Bill Emmott - International Author & Adviser


Follow the Money
FT - November 9, 2012

It is one of the oldest questions in political economy: why should another person’s mega-wealth worry you, if you are comfortably off yourself? the “occupy wall streeters” think that the wealth of the 1% has painful and damaging effects on the 99%, beyond mere jealousy or the suffering of the poor or unemployed. chrystia freeland’s argument in “plutocrats” is that they were right, but were looking at the wrong percentages: it is the 0.1% that truly matter, she says, and their wealth damages the other 99.9%.

It’s a bit less snappy, but you can see her point. i recall some fairly in-your-face evidence of it while on holiday at quite a posh resort in the british virgin islands. most, probably all, of those staying there would be counted as among the 1%. but what everyone was talking about was a vast, sinister-looking superyacht that sailed in and dropped anchor slap in the middle of our view. this clearly belonged to one of ms freeland’s 0.1%.

The yacht, which resembled a surfaced submarine and brought bond villains immediately to mind, was called mysteriously “a”.  but  the wonders of google—creator of many other plutocrats—enabled us to discover that its owner was a little-known russian oligarch called andrey melnichenko, who had named the yacht after his wife, aleksandra.

On board, gossip soon informed us (as they purloined our beach for a private party), were the hollywood couple demi moore and ashton kutcher, two examples of what ms freeland describes as a “winner-takes-all” economy (though they have since separated, so are not winners in every sense).

The inequality of incomes and wealth that arrived in virtually all western countries since the 1980s, and in even more spectacular form in emerging economies such as china, india, russia and mexico, is an unmistakeable and undeniable feature of our times. the difficulty is to know what to think—and even more important, do—about it.

Many commentators describe it as having been a central issue during the american presidential campaign, and so it was, in a way. but that way was curiously disconnected from actual policies: a little of the contest between mitt romney and barack obama concerned the right focus for tax cuts or rises, but mostly the inequality issue became just a proxy for who was more in or out of touch with ordinary voters: a super-rich former private-equity guy, or a pretty rich rather lofty professorial type.

The difficulty, as ms freeland, a former deputy editor of the financial times who now works for thomson reuters, outlines very capably, is that the new global super-rich have emerged alongside economic and technological forces that few would wish to bring to an end. most of the plutocrats are not aristocrats who inherited their wealth but entrepreneurs of some sort. and everyone loves entrepreneurs, don’t they?

Well, yes and no. ever since adam smith pointed out in his “wealth of nations” that capitalists are forever inclined to come up with conspiracies against the public, we have known that one rather profitable form of enterprise is the creation of monopolies or other forms of privilege, often with assistance from the state. economists call it rent-seeking. ordinary people call it gouging, or daylight robbery.

This is where the first big problem with the plutocrats arises, and for my taste it was a bit played down by ms freeland. the crucial chapter, number five out of six, is indeed entitled rent-seeking, and it is a good analysis too.

Yet that analysis follows four rather breathless and seemingly admiring chapters on the anthropology of this new global elite, all their private planes and many houses and international get-togethers and non-working wives, an anthropology that slides a bit confusingly at times to and fro between the 0.1% and the 1%, between the billionaire owners and the multi-millionaire ceos, bankers and superstar academics. it takes, mostly at face value, the plutocrats’ belief that they have made their money on merit, and so should be entitled to everything that it buys them.

For there’s the nub: what sort of merit? the merit in many cases, as ms freeland knows better than most from her previous excellent study of russia’s oligarchs, “sale of the century”, is to have been more ruthless and determined than others in grabbing cheap assets and establishing privileged, often monopoly positions, by fair means or foul.

A prime case, far away from russia’s cut-throat capitalism, is the world’s richest man, carlos slim, his wealth said by forbes to total $69 billion, enough, says ms freeland, to buy 6% of mexico’s annual gdp or to earn an income equivalent to the average salary of 400,000 mexicans. the owner of telmex, mexico’s dominant telecoms firm, he made his fortune, she writes, thanks to “mexico’s liberalisation”, part of a global shift from state to market. but that is nonsense. he made his fortune because there was no liberalisation. all that happened was that a public monopoly was turned into a private one.

The difference matters. a man your reviewer has been obsessed with for the past decade is a plutocrat called silvio berlusconi who doesn’t appear in this book, but is a prime example of a capitalist who made his billions by getting favours from the state, established a near monopoly of commercial television in italy, and then got himself elected as prime minister in order to protect his monopoly and serve his business.

That is the second big problem with plutocracy. rent-seeking, whether by mr berlusconi, mr slim or bill gates’s microsoft during its netscape-crushing days, damages society directly by raising prices and deterring innovation. but it does even more damage when it distorts, or destroys, democracy.

The preference given by the us supreme court to the “free speech” of billionaires’ campaign donations over democratic fairness has made this a serious problem in america. so has the proliferation of lobbyists and the influence they, on behalf of their industries, especially wall street, have over politicians. yet as italy shows, the damage can be even worse if the billionaires seize power directly.

Ms freeland closes with a third big danger, and another italian inspiration. it is the story of medieval venice, and how the mediterranean’s richest city-state destroyed its own prosperity when the elite decided in 1315 to close its doors to newcomers. it is a powerful and salutary tale. but let’s hope we deal with the rent-seeking and democracy-distorting first and don’t allow the plutocrats to get so far as to consider a repeat of the venetian serrata, or closure.


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