troubles begin.
February 19, 2007
WASHINGTON -- Behind the door of Army Spec. Jeremy Duncan's room, part
of the wall is torn and hangs in the air, weighted down with black mold. When
the wounded combat engineer stands in his shower and looks up, he can see the
bathtub on the floor above through a rotted hole. The entire building,
constructed between the world wars, often smells like greasy carry-out. Signs
of neglect are everywhere: mouse droppings, belly-up cockroaches, stained
carpets, cheap mattresses.
This is the world of Building 18, not the kind of place where Duncan expected
to recover when he was evacuated to Walter Reed Army Medical Center from Iraq
last February with a broken neck and a shredded left ear, nearly dead from
blood loss. But the old lodge, just outside the gates of the hospital and five
miles up the road from the White House, has housed hundreds of maimed soldiers
recuperating from injuries suffered in the wars in Iraq and Afghanistan.
The common perception of Walter Reed is of a surgical hospital that
shines as the crown jewel of military medicine. But 5 1/2 years of sustained
combat have transformed the venerable 113-acre institution into something else
entirely -- a holding ground for physically and psychologically damaged
outpatients. Almost 700 of them -- the majority soldiers, with some Marines --
have been released from hospital beds but still need treatment or are awaiting
bureaucratic decisions before being discharged or returned to active duty.
They suffer from brain injuries, severed arms and legs, organ and back
damage, and various degrees of post-traumatic stress. Their legions have grown
so exponentially -- they outnumber hospital patients at Walter Reed 17 to 1 --
that they take up every available bed on post and spill into dozens of nearby
hotels and apartments leased by the Army. The average stay is 10 months, but
some have been stuck there for as long as two years.
Not all of the quarters are as bleak as Duncan's, but the despair of
Building 18 symbolizes a larger problem in Walter Reed's treatment of the
wounded, according to dozens of soldiers, family members, veterans aid groups,
and current and former Walter Reed staff members interviewed by two Washington
Post reporters, who spent more than four months visiting the outpatient world
without the knowledge or permission of Walter Reed officials. Many agreed to be
quoted by name; others said they feared Army retribution if they complained
publicly.
While the hospital is a place of scrubbed-down order and daily miracles,
with medical advances saving more soldiers than ever, the outpatients in the
Other Walter Reed encounter a messy bureaucratic battlefield nearly as chaotic
as the real battlefields they faced overseas.
On the worst days, soldiers say they feel like they are living a chapter
of "Catch-22." The wounded manage other wounded. Soldiers dealing
with psychological disorders of their own have been put in charge of others at
risk of suicide.
Disengaged clerks, unqualified platoon sergeants and overworked case
managers fumble with simple needs: feeding soldiers' families who are close to
poverty, replacing a uniform ripped off by medics in the desert or helping a
brain-damaged soldier remember his next appointment.
"We've done our duty. We fought the war. We came home wounded.
Fine. But whoever the people are back here who are supposed to give us the easy
transition should be doing it," said Marine Sgt. Ryan Groves, 26, an
amputee who lived at Walter Reed for 16 months. "We don't know what to do.
The people who are supposed to know don't have the answers. It's a nonstop
process of stalling."
Soldiers, family members, volunteers and caregivers who have tried to
fix the system say each mishap seems trivial by itself, but the cumulative
effect wears down the spirits of the wounded and can stall their recovery.
"It creates resentment and disenfranchisement," said Joe
Wilson, a clinical social worker at Walter Reed. "These soldiers will
withdraw and stay in their rooms. They will actively avoid the very treatment
and services that are meant to be helpful."
Danny Soto, a national service officer for Disabled American Veterans
who helps dozens of wounded service members each week at Walter Reed, said
soldiers "get awesome medical care and their lives are being saved,"
but, "Then they get into the administrative part of it and they are like,
'You saved me for what?' The soldiers feel like they are not getting proper
respect. This leads to anger."
This world is invisible to outsiders. Walter Reed occasionally showcases
the heroism of these wounded soldiers and emphasizes that all is well under the
circumstances. President Bush, former defense secretary Donald Rumsfeld and
members of Congress have promised the best care during their regular visits to
the hospital's spit-polished amputee unit, Ward 57.
"We owe them all we can give them," Bush said during his most
recent visit, a few days before Christmas. "Not only for when they're in
harm's way, but when they come home to help them adjust if they have wounds, or
help them adjust after their time in service."
The American public, determined not to repeat the divisive Vietnam
experience, has embraced the soldiers even as the war grows more controversial
at home. Walter Reed is awash in the generosity of volunteers, businesses and
celebrities who donate money, plane tickets, telephone cards and steak dinners.
Yet at a deeper level, the soldiers say they feel alone and frustrated.
Seventy-five percent of the troops polled by Walter Reed last March said their
experience was "stressful." Suicide attempts and unintentional
overdoses from prescription drugs and alcohol, which is sold on post, are part
of the narrative here.
Vera Heron spent 15 frustrating months living on post to help care for
her son. "It just absolutely took forever to get anything done,"
Heron said. "They do the paperwork, they lose the paperwork. Then they
have to redo the paperwork. You are talking about guys and girls whose lives
are disrupted for the rest of their lives, and they don't put any priority on
it."
Family members who speak only Spanish have had to rely on Salvadoran
housekeepers, a Cuban bus driver, the Panamanian bartender and a Mexican floor
cleaner for help. Walter Reed maintains a list of bilingual staffers, but they
are rarely called on, according to soldiers and families and Walter Reed staff
members.
Evis Morales's severely wounded son was transferred to the National
Naval Medical Center in Bethesda, Md., for surgery shortly after she arrived at
Walter Reed. She had checked into her government-paid room on post, but she
slept in the lobby of the Bethesda hospital for two weeks because no one told
her there is a free shuttle between the facilities. "They just let me off
the bus and said 'Bye-bye,' " recalled Morales, a Puerto Rico resident.
