Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else (16 page)

The Intellectuals on the Road to Class Power
built on the arguments of an even more groundbreaking work smuggled out of Eastern Europe a generation earlier: Milovan Djilas’s
The New Class
. Writing in the seventies, Konrád and Szelényi were themselves members of the somewhat threadbare but socially cosseted socialist intelligentsia they described, though they were not members of the Communist Party. Djilas—Tito’s right-hand man during the partisan struggle and his emissary to Stalin’s Kremlin court—belonged to the earlier revolutionary generation. Djilas’s book, which earned its writer a seven-year prison sentence in the same jail he had been sent to for his revolutionary activities in the 1930s, was an instant international sensation, and rightly so. It was the first time a senior Soviet bloc official publicly condemned the system he had helped to create. Written thirteen years after George Orwell had made the same charge in his allegorical
Animal Farm
, Djilas made the ideologically devastating argument that the so-called workers’ state had simply replaced the old ruling bourgeoisie with a new class, the communist apparat. He even estimated the material gap between this new elite and the people it ruled, citing Soviet dissident Yuri Orlov’s report that a
rayon
secretary—the head of a provincial or city party organization—earned about twenty-five times more than the average worker.

The important twist Konrád and Szelényi added to this analysis was that the rule of this new class actually amounted to a seizure of political and economic power by the intellectuals—heredity and military might determined power under feudalism; money and commercial acumen were the source of control under capitalism. Under communism, they asserted, technical skills and higher education were the most important defining characteristics of the new party elite.

There was a lot of truth to their analysis, and it is one reason some members of the old Eastern European and Soviet intelligentsias, not to mention their friends in the West, are nostalgic for the old order. But if you read
The Intellectuals on the Road to Class Power
today, the most striking paradox about this dissident dissection of Warsaw Pact socialism is how powerfully it applies to twenty-first-century global capitalism. For the intellectual class Konrád and Szelényi studied, highly educated technocrats, the collapse of communism, and the emergence of a global market economy turned out to be the true road to class power.

The language of twenty-first-century Western economists is rather less colorful than that of 1970s central European dissidents. That’s why you won’t find many references to the rise of the technocrats to class power in the American academic debate of the early twenty-first century. But there is intense study of the impact of “skill-biased technical change” on income distribution, particularly in the developed Western economies. The consensus, advanced most powerfully by MIT economist David Autor, is that skill-biased technical change has indeed brought the technocrats to class power. As Autor puts it, it has polarized the labor market, with huge rewards for those at the top, who have the skills and education to take advantage of new technologies, not much impact for those who do the low-paying “lousy” jobs at the bottom, and a hollowing out of the well-paying jobs in between that used to support the middle class.

There is, of course, a fierce debate about what is causing rising income inequality, and the most honest students of the phenomenon attribute it to a number of factors. But there is broad agreement that skill-biased technical change is a crucial, and possibly the crucial, factor. In a January 2012 speech about income inequality, Alan Krueger, a Princeton economist who now heads President Barack Obama’s Council of Economic Advisers, reported one indicator of that consensus. In the mid-1990s he polled a nonrandom group of professional economists attending a conference at the New York Fed. They overwhelmingly named technological change as the main driver of income polarization—more than 40 percent said it was the chief cause. In a touching sign of humility, the second most popular explanation was “unknown.” Third was globalization. Political shifts, like the decline in the minimum wage and the decline in unionization, came in behind these top three.

There’s another reason the rise of the intellectuals to class power in global capitalism isn’t always immediately apparent within that favored group. That’s because not all of the highly educated are prospering equally. If you have a PhD in English literature, you probably don’t feel you are a member of the ruling elite. And even within tribes whose training vaults them collectively into the 1 percent—like bankers, lawyers, or computer programmers—there’s a twist to the impact of skills-biased technological change that lessens the sense of group prosperity. This is what economists call the “superstar” effect—the tendency of both technological change and globalization to create winner-take-all economic tournaments in many sectors and companies, where being the most successful in your field delivers huge rewards, but coming in second place, and certainly in fifth or tenth, has much less economic value.

The triumph of the nerds is intuitively obvious in the postindustrial economies of the developed West, where brains have had more value than brawn for a couple of generations. But in today’s era of the twin gilded ages, the triumph of the intellectuals is a global phenomenon. The highly educated are in the vanguard of India’s outsourcing miracle; the intellectuals, especially their “technical” branch, are very much in charge in communist China; and even the Russian oligarchs, who are better known in the West for their yachts and supermodel consorts, overwhelmingly have advanced degrees in math and physics.

The rise of the geeks, particularly the super-achievers among them, is a sharp break from the postwar era, when the robust economic recovery in the United States and western Europe was driven by the rise of a vast, and culturally dominant, middle class, much of it employed in blue-collar or relatively routine midlevel clerical, administrative, and managerial jobs. The disappearance of these opportunities, at a time when the super-smart are prospering as never before, is one reason for the populist antipathy toward the nerds. The impulse is strikingly bipartisan—the conservative Tea Party is every bit as hostile toward elites as is Occupy Wall Street, which has defined itself as the forum of the 99 percent.

Ironically—and frustratingly, for those in the discontented middle—the class power of the intellectuals is such that they are rising to the top of the political heap on both the left and the right. Indeed, at a time of fierce partisan conflict, one of the striking paradoxes is how much the champions of liberals and conservatives have in common: Mitt Romney and Barack Obama are both disciplined, dogged millionaires who describe their more popular wives as their better halves, hold degrees from Harvard Law School, and have a preference for data-driven arguments rather than emotional ones. Both men struggle to connect with the grassroots of their parties, coming across as cold and robotic.

