The rise of the new global super-rich

So here's the most important economic fact of our time.

We are living in an age of surging income inequality,

particularly between those at the very top

and everyone else.

This shift is the most striking in the U.S. and in the U.K.,

but it's a global phenomenon.

It's happening in communist China,

in formerly communist Russia,

it's happening in India, in my own native Canada.

We're even seeing it in cosy social democracies

like Sweden, Finland, and Germany.

Let me give you a few numbers to place what's happening.

In the 1970s, the one percent

accounted for about 10 percent of the national income

in the United States.

Today, their share has more than doubled

to above 20 percent.

But what's even more striking

is what's happening at the very tippy top

of the income distribution.

The 0.1 percent in the U.S.

today account for more than eight percent

of the national income.

They are where the one percent was 30 years ago.

Let me give you another number to put that in perspective,

and this is a figure that was calculated in 2005

by Robert Reich,

the Secretary of Labor in the Clinton Administration.

Reich took the wealth of two admittedly very rich men,

Bill Gates and Warren Buffett,

and he found that it was equivalent to the wealth

of the bottom 40 percent of the U.S. population,

120 million people.

Now, as it happens,

Warren Buffett is not only himself a plutocrat,

he is one of the most astute observers of that phenomenon,

and he has his own favorite number.

Buffett likes to point out that in 1992,

the combined wealth of the people

on the Forbes 400 list,

and this is the list of the 400 richest Americans,

was 300 billion dollars.

Just think about it.

You didn't even need to be a billionaire

to get on that list in 1992.

Well, today, that figure has more than quintupled

to 1.7 trillion,

and I probably don't need to tell you

that we haven't seen anything similar happen

to the middle class,

whose wealth has stagnated if not actually decreased.

So we're living in the age of the global plutocracy,

but we've been slow to notice it.

One of the reasons, I think,

is a sort of boiled frog phenomenon.

Changes which are slow and gradual

can be hard to notice

even if their ultimate impact is quite dramatic.

Think about what happened, after all, to the poor frog.

But I think there's something else going on.

Talking about income inequality,

even if you're not on the Forbes 400 List,

can make us feel uncomfortable.

It feels less positive, less optimistic,

to talk about how the pie is sliced

than to think about how to make the pie bigger.

And if you do happen to be on the Forbes 400 List,

talking about income distribution,

and inevitably its cousin income redistribution,

can be downright threatening.

So we're living in the age of surging income inequality,

especially at the top.

What's driving it, and what can we do about it?

One set of causes is political:

lower taxes, deregulation, particularly of financial services,

privatization, weaker legal protections for trade unions,

all of these have contributed

to more and more income going to the very, very top.

A lot of these political factors can be broadly lumped

under the category of "crony capitalism,"

political changes that benefit a group

of well-connected insiders

but don't actually do much good for the rest of us.

In practice, getting rid of crony capitalism

is incredibly difficult.

Think of all the years reformers of various stripes

have tried to get rid of corruption in Russia, for instance,

or how hard it is to re-regulate the banks

even after the most profound financial crisis

since the Great Depression,

or even how difficult it is to get the big multinational companies,

including those whose motto might be "don't do evil,"

to pay taxes at a rate even approaching that

paid by the middle class.

But while getting rid of crony capitalism in practice

is really, really hard,

at least intellectually it's an easy problem.

After all, no one is actually in favor of crony capitalism.

Indeed, this is one of those rare issues

that unites the left and the right.

A critique of crony capitalism as as central

to the Tea Party as it is to Occupy Wall Street.

But if crony capitalism is, intellectually at least,

the easy part of the problem,

things get trickier when you look at the economic drivers

of surging income inequality.

In and of themselves, these aren't too mysterious.

Globalization and the technology revolution,

the twin economic transformations

which are changing our lives

and transforming the global economy,

are also powering the rise of the super-rich.

Just think about it.

For the first time in history,

if you are an energetic entrepreneur

with a brilliant new idea

or a fantastic new product,

you have almost instant, almost frictionless access

to a global market of more than a billion people.

As a result, if you are very, very smart

and very, very lucky,

you can get very, very rich

very, very quickly.

The latest poster boy for this phenomenon

is David Karp.

The 26-year old founder of Tumblr

recently sold his company to Yahoo

for 1.1 billion dollars.

Think about that for a minute:

1.1 billion dollars, 26 years old.

It's easiest to see how the technology revolution

and globalization are creating this sort of superstar effect

in highly visible fields,

like sports and entertainment.

We can all watch how a fantastic athlete

or a fantastic performer can today leverage his or her skills

across the global economy as never before.

But today, that superstar effect

is happening across the entire economy.

We have superstar technologists.

We have superstar bankers.

We have superstar lawyers and superstar architects.

There are superstar cooks

and superstar farmers.

There are even, and this is my personal favorite example,

superstar dentists,

the most dazzling exemplar of whom

is Bernard Touati, the Frenchmen who ministers

to the smiles of fellow superstars

like Russian oligarch Roman Abramovich

or European-born American fashion designer

Diane von Furstenberg.