Morales found help after she ran out of money, when she called a hotline
number and a Spanish-speaking operator happened to answer.
"If they can have Spanish-speaking recruits to convince my son to
go into the Army, why can't they have Spanish-speaking translators when he's
injured?" Morales asked. "It's so confusing, so disorienting."
Soldiers, wives, mothers, social workers and the heads of volunteer
organizations have complained repeatedly to the military command about what one
called "The Handbook No One Gets" that would explain life as an
outpatient. Most soldiers polled in the March survey said they got their
information from friends. Only 12 percent said Army literature had been
helpful.
"They've been behind from Day One," said Rep. Tom Davis,
R-Va., who headed the House Government Reform Committee, which investigated
problems at Walter Reed and other Army facilities. "Even the stuff they've
fixed has only been patched."
Maj. Gen. George Weightman, commander at Walter Reed, said in an
interview last week that a major reason outpatients stay so long, a change from
the days when injured soldiers were discharged as quickly as possible, is that
the Army wants to hang on to as many soldiers as it can, "because this is
the first time this country has fought a war for so long with an all-volunteer
force since the Revolution."
Acknowledging the problems with outpatient care, Weightman said Walter
Reed has taken steps over the past year to improve conditions for the
outpatient army, which at its peak in summer 2005 numbered nearly 900, not to
mention the hundreds of family members who come to care for them. One platoon
sergeant used to be in charge of 125 patients; now each one manages 30. Platoon
sergeants with psychological problems are more carefully screened. And
officials have increased the numbers of case managers and patient advocates to
help with the complex disability benefit process, which Weightman called
"one of the biggest sources of delay."
And to help steer the wounded and their families through the complicated
bureaucracy, Weightman said, Walter Reed has recently begun holding
twice-weekly informational meetings. "We felt we were pushing information
out before, but the reality is, it was overwhelming," he said. "Is it
fail-proof? No. But we've put more resources on it."
He said a 21,500-troop increase in Iraq has Walter Reed bracing for
"potentially a lot more" casualties.
The best known of the Army's medical centers, Walter Reed opened in 1909
with 10 patients. It has treated the wounded from every war since, and nearly
one of every four service members injured in Iraq and Afghanistan.
The outpatients are assigned to one of five buildings attached to the
post, including Building 18, just across from the front gates. To accommodate
the overflow, some are sent to nearby hotels and apartments. Living conditions
range from the disrepair of Building 18 to the relative elegance of Mologne
House, a hotel that opened on the post in 1998.
The Pentagon has announced plans to close Walter Reed by 2011, but that
hasn't stopped the flow of casualties. Three times a week, school buses painted
white and fitted with stretchers and blackened windows deliver soldiers groggy
from a pain-relief cocktail at the end of their long trip from Iraq via
Landstuhl Regional Medical Center in Germany and Andrews Air Force Base.
Staff Sgt. John Daniel Shannon, 43, came in on one of those buses in
November 2004 and spent several weeks on the fifth floor of Walter Reed's
hospital. His eye and skull were shattered by an AK-47 round. His odyssey in
the Other Walter Reed has lasted more than two years, but it began when someone
handed him a map of the grounds and told him to find his room across post.
A reconnaissance and land-navigation expert, Shannon was so disoriented
he couldn't even find north. Holding the map, he stumbled around outside the
hospital, sliding against walls and trying to keep himself upright, he said. He
asked anyone he found for directions.
Shannon had led the 2nd Infantry Division's Ghost Recon Platoon until he
was felled in a gun battle in Ramadi. He liked the solitary work of a sniper;
"Lone Wolf" was his call name. But he did not expect to be left alone
by the Army after such serious surgery and a diagnosis of post-traumatic stress
disorder. He had appointments during his first two weeks as an outpatient, then
nothing.
"I thought, 'Shouldn't they contact me?"' he said. "I
didn't understand the paperwork. I'd start calling phone numbers, asking if I
had appointments. I finally ran across someone who said: 'I'm your case
manager. Where have you been?'
"Well, I've been here! Jeez Louise, people, I'm your hospital
patient!"
Like Shannon, many soldiers with impaired memory from brain injuries sat
for weeks with no appointments and no help from staff to arrange them. Some
simply left for home.
One outpatient, a 57-year-old staff sergeant who had a heart attack in
Afghanistan, was given 200 rooms to supervise at the end of 2005. He quickly
discovered that some outpatients had left the post months earlier and would
check in by phone. "We called them 'call-in patients,' " said Staff
Sgt. Mike McCauley, whose dormant PTSD from Vietnam was triggered by what he
saw on the job: so many young and wounded, and three bodies being carried from
the hospital.
Life beyond the hospital bed is a frustrating mountain of paperwork. The
typical soldier is required to file 22 documents with eight different commands
-- most of them off-post -- to enter and exit the medical processing world,
according to government investigators. Sixteen information systems are used to
process the forms, but few of them can communicate with one another. The Army's
three personnel databases cannot read each other's files and can't interact
with the separate pay system or the medical recordkeeping databases.
The disappearance of necessary forms and records is the most common
reason soldiers languish at Walter Reed longer than they should, according to
soldiers, family members and staffers. Sometimes the Army has no record that a
soldier even served in Iraq. A combat medic who did three tours had to bring in
letters and photos of herself in Iraq to show she had been there, after a clerk
couldn't find a record of her service.
Shannon, who wears an eye patch and a visible skull implant, said he had
to prove he had served in Iraq when he tried to get a free uniform to replace
the bloody one left behind on a medic's stretcher. When he finally tracked down
the supply clerk, he discovered the problem: His name was mistakenly left off
the "GWOT list" -- the list of "Global War on Terrorism"
patients with priority funding from the Defense Department.
He brought his Purple Heart to the clerk to prove he was in Iraq.
Lost paperwork for new uniforms has forced some soldiers to attend their
own Purple Heart ceremonies and the official birthday party for the Army in gym
clothes, only to be chewed out by superiors.
