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  • So here's the most important economic fact of our time.

  • We are living in an age of surging income inequality,

  • particularly between those at the very top

  • and everyone else.

  • This shift is the most striking in the U.S. and in the U.K.,

  • but it's a global phenomenon.

  • It's