But while it's pretty easy to see how globalization

and the technology revolution

are creating this global plutocracy,

what's a lot harder is figuring out what to think about it.

And that's because,

in contrast with crony capitalism,

so much of what globalization and the technology revolution

have done is highly positive.

Let's start with technology.

I love the internet. I love my mobile devices.

I love the fact that they mean that

whoever chooses to will be able to watch this talk

far beyond this auditorium.

I'm even more of a fan of globalization.

This is the transformation

which has lifted hundreds of millions

of the world's poorest people out of poverty

and into the middle class,

and if you happen to live in the rich part of the world,

it's made many new products affordable

— who do you think built your iPhone? —

and things that we've relied on for a long time much cheaper.

Think of your dishwasher or your t-shirt.

So what's not to like?

Well, a few things.

One of the things that worries me

is how easily what you might call meritocratic plutocracy

can become crony plutocracy.

Imagine you're a brilliant entrepreneur

who has successfully sold that idea or that product

to the global billions

and become a billionaire in the process.

It gets tempting at that point

to use your economic [inaud]

to manipulate the rules of the global political economy

in your own favor.

And that's no mere hypothetical example.

Think about Amazon, Apple, Google, Starbucks.

These are among the world's most admired,

most beloved, most innovative companies.

They also happen to be particularly adept

at working the international tax system

so as to lower their tax bill very, very significantly.

And why stop at just playing the global political

and economic system as it exists

to your own maximum advantage?

Once you have the tremendous economic power

that we're seeing at the very, very top of the income distribution

and the political power that inevitably entails,

it becomes tempting as well

to start trying to change the rules of the game

in your own favor.

Again, this is no mere hypothetical.

It's what the Russian oligarchs did

in creating the sale of the century privatization

of Russia's natural resources.

It's one way of describing what happened

with deregulation of the financial services

in the U.S. and the U.K.

A second thing that worries me

is how easily meritocratic plutocracy

can become aristocracy.

One way of describing the plutocrats

is as alpha geeks,

and they are people who are acutely aware

of how important highly sophisticated

analytical and quantitative skills are in today's economy.

That's why they are spending

unprecedented time and resources

educating their own children.

The middle class is spending more on schooling too,

but in the global educational arms race

that starts at nursery school

and ends at Harvard, Stanford, or MIT,

the 99 percent is increasingly outgunned

by the one percent.

The result is something that economists Alan Krueger

and Miles Corak call "the Great Gatsby Curve."

As income inequality increases,

social mobility decreases.

The plutocracy may be a meritocracy,

but increasingly you have to be born

on the top run of the ladder to even take part in that race.

The third thing, and this is what worries me the most,

is the extent to which those same largely positive forces

which are driving the rise of the global plutocracy

also happen to be hollowing out the middle class

in Western industrialized economies.

Let's start with technology.

Those same forces that are creating billionaires

are also devouring many traditional middle class jobs.

When's the last time you used a travel agent?

And in contrast with the industrial revolution,

the titans of our new economy

aren't creating that many new jobs.

At its zenith, G.M. employed hundreds of thousands,

Facebook fewer than 10,000.

The same is true of globalization.

For all that it is raising hundreds of millions of people

out of poverty in the emerging markets,

it's also outsourcing a lot of jobs

from the developed Western economies.

The terrifying reality is

that there is no economic rule

which automatically translates

increased economic growth

into widely-shared prosperity.

That's shown in what I consider to be

the most scary economic statistic of our time.

Since the late 1990s, increases in productivity

have been decoupled from increases

in wages and employment.

That means that our countries are getting richer,

our companies are getting more efficient,

but we're not creating more jobs

and we're not paying people, as a whole, more.

One scary conclusion you could draw from all of this

is to worry about structural unemployment.

What worries we more is a different nightmare scenario.

After all, in a totally free labor market,

we could find jobs for pretty much everyone.

The dystopia that worries me

is a universe in which a few geniuses

invent Google and its ilk

and the rest of us are employed giving them massages.

So when I get really depressed about all of this,

I comfort myself in thinking about the industrial revolution.

After all, for all its grim, satanic mills,

it worked out pretty well, didn't it.

After all, all of us here are richer, healthier, taller

— well, there are a few exceptions —

and live longer than our ancestors in the early 19th century.

But it's important to remember

that before we learned how to share the fruits

of the industrial revolution

with the broad swathes of society,

we had to go through two depressions,

the Great Depression of the 1930s,

the Long Depression of the 1870s,

two world wars, communist revolutions

in Russia and in China,

and an era of tremendous social

and political upheaval in the West.

We also, not coincidentally,

went through an era of tremendous

social and political inventions.

We created the modern welfare state.

We created public education.

We created public health care.

We created public pensions.

We created unions.

Today, we are living through an era

of economic transformation

comparable in its scale and its scope

to the industrial revolution.

To be sure that this new economy benefits us all

and not just the plutocrats,

we need to embark on an era

of comparably ambitious social and political change.

We need a new New Deal.

(Applause)