Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else (17 page)

Of course, the painters, musicians, jockeys, and barristers Marshall describes weren’t the first talented artists and professionals to command a premium for their talents. China’s Ming Dynasty, which ruled the Middle Kingdom from the fourteenth to the seventeenth centuries, prized painting; Qiu Ying was once paid one hundred ounces of silver to paint a long hand scroll as an eightieth-birthday gift for the mother of a wealthy patron. Artists were the superstars of Renaissance Italy, profiting from the rise of a new commercial elite much as Mrs. Billington did. Nor has culture been the only arena in which the superstars can earn huge rewards: the lords and princes of the Middle Ages bid for the services of Europe’s best mercenary knights; modernizing Russian sovereigns, such as Peter and Catherine, paid top ruble for Western technical and military expertise.

But Marshall was one of the first to point out that the industrial revolution had made superstars shine more brightly than ever, both by increasing the prices top talent could command and by pushing down the relative wages of many of the artisans and professionals lower down the ladder, through new technologies and more widely diffused skills.

As the industrial revolution gathered strength, the later phenomenon was part of the conventional wisdom about what was happening in English society. One of Marshall’s examples—sound familiar?—was the declining wages of the clerical class: “A striking instance is that of writing . . . when all can write, the work of copying, which used to earn higher wages than almost any kind of manual labour, will rank among unskilled trades.” Most of us are more familiar with a more violent episode in the redundancy of once valuable skills—the machine-busting revolt of the Luddites, hand-loom weavers who protested the introduction of wide-framed, automated looms that made their trade pointless. The Luddite protests began in 1811, a decade after Mrs. Billington’s £10,000 triumph.

Marshall had the brilliance to understand that the two processes were connected—the mechanization that put the hand-loom weavers out of work was a tragedy for those individuals, but it was part of a broader economic transformation that greatly enriched the country as a whole. Among the beneficiaries of that growing national wealth were superstars like Mrs. Billington.

Already in the nineteenth century, the most successful superstars capitalized on—and, indeed, cultivated—an international market for their services: Mrs. Billington started her serious professional career in Ireland, and then made the jump back home to London. Her debut in Italy, the most prestigious music market in the world at the time, was carefully orchestrated with the help of the aristocratic English friends her London fame had won her. Mrs. Billington’s subsequent Italian success increased her cachet even further, and when she returned to London she was able to command a much higher fee.

But even though Mrs. Billington was a beneficiary of globalization, Marshall believed there was a physical limit to how much she, or any other superstar, could capitalize on the international market for her services. After all, as he observed with the asperity of someone pointing out the obvious, “The number of persons who can be reached by a human voice is strictly limited.”

Marshall’s remark about the natural constraint on the income Mrs. Billington and her successors could demand is just a footnote on page 728 of his magnum opus. But it has had a much cited afterlife in the economic literature because it is the rousing conclusion to a seminal 1981 paper by University of Chicago economist Sherwin Rosen, in which he explained how the twentieth-century technology revolution had further magnified the income of superstars. After quoting Marshall’s reference to Mrs. Billington and the impossibility of scaling her work, Rosen argued: “Even adjusted for 1981 prices, Mrs. Billington must be a pale shadow beside Pavarotti. Imagine her income had radio and phonograph records existed in 1801!”

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In fact, when it came to capitalizing on the financial potential of new technology, Pavarotti came late to the game. The shift had begun nearly a century earlier, with the invention of the phonograph, the radio, and, crucially, movies. Consider the career of Charlie Chaplin. Born in 1889, roughly 125 years after Elizabeth Billington, he was, like her, a native Londoner with a prodigy’s talent for performance. Mrs. Billington had made her debut at age nine; by the time Chaplin was nine years old he was on the road, rehearsing and performing in two or three shows a day. His appeal, too, was international—he made his first U.S. tour in 1910, traveling the country for two years. But, for all his energy, like Mrs. Billington, in his live performances he was constrained by the physical reach of the human voice and the distance the human eye could see.

