Article The changing value of money

Super-rich face up to income inequality

Eighteen months ago, I published a book called “Plutocrats — the rise of the new global super-elite and the fall of everyone else”. In 2008, when I began my research, a lot of people — particularly many of the plutocrats I interviewed — thought I was crazy. I quickly learned that among my subjects it was best to describe my project as a study of the “super-elite” and to leave out the part about “the fall of everyone else”. I was even, and I know this will shock you, dear reader, nearly as much as it distressed me, dis-invited to a few Davos dinner parties!

It wasn’t just me. Remember the 2012 US presidential election campaign, when Mitt Romney told The Today Show that focusing on income inequality was “about envy. I think it’s about class warfare.” When asked if it was ever right to raise issues like wealth distribution, Romney answered, “It’s fine to talk about those things in quiet rooms and discussions about tax policy and the like.”

Then my book made it onto the Amazon top ten and the New York Times best-seller lists, and Stephen Colbert invited me on his show to discuss it. I was living in New York at the time, and in America, particularly among the plutocrats, success expiates all sins, so I found myself back on some posh guest lists. But many of the people who were happy enough to serve canapes to a best-selling author still admitted they were puzzled by my choice of subject.

“I still don’t understand why you wrote about that,” one technology mini-tycoon confided cheerfully, “but I guess it worked.”

A financier whom I quoted in my book asked why the widening chasm in income and wealth between the 0.1 percent and everyone else was a bad thing. Maybe, he suggested, that is just the way the world works.

This plutocratic reaction — ranging from hostility to oblivion — wasn’t much of a surprise. Social science research has shown that we rationalise political beliefs which support our self-interest. We may think we work out our convictions from first principles, but usually we are using our brains to come up with clever justifications for views that make us personally better off.

It stands to reason, therefore, that the super-rich, the big beneficiaries of the surge in income inequality, didn’t see much wrong in what was going on. As George Soros, one of the few plutocrats to criticise widening income inequality before it became fashionable, told me at the time, “I am a traitor to my class.”

What I hadn’t expected is how, in the year and a half since I published “Plutocrats”, the views of the super-elite have undergone a sea-change. Talking about income inequality has gone from one of the seven deadly sins, or at best, a subject for quiet rooms, to the ‘it’ topic among the super-rich.

In June, Lloyd Blankfein, the CEO of Goldman Sachs, said in an interview with CBS that “too much of the GDP over the last generation has gone to too few of the people.” The resulting income inequality, he said, was destabilizing and divisive. “It’s a very big issue and something that has to be dealt with.” This, from an executive who earned $23 million in 2013, whose company oversees $915 bn in managed assets, and whose firm was, at the height of the 2008 financial crisis described as the “vampire squid” responsible for many of the global economy’s ills.

Blankfein is certainly a plutocrat, but he is also a Democrat. Income inequality is making it to centre stage even among the Republican super-elite. One example was the annual Miliken conference, held every spring in Los Angeles and organised by Michael Milliken, the junk bond king, turned convicted felon (he spent two years in jail), turned respected philanthropist.

Miliken and his former colleagues, who are at the heart of the event, tilt right. Yet one panel at this year’s gathering, organised and moderated by Alan Schwarz, also a Republican and the former CEO of Bear Sterns, was about income inequality.

Most striking of all was a conference on “Inclusive Capitalism” held in the Guild Hall, in the ornate, Georgian heart of the City of London, in May. This was an ur-establishment gathering — Prince Charles delivered the opening remarks, and the meeting was hosted by Fiona Woolf, Lord Mayor of the City.

But the participants were sharply critical of the way capitalism is working today. An introductory essay by Paul Polman, the CEO of Uniliver, and Lynn Rothschild, the conference’s organiser, warned that capitalism, “has often proved dysfunctional in important ways. It often encourages shortsightedness, contributes to wide disparities between the rich and the poor, and tolerates the reckless treatment of environmental capital. If these costs cannot be controlled, support for capitalism may disappear.”

In a keynote speech Christine Lagarde, managing director of the International Monetary Fund, invoked Marx, and approvingly quoted Pope Francis’s warning that increasing income inequality is “the root of social evil.” She called for more progressive income tax systems and greater use of property tax.

