Plutocrats

1. The New Global Super-Rich: A Second Gilded Age

But in the late 1970s, things started to change.

A broken promise. For decades, economists believed that while industrialization increased inequality, mature capitalist societies would see it decrease again, following the Kuznets curve. However, since the late 1970s, this trend reversed, particularly in the United States, where the top 1%'s share of national income surged to levels not seen since the first Gilded Age. This shift violated expectations about how capitalism was supposed to work.

A global phenomenon. This rise of the super-rich is not confined to the West. Surging income inequality is now visible in most developed economies and rapidly growing emerging markets like China, India, and Russia. Today's super-rich are "global high rollers," increasingly connected to each other across borders.

Twin gilded ages. The world is experiencing two simultaneous transformations: the industrialized West is in a second gilded age, while emerging markets are undergoing their first. Driven by globalization and the technology revolution, these shifts create unprecedented wealth at the top but also exacerbate inequality within nations, leading to a bifurcation into "the Plutonomy and the rest."

2. The Rise of the Working Rich and the Alpha Geeks

As a consequence, top executives (the ‘working rich’) have replaced top capital owners (the ‘rentiers’) at the top of the income hierarchy during the twentieth century.

Not your grandfather's rich. Unlike the rentier elite of the first Gilded Age who inherited wealth, today's super-rich are largely "working rich," earning most of their income from paid work rather than capital. This is true even at the very top, including the 0.01%. Their fortunes are often the result of hustle, intelligence, and luck, embodying a form of economic meritocracy.

The triumph of the nerds. The new super-elite is fiercely educated, with high returns on elite education. This is the age of the "alpha geeks," particularly those with skills in math, science, and finance. This trend is driven by "skill-biased technical change," where technology disproportionately rewards those with the education and skills to leverage it.

Winner-take-all education. The premium on elite education has intensified competition from nursery school through university. Getting into a "right" college is seen as a make-or-break event, and early success is crucial. This creates a self-perpetuating cycle where privilege grants access to elite education, which in turn provides a significant edge in joining the super-elite.

3. Superstars: The Winner-Take-All Economy

Even adjusted for 1981 prices, Mrs. Billington must be a pale shadow beside Pavarotti.

The superstar effect. Technology and globalization have magnified the income of "superstars" across various fields, from entertainment and sports to law and finance. This "winner-take-all" dynamic means being the best in a field yields enormous rewards, while those just below the top earn significantly less.

Marshall and Rosen effects. This phenomenon is driven by two forces:

• Marshall effect: Growing wealth, especially among the super-rich, increases demand for the very best talent (e.g., top lawyers, designers).
• Rosen effect: Technology (like recordings, movies, the internet) allows a few talented individuals to reach a massive global audience at low cost per unit, dramatically increasing their market scale and earnings.

Talent vs. Capital. In the knowledge economy, where the tools of production are often intellectual or digital (like a laptop), "talent" has gained power relative to "capital." This allows highly skilled individuals to capture more of the value they create, either by practicing independently or negotiating better terms with employers, contributing to the rise of the "working rich."

4. Responding to Revolution: The Premium on Adaptability

Sometimes not acting is the most dangerous thing of all.

Revolution is the new status quo. We are living through an era of constant, rapid revolutionary change driven by emerging market liberalization and technological disruption. These moments of upheaval, while creating losers, also offer immense opportunities to make instant fortunes for those who can spot and adapt to them.

The insider/outsider advantage. The individuals best equipped to navigate and profit from these revolutions often have an "insider/outsider" perspective – smart and educated enough to understand the system, but detached enough to see its weaknesses and seize opportunities outside the established order. Examples include:

• Russian oligarchs who were educated but not fully part of the Soviet elite.
• Emerging market entrepreneurs who capitalized on liberalization.
• Silicon Valley founders who disrupted existing industries.

The pivot and the windfall. Success in this volatile environment requires agility and a willingness to "pivot" – recognizing when a path isn't working and changing course rapidly. This adaptability, combined with luck and timing, allows individuals to ride revolutionary waves and achieve spectacular windfalls, widening the gap between those who thrive on change and those who are disrupted by it.

5. Rent-Seeking: Getting Rich by Reallocating the Pie

Too many people have gotten too rich based on their proximity to the government.