But Chaplin was lucky. In 1867 American inventor William Lincoln patented a device he called “the wheel of life,” through which animated pictures could be viewed. The motion picture era really took off after 1895 (six years after Chaplin’s birth), when French brothers Louis and Auguste Lumière invented the
cinématographe
, the first portable motion picture camera, projector, and printer. Public adoption wasn’t immediate—a disappointed Louis Lumière fretted that “the cinema is an invention without a future”—but within a generation, the way people were entertained had been transformed. In 1900, nearly all spectator entertainment was provided by live performers. By 1938, live acts accounted for just 8 percent of all public entertainment. In the mid-1920s, before the introduction of sound in movies, Americans spent $1.33 per capita on theater, versus $3.59 on movies; by 1938, the spending had further tilted in the direction of film—down to $0.45 on live performances and up to $5.11 at the movies.

Chaplin became the first global superstar of this new medium. He had an uncertain start—Mack Sennett, Chaplin’s first studio boss, deemed the actor’s film debut in the 1914 picture
Making a Living
“a costly mistake.” But that same year Chaplin also created the character of “the Tramp” for a series of Keystone movies. The character and the actor almost instantly became global celebrities—elsewhere in the world the Tramp took on such names as Charlot, Der Vagabund, and Carlitos. Just two years after the Tramp’s debut, Chaplin was enough of a superstar to command $670,000 to produce a dozen two-reel comedies over the next year for the Mutual Film Corporation. Adjusted for inflation, that was roughly double Mrs. Billington’s £10,000 fee in 1801.

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Technology had created a new way for live performers to become superstars. In Alfred Marshall’s world, superstars had emerged thanks to the increased wealth of society as a whole, particularly its richest members. That meant lawyers, doctors, jockeys, painters, and opera singers could demand higher fees of their ever wealthier clients.

But Marshall’s superstars couldn’t benefit from one of the great innovations of the industrial revolution—mass production. They were limited by the reach of the human voice. (Thanks to the printing press, writers were something of an important exception. In 1859, Anthony Trollope, a successful writer but not quite a superstar, was paid £1,000 for the novel that became
Framley Parsonage
, provided he could write it in six weeks.) That was why, in Marshall’s view, the bigger winners of the industrial age were businessmen. They were the ones who could take advantage of “the development of new facilities for communication, by which men, who have once attained a commanding position, are enabled to apply their constructive or speculative genius to undertakings vaster, and extending over a wider area, than ever before.”

Sherwin Rosen understood that, in the twentieth century, culture had been industrialized, too. Advances in communications technology had allowed talented individuals to take advantage of the same economies of scale: “The phenomenon of Superstars, wherein relatively small numbers of people earn enormous amounts of money and dominate the activities in which they engage, seems to be increasingly important in the modern world.” The key to the shift, Rosen argued, was “personal market scale” and the power of new technologies to increase the size of that personal market. Like nineteenth-century industrialists, the superstars of the twentieth century reached vast markets, and because technology and volume drastically reduced the cost per unit or per performance, they created new markets, too.

New technology squeezed out the old, but it also increased the overall size of the market. Live performance—Mrs. Billington’s only profession, and Charlie Chaplin’s first one—accounted for a smaller piece of the entertainment pie. But thanks to movies and the radio, people devoted more of their time to commercial entertainment, creating a bigger market for the top performers.

Writing in 1981, Rosen, the inventor of the modern theory of what he called “the economics of superstars,” knew the technology revolution was still unfolding. He ends his paper wondering what impact the coming wave of technology would have on his superstars: “What changes in the future will be wrought by cable, video cassettes and home computers?”

