Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else

by Chrystia Freeland

  “It’s not possible in tech to frame your ambitions aside from those who are making the world a better place,” Eric Schmidt, former CEO of Google, told me. “I think it has a lot to do with the way Silicon Valley was formed and the university culture. The egalitarian culture. The liberal culture there. People are often surprised by that. . . . And I always try to explain to people that people actually came to Google not to get wealthy, but to change the world. And I genuinely believe that.”

  Another way to believe our plutocrats are heroes battling for the collective good is to think of capitalism as a liberation theology—free markets equal free people, as the editorial page of the Wall Street Journal asserts. One of the most convincing settings for this vision is Moscow, where in October 2010 you could hear it ringingly delivered by Pitch Johnson, one of the founders of the venture capital business in Silicon Valley, in a public lecture to business school students about capitalism and innovation.

  Johnson, who was a fishing buddy of Hewlett-Packard cofounder Bill Hewlett, is a genial octogenarian with a thick white head of hair, glasses, and a Santa Claus waistline. He has made something of a project of Russia, having traveled there twenty times since 1990 (he got a particular kick out of flying his private jet into what was then still Soviet airspace). As Johnson tells it, capitalism is about more than making money for yourself—it is about liberating your country. “Those of you who practice economic freedom will also cause your country to have more political freedom,” Johnson promised with great enthusiasm. “I would call you the revolutionaries of this era of your country.”

  WHO SOLD SUMMER?

  The Spectator is the house newsletter of Britain’s conservative establishment, the product of a literary and political hothouse whose writers are known for throwing the best parties in London and causing the occasional political scandal with their high-profile extramarital high jinks. Don’t be deceived by its modest circulation of less than sixty-five thousand; three editors of the Spectator have gone on to serve in the cabinets of Tory prime ministers, and one, Boris Johnson, is currently the mayor of London. The phrase “young fogey” was coined on the pages of the Spectator in 1984, and the magazine remains proud to speak in a posh accent—you’ll learn more in the Speccie, as its devotees call it, about fox hunting than you will about pop stars.

  That’s why the Spectator’s pronouncements on elite English culture should be taken seriously. And in a cover story published in June 2011, the magazine announced a sea change. “Who Sold Summer?” the headline asked, with the answer in the subhead: “On how a very English social season became the property of the international elite.”

  The author’s point was that the hoary old fixtures of English cultural life—horse racing at Ascot or Epsom, cricket at the Oval or Lord’s, opera at Covent Garden or Glyndebourne—which had once belonged to the Spectator community, had been taken over by the global super-elite. “For the super-rich, the world isn’t divided into countries any more; just rich and poor parts. And, like swallows, their favoured rich parts in summer are now their English bolt-holes in the north,” writes Harry Mount, the author of the essay, who also happens to be a second cousin of David Cameron, Britain’s aristocratic Conservative prime minister, a graduate of Westminster, one of Britain’s most exclusive private schools, and a former member of the Bullingdon Club, the exclusive and controversial private society at Oxford. “Britain now has a Wimbledon economy: we provide the charming venue, and foreigners come over to enjoy themselves on Centre Court. The paradox is that the recession has accelerated the globalisation of England. The English have been hard hit: with half a million jobs lost, and our rich stung—or chased abroad—by the 50p tax and the tax on bank bonuses. But the globalised elite, with their money parked offshore, have emerged almost untouched: their assets diversified, their wealth hitched to the booming East.”

  Mount chronicles the global super-elite’s takeover of the English rituals that until very recently belonged to his class and clan. But what he has observed on the playing fields of Eton is actually a worldwide phenomenon. The plutocrats are becoming a transglobal community of peers who have more in common with one another than with their countrymen back home. Whether they maintain primary residences in New York or Hong Kong, Moscow or Mumbai, today’s super-rich are increasingly a nation unto themselves.

  “There’s an interaction between the global elite, as you call them, and the media, as follows, which has to do with sort of the, for lack of a term, sexiness of it all,” Eric Schmidt told me in his Google office in Mountain View. “Magazines are now publishing the destinations that everyone goes to. So, there’s a list, okay? So let me tell you what the list is. There’s Davos. There’s the Oscars. There’s the Cannes Film Festival. There’s Sun Valley. There’s the TED conference. There’s Teddy Forstmann’s conference. There’s UN Week, Fashion Week. In London, there is Wimbledon Week, which is the last week of June.

  “These have become global events, when they were local events,” Schmidt explained. “They’re not nearly as much fun as they were when I was reading about them in the paper. Because the pictures were much better than the reality. But because I see myself as a global citizen, I go anyway. . . . The math is that people want to be where other smart and interesting people are. . . . There’s a perception you have to be there. And globalization, air travel, allows you to do this. So, the people that you’re describing travel a lot. And they also have multiple homes, right? So, the rigors of travel are not so bad if you have a home in London. I don’t have these things, by the way.”

