Making capitalism work for everyone
Plutocrats and the future of capitalism
Chrystia Freeland, the member of Parliament, Financial Times journalist and best-selling author discusses the rise in global inequality, and how the plutocrats are shaping the future of capitalism.
The world is seeing an exponential growth of inequality. Let's look at the very top of the income distribution — the 0.1 per cent, whose average income is US$ 23.8 million. The top 0.1% are hardworking, highly educated, jet-setting meritocrats who feel they are the deserving winners of a tough global economic competition.
Society's wealthiest tend to believe in the institutions that permit social mobility, but are less enthusiastic about the economic redistribution — i.e., taxes — it takes to pay for those institutions. In a global economy, plutocrats are the most international of us all — both in how they live their lives and in how they earn their fortunes. In some ways, they are becoming a nation unto themselves.
"The natural tendency in business is to seek a monopoly position."
- Chrystia Freeland, member of Parliament and author of Plutocrats
Societal transformations are enabling the 0.1% to break away from the pack, creating a real winner-take-all phenomenon. Being the very best in the world at something is much, much better than being number two. People in the technology sector call this power laws, and they become mutually reinforcing because globalization provides a much bigger market. If you can capture that, you can take the lion’s share of the rewards.
The Washington Consensus and deregulation feed into it, too. In some ways you can think of regulation as speed bumps on the road of capitalism: when the speed bumps are removed in a winner-take-all race, the car at the very front of the pack can pull away from the others that much faster.
A distinction has been made between white hat Plutocrats and black hat Plutocrats. Steve Jobs is viewed as a hero; Lloyd Blankfein is a villain; big business and private equity are bad; small business and community banks are good; Wall Street banks didnt deserve their bailouts; Detroit carmakers did.
While there is some truth to this, this approach only takes you so far, because the difference between the good guys and the bad guys is smaller than we like to think. It is true that alongside rising income inequality, we are also seeing rising self-made wealth; but it is also true that a lot of that wealth is coming not from inventing the iPhone, but from playing the lobbying and regulation-making game in such a way that you benefit.
Even if you are a pure meritocrat, the natural human tendency — and one of the driving propulsive forces in business — is to seek a monopoly position. Warren Buffett is one of the most revered people in the business community, and one of his great lines is that he looks to invest in “companies that have a moat.” That's a polite way of saying, companies that are monopolies. You’re not a bad business person if you do that; you’re a good business person.
Everyone I talk to thinks he's a white hat. I talk to the Silicon Valley guys and they say, “Yes! Income inequality is terrible, especially those guys on Wall Street, they are such crony capitalists. It is outrageous what they get away with.” Then I go to Wall Street and talk to the hedge fund and private equity guys and they say, “Yes! Income inequality is a problem. Crony capitalism is a problem and those guys who run the big banks who were bailed out, they are outrageous.” No one is taking responsibility.
The bright spot is that globalization is working: overall, the world is getting richer. But the downside is that a lot of the costs of that transition are being borne by specific groups of workers in the West.
- Chrystia Freeland is the member of Parliament for Toronto Centre, following years of service at the Financial Times in New York, London, Moscow and Kiev. Her most recent book is Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else (Doubleday Canada, 2013).
Read the full article in Rotman Management magazine.
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