Does the Rise of the Super-Wealthy Require New Global Rules?
Chrystia Freeland on the power of plutocrats
When the 113th Congress opened in January, the number of millionaires in its ranks rose to 257 out of 535, or just over 48 percent. Whether or not this constitutes true plutocracy, or rule by the wealthy, Reuters editor Chrystia Freedland says the line between wealth and political power has been blurred by a more subtle phenomenon: the exponential rise in the wealth of the global elite. So what does growing income inequality mean for policy making? And is there a way to think about income inequality outside of familiar political divisions?
"I don't think it's an accident that both the Tea Party and Occupy Wall Street have some sort of definition of crony capitalism and [feel] they need to get rid of it," Freeland said at the Aspen Ideas Festival on Friday. But policy might not actually be the problem. "I actually think the political set of issues, especially what you might want to call the bad political drivers -- the group of things people like to call crony capitalism or rent-seeking -- I actually think that's the easy part of the problem."
The hairier issues are social and economic, Freeland argued. She painted a new national and global wealth distribution that looks radically different than it did even three or four decades ago. In the 1970s, the top one percent of America's wealthiest citizens owned ten percent of the nation's wealth; today, the top tenth of that wealthiest one percent owns nearly as big of a share, 8 percent. Curiously, though, this stratification happened at the same time as a rise in "self-made" wealth. "In 1982, only 40 percent of the people on the Forbes '400' were what they called 'first generation super-rich,' or self-made. By 2011, that number was 69 percent," she reported.
But this appearance of meritocracy is deceiving, she argued. "Even meritocratic plutocracy can shift into being crony plutocracy. Even if you're one of those 69 percent of the Forbes 400 list who is truly self-made, once you get there, once you invent your great thing, and have the economic power that goes with it, inevitably, that starts bleeding into also being political power."
This manifests itself in three important ways. The first was a recent topic in the news: Successful, resource-rich companies like Apple become incredibly deft at navigating legal codes and regulatory policies so that they can minimize the way taxes and penalties affect their profits. But that's not even the real problem, Freeland says. "Companies [and individuals] that are super successful in the business space sometimes don't just content themselves with taking advantage of the existing rules of the game. It becomes tempting to try to start shifting the rules of the game in your own favor." This shows up most explicitly when powerful individuals and companies try to move certain political agendas forward; take, for example, the tech sector's role in recent debates about immigration.
This disproportionate ability to exert political influence seems problematic, but perhaps even more troubling is a possible gap in perceptions about the rightful role of the super-rich in society. Freeland cited an example of this from an interview with Foster Friess, the businessman who backed Rick Santorum's presidential campaign. She reports that Friess said, "'If you look at what Steve Jobs has done for us, what Bill Gates has done for society, the government ought to pay them. It's that top one percent that probably contributes more to making the world a better place than the 99 percent. I have never seen poor people do what Bill Gates has done. I've never seen poor people hire many people. So I think we ought to honor and uplift the one percent, the ones who have created value.'"
Clearly, this is an extreme position. But it does get at a tricky, crucial question: If this kind of self-made, super rich individual or company contributes something that is highly demanded in the global economy, should it be penalized for creating value? Alternatively, if members of the middle class, particularly the struggling middle class in America, don't have skills that are as highly valued, should they expect to be paid a higher wage than people in other parts of the world? To this point, Freeland cited another wealthy interviewee who said this: "'We demand a higher paycheck than the rest of the world, 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.'"
Finally, extraordinary wealth will inevitably leave a legacy of unequal footing for the next generation. Even though middle class families are increasingly investing in education, says Freeland, education spending by the super-rich significantly outpaces that of the average family. Even though a well-educated child who comes from a wealthy background may go on to build a fortune of her own, her "merit" has been built on a foundation of resources only available to a small percentage of her peers.
These aspects of income inequality are troubling for two reasons. First, looking beyond what Freeland calls the "easy" issues like corruption and cronyism, the factors that widen the gap between the super-rich and everyone else aren't anyone's fault. Of course very wealthy parents are going to invest in their children. Of course companies will use resources to increase their profits. And it's an open question whether business practices like using cheaper, offshore labor at the price of losing American jobs are, on balance, bad. Jobs created elsewhere might not help middle class workers in this country, but those in poverty in other countries can gain an improved standard of living when companies create jobs in their communities.
And this means that there isn't an easy solution. Even though Freeland persuasively laid out the facts and challenges of the rise of the super-rich, she didn't have any specific solutions for leveling the playing field or adjusting perspectives to be friendlier to the middle class and working poor. Even if Freeland is right that plutocrats run the world, it doesn't look like their influence will give way to a more egalitarian vision of the world any time soon.