Event Summary By Richard C. Longworth
We’re living in a new world of unsustainable inequality, of the “alpha-geeks” vs. everybody else, Chrystia Freeland told The Chicago Council Wednesday evening. The result is a “genuinely hard” problem, needing both political and economic solutions, that is no less than “the big challenge of our time.”
This problem is harder than most people realize, Freeland said, because of the new structure of mega-wealth, of the “hollowing-out of the middle class,” and especially because the root cause–globalization–embodies “forces that are actually very good, but that have these malign consequences.”
“I hope the 1 percent will take ownership of this issue,” she said. But it will be tough: “it’s remarkably similar to what we saw at the crest of the Industrial Revolution. We forget the extent to which that required a whole set of political and economic adjustments to make it work.”
Freeland’s speech launched the Council‘s spring series of Global Economy lectures.
Freeland, elected two months ago to the Canadian Parliament, made her name as a journalist and chronicler of the new super-rich–“the plutocrats,” as she calls them–in books and for publications such as the Financial Times and The Economist. Her first book, Sale of the Century, portrayed the rise of the oligarchs in Russia. Her latest, Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else, describes this new global class and its social impact, especially in the US and the West.
As Freeland said, we’ve always had rich and poor, so what else is new? “Actually, something really different is happening now. We are in a different place.”
It’s a new world in which Bill Gates and Warren Buffett between them have wealth equal to the bottom 40 percent of Americans. A decade ago, the total wealth of Forbes 400 list of wealthiest Americans was $300 billion: “you didn’t even have to be a billionaire to belong.” Today, she said, “it’s $1.7 trillion. Think about that shift.”
At the same time, “the wealth of Americans in the middle has stagnated.”
When the financial crisis hit in 2008, “I assumed that was the high water mark of plutocracy,” Freeland said. Instead, we’ve had “the 1 percent recovery,” in which no less than 121 percent of income distribution went to the top 1 percent, because the share of the rest actually shrunk.
This inequality is most extreme in the United States, she said, but exists almost everywhere else, including the most egalitarian European nations.
“So it’s a global phenomenon,” she said. “What are the drivers?”
Most answers to that question fall along ideological lines that block real solutions, Freeland said. The left sees political causes, such as privatization, tax policies, and the decline of unions. This was the diagnosis given by Hedrick Smith in his recent Council program.
The right sees economic causes, especially globalization and technology.
“It’s both,” Freeland said. “There are a set of political changes, but also underlying economic drivers.”
The political analysis is easier to understand and offers clearer villains, she said. If that’s all there was to it, politicians could solve it.
“But the economic drivers are really there,” she said, spreading the modern economy globally, reducing poverty in China and India, increasing trade–and at the same time generating unprecedented inequality. Her implied question: how do you solve globalization’s inequality without destroying its benefits?
This inequality is exemplified by the plutocrats–exclusively men, she said, very smart, very global, and presenting “an inconvenient truth–these alpha geeks are self- made. They got there on their own.”
Because of this, these plutocrats have “a sense of self,” a feeling that they deserve their riches. They accept inequality because, as they see it, it springs from an egalitarian culture in which everybody has the same opportunity to get rich. As the Russian oligarch Mikhail Khodorkovsky told her, “If a man is not an oligarch, something is not right with him.”
It really is a new class, she said, of men who are both global and parochial “staying in the same hotels in Beijing or New York, eating the same food in Dubai or Palo Alto, seeing the same people,” assuming the same superiority and entitlement.
In this meritocratic world, she said, if the middle class can’t compete, it deserves to shrink.
There’s a rough logic in this, Freeland said, but it doesn’t work in a democracy, as she’s learning in her new life as a Canadian politician. This new economy really “is getting to the tipping point where they (the 1 percent) pull up the ladder,” robbing the rest of equality of opportunity.
The plutocrats’ ability to buy political power is being challenged now by such populist revolts as the Occupy movement and the Tea Party. In a democracy, she said, middle class frustrations can be expressed at the polls.