‘Plutonomy’ and the reign of the super-rich
In October 2005, long before the collapse of the global financial system, three Citigroup analysts led by chief global equity strategist Ajay Kapur released a report for the bank’s richest clients, arguing that “there is no such animal as ‘the U.S. consumer’ or ‘the U.K. consumer,’ or indeed the ‘Russian consumer.’ ”
Instead, the report noted that “there are rich consumers, few in number, but disproportionate in the gigantic slice of income and consumption they take” with “the rest, the ‘nonrich,’ the multitudinous many . . . only accounting for surprisingly small bites of the national pie.”
In contrast to the “egalitarian bloc,” which included Western Europe (sans Italy) and Japan, this was the state of affairs in the United States, Great Britain and Canada. It was also becoming the norm in Eastern Europe, Russia and India.
Kapur and friends came up with a clever name for it — plutonomy. Their report was titled Plutonomy: Buying Luxury, Explaining Global Imbalance and the term was a takeoff on the ancient Greek concept of plutocracy, or rule by the rich.
The analysts argued that looking at the anglosphere economies through the plutocracy lens would explain why a number of phenomena — and in their eyes, the usual analysis of the average consumer — were flawed from the start, because in a plutonomy, there was no average consumer anymore.
For example, the report pointed out that “the top one per cent of (U.S.) households account for 40 per cent of financial net worth, more than the bottom 95 per cent of households put together.”
Given this reality, Citigroup argued that its investors should place their money into a basket of companies producing luxury goods, which would prosper even if most Americans, Canadians or Brits did not. In the plutocracy, the fortunes of the “non-rich” simply did not matter.
In the real world, their fortunes matter a lot. Aside from the obvious moral imperative of treating firefighters, school teachers, store clerks or accountants as people, the economics of the bottom 90 per cent proved crucial as an orgy of American subprime mortgage lending, coupled with Wall Street shenanigans that treated such debt as if it were ironclad, ended up sinking the U.S. economy and many other countries along with it.
Citigroup, Kapur’s former employer, almost crashed before receiving a U.S. taxpayer-funded bailout in late November 2008, and although the plutonomy proved to be a volatile and dangerous economic system, the normal pattern of the richest among us surviving financial turmoil relatively unscathed has continued, with societal divisions only strengthening since the market crash.
What comes next? Kapur and friends identified six drivers of the current plutonomy: “1) an ongoing technology/biotechnology revolution; 2) capitalist-friendly governments and tax regimes; 3) globalization that rearranges global supply chains with mobile well-capitalized elites and immigrants; 4) greater financial complexity and innovation; 5) the rule of law; and 6) patent protection.”
The 2005 report predicted that none of these was likely to change, but the authors missed something very big (aside from the financial crisis). The problem occurs at point five, since the rule of law no longer seems to apply to the elites in America, undermining the entire system.
U.S. political columnist Glenn Greenwald recently wrote a book on this subject, With Liberty and Justice for Some, pointing out that the detachment of the political class from the general population and the economic power of the super-rich has led to a system that shields a certain class of Americans from any legal accountability.
“It’s not that Americans suddenly woke up one day and decided that substantial income and wealth inequality are themselves unfair or intolerable,” Greenwald recently wrote, touching on the popularity of the themes raised by the Occupy Wall Street protests. “What changed was the perception of how that wealth was gotten and so of the ensuing inequality as legitimate.”
What will this mean for the plutonomy? At this point, it is too early to tell. But the Occupy protests have proven very resilient, and the issue of elite lawlessness (made acute by the economic crisis) is not going to go away. It is worth remembering that even if wealth is not distributed equally, votes still are. And that, according to Kapur’s report, is one reason the party might eventually end.