Enrichment through reallocation. Rent-seeking is the process of using political influence to increase one's share of existing wealth, rather than creating new wealth. While often associated with corruption in emerging markets, it is also a significant factor in Western economies.

Privatization windfalls. The sale of state assets in formerly centrally planned economies (like the former Soviet Union and China) and liberalizing emerging markets (like Mexico and India) created massive, often opaque, opportunities for rent-seeking. Proximity to government officials determined who benefited most from these transfers of public wealth.

• Russia: Oligarchs gained control of vast natural resources.
• Mexico: Carlos Slim benefited from telecom privatization and weak regulation.
• China: "Red oligarchs" prosper through privileged access to land and state-controlled capital.

Legal corruption in the West. In developed economies, rent-seeking often takes the form of "legal corruption," such as lobbying and campaign finance, to influence regulations and policies. This is particularly evident in the financial sector, where deregulation has been linked to soaring incomes and a "finance wage premium." This shows that even reforms intended to free markets can inadvertently create opportunities for rent-seeking.

6. The Plutocratic Culture: Egalitarian Style, Unequal Reality

We live in a bubble.

Egalitarian veneer. Despite extreme wealth, many modern plutocrats, particularly in the tech industry, adopt an egalitarian style, eschewing traditional symbols of status like private drivers or lavish offices. They may sit in cubicles alongside employees and promote a culture of shared purpose.

The bubble of privilege. This cultural style often masks a profound isolation from the reality of most people's lives. Surrounded by fellow elites and catered to by service staff, plutocrats can inhabit a "bubble" where they are unaware of or indifferent to the struggles of the 99%. This can lead to a sense of entitlement and a belief that their success is purely meritocratic, while others' struggles are due to personal failings.

Views on the rest. This isolation can foster unsympathetic views towards the middle and working classes. Some plutocrats believe Western workers are "overpaid" and need to accept lower wages due to global competition. Others attribute economic hardship to individual fecklessness rather than systemic issues, leading to a "not-our-fault" mentality regarding crises like the 2008 financial meltdown.

7. The Plutocrats and the State: A Clash of Interests

The problem is that people who have spent their entire lives in finance have an understandable tendency to think that the interests of their industry and the interests of the country always coincide.

Influence on policy. Plutocrats exert significant influence on government policy, not just through lobbying and campaign finance, but also through personal networks and the "revolving door" between the private sector (especially finance) and government. This creates a risk that policies may favor the interests of the super-elite over the broader public good.

Cognitive capture. A key mechanism is "cognitive state capture," where regulators and policymakers, often drawn from the industries they oversee, internalize the perspectives and interests of those industries. This can lead to a belief that what is good for a specific business or sector is automatically good for the country, even when evidence suggests otherwise.

Pro-business vs. Pro-market. This dynamic highlights the tension between being "pro-business" (promoting the interests of existing firms) and "pro-market" (fostering free and open competition). As elites gain power, they may use it to create "moats" or favorable regulations that protect their position, potentially hindering the very market dynamism that created their wealth.

8. The Risk of La Serrata: Closing Off Opportunity

We may have democracy, or we may have wealth concentrated in the hands of the few, but we cannot have both.

The Venetian lesson. The historical example of Venice, which became rich through an open, mobile economic system (the commenda) but then saw its elite close off opportunity (La Serrata) to protect their privilege, serves as a cautionary tale. This act of exclusion ultimately led to the city's decline.

Pulling up the ladder. As wealth concentrates at the top, there is a risk that today's super-elite, who often rose through relatively open systems, may be tempted to "pull up the ladder" behind them. This can happen through:

• Influencing policies to favor vested interests (rent-seeking).
• Creating barriers to entry for new competitors.
• Passing on advantages (like elite education) to their children, reducing social mobility.

The Great Gatsby Curve. Research suggests that high income inequality is linked to lower social mobility. As the gap between the top and the rest widens, it becomes harder for those at the bottom to rise, threatening the very dynamism that characterizes successful, inclusive economies. The challenge is to maintain an open system that rewards innovation without allowing concentrated wealth to undermine the foundations of broad prosperity and opportunity.

Last updated: May 3, 2025