The Internet wasn’t featured on Rosen’s list—its commercial introduction was still a few years away—but once it began to make itself felt as a mass phenomenon, there were a lot of good reasons to think this new technology would be the one that would bring an end to superstar economics. This, in the term popularized by its most visible advocate, Chris Anderson, is the theory of the long tail. As Anderson argued in his 2004 essay of that name, the long tail is “an entirely new economic model for the media and entertainment industries, one that is just beginning to show its power. . . . If the 20th century entertainment industry was about hits, the 21st will be equally about misses.” Anderson’s point was that technology meant the end of the era of the blockbuster and the superstar; instead the new century would be the golden age of the niche artist and small audience.

It hasn’t quite worked out that way. While a great business can be built by bringing together millions of sales along the long tail—think Google—for individuals, the income gap between the superstars and everyone else is greater than ever. We see that in the overall income distribution, with the top 1 percent earning around 17 percent of the national income, and we see it within specific professions—in banking, in law, in sports, in entertainment, even in a quotidian profession like dentistry—those at the top are pulling ahead of everyone else. This superstar economics is one of the reasons we are seeing the emergence of the global super-elite.

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Part of what is happening is an intensification of the rising-tide effect first noticed by Marshall more than a century ago. As the world economy grows, and as the super-elite, in particular, get richer, the superstars who work for the super-rich can charge super fees.

Consider the 2009 legal showdown between Hank Greenberg and AIG, the insurance giant he had built. It was a high-stakes battle, as AIG accused Greenberg, through a privately held company, Starr International, of misappropriating $4.3 billion worth of assets. For his defense, Greenberg hired David Boies. With his trademark slightly ratty Lands’ End suits (ordered a dozen at a time by his office online), his midwestern background, his proud affection for Middle American pastimes like craps, and his severe dyslexia (he didn’t learn how to read until he was in the third grade), Boies comes across as neither a superstar nor a member of the super-elite. But he is both.

Boies and his eponymous firm earned a reputed $100 million for the nine-month job of defending Greenberg. That was one of the richest fees earned in a single litigation. Yet, for Greenberg, it was a terrific deal. When you have $4.3 billion at risk, $100 million—only 2.3 percent of the total—just isn’t that much money. (Further sweetening the transaction was the judge’s eventual ruling that AIG, then nearly 80 percent owned by the U.S. government, was liable for up to $150 million of Greenberg’s legal fees, but he didn’t know that when he retained Boies.)

It is this logic of big numbers that is driving up the fees of Boies and a small cadre of elite lawyers. The willingness of richer clients, with more at stake, to pay higher fees is why even those superstars who aren’t directly affected by globalization or the technology revolution can nevertheless benefit from them. Boies has never lived outside the United States, speaks only English, travels overseas for an annual biking holiday in southern Europe, and has never appeared in a non-American court. He is something of a Luddite, as well—he sends fewer than a dozen e-mails a week and was only recently persuaded by his wife to adopt an iPad, which he mostly uses to check stock prices. But because globalization (Hank Greenberg is one of the pioneers of globalization, nearly as at home in Beijing as he is in Manhatten) and technology have made his clients rich, they have made Boies a superstar, too.

If you are a plutocrat, there is a sound economic rationale for paying a brilliant litigator like David Boies such a premium. But it is not just the stellar providers of business services, like lawyers, who profit from the rise of the super-elite. Purveyors of luxury, like interior designers, are becoming superstars, too. Michael Smith redecorated the Oval Office and the East Wing of the White House in 2009, but his most famous commission to date turned out to be his $1.2 million face-lift of the Manhattan waterfront office of John Thain, then the CEO of Merrill Lynch. The job made headlines in 2009, when Bank of America, which had rescued a struggling Merrill, got a $45 billion bailout from the U.S. government. Suddenly, Smith’s $800,000 fee, and some of his big-ticket purchases, including $87,000 for “area rugs” and a $35,000 antique commode—paid for by the company—became symbols of plutocratic excess. Those infamous furnishings are also an example of how the emergence of the global plutocracy is creating a class of superstar artists and professionals, the best and luckiest of whom can become plutocrats in their own right.