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  No one studies the super-elite more assiduously than their would-be bankers. Like its rivals, every year Credit Suisse publishes a Global Wealth Report, an address book, health checkup, and love letter to the world’s money. In its 2011 edition, Credit Suisse noted the difference between the world’s rising middle class, which remains rooted in and defined by nationality, and the increasingly shared and global character of people at the very top:

  The base of the wealth pyramid is occupied by people from all countries of the world at various stages of their life-cycles; in contrast, HNW [high net worth, defined as people with an investable income of between $1 million and $50 million] and UHNW [ultra high net worth, defined as people with an investable income of at least $50 million] individuals are heavily concentrated in particular regions and countries, sharing a much more similar lifestyle. Even members at other locations tend to participate in the same global markets for high coupon consumption items. The wealth portfolios of individuals are also likely to be similar, dominated by financial assets and, in particular, equity holdings in public companies traded in international markets.

  The UHNWIs themselves describe the same experience. As Glenn Hutchins, cofounder of the private equity firm Silver Lake, puts it, “A person in Africa who runs a big African bank and went to Harvard Business School has more in common with me than he does with his neighbors, and I have more in common with him than I do with my neighbors.” The circles he moves in, Hutchins explains, are defined by “interests” rather than “geography”: “Beijing can look a lot like New York. You see the same people, you eat in the same restaurants, you stay in the same hotels. We are much less place-based than we used to be.”

  Aditya Mittal, the CFO of ArcelorMittal and son of its billionaire founder, is one of the foreign-born plutocrats who have taken over the Spectator’s traditional England. Mittal was born in Indonesia, educated in the United States, holds an Indian passport, and today lives in London.

  “I think, in a sad sense, these cities are so similar now because of globalization,” Mittal told me over coffee in Manhattan. “I mean the difference in identity is not as significant as it used to be. For a global businessman, you can achieve almost the same set of objectives whether you’re in London, New York, or a place like Singapore. You have access to talent, you have access to bankers, lawyers, you have access to good restaurants, good hotels. I mean, the main components of running a business
can be found in any big city. So you can live in any of these cities and it’s not such a big change anymore to move from, say, London to New York. Of course, that’s a good thing in many ways, but I hope they don’t lose their individual identity too much.”

  “There are more and more global CEO meetings in the emerging markets, especially China,” Dominic Barton, managing director of McKinsey, told me over breakfast in midtown Manhattan. Barton, a Canadian who lives in London but whose secretary is based in Singapore, was due to see Steve Schwarzman, the private equity investor, later that day. “The last time I saw Steve was in China,” where Blackstone had held a partners meeting the previous fall, Barton recalled. Barton himself was traveling to Chile later in the week, and then on to São Paolo, where McKinsey was holding a board meeting. Schwarzman, meanwhile, was about to move his primary residence to Paris for six months (he already owned one home in that country, in the south of France, of course), the better to oversee what he believed would be significant investment opportunities in Europe and Asia.

  Schwarzman spends about half his time traveling. Blackstone, which he cofounded, has offices around the world in cities including Shanghai, Mumbai, London, Paris, and Düsseldorf, and the firm both invests in and raises money outside the United States.

  “There is an emergent power in people whose shared experiences are more to each other than to their local context and their local governments. I think that’s basically true,” Schmidt told me. “The people you’re describing see themselves as global citizens first. That’s a relatively new phenomenon. So, while they’re certainly patriotic about their countries and patriotic about where they grew up, and they love their mothers and so forth—but they see themselves as global citizens. And so, when something happens in the globe that’s bad, it bothers them.”

  “This is the new wave, the new trend,” Wang Huiyao, founder and president of Beijing’s Center for China and Globalization, told me. “We had the globalization of trade, we had the globalization of capital, and now we have the globalization of talent.

  “It is no longer about brain drain, or even brain gain,” Dr. Wang said. “It is about global brain circulation.”

  Dr. Wang recalled that three decades ago, when he first came to North America as a student, there was only one flight a day to China. Today, he said, “there are two or three dozen, if not more.”

  As a result, instead of immigration being a single journey with a fixed starting point and end point, Dr. Wang said many Chinese have become what he calls “seagulls,” going back and forth between San Francisco or Vancouver and Beijing or Shanghai. He is a seagull himself: I spoke over the phone to Dr. Wang while he was in Washington, D.C.; he is spending the academic year at Harvard’s Kennedy School in Cambridge, Massachusetts; his institute is in Beijing; and he still owns an apartment in Vancouver, where he once lived.

  In a similar vein, the wife of one of America’s most successful fund managers offered me the small but telling anecdote that her husband is better able to navigate the streets of Davos than those of his native Manhattan. When he’s at home, she explained, he is ferried around town by a car and driver; the snowy Swiss hamlet, which is too small and awkward for limos, is the only place where he actually walks. One international media executive, who traveled 120 nights out of the past 365 days, described the group this way: “We are the people who know airline flight attendants better than we know our own wives.” An investment banker born and educated in Scandinavia, who built his career working as an investment banker with multinational firms in London and New York and who today works for an emerging markets plutocrat, told me that his family’s recent move from London to Hong Kong was easier than moving from one borough of New York to another.

