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The Rise of the New Global Super Rich

by Chrystia Freeland

Impolite to refer to them as "rich": "affluent" if you must. It wasn't supposed to happen this way - the standard explanation was that during an economic change like the Industrial Revolution, the old jobs disappeared and the displaced endured hardships for a while, but then got better-paid jobs in factories, and eventually everyone prospered.

In US, top 20% own 84% of the total wealth; in Sweden the share of the top 20% is 36%.

Clearly we need capitalism - like democracy, it is the best system we have found so far. But outcomes matter as well.

Most commentators focus on either economics or politics. If you are a fan of the rich you prefer economic arguments, because that makes the rise of the rich seem an inevitable outcome of market forces. If you see a political explanation, you blame Washington for failing to rein in the excesses of the rich.

Dramatic changes since 1970. Then, the top 1% had about 10% of national income. By 2010, that share had risen to nearly a third, as high as it had been in the Gilded Age, the previous peak. In 2005 Bill Gates and Warren Buffett together were worth $90 billion. That year the combined wealth of the 120 million people who made up the bottom 40% of the US population was $95 billion.

The "hourglass economy": the best performing companies will be the ones who either sell to the very rich, or the deep discounters like dollar stores who sell to the bottom. The middle class is being hollowed out, so the companies which catered to them will also fail.

Irony of Communism. Countries like US and Britain ran New Deal programs which taxed the rich, who tolerated that as an alternative to revolution. But in the countries where communists "triumphed", the workers got crushed by the dictators.

Then came transition from "Treaty of Detroit" (where carmakers gave union good deal on wages and health benefits in return for 5 year contract without strikes), to the "Washington consensus" where Reagan reduced taxes, deregulated the economy, cut social welfare and reined in the unions. The collapse of the Soviet Union and China's move to market economy left capitalism as the only game in town, vindicating those who saw rising income disparity as an inevitable, and benign, consequence.

In the 1950's labor was cheap in India but no-one could use that in the rest of the world. But today global access to those workers, so China and India etc are now "integrated into the world economy".

Not just jobs going global - also affects domestic wages as threat forces American workers to either accept less pay or drop out of the work force altogether.

"Lousy and lovely" jobs. The iPod as the quintessential product that America hopes will lead the economic resurgence. The iPod has created jobs all round the world - as of 2006, 14000 in US and 27,250 overseas. Half those foreign jobs - 12270 of them - are in China. Another 4750 are in the Philippines, which is important because some American politicians claim that China's undervalued currency is the cause of US problems. But then look at what those employees earned: those 14000 Americans earned $750 million. The 27,500 non-American Apple employees got less than $320 million. Then look at the US workforce. More than half the US jobs - 7800 - were in retail and distribution. They earned $220 million. The big winners were the 6100 engineers and other professionals who made over $525 million. And Apple shareholders made the most of all, whereas the Chinese manufacturers did worst.

Manufacturers don't start out "evil". But the numbers are remorseless - if they don't figure out how to make their doodad cheaper than competitors, they will be lunch.

Say's Law - the proposition that new technology leads to new prosperity and to new jobs to replace the jobs destroyed. But since the second economy began in the 1990's, there's been wave after wave of downsizing and layoffs, and we now have structural joblessness.

And if the new jobs don't appear, the system will have to radically adjust, as it has so many times before in history - we will have to find new ways to distribute the new wealth.

Uncertainty associated with rapid change makes even the winners anxious - they worry that at any minute they could lose their job, their status and their savings George Soros quote that "the markets are a machine for destroying your ego." - have to take big punts to keep ahead of the pack, but investing mistakes could turn out to be multi-million dollar losses that cost their job.

And at the same time, these people making 'only' $5 million or so a year, are caught up in lives they cannot afford - they want the private jet lifestyle and feel deprived because they can't have the trappings of the super-rich.

People at very tip of the apex actually did best - study of Forbes 400 richest Americans found that between 1993 and 2000, the top 100 got 4.3 times richer, while the bottom 300 (75%) 'only' got 2.1 times richer.

There are bout 30 million millionaires in the world, about half a per cent of world population. There are 84,700 'ultra high net worth individuals' - those with more than $50 million in assets, 29,000 with more than $100 million, and 2700 with $500 mill or more.