The Army has tried to re-create the organization of a typical military
unit at Walter Reed. Soldiers are assigned to one of two companies while they
are outpatients -- the Medical Holding Company (Medhold) for active-duty
soldiers and the Medical Holdover Company for Reserve and National Guard
soldiers. The companies are broken into platoons that are led by platoon
sergeants.
Under normal circumstances, good sergeants know everything about the
soldiers under their charge: vices and talents, moods and bad habits, even
family stresses.
At Walter Reed, outpatients have been drafted to serve as platoon
sergeants and have struggled with their responsibilities. Sgt. David Thomas, a
42-year-old amputee with the Tennessee National Guard, said his platoon
sergeant couldn't remember his name. "We wondered if he had mental
problems," Thomas said. "Sometimes I'd wear my leg, other times I'd
take my wheelchair. He would think I was a different person. We thought, 'My
God, has this man lost it?' "
Civilian care coordinators and case managers are supposed to track
injured soldiers and help them with appointments, but government investigators
and soldiers complain they are poorly trained and often do not understand the
system.
One amputee, a senior enlisted man who asked not to be identified
because he is back on active duty, said he received orders to report to a base
in Germany as he sat drooling in his wheelchair in a haze of medication.
"I went to Medhold many times in my wheelchair to fix it, but no one there
could help me," he said.
Finally, his wife met an aide to then-Deputy Defense Secretary Paul
Wolfowitz, who got the erroneous paperwork corrected with one phone call. When
the aide called with the news, he told the soldier, "They don't even know
you exist."
"They didn't know who I was or where I was," the soldier said.
"And I was in contact with my platoon sergeant every day."
Shannon hated the isolation of the younger troops. The Army's failure to
account for them each day wore on him. When a 19-year-old soldier down the hall
died, Shannon knew he had to take action.
The soldier, Cpl. Jeremy Harper, returned from Iraq with PTSD after
seeing three buddies die. He kept his room dark, refused his combat medals and
always seemed heavily medicated, said people who knew him. According to his
mother, Harper was drunkenly wandering the lobby of the Mologne House on New
Year's Eve 2004, looking for a ride home to West Virginia. The next morning he
was found dead in his room. An autopsy showed alcohol poisoning, she said.
"I can't understand how they could have let kids under the age of
21 have liquor," said Victoria Harper, crying. "He was supposed to be
right there at Walter Reed hospital. ... I feel that they didn't take care of
him or watch him as close as they should have."
The Army posthumously awarded Harper a Bronze Star for his actions in
Iraq.
Shannon viewed Harper's death as symptomatic of a larger tragedy -- the
Army had broken its covenant with its troops. "Somebody didn't take care
of him," he would later say. "It makes me want to cry. "
Shannon and another soldier decided to keep tabs on the brain injury
ward. "I'm a staff sergeant in the U.S. Army, and I take care of
people," he said. The two soldiers walked the ward every day with a list
of names. If a name dropped off the large white board at the nurses' station,
Shannon would hound the nurses to check their files and figure out where the
soldier had gone.
Sometimes the patients had been transferred to another hospital. If they
had been released to one of the residences on post, Shannon and his buddy would
pester the front desk managers to make sure the new charges were indeed there.
"But two out of 10, when I asked where they were, they'd just say,
'They're gone,' " Shannon said.
Even after Weightman and his commanders instituted new measures to keep
better track of soldiers, two young men left post one night in November and
died in a high-speed car crash in Virginia. The driver was supposed to be
restricted to Walter Reed because he had tested positive for illegal drugs,
Weightman said.
Part of the tension at Walter Reed comes from a setting that is both military
and medical. Marine Sgt. Ryan Groves, the squad leader who lost one leg and the
use of his other in a grenade attack, said his recovery was made more difficult
by a Marine liaison officer who had never seen combat but dogged him about
having his mother in his room on post. The rules allowed her to be there, but
the officer said she was taking up valuable bed space.
"When you join the Marine Corps, they tell you you can forget about
your mama. 'You have no mama. We are your mama,' " Groves said. "That
training works in combat. It doesn't work when you are wounded."
"Building 18! There is a rodent infestation issue!" bellowed
the commander to his troops one morning at formation. "It doesn't help
when you live like a rodent! I can't believe people live like that! I was
appalled by some of your rooms!"
Life in Building 18 is the bleakest homecoming for men and women whose
government promised them good care in return for their sacrifices.
One case manager was so disgusted, she bought roach bombs for the rooms.
Mouse traps are handed out. It doesn't help that soldiers there subsist on
carry-out food because the hospital cafeteria is such a hike on cold nights.
They make do with microwaves and hot plates.
Army officials say they "started an aggressive campaign to deal
with the mice infestation" last October and the problem is now at a
"manageable level."
Soldiers discharged from the psychiatric ward are often assigned to
Building 18. Buses and ambulances blare all night. While injured soldiers pull
guard duty in the foyer, a broken garage door allows unmonitored entry from the
rear. Struggling with schizophrenia, PTSD, paranoid delusional disorder and
traumatic brain injury, soldiers feel especially vulnerable, just outside the
post gates, on a street where drug dealers work the corner at night.
"I've been close to mortars. I've held my own pretty good,"
said Spec. George Romero, 25, who came back from Iraq with a psychological
disorder. "But here ... I think it has affected my ability to get over it
. . . dealing with potential threats every day."
After Spec. Jeremy Duncan, 30, got out of the hospital and was assigned to
Building 18, he had to navigate across the traffic of Georgia Avenue for
appointments. Even after knee surgery, he had to limp back and forth on
crutches and in pain. Over time, black mold invaded his room.
But Duncan would rather suffer with the mold than move to another room
and share his convalescence in tight quarters with a wounded stranger. "I
have mold on the walls, a hole in the shower ceiling, but . . . I don't want
someone waking me up coming in."