  The globalization of the super-elite starts before the deals do—in school. The plutocracy doesn’t have its own passport, but it does have its alma maters—America’s Ivy League, plus Stanford and Oxbridge, and the world’s top business schools, mostly an American group, but also including Europe’s INSEAD. This is a world, as Turow puts it, where the province of your MBA matters more than your nationality. You can find quite a few plutocrats who were educated entirely in their home countries—this is, remember, largely a self-made group—but it is rare to come across one whose children don’t attend one of these top global universities. Many start earlier, sending their children to boarding schools, especially the fancy English ones, where Russian oligarchs landing their helicopters on the sports fields for parent visiting day has become commonplace. China’s plutocrats, who devote more than a fifth of their annual spending to their children’s education, are enthusiastic globalizers. According to Rupert Hoogewerf, publisher of the Hurun Report and the premier chronicler of the culture of the Chinese super-elite, “Four out of every five Chinese entrepreneurs today are considering sending their children to school overseas.” Middle Kingdom billionaires prefer to send their children abroad for high school, where British public schools are the preferred destination. For college, when the children of Chinese millionaires join the plutonomy, too, the most elite universities are America’s Ivy League. As a European multimillionaire explained to an eastern European billionaire, over a meal I shared with them at Davos, the advantage of the British public school their children both attended (thanks to the help of the same international education placement adviser) was that, “in addition to learning the language, they will make the right international friends.”

  The global takeover of these elite international institutions is beginning to be reflected in the name above the door—Oxford is today home to both the Blavatnik School of Government, a would-be rival to Harvard’s Kennedy School, endowed with a £75 million gift from Russian-born metals and oil baron Len Blavatnik (a truly global plutocrat who was born in Odessa, earned an MBA from Harvard, and has homes in New York and London), and the Saïd Business School, founded with a £20 million gift from Wafic Saïd, who was born in Syria, made his fortune in Saudi Arabia, and maintains his primary homes in Paris as well as tax-friendly Monaco.

  CITIZENS OF THE WORLD

  Like any country, the plutonomy is not uniform: its tribes have distinct national customs and its individual members make their own choices about how to live. The plutocrats whose native countries are repressive or volatile, like the Russians or the Middle Easterners, tend to be the most thoroughly global. Some, like the Chinese or the Indians, cultivate powerful community networks even when they live and work outside their home country. Some countries have built their national economy in large part by providing a physical haven for the globe-trotting members of the plutocracy—this has been the business of Switzerland and Monaco for generations. More recently, Singapore and Hong Kong have gotten into the act. Dubai is a newly minted, air-conditioned contender. English is the lingua franca of the super-elite, which means that, along with its elegant buildings and favorable tax treatment of foreigners, Britain, too, is a popular spot: nearly 60 percent of the properties in London worth more than £2.5 million are owned by foreigners.

  America’s business elite, by contrast, is something of a latecomer to this transnational community. In a study of British and American CEOs, for example, executive headhunter Elisabeth Marx found that almost a third of the former were foreign nationals, compared to just 10 percent of the latter. Similarly, more than three-quarters of the Brits had worked abroad for at least two years, whereas just a third of Americans had done so.

  But despite the slow start, American business is catching up. Today’s American chief executives are twice as likely to have worked abroad as their predecessors of a decade ago, and the number of foreign and foreign-born CEOs of U.S. companies, while still relatively small, is rising. The shift is particularly evident on Wall Street. In 2006, each of the eight leading banks on the Street was run by a native-born CEO; today, their number is down to five, and two of the survivors—Citigroup and Morgan Stanley—are led by men who were born abroad.

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  In fact, Jeff Immelt, the CEO of G
eneral Electric, recently told me his successor might well come from an emerging market, because that’s where GE’s future, and the future of American business more generally, lies.

  In Immelt’s view, the financial crisis marked the end of the age of America’s economic dominance. “I came to GE in 1982,” Mr. Immelt told me. “For the first twenty-five years, until the bubble crashed in 2007, the American consumer was the definitive driver of the global economy.” But the future will be different, Mr. Immelt said. For the next twenty-five years, he said, the U.S. consumer “is not going to be the engine of global growth. It is going to be the billion people joining the middle class in Asia, it is going to be what the resource-rich countries do with their newfound wealth of high oil prices. That’s the game.

  “There are going to be one billion consumers joining the middle class in Asia. I think for us to reduce unemployment, exports are going to be a key way to do it,” Immelt told me. “It’s this country’s only destiny just because most of the consumers are some place other than here.”

  As a cautionary counterexample, Immelt cited inward-looking Japanese firms. “Look, when I was a young guy, when I first started with GE, Jack Welch sent us all to Japan because in those days Japan was gonna crush us,” he said. “And we learned a lot about Japan when we were there. But over the subsequent thirty years the Japanese companies all fell behind. And the reason why they fell behind is because they didn’t globalize. They didn’t have to go out and sing for their dinner in every corner of the world. That’s not the case with GE. It’s not the case with other American multinationals.”