Though posed in front of a crimson curtain, Chrystia Freeland’s status as candidate for the riding of Toronto Centre took a silent backseat to her candid discussion of the concept of global plutocracy and the changing world of capitalism.
Freeland brought to the discussion a wealth of knowledge from her celebrated career. A graduate of Harvard and Rhodes scholar, she has worked as a journalist for The Economist, the Washington Post, and the Financial Times. Her newest book is entitled: Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else. Roger Martin has an equally impressive pedigree as Premier’s Chair in Productivity and Competitiveness and the Academic Director of the Martin Prosperity Institute. The back-and-forth between the two covered the topics so prevalent to our contemporary world – like the vast disparity in CEO compensation, the future of capitalism, and the rise of populist politics in the US.
Explaining the motivation behind Plutocrats, Freeland recounted a conversation she had as a reporter in Russia in the early 1990s. In the aftermath of the demise of the Soviet Union, a few individuals quickly amassed “instant fortunes.” This phenomenon was so dramatic that she remembers the moment “oligarchy” entered the Russian lexicon. One Russian desribed the conspiracy with his fellow oligarchs to get Boris Yeltsin re-elected thusly: “We oligarchs decided to do it … We figured out that the six of us controlled 55% of the GDP of the country.”
Another seminal moment was her conversation with David Rubenstein, one of the American co-founders of the private equity investment fim the Carlyle Group. They were speaking about Russia and at one point in the discussion he said, “Wow, you were in Russia in 1992… That was a time when you could make real money!” She pointed out the irony of a multi-billionaire speaking enviously of Russian oligarchs and their ability to make “real money.”
During the summer of 2008, Freeland pitched her book just before the Lehman Brothers Bank collapse. She was sure that the concomitant economic disaster and high unemployment rates that still plague the world, would be sufficiently calamitous to bring down the global plutocracy. At the time she even re-pitched a different book idea to her editors, assuming Plutocrats to be no longer relevant. And yet the completely unchanged world we live in seems to her evidence that there are powerful forces at work in the economy that simultaneously entrench the global plutocracy and hollow out the middle class.
Martin gave his own theory on why the middle class has been left behind. He argued that while the Democrats have shifted from being the party of labour to the party of capital, taking over the traditional domain of the Republican Party, the Republicans have shifted away from being the party of capital and can now be considered the party of “talent.” The talent class is exemplified by the extraordinarily large remuneration of CEOs, according to Martin. CEOs who in the 1970s were happy and satisfied with making $700,000 per year now push for making $14 million (in real terms). Instead of asking, “how much is enough?” they ask, “how much can I push for?” An aspect of the talent class debate is the scandal of “carried interest.” Sometimes called a “performance fee,” it is another form of remuneration that CEOs and managers receive that many argue should not be taxed since it differs from income. CEOs like Larry Summers and Warren Buffett recognize that it is ridiculous that their secretaries are taxed at a higher rate than they are thanks to devices like this.
Freeland shared some the most deliciously awful quotes from her research. Those who vehemently defend carried interest, according to Freeland, describe their oppnents as “Hitlerian.” Foster Friess, a major donor to Rick Santorum and defender of carried interest said, “It’s absurd to tax people like Steve Jobs and Bill Gates, society should be thanking them, not punishing them by taxing them… Poor people have never created a job. Bill Gates has created a job, so we should be honouring and uplifting the job creators like Bill Gates and not punishing them with taxes.”
When asked if this problem needed to be tackled by CEOs and the super-rich or if the government ought to step in, Freeland said that there is a clear role for government to step in and mitigate this collective action problem through regulation. Likening this crisis to the problem of climate change, she said that OECD governments need to collectively agree on how to constrain the activities of businesses so that equity can be pursued while allowing companies to remain competitive. The final question of the day was along the lines of: given that this has been dubbed the “New Gilded Age,” how can we expect this era to end, and what does it mean for Canada? Freeland responded that it is hard to say what will happen this time around, given that unlike the 1920s, many social and economic programs are already in place ostensibly to protect the most vulnerable. Martin predicted that the US would be the “next UK” and fall from their position as most powerful and richest country in the world. He said that it won’t be calamitous but Canada will be somewhat hurt by the fall from power of our next-door neighbour.
Freeland charmed the audience, making quips about academics not being profit-maximizers, and the “plight” of the multi-million dollar-earning CEOs. The discussion was interesting and informative and those in attendance left with much food for thought about the state of global capitalism as well as some ideas on politically feasible and palatable policy tools available to rein in capitalism and avert another crisis.
Sarah McKenna is a Master’s of Public Policy candidate for 2014. She previously achieved a Bachelor of Arts and Science in Health Sciences and International Development from McGill University. Sarah’s policy interests include health policy and economic policy.