Wilson, the clinical social worker at Walter Reed, was part of a staff
team that recognized Building 18's toll on the wounded. He mapped out a plan
and, in September, was given a $30,000 grant from the Commander's Initiative
Account for improvements. He ordered some equipment, including a pool table and
air hockey table, which have not yet arrived. A Psychiatry Department
functionary held up the rest of the money because she feared that buying a lot
of recreational equipment close to Christmas would trigger an audit, Wilson
said.
In January, Wilson was told the funds were no longer available and he
would have to submit a new request. "It's absurd," he said.
"Seven months of work down the drain. I have nothing to show for this
project. It's a great example of what we're up against."
A pool table and two flat-screen TVs were eventually donated.
But Wilson had had enough. Three weeks ago he turned in his resignation.
"It's too difficult to get anything done with this broken-down
bureaucracy," he said.
At town hall meetings, the soldiers of Building 18 keep pushing
commanders to improve conditions. But some things have gotten worse. In
December, a contracting dispute held up building repairs.
"I hate it," said Romero, who stays in his room all day.
"There are cockroaches. The elevator doesn't work. The garage door doesn't
work. Sometimes there's no heat, no water. . . . I told my platoon sergeant I
want to leave. I told the town hall meeting. I talked to the doctors and
medical staff. They just said you kind of got to get used to the outside world.
. . . My platoon sergeant said, 'Suck it up!' "
*****************
The Rise of the New Global Elite
Holly Peterson and I spoke several times
about how the super-affluence of recent years has changed the meaning of
wealth. “There’s so much money on the Upper East Side right now,” she said. “If
you look at the original movie Wall Street, it was a phenomenon where
there were men in their 30s and 40s making $2 and $3 million a year, and that
was disgusting. But then you had the Internet age, and then globalization, and
you had people in their 30s, through hedge funds and Goldman Sachs partner
jobs, who were making $20, $30, $40 million a year. And there were a lot of
them doing it. I think people making $5 million to $10 million definitely don’t
think they are making enough money.”
As an example, she described a conversation
with a couple at a Manhattan dinner party: “They started saying, ‘If you’re
going to buy all this stuff, life starts getting really expensive. If you’re
going to do the NetJet thing’”—this is a service offering “fractional aircraft
ownership” for those who do not wish to buy outright—“‘and if you’re going to
have four houses, and you’re going to run the four houses, it’s like you start
spending some money.’”
The
clincher, Peterson says, came from the wife: “She turns to me and she goes,
‘You know, the thing about 20’”—by this, she meant $20 million a year—“‘is 20
is only 10 after taxes.’ And everyone at the table is nodding.”
As with the aristocracies of bygone days,
such vast wealth has created a gulf between the plutocrats and other people,
one reinforced by their withdrawal into gated estates, exclusive academies, and
private planes. We are mesmerized by such extravagances as Microsoft co-founder
Paul Allen’s 414-foot yacht, the Octopus, which is home to two
helicopters, a submarine, and a swimming pool.
But while their excesses seem familiar, even
archaic, 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.”
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 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 Emmanuel Saez, 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.
Peter Peterson, for example, is the son of a
Greek immigrant who arrived in America at age 17 and worked his way up to
owning a diner in Nebraska; his Blackstone co-founder, Stephen Schwarzman, is
the son of a Philadelphia retailer. And they are hardly the exceptions. Of the
top 10 figures on the 2010 Forbes list of the wealthiest Americans, four
are self-made, two (Charles and David Koch) expanded a medium-size family oil
business into a billion-dollar industrial conglomerate, and the remaining four
are all heirs of the self-made billionaire Sam Walton. Similarly, of the top 10
foreign billionaires, six are self-made, and the remaining four are vigorously
growing their patrimony, rather than merely living off it. 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—but the bulk of their wealth is generally the fruit of hustle and
intelligence (with, presumably, some luck thrown in). They are not aristocrats,
by and large, but rather economic meritocrats, preoccupied not merely with
consuming wealth but with creating it.
The Road to Davos
To grasp the difference between today’s
plutocrats and the hereditary elite, who (to use John Stuart Mill’s memorable
phrase) “grow rich in their sleep,” one need merely glance at the events that
now fill high-end social calendars. The debutante balls and hunts and regattas
of yesteryear may not be quite obsolete, but they are headed in that direction.
The real community life of the 21st-century plutocracy occurs on the
international conference circuit.
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. 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 for
Asia, convened on China’s Hainan Island each spring, offers evidence of that
nation’s growing economic importance and its understanding of the plutocratic
culture. Bill Clinton is pushing hard to win his Clinton Global Initiative a
regular place on the circuit. The TED
conferences (the acronym stands for “Technology, Entertainment, Design”) are an
important stop for the digerati; Herb Allen’s* Sun Valley gathering, for
the media moguls; and the Aspen Institute’s Ideas Festival (co-sponsored by
this magazine), for the more policy-minded.
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 the most recent gatherings was held last May at the Grove Hotel,
a former provincial estate in the English countryside, whose 300-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.) Last
year, Cirque du Soleil offered the 500 guests a private performance in an
enormous tent erected on the grounds; in 2007, 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 9 a.m. to 6 p.m., and during
coffee breaks the lawns are crowded with executives checking their BlackBerrys
and iPads.
Last year’s 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, however briefly. Hence the presence last year of three
Nobel laureates, including Daniel Kahneman, a pioneer in behavioral economics.
One of the business stars in attendance was the 36-year-old entrepreneur Tony
Hsieh, who had sold his Zappos online shoe retailer to Amazon for more than $1
billion the previous summer. And the most popular session of all was the one in
which Google showcased 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 the private-equity billionaire Henry, in their elegant Upper
East Side apartment. Though the china is Sèvres and the paintings are museum
quality (Marie-Josée is, after all, president of the Museum of Modern Art’s
board), 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 matters ranging from global
financial imbalances to the war in Afghanistan.
Indeed, in this age of elites who delight in
such phrases as outside 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.
