Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else (18 page)

Another pair of winners is Candy and Candy, the London-based brothers whose opulent interior design business expanded into property development. Property is the ultimate local good, but it has also allowed Candy and Candy to surf the waves of the twin gilded ages. Candy and Candy’s star 2011 venture turned out to be a play on the rise of the global super-elite. The list of buyers at One Hyde Park, a 385,000-square-foot apartment building next to the Mandarin Oriental and overlooking London’s Hyde Park, is a better directory to the international plutocracy than the fat, bricklike facebooks distributed each year to attendees at the World Economic Forum. The biggest place, occupying some twenty-five thousand square feet, was sold for $223 million to Rinat Akhmetov, a coal and metallurgy oligarch from eastern Ukraine. Other buyers include Vladimir Kim, who made his money in Kazakh copper; Sheikh Hamad bin Jassim bin Jabr al-Thani, the prime minister of Qatar; Irish property developer Ray Grehan; and Russian real estate magnates Kirill Pisarev and Yuri Zhukov.

Candy and Candy are an example of how the twin gilded ages—the rise of the plutocrats not just in the West but also in the emerging markets—has expanded the market for the superstars who work for them and thus driven up the prices those at the very top of their professions can command. You can see the power of globalization in the divergent careers of two North American architects born just twenty years apart. Gordon Bunshaft was born in 1909 in Buffalo, New York. Frank Gehry was born in 1929, a hundred miles to the north, in Toronto. Both had Eastern European roots—Bunshaft’s parents were Russian Jews; Gehry’s people were Polish Jews. Both went on to win the Pritzker Prize, architecture’s highest honor. But you have almost certainly heard of Gehry, and you probably haven’t heard of Bunshaft. The difference is the emerging markets and their first gilded age.

Bunshaft’s signature construction is Lever House, a clean-lined modernist rectangle that presides over Park Avenue just across the street from the Four Seasons restaurant, the lunchtime canteen of Manhattan’s princes of finance. The architect designed just a few buildings outside North America, and one of those, the National Commercial Bank in Jeddah, was built at the very end of his career, in 1983, when he was seventy-four. Globalization had arrived, but too late to make much of a difference to Gordon Bunshaft. But for Gehry, who began his work just twenty years later, globalization was the making of his career. His first foreign commission, the Vitra Design Museum in Germany, was in 1989, six years after Bunshaft’s big international gig. But what was a nightcap for Bunshaft was the main course for Gehry. Since 1989, half of his work has been outside the United States, including landmark buildings like the Guggenheim Museum in Bilbao.

Gehry is more than an architect—he is a starchitect, a neologism coined to describe the small band of elite international architects whose personal brands transcend their buildings. He has appeared in Apple’s iconic black-and-white “Think Different” ad campaign, parodied himself on the
Simpsons
, and helped Arthur and his friends build a tree house on the children’s cartoon. He has even designed a hat for Lady Gaga. The difference between Bunshaft, an award-winning North American architect, and Gehry, a multimillionaire global starchitect, is the difference between living in the postwar era of the Great Compression, when the gap between the 1 percent and everyone else shrank, and living during the twin gilded ages, when globalization and the technology revolution are creating an international plutocracy and therefore a fantastically wealthy global clientele for superstars like Gehry.

Here’s how Eric Schmidt, then the CEO of Google, explained the impact of the global plutocracy on the prices of luxury goods, and on the fortunes of those who produce and sell them. “I’m a pilot, so I understand airplane economics very well. For a while, high-end private air jets went up 50 to 80 percent higher than they should be by any modeling, because the Russians all entered the market,” he recalled. “In these wealth markets, the numbers are small enough that you can watch the real economics. You know, there’s three bidders for one property kind of thing. . . . In California ten years ago, during the bubble, there was a specific street in Atherton where all the prices doubled because of a set of offers that a number of executives who no longer live in the Bay Area made. They had so much discretionary income at the time, and they needed a house, so boom, right?”