The meeting ended with a dinnertime speech by Mark Carney, Governor of the Bank of England. Carney said that income inequality was rising significantly and around the world. As a result, capitalism itself was at risk: “Just as any revolution eats its children, unchecked market fundamentalism can devour the social capital essential for the long-term dynamism of capitalism itself.”

This is an astonishing turnaround. The plutocrats have gone from quiet rooms to Zuccotti Park in less than two years. What happened, and what does it mean?

The best explanation comes from another one of my favourite class traitors among the plutocracy, Nick Hanauer. In an essay last month for Politico, Hanauer started by setting out his plutocratic bona fides. He was the first non-family investor in Amazon and himself a serial entrepreneur. As a result, he’s a billionaire, with all of the requisite accessories — many homes, a private jet, “a very large yacht”.

But, looking out from this privileged perch, Hanauer has a warning for his fellow 0.01 percenters: “I have a message for my fellow filthy rich, for all of us who live in our gated bubble worlds: Wake up, people. It won’t last. If we don’t do something to fix the glaring inequities in this economy, the pitchforks are going to come for us. No society can sustain this kind of rising inequality. In fact, there is no example in human history where wealth accumulated like this and the pitchforks didn’t eventually come out. You show me a highly unequal society, and I will show you a police state. Or an uprising. There are no counterexamples. None. It’s not if, it’s when.”

Hanauer admits that not all of the plutocrats are convinced: “I know you fellow .01%ers tend to dismiss this kind of argument; I’ve had many of you tell me to my face I’m completely bonkers. And yes, I know there are many of you who are convinced that because you saw a poor kid with an iPhone that one time, inequality is a fiction.”

There aren’t too many pitchforks out there — at least not yet. But one reason the alarm is being raised in august, plutocratic, or at least plutocrat-friendly institutions like Goldman Sachs, the IMF and the Bank of England, is that surging income inequality is increasingly not just an economic fact — it is becoming a political force.

That is most apparent in some recent wins on the left. Bill De Blasio became mayor of New York by campaigning on an explicitly anti rising income inequality ticket. His victory was particularly powerful because it challenged the narrative of shining plutocratic metropolitan success set out by his predecessor, Mike Bloomberg. In Ontario, Canada’s largest province, a lesbian grandmother was last month elected premier, despite her party’s considerable political baggage, by running on a platform of investment, to counter her conservative opposition’s pledge of austerity.

Even more threatening, from the plutocrats’ perspective, have been the political victories of the populist right. The extreme right was the big winner in Europe’s recent parliamentary elections. In the US, a populist conservative critic of crony capitalism defeated Eric Cantor, House Majority Leader.

These upsets are particularly significant for the 0.01 percent because the moderate conservatives who are being defeated have been the traditional political champions of business. This isn’t the revolution Hanauer warns of, but a political debate dominated by the populist right and income-inequality-focused progressives is one in which business is losing its voice.

That is why the smartest plutocrats are no longer in denial about rising income inequality and the hollowing out of the middle class. The big question, for the plutocrats, and for the rest of us, is what to do about it. Hanauer offers a win-win scenario. Evoking Henry Ford, who raised the wages of his workers so they could afford his cars, Hanauer argues that if the plutocrats help to shore up the middle class by sharing a bit more of their profits with their workers and with the welfare state they will reap material benefits, as well as social ones. The defensive reason for plutocrats to address rising income inequality is to avoid the pitchforks; the positive one is to support their consumers, and thus, themselves.

The good news for the plutocrats is that this is 2014, not 1917. Even Thomas Piketty, the author of this century’s Capital, describes himself as a child of 1989, the year Soviet communism collapsed. That’s why there are not, in fact, any pitchforks — to have a revolution, you need a revolutionary ideology.

That’s something we can all take comfort from. But what we don’t yet know is if, absent the very real revolutionary threat which motivated the western plutocrats in the 20s, 30s and 40s to go along with the New Deal and the welfare state, today’s super-rich will be far-sighted enough to accommodate the rest of us. For everyone’s sake, let’s hope so.

Photo by David Shankbone

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