Philanthrocapitalism
George Soros, who turned 80 last summer, is a
pioneer and role model for the socially engaged billionaire. Arguably the most
successful investor of the post-war era, he is nonetheless proudest of his Open
Society Foundations, through which he has spent billions of dollars on issues
as diverse as marijuana 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,
Peter Peterson—himself a Republican and former member of Nixon’s Cabinet—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’s Zuckerberg has yet to reach his 30th birthday, but last fall he
donated $100 million to improving the public schools of Newark, New Jersey.
Insurance and real-estate magnate Eli Broad has become an influential funder of
stem-cell research; Jim Balsillie, a co-founder of BlackBerry creator Research
in Motion, has established his own international-affairs think tank; and on and
on. It is no coincidence that Bill Clinton has devoted his post-presidency 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 university; 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. The journalists Matthew Bishop and Michael Green have
dubbed the approach “philanthrocapitalism” in their book of the same name.
“There is a connection between their ways of thinking as businesspeople and
their ways of giving,” Bishop told me. “They are used to operating on a grand
scale, and so they operate on a grand scale in their philanthropy as well. And
they are doing it at a much earlier 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 Marxist caricatures of the nouveau riche, 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 $3 billion, Pinchuk is no
longer content merely to acquire modern art: in 2009, he began a global
competition for young artists, run by his art center in Kiev and conceived as a
way of bringing Ukraine into the international cultural mainstream. Pinchuk
hosts a regular lunch on the fringes of Davos 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
attended the Yalta Conference. Last September’s meeting, where I served as a
moderator, included Bill Clinton, International Monetary Fund head Dominique Strauss-Kahn,
Polish President Bronislaw Komorowski, and Russian Deputy Prime Minister Alexei
Kudrin.
As an entrée into the global super-elite,
Pinchuk’s efforts seem to be working: on a visit to the U.S. last spring, the
oligarch met with David Axelrod, President Obama’s top political adviser, 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 townhouse of HBO’s Richard Plepler. Back home,
he has entertained his fellow art enthusiast Eli Broad at his palatial estate
(which features its own nine-hole golf course) outside Kiev, and has partnered
with Soros to finance Ukrainian civil-society projects.
A Nation Apart
Pinchuk’s growing international Rolodex
illustrates another defining characteristic of today’s plutocrats: they are
forming a global community, and their ties to one another are increasingly
closer than their ties to hoi polloi back home. As Glenn Hutchins, co-founder
of the private-equity firm Silver Lake, puts it, “A person in Africa who runs a
big African bank and went to Harvard might have more in common with me than he
does with his neighbors, and I could well share more overlapping concerns and
experiences with him than with my neighbors.” The circles we move in, Hutchins
explains, are defined by “interests” and “activities” rather than “geography”:
“Beijing has a lot in common with New York, London, or Mumbai. You see the same
people, you eat in the same restaurants, you stay in the same hotels. But most
important, we are engaged as global citizens in crosscutting commercial,
political, and social matters of common concern. We are much less place-based
than we used to be.”
In a similar vein, the wife of one of
America’s most successful hedge-fund managers offered me the small but telling
observation 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. An
American media executive living in London put it more succinctly still: “We are
the people who know airline flight attendants better than we know our own
wives.”
America’s business elite is something of a
latecomer to this transnational community. In a study of British and American
CEOs, for example, Elisabeth Marx, of the headhunting firm Heidrick &
Struggles, found that almost a third of the former were foreign nationals,
compared with just 10 percent of the latter. Similarly, more than two-thirds of
the Brits had worked abroad for at least a year, whereas just a third of the
Americans had done so.
But despite the slow start, American business
is catching up: the younger generation of chief executives has significantly
more international experience than the older generation, and the number of
foreign and foreign-born CEOs, while still relatively small, is rising. The shift
is particularly evident on Wall Street: in 2006, each of America’s eight
biggest banks was run by a native-born CEO; today, five of those banks remain,
and two of the survivors—Citigroup and Morgan Stanley—are led by men who were
born abroad.
Mohamed ElErian, the CEO of Pimco, the
world’s largest bond manager, is typical of the internationalists gradually
rising to the top echelons of U.S. business. The son of an Egyptian father and
a French mother, ElErian had a peripatetic childhood, shuttling between Egypt,
France, the United States, the United Kingdom, and Switzerland. He was educated
at Cambridge and Oxford and now leads a U.S.-based company that is owned by the
German financial conglomerate Allianz SE.
Though ElErian lives in Laguna Beach, California,
near where Pimco is headquartered, he says that he can’t name a single country
as his own. “I have had the privilege of living in many countries,” ElErian
told me on a recent visit to New York. “One consequence is that I am a sort of
global nomad, open to many perspectives.” As he talked, we walked through
Midtown, which ElErian remembered fondly from his childhood, when he’d take the
crosstown bus each day to the United Nations International School. That
evening, ElErian was catching a flight to London. Later in the week, he was due
in St. Petersburg.
Indeed, there is a growing sense 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 50-year-old New Zealander who co-founded the investment bank
Renaissance Capital. Renaissance’s roots are in Moscow, where Jennings
maintains his primary residence, 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, a fellow tenant 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. Last year, Digital
Sky Technologies, Russia’s largest technology 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—last fall, a DST spin-off called Mail.ru went public and immediately
became Europe’s most highly valued Internet company—yet none is primarily
focused on the United States. A similar harbinger of the intra-emerging-market
economy was the acquisition by Bharti Enterprises, the Indian telecom giant, of
the African properties of the Kuwait-based telecom firm Zain. A California
technology executive 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?”
The good news—and the bad news—for America is
that the nation’s own super-elite is rapidly adjusting to this more global perspective.
The U.S.-based CEO of one of the world’s largest hedge funds told me that his
firm’s investment committee often discusses the question of who wins and who
loses in today’s economy. In a recent internal debate, he said, one of his
senior colleagues had argued that the hollowing-out of the American middle
class didn’t really matter. “His point was that if the transformation of the
world economy lifts four people in China and India out of poverty and into the
middle class, and meanwhile means one American drops out of the middle class,
that’s not such a bad trade,” the CEO recalled.