If you understand the economic cycles of the plutocrats, Schmidt explained, you can become pretty rich yourself: “There’s another IPO cycle going to happen off companies like Facebook. And those companies are predominantly headquartered in a number of cities. Those cities will have scarcity of some things those people, newly arrived, need. The first thing you need is a house, okay? So, if you want to make some short-term money, buy the assets that will be bid up by the people when they get their money six months after the IPO.

“There’s obviously negative consequences from all of this. I’m not endorsing it. I’m just trying to describe it.”

—

Already in the nineteenth century, Marshall noticed that the rising tide of prosperity wasn’t lifting the boats of all artists and professionals—those “moderately good oil paintings” had never been as cheap while the “first-rate” ones had never “sold so dearly.” More than a century later that winner-take-all effect has become even more pronounced in the professions whose superstars are prospering from the rise of the global super-elite.

A good example is the law. In 1950, the median salary for American lawyers working in private practice was $50,000 in today’s dollars. Lawyers working at firms with nine or more partners enjoyed a median income of around $200,000 in today’s dollars.

By today’s standards, though, that differential feels practically socialist. In 2011, the highest-paid partners at America’s top firms earned more than $10 million a year; the average salary of a partner in a law firm was $640,000. A similar chasm is opening between partners within firms. In the 1950s, the highest-paid partner at a Wall Street law firm earned double, or maybe triple, what his lowest-paid partner earned, and the main difference was seniority. In 2011, America’s most aggressively expanding law firms paid their stars ten times what the average partner earned.

That is just the gap between partners within a single elite firm. The difference between star partners and those lower down in the legal profession has become a chasm. In 2011, a year when top partner paydays exceeded $10 million and more than one hundred U.S. lawyers were on the record as charging more than $1,000 an hour (David Boies’s hourly rate is reportedly more than $1,220), the average starting salary for a law school graduate was $84,111 and the average lawyer earned $130,490. This trend is increasing. More and more law firms are adopting a “permanent associate” or domestic outsourcing model, in which they employ experienced lawyers at associate pay rates in non-partner-track jobs. (One firm, DLA Piper, will bill its domestic outsourced lawyers at around a hundred dollars an hour.)

Part of what is going on is the economics of the plutonomy. As the global super-elite pulls ahead of everyone else, the demand for luxury services is exceeding the demand for low-rent ones. This, remember, was the investing thesis the Citigroup inventors of “plutonomics” devised—Gucci is doing better than Walmart; outstanding oil paintings are appreciating in value more quickly than moderately good ones; the demand for David Boies is outstripping the demand for associates.

And even as the growing demand for high-end services is putting a premium on legal superstars, some of the other forces at work in the twenty-first-century economy are pushing down the incomes of those in the middle.

Technology helps David Boies—mostly by making his clients richer. But it is driving down the incomes of more junior lawyers and creating less of a demand for their services as law firms discover ways to computerize work that was once done by well-paid lawyers. The most advanced example of this trend is e-discovery. In 2010, DLA Piper faced a court-imposed deadline of searching through 570,000 documents in one week. The firm, which has expanded from its Baltimore base to become the biggest law firm in the world, hired Clearwell, a Silicon Valley e-discovery company. Clearwell’s software did the job in two days. DLA Piper lawyers spent one day going through the results. After three days of work, the firm responded to the judge’s order with 3,070 documents. A decade ago, DLA Piper would have employed thirty associates full-time for six months to do that work. (Meanwhile, DLA Piper, one of the law firms with a nine-to-one differential between its star partners and the rest, in 2011 poached Jamie Wareham, a high-profile Washington lawyer, partly thanks to compensation of reportedly about $5 million in his first year.)

Globalization is having a similar, two-speed impact on lawyers. For the superstars, it is one of the forces creating richer clients, bigger cases, and fatter fees. But at the bottom, cheaper emerging market lawyers are undercutting the salaries of Western lawyers, just as outsourcing has brought down costs—and wages—in manufacturing and more routine services like call center work. One example is Pangea3, an Indian legal process outsourcing firm, which recently opened offices in the United States. Employing hundreds of lawyers who work around-the-clock shifts, Pangea3 does basic, repetitive legal work like drafting contracts and reviewing documents. Its clients have included blue-chip companies like American Express, GE, Sony, Yahoo!, and Netflix. This is “Manhattan work at Mumbai prices,” as the
American Bar Association Journal
put it in a recent headline.

