The Rise of the Alpha Geek as the New Super Rich

Nov 15, 2012— -- Carlos Slim, Eike Bautista, Michael Bloomberg, Roman Abramovich, the Koch brothers, and Mitt Romney. These are just a few of the names associated with plutocracy, which refers to those who dominate social and economic life around the world.

Why's that interesting? Well, the gap between plutocrats and the rest of us humans is the widest it's been in history. And with that gap come distinct consequences, says Chrystia Freeland author of the new book, "Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else."

While covering the collapse of Communism and the rise of the market economy in Russia, Freeland witnessed firsthand the rapid ascendance of the now infamous oligarchs. She then realized that this rise was a global phenomenon when she moved to New York in 2006.

"I was struck by how many similarities there were in the mood, but also more crucially between the key players," she said.

ABC/Univision's Stephen Keppel spoke with Freeland about how this immense wealth and power gives these men an insane influence on politics and the economy, and how that threatens to stifle future innovation. Excerpts:

1. SK: What does a 21st Century Plutocrat look like and why is it different than what we've seen in previous history?

I describe them as the "alpha-geeks". This is a group which tends to be really, really hard working. I don't want to say it's about pure meritocracy but these by and large are not people who inherited the business that made them a plutocrat.

They are very numbers based and that's a real difference. When you think about the 19th century "robber barons"… you didn't have to be brilliant with data and a spread sheet. An essential quality, and you see this from a Carlos Slim to a Mikhail Khodorkovsky in Russia to a Steve Schwarzman in the U.S. to a Sergey Brin in Silicon Valley. All of these guys are masters of numbers. This is a triumph of the geeks. Also, crucially, nowadays they are all global. And this is true very much of the Latin Americans.

2. You mention Carlos Slim quite a bit in your book why is he such a good example?

First, he is so rich and successful. One of the fun pieces of research I cite is work done by an economist I really admire, Branko Milanovic [of the World Bank]. He set out to decide who was the richest man who ever lived. Branko's conclusion was the richest person who ever lived wasn't a Pharaoh, it wasn't one of the great Roman patricians, and it wasn't a robber baron. It was Carlos Slim. That says a lot about the economic transformation that's happened in the whole world. I think we tend to underestimate the economic change we're all living through. The collapse of the Soviet Union had this ripple effect of liberalization around the world, it hit Mexico and he was the guy who won that great lottery.

3. Is there anyone else in Latin America that stands out ?

I think the Brazilians are really interesting. One person who I interviewed is Eike [Bautista, the mining and oil magnate]. The emerging markets guys in some ways are more globally minded than the Americans, which I think the Americans would be shocked by. The Americans think they're so cosmopolitan but actually you talk to someone in Mexico City or Rio or in Moscow and they have a much more global perspective, because they have to.

When you talk to someone like Eike and hear his thinking about the technology revolution and how the people who've been successful in Silicon Valley are the people who spotted moments of economic change and seized on them, and seeing his own business success in similar terms. I think he's correct and its really interesting that he thinks about it that way.

4. Would you classify Mitt Romney as a plutocrat?

For sure. He's not at the very summit of plutocracy but he's a multimillionaire. And he fits the archetype very well. Of course he was raised in incredibly comfortable circumstances…having said that he didn't inherit Bain capital, he did build that. He is part of this extremely numerate "alpha geek" approach to the world. The contrast between George Romney and Mitt Romney are telling and very illustrative of the change of the American elite.

5. So what is driving the current wave of inequality, particularly in the U.S.?

One reason is this profound economic transformation: globalization, the technology revolution and as part of globalization this wave of liberalization and privatization. Those underlying economic changes are very real and actually constitute an economic transformation comparable to the industrial revolution [the last period of a major spike in inequality] in scope and significance.

Financial deregulation has also been a great creator of some of this super wealth. The taxes at the very top have fallen. If you think of the 1950s when income inequality was shrinking, taxes at the very top were more than 90%! This was Eisenhower! This was a deeply conservative United States and rich people were paying 90% taxes, just think about that for a minute.

6. You mention "rent seeking" quite a bit in your book, can you describe what this means?

There are ways you can become wealthy that aren't about creating more value. They are about capturing the state and economists call that rent seeking. One way is to get control of natural resources. The Russian oligarchs have been very good at that.

The financial sector has also been a prime area for rent-seeking. You get the government to set regulations in ways that favor you. Telecoms are also a very great way of rent seeking. If you get control of particular parts of the air waves and other people are locked out that can be a great way of rent seeking.

7. What role does philanthropy play for plutocrats? It seems that many now, instead of giving money away, are starting foundations and initiatives.

One of the things that I thought was fascinating is that increasingly the status symbol for today's plutocrat isn't having a more fabulous yacht than anyone else. As one guy said to me, "You don't want to just be another rich guy in New York." The real status symbol is being a thought leader and being a leader in public policy. So Mike Bloomberg actually is one of the prime examples of that. Mitt Romney wanted to be.

If the hurdles of elected office are too much for you, another path is be a muscular philanthropist. Increasingly you are seeing that being what the plutocrats want to do, what has status in their community. And I have some ambivalent feelings about it. Obviously a lot of tremendously good work is being done and it's great to have this group of incredibly smart people who understand how the world economy works turning their money and their minds to public policy and social problems. Having said that, I think we need to at least think about to what extent we want major public policy issues being decided by the richest guy in the room.

8. Why is this group dangerous for the global economy?

First of all I think the underlying economic forces are really fantastic. I think globalization is great and it's great that people all over the world are being lifted out of poverty, and I love the technology revolution.

Having said that, we should be mindful of the fact that these very, very deep economic changes are also having very deep social and political consequences. I think we are naive if we believe that somehow our societies are going to seamlessly adjust to this brand new set of changes without making some pretty big accommodations. What I worry about is…I don't see that inventiveness. I don't see that new thinking. Part of the reason that we don't see that new thinking is that if you're looking at the world from the Olympian heights of the plutocracy it seems pretty terrific. That need for new thinking doesn't manifest as powerfully.