I heard a similar sentiment from the
Taiwanese-born, 30-something CFO of a U.S. Internet company. A gentle,
unpretentious man who went from public school to Harvard, he’s nonetheless not
terribly sympathetic to the complaints of the American middle class. “We demand
a higher paycheck than the rest of the world,” he told me. “So if you’re going
to demand 10 times the paycheck, you need to deliver 10 times the value. It sounds
harsh, but maybe people in the middle class need to decide to take a pay cut.”
At last summer’s Aspen Ideas Festival,
Michael Splinter, CEO of the Silicon Valley green-tech firm Applied Materials,
said 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, also lamented this global reality: “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.”
Revolt of the Elites
Wilson’s distinction helps explain why many
of America’s other business elites appear so removed from the continuing
travails of the U.S. workforce and economy: the global “nation” in which they
increasingly live and work is doing fine—indeed, it’s thriving. As a consequence
of this disconnect, when business titans talk about the economy and their role
in it, the notes they strike are often discordant: for example, Goldman Sachs
CEO Lloyd Blankfein waving away public outrage in 2009 by saying he was “doing
God’s work”; or the insistence by several top bankers after the immediate
threat of the financial crisis receded that their institutions could have
survived without TARP funding and
that they had accepted it only because they had been strong-armed by Treasury
Secretary Henry Paulson. Nor does this aloof disposition end at the water’s
edge: think of BP CEO Tony Hayward, who complained of wanting to get his life
back after the Gulf oil spill and then proceeded to do so by watching his yacht
compete in a race off the Isle of Wight.
It is perhaps telling that Blankfein is the
son of a Brooklyn postal worker and that Hayward—despite his U.S. caricature as
an upper-class English twit—got his start at BP as a rig geologist in the North
Sea. They are both, in other words, working-class boys made good. And while you
might imagine that such backgrounds would make plutocrats especially
sympathetic to those who are struggling, the opposite is often true. For the
super-elite, a sense of meritocratic achievement can inspire high self-regard,
and that self-regard—especially when compounded by their isolation among
like-minded peers—can lead to obliviousness and indifference to the suffering
of others.
Unsurprisingly, Russian oligarchs have been
among the most fearless in expressing this attitude. A little more than a
decade ago, for instance, I spoke to Mikhail Khodorkovsky, at that moment the
richest man in Russia. “If a man is not an oligarch, something is not right
with him,” Khodorkovsky told me. “Everyone had the same starting conditions,
everyone could have done it.” (Khodorkovsky’s subsequent political travails—his
oil company was appropriated by the state in 2004 and he is currently in
prison—have tempered this Darwinian outlook: in a jail-cell correspondence last
year, he admitted that he had “treated business exclusively as a game” and “did
not care much about social responsibility.”)
Though typically more guarded in their choice
of words, many American plutocrats suggest, as Khodorkovsky did, that the
trials faced by the working and middle classes are generally their own fault.
When I asked one of Wall Street’s most successful investment-bank CEOs if he
felt guilty for his firm’s role in creating the financial crisis, he told me
with evident sincerity that he did not. The real culprit, he explained, was his
feckless cousin, who owned three cars and a home he could not afford. One of
America’s top hedge-fund managers made a near-identical case to me—though this
time the offenders were his in-laws and their subprime mortgage. And a
private-equity baron who divides his time between New York and Palm Beach
pinned blame for the collapse on a favorite golf caddy in Arizona, who had
bought three condos as investment properties at the height of the bubble.
It is this not-our-fault mentality that
accounts for the plutocrats’ profound sense of victimization in the Obama era.
You might expect that American elites—and particularly those in the financial
sector—would be feeling pretty good, and more than a little grateful, right
now. Thanks to a $700 billion TARP
bailout and hundreds of billions of dollars lent nearly free of charge by the
Federal Reserve (a policy Soros himself told me was a “hidden gift” to the
banks), Wall Street has surged back to pre-crisis levels of compensation even
as Main Street continues to struggle. Yet many of America’s financial giants
consider themselves under siege from the Obama administration—in some cases
almost literally. Last summer, for example, Blackstone’s Schwarzman caused an
uproar when he said an Obama proposal to raise taxes on private-equity-firm
compensation—by treating “carried interest” as ordinary income—was “like when
Hitler invaded Poland in 1939.”
However histrionic his imagery, Schwarzman
(who subsequently apologized for the remark) is a Republican, so his antipathy
toward the current administration is no surprise. What is more striking is the
degree to which even former Obama supporters in the financial industry have
turned against the president and his party. A Wall Street investor who is a
passionate Democrat recounted to me his bitter exchange with a Democratic
leader in Congress who is involved in the tax-reform effort. “Screw you,” he
told the lawmaker. “Even if you change the legislation, the government won’t
get a single penny more from me in taxes. I’ll put my money into my foundation
and spend it on good causes. My money isn’t going to be wasted in your deficit
sinkhole.”
He is not alone in his fury. In a much-quoted
newsletter to investors last summer, the hedge-fund manager—and 2008 Obama
fund-raiser—Dan Loeb fumed, “So long as our leaders tell us that we must trust
them to regulate and redistribute our way back to prosperity, we will not break
out of this economic quagmire.” Two other former Obama backers on Wall Street—both
claim to have been on Rahm Emanuel’s speed-dial list—told me that the president
is “anti-business”; one went so far as to worry that Obama is “a socialist.”
Much of this pique stems from simple
self-interest: in addition to the proposed tax hikes, the financial reforms
that Obama signed into law last summer have made regulations on American
finance more stringent. But as the Democratic investor’s angry references to
his philanthropic work suggest, the rage in the C-suites is driven not merely
by greed but by a perceived affront to the plutocrats’ amour propre, a wounded
incredulity that anyone could think of them as villains rather than heroes.