In the age of the global super-elite, even dentists can be superstars. That’s the only way to describe Bernard Touati, the Moroccan-born French dentist who has parlayed fixing the teeth of the plutocrats, starting with the Russian oligarchs, into a superstar career of his own. Roman Abramovich, the Siberian oil oligarch, paid Touati to fly regularly to Moscow to fix his teeth—and installed a dentist’s chair in his office specially for the job. Dr. Touati treated Mikhail Khodorkovsky, once Russia’s richest man before Putin sent him to Siberia, and he brightens the smiles of oligarchs’ wives, like oil and banking baron Mikhail Fridman’s. He treats the Western super-elite, too—New York–based designer Diane von Furstenberg is a patient, as is Madonna.

Touati’s super-rich patient list is an example of how, thanks to the Marshall effect, the plutonomy is a self-sustaining global economy, largely insulated from the rest of us. Russian oligarchs create a superstar French dentist; Wall Street bankers and Arab sheikhs, superstar interior designers. Whether your skill is tooth enamel or fabric swatches, if you make it into the superstar league you can benefit from the concentration of wealth in the hands of a small, global business elite. And whether you got your start in western Siberia or the American Midwest, once you join the super-elite you patronize the same dentist, interior designer, art curator. That’s how, from the inside, the plutonomy becomes a cozy global village.

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Providing superstar services to the plutocrats is one way to join them. But an even more powerful driver of twenty-first-century superstar economics is the way that globalization and technology have allowed some superstars—the Mrs. Billingtons—to achieve global scale and earn the commensurate global fortunes. This is the superstar effect that Sherwin Rosen was most interested in, and it is both the most visible and the easiest to understand. These superstars are the direct beneficiaries of the twin gilded ages.

Thanks to the Internet, Lady Gaga reaches hundreds of millions more listeners than Mrs. Billington did. Her 2011 single “Born This Way” sold one million copies in five days. In 2011, when Lady Gaga topped the
Forbes
Celebrity 100 list, she had sold some twenty-three million albums and sixty-four million singles worldwide. Between May 2010 and May 2011, she performed in 137 shows in twenty-five countries, earning $170 million in gross revenue.
Forbes
estimated Lady Gaga’s 2010 earnings at $90 million, over eighteen hundred times the typical U.S. family income. Mrs. Billington’s fabulous £10,000 income in 1801—a fee so extravagant that Alfred Marshall used it as shorthand for superstar remuneration nearly a century later—was two hundred times the average British farm laborer’s income at the time.

There isn’t much mystery to why Lady Gaga is worth four Mrs. Billingtons. Each one was the leading diva of her time, and each one had an international reputation. But the only way to listen to Mrs. Billington was in person; Lady Gaga can be heard and seen by anyone with an Internet connection. Technology and globalization have given Lady Gaga access to a much bigger audience and she is consequently a much bigger star.

Superstar actors and athletes are beneficiaries of the same forces. In his own lifetime, Charlie Chaplin went from the physical stage to the silver screen and his earnings accordingly multiplied a thousandfold. But he was underpaid compared to today’s movie stars. Contrast Chaplin’s $670,000 income in 1916–1917 with Leonardo DiCaprio’s $77 million payday in 2010–2011—adjusted for inflation, DiCaprio earned six times as much. Economies of scale have similarly enriched sports stars. Mickey Mantle, the New York Yankees star hitter, earned about $100,000 a season in the mid-1960s. Compare that with Alex Rodriguez, the Yankees star fifty years later, who made $30 million in 2012. Adjusted for inflation, Rodriguez’s earnings are fifty times more than Mantle’s. The gap between the superstars and the rank and file has increased, too. Mantle earned less than five times the baseball average; Rodriguez earns ten times more than the average major leaguer.