You might call it the cognitive divide—the split between an evidence-based worldview and one rooted in faith or ideology—and it is one of the most important fault lines in America today. To his critics on the right, Obama is a socialist with dangerous foreign antecedents. To his critics on the left, he is a waffler with no real point of view and a craven desire to be liked. But the best explanation is that, like the rest of the rising intellectual class to which he belongs, the president is an empiricist. He wants to do what works, not what conforms to any particular ideology or what pleases any particular constituency. His core belief is a belief in facts.

Obama the empiricist is not the man who surged from behind to win the 2008 presidential election. That candidate was the Obama of soaring rhetoric, who promised hope and change. But the pragmatist has always been there. Writing in September 2008, several weeks before the presidential elections, Cass Sunstein, who has gone on to serve in the White House, had this to say about his candidate: “Above all, Obama’s form of pragmatism is heavily empirical; he wants to know what will work.” Word crunchers found that the president’s 2009 inaugural address was the first one to use the term “data” and only the second to mention “statistics.”

That cognitive approach is one reason Obama attracted so much support, especially among the younger generation, on Wall Street and in Silicon Valley. That wasn’t some sentimental betrayal of class interests—what Lenin is said to have called the useful idiocy of the capitalists who bankrolled the Bolsheviks; it was a recognition that Obama was an almost perfect embodiment of the super-elite that rules today’s global economy. Obama is a data-driven technocrat, and so are the traders and the Internet entrepreneurs. As one insider who is equally familiar with Wall Street and with Washington, D.C., told me: “You want your money managed by people who are responsive to evidence, who care about results, and who understand that the world is an uncertain place. Obama wants to get his economic advice from the same sorts of people.”

By training, by temperament, and by life experience, Mitt Romney, too, belongs squarely to the empiricist camp; it is hard to make millions in private equity without appreciating the power of data. What looks like flip-flopping to the Republican base can equally be understood as Romney’s effort to bridge the cognitive divide.

The super-geeks don’t just rule Wall Street, Silicon Valley, Bangalore, and Beijing. They are in charge in Washington, too—no matter which party wins.

E
LIZABETH
B
ILLINGTON—
D
IVA FOR THE
F
IRST
G
ILDED
A
GE

Elizabeth Billington was a diva, a celebrity—and a superstar. Today, many music scholars judge her to be the greatest English soprano; contemporary critics described her as “the Goddess of Song.” At the invitation of the king, she sang at the Naples opera house, then the most prestigious in the world, where she was the heroine of a new opera,
Ines di Castro
, written especially for her. Her Italian tour was such a success that after her recovery from an illness in Venice the opera house was illuminated for three nights. In Milan she was warmly received by the empress Joséphine.

At the height of her fame, Sir Joshua Reynolds, at the time Britain’s most popular portraitist, painted Mrs. Billington as Saint Cecilia, about to be crowned with laurels by one cherub, and listening to the singing of four others. The woman on the canvas has a gleaming mane of hair, a perfect oval face, and large, expressive eyes, but her fans complained that it didn’t do her justice. “How could I help it?” Reynolds is said to have challenged his critics. “I could not paint her voice.” When Haydn, a lifelong friend, saw the painting, he told Reynolds: “It is like, but there is a strange mistake. You have made her listening to the angels; you should have made the angels listening to her.”

Mrs. Billington was famous among the hoi polloi, too. When an unauthorized biography of her was published on January 14, 1792, it sold out by three p.m. The sensational highlight: intimate letters she had written to her mother, containing vivid accounts of, as Haydn described them, “her amours,” a group rumored to include the Duke of Sussex and even the Prince of Wales.

Her talent and her celebrity and the international demand for her performances gave her pricing power. In 1801, when Mrs. Billington returned to Britain after seven years in Italy, the managers of both Drury Lane and Covent Garden, London’s two most prestigious opera houses, fought a bidding war for her voice. Mrs. Billington finessed that struggle with an unprecedented compromise: she sang alternately at both houses, and was paid £3,000 for the season, plus a £600 bonus, and a £500 contract for her violinist brother to lead the orchestra whenever she performed. Her total income that year was believed to exceed £10,000, enough to employ five hundred farm laborers, and as much as the annual rents collected by Elizabeth Bennet’s opulently wealthy Mr. Darcy, who made his fictional debut twelve years later.

Writing nearly a century later, in 1875, Alfred Marshall, the father of modern economics, used Mrs. Billington as an example of one of the consequences of the unprecedented increase in national GDP that Britain was just beginning to experience at the turn of the nineteenth century, thanks to the industrial revolution. Growing prosperity, Marshall believed, meant richer paydays for the most skilled practitioners of every trade and profession, even as the industrial revolution drove down the incomes of ordinary artisans. He was watching the birth of the superstar economy.

Here’s how Marshall, the first truly sympathetic student of the economic impact of the industrial revolution, described what was happening: “The relative fall in the incomes to be earned by moderate ability . . . is accentuated by the rise in those that are obtained by men of extraordinary ability. There was never a time at which moderately good oil paintings sold more cheaply than now, and . . . at which first-rate paintings sold so dearly.”

One cause of this premium on super-talent, Marshall believed, was the “general growth of wealth” created by the industrial revolution. The national tide was rising, and the boats of the superstars were rising the most quickly with it. This broader economic transformation, Marshall argued, “enables some barristers to command very high fees; for a rich client whose reputation, or fortune, or both, are at stake will scarcely count any price too high to secure the services of the best man he can get: and it is this again that enables jockeys and painters and musicians of exceptional ability to get very high prices.”