Aren’t they, after all, the ones whose financial and technological innovations
represent the future of the American economy? Aren’t they “doing God’s work”?
You might say that the American plutocracy is
experiencing its John Galt moment. Libertarians (and run-of-the-mill
high-school nerds) will recall that Galt is the plutocratic hero of Ayn Rand’s
1957 novel, Atlas Shrugged. Tired of being dragged down by the
parasitic, envious, and less talented lower classes, Galt and his fellow
capitalists revolted, retreating to “Galt’s Gulch,” a refuge in the Rocky
Mountains. There, they passed their days in secluded natural splendor, while
the rest of the world, bereft of their genius and hard work, collapsed. (G. K.
Chesterton suggested a similar idea, though more gently, in his novel The
Man Who Was Thursday: “The poor man really has a stake in the country. The
rich man hasn’t; he can go away to New Guinea in a yacht.”)
This plutocratic fantasy is, of course, just
that: no matter how smart and innovative and industrious the super-elite may
be, they can’t exist without the wider community. Even setting aside the
financial bailouts recently supplied by the governments of the world, the rich
need the rest of us as workers, clients, and consumers. Yet, as a metaphor,
Galt’s Gulch has an ominous ring at a time when the business elite view
themselves increasingly as a global community, distinguished by their unique
talents and above such parochial concerns as national identity, or devoting
“their” taxes to paying down “our” budget deficit. They may not be isolating
themselves geographically, as Rand fantasized. But they appear to be isolating
themselves ideologically, which in the end may be of greater consequence.
The Backlash
The cultural ties that bind the super-rich to
everyone else are fraying from both ends at once. Since World War II, the
United States in particular has had an ethos of aspirational capitalism. As
Soros told me, “It is easier to be rich in America than in Europe, because
Europeans envy the billionaire, but Americans hope to emulate him.” But as the
wealth gap has grown wider, and the rich have appeared to benefit
disproportionately from government bailouts, that admiration has begun to sour.
One measure of the pricklier mood is how
risky it has become for politicians to champion Big Business publicly.
Defending Big Oil and railing against government interference used to be part
of the job description of Texas Republicans. But when Congressman Joe Barton tried
to take the White House to task for its post-spill “shakedown” of BP, he was
immediately silenced by party elders. New York’s Charles Schumer is sometimes
described as “the senator from Wall Street.” Yet when the financial-reform bill
came to the Senate last spring—a political tussle in which each side furiously
accused the other of carrying water for the banks—on Wall Street, Schumer was
called the “invisible man” for his uncharacteristic silence on the issue.
In June, when I asked Larry Summers, then the
president’s chief economic adviser, about hedge funds’ objections to the
carried-interest tax reform, he was quick to disassociate himself from Wall
Street’s concerns. “If that’s been the largest public-policy issue you’ve
encountered,” he told me, “you’ve been traveling in different circles than I
have been over the last several months.” I reminded him that he had in fact
worked for a hedge fund, D. E. Shaw, as recently as 2008, and he emphasized his
use of the qualifier over the last several months.
Critiques of the super-elite are becoming
more common even at gatherings of the super-elite. At a Wall Street Journal conference
in December 2009, Paul Volcker, the legendary former head of the Federal
Reserve, argued that Wall Street’s claims of wealth creation were without any
real basis. “I wish someone,” he said, “would give me one shred of neutral
evidence that financial innovation has led to economic growth—one shred of
evidence.”
At Google’s May Zeitgeist gathering, Desmond
Tutu, the opening speaker, took direct aim at executive compensation. “I do
have a very real concern about capitalism,” he lectured the gathered
executives. “The Goldman Sachs thing. I read that one of the directors
general—whatever they are called, CEO—took away one year as his salary $64
million. Sixty-four million dollars.” He sputtered to a stop,
momentarily stunned by this sum (though, by the standards of Wall Street and
Silicon Valley compensation, it’s not actually that much money). In an op-ed in
TheWall Street Journal last year, even the economist Klaus
Schwab—founder of the World Economic Forum and its iconic Davos meeting—warned
that “the entrepreneurial system is being perverted,” and businesses that “fall
back into old habits and excesses” could “undermin[e] social peace.”
Bridging the Divide
Not all plutocrats, of course, are created
equal. Apple’s visionary Steve Jobs is neither the moral nor the economic
equivalent of the Russian oligarchs who made their fortunes by brazenly seizing
their country’s natural resources. And while the benefits of the past decade’s
financial “innovations” are, as Volcker noted, very much in question, many
plutocratic fortunes—especially in the technology sector—have been built on
advances that have broadly benefited the nation and the world. That is why,
even as the TARP-recipient
bankers have become objects of widespread anger, figures such as Jobs, Bill
Gates, and Warren Buffett remain heroes.
And, ultimately, that is the dilemma: America
really does need many of its plutocrats. We benefit from the goods they produce
and the jobs they create. And even if a growing portion of those jobs are
overseas, it is better to be the home of these innovators—native and immigrant
alike—than not. In today’s hypercompetitive global environment, we need a
creative, dynamic super-elite more than ever.
There is also the simple fact that someone
will have to pay for the improved public education and social safety net the
American middle class will need in order to navigate the wrenching transformations
of the global economy. (That’s not to mention the small matter of the budget
deficit.) Inevitably, a lot of that money will have to come from the
wealthy—after all, as the bank robbers say, that’s where the money is.
It is not much of a surprise that the
plutocrats themselves oppose such analysis and consider themselves singled out,
unfairly maligned, or even punished for their success. Self-interest, after
all, is the mother of rationalization, and—as we have seen—many of the
plutocracy’s rationalizations have more than a bit of truth to them: as a
class, they are generally more hardworking and meritocratic than their
forebears; their philanthropic efforts are innovative and important; and the
recent losses of the American middle class have in many cases entailed gains
for the rest of the world.