Very few of the super-elite inherited their wealth - most of them are the 'working rich' - executives and owners of banks and tech companies.

Larry Page's pet project, the self-driving car, will eventually save more lives than any humanitarian effort.

Decisive cultural impact of Gates Foundation - made it de rigeur to not only give away your money but also to be actively engaged in how it is spent.

Warren Buffett quote "There's class warfare all right. But it's my class, the rich class, that's making war, and it's winning." The 'income defense industry' of lawyers, accountants and lobbyists who have achieved lower effective tax rates for the super-rich.


Who is the richest person ever?

Not Marcus Crassus, whose fortune was the same size as the entire government treasury of the Roman Empire. His annual return was paltry for a plutocrat, equating to the average yearly income of 32,000 Romans.

Nor was it those robber barons of the Gilded Age: Andrew Carnegie, whose wealth peaked in 1901, took home the same as 48,000 typical Americans; John D. Rockefeller's vast riches yielded an annual income equal to 116,000 of his countrymen.

The wealth of these figures from history pales in comparison with the strutting financiers of Wall St, the geeky billionaires of Silicon Valley and the grisly oligarchs who plundered Russia.

Trumping them all is Carlos Slim, a telecoms tycoon whose £53 billion ($103.5 billion) fortune is equal to that of an incredible 400,000 of his fellow Mexicans.

There has always been a gap between rich and poor but this is one sign of how the gulf has widened into a chasm over the past few decades.

Creaming off more and more wealth is a new elite, a transglobal class of mainly self-made men carving out unimaginable fortunes. They are the subject of this timely and absorbing analysis by former Financial Times deputy editor Chrystia Freeland.

Forget the 1 per cent targeted by the Occupy mob. Freeland is talking about the 0.1 per centers who look down with disdain at the paupers struggling on a few million a year.

She quotes another shocking sign of our times: three decades ago the average American chief executive made 42 times as much as the average worker; today this ratio is 380. And bear in mind the richer you are, the smaller proportion of your income you tend to pay in tax, levels diminishing even at the very top of the tree.

This is no voyeuristic glimpse into the fabulous lifestyles of the rich and famous. Freeland charts the rise of this class by examining global trends and exploring the consequences of the creation of such a money-laden elite, shifting smoothly from dense academic studies and interviews with George Soros to grappling with the success of Lady Gaga. So who are these people? They are nearly all men for a start, sacrificing family life in their search for a fortune.

Often middle-class and frequently mathematicians, they make their own money rather than inheriting it. They go to the top universities and create their first fortunes early.

Many are outsiders to some extent - most Russian oligarchs, for example, were Jews clever and driven enough to get degrees from top universities under the old Soviet system - and often they are immigrants.

Unsurprisingly, bankers and financiers dominate, followed by the technology titans but, like pilot fish feeding on the leftover food from sharks, the likes of lawyers and even dentists who service their needs can join their ranks. "The superstars who work for the super-rich can charge super fees," observes Freeland drily.

Her findings are fleshed out with fine research, strong statistics and neat nuggets of information. She argues that technology and globalisation are creating winner-take-all superstars in many sectors who join a cosy, conformist bubble.

They flit round the world to the same events and using the same services; they freely admit to having more in common with one another than their fellow citizens, whether coming from Africa, Asia or the west.

Although short of solutions, Freeland highlights the danger when a small, self-serving and self-satisfied group dominate public discourse, then seek a system tilted even more in their favour. "I think the ultra-wealthy actually have an insufficient influence," says one billionaire Republican donor.

Yet these super-elites are not evil people; they genuinely think what is good for them is good for the rest of society. The irony, as the author points out, is that a big intrusive state is often the plutocrat's best friend, whether it's a state capitalist regime such as China or the protectionist capitalism of the west.

As the global meltdown showed, the best brains follow the money, so the regulators, earning a fraction of the huge incomes enjoyed by bonus-chasing bankers, were no match for the global behemoths. Such is their power and wealth, the mega-rich proclaim free-market values yet lobby hard and often successfully to bend markets in their favour, devastating the traditional middle classes and dislocating social mobility.

In so doing, they are destroying the very things that gave birth to so many of them - to all our detriment.

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