But if the plutocrats’ opposition to
increases in their taxes and tighter regulation of their economic activities is
understandable, it is also a mistake. The real threat facing the super-elite,
at home and abroad, isn’t modestly higher taxes, but rather the possibility
that inchoate public rage could cohere into a more concrete populist
agenda—that, for instance, middle-class Americans could conclude that the world
economy isn’t working for them and decide that protectionism or truly punitive
taxation is preferable to incremental measures such as the eventual repeal of
the upper-bracket Bush tax cuts.
Mohamed El-Erian, the Pimco CEO, is a model
member of the super-elite. But he is also a man whose father grew up in rural
Egypt, and he has studied nations where the gaps between the rich and the poor
have had violent resolutions. “For successful people to say the challenges
faced by the lower end of the income distribution aren’t relevant to them is shortsighted,”
he told me. Noting that “global labor and capital are doing better than their
strictly national counterparts” in most Western industrialized nations, ElErian
added, “I think this will lead to increasingly inward-looking social and
political conditions. I worry that we risk ending up with very insular policies
that will not do well in a global world. One of the big surprises of 2010 is
that the protectionist dog didn’t bark. But that will come under pressure.”
The lesson of history is that, in the long
run, super-elites have two ways to survive: by suppressing dissent or by
sharing their wealth. It is obvious which of these would be the better outcome
for America, and the world. Let us hope the plutocrats aren’t already too
isolated to recognize this. Because, in the end, there can never be a place
like Galt’s Gulch.
*Originally, the article mistakenly referred to the
sponsor of the Sun Valley conference as Paul Allen. We regret the error.
Chrystia
Freeland is the global editor at large for Reuters. She is writing a book on the super-elite.
The More Jobs You Cut, the
Higher Your Pay
By Alyce Lomax
September 1, 2010
ShareThis
Since our ugly economic maelstrom begun, the companies responsible for
shedding the largest numbers of workers have the highest-paid CEOs at their
helms. Clearly, there's something wrong with this picture.
This unpleasant finding headlined the Institute for Policy Studies' (IPS)
report, CEO Pay and the Great Recession. Shareholders need to think
about whether incentivizing management brutality is really
the best path toward bettering corporations' long-term prospects.
When leaders aren't heroes
The IPS report shows
that corporate America's "layoff leaders" are making out like
bandits. CEOs who presided over the worst mass layoffs earned almost $12
million on average last year, 42% more than the CEO pay average of the S&P
500 firms as a whole. Furthermore, 72% announced their job reductions while
reporting positive earnings.
Here are a few highlights (or lowlights) of the IPS report:
Johnson & Johnson's
(NYSE: JNJ) high-profile drug recalls and FDA
scrutiny don't suggest a particularly well-run company. However, CEO William
Weldon still made $25.6 million in 2009, more than three times the S&P 500
CEO average pay, even while he cut 9,000 jobs from the company's payroll.
American Express
(NYSE: AXP) received $3.39 billion in bailout
funds under TARP and slashed 4,000 jobs, but CEO Kenneth Chenault still managed
to make bank. He collected $16.8 million in compensation in 2009, including a
whopping $5 million cash bonus.
Hewlett-Packard's
(NYSE: HPQ) Mark Hurd is history, but he's
been richly rewarded despite his job cutting and public resignation. He
has axed 31,000 jobs since September 2008. (The report notes that company
founders William Hewlett and David Packard had a no-layoff policy.) Although so
many Hewlett-Packard employees lost their jobs in recent years, Hurd's own
departure is hardly a painful hardship: He'll get $28.2 million in cash and
stock for his ousting.
AT&T
(NYSE: T), Verizon (NYSE: VZ), and Sprint Nextel (NYSE: S) have cut nearly 44,000 lost jobs
in total, but despite the huge and growing competitive challenges they face,
their CEOs still made the list of highly compensated job slashers.
It's time to question the
conventional wisdom
Even in these
economically tough times, there's no reason to throw a pity party for the American
executive. CEO pay has continued its trajectory into the stratosphere. IPS
pointed out that executive pay is double the 1990s average, quadruple that in
the 1980s, and eight times that of executives in the mid-20th century. In 2009,
major corporations paid their CEOs an average of 263 times the average
compensation of regular U.S. workers.
Shareholders shouldn't celebrate brutal axe-wielding CEOs, but rather
question whether things went terribly wrong on their watches. Did the CEO
encourage too much hiring before business went sour or profitability was
threatened? Did the CEO misjudge the economic or competitive climate? Do some
CEOs conduct mass firings to trick shareholders into thinking they're
"boosting profitability" in the short term, when they should actually
be creating better plans for action and innovation?
If anything, job-slashing, highly compensated chief executives might
actually be destroying their companies' long-term prospects. According
to the American Management Association, 88% of businesses executing layoffs
report declining employee morale. Anybody who's been through such a situation
probably knows that ominous fear that the axe might next fall on you.
A University of Colorado survey seems to contradict the conventional
wisdom that "downsizing boosts long-term growth." The survey,
covering 1982 through 2000, actually yielded no evidence that downsizing boosts
return on assets. Instead, "stable employers," with less than 5%
annual turnover, tended to outperform most layoff-happy companies.
Well-known management consultant Peter Drucker once said that CEO/worker
pay ratios in excess of 20 to 1 endanger morale and productivity. It sounds
like simple psychology and common sense, but as Voltaire said, common sense is
not so common.
Do good stewards really carry a
machete?
The old, "when
in doubt, lay off a bunch of workers and make shareholders and Wall Street
analysts happy for now" routine may actually signal a substandard,
unimaginative leader who can't innovate or navigate changing times. And if
these individuals happily collect oversized paychecks for such painful and
unimaginative profit-boosting measures, they might just be greedy, too.
The IPS report suggests this may be a bigger problem than realized.
Shareholders should question whether such companies really do have their
best interests at heart. After all, how well would these highly paid execs run
their businesses without any employees to back them up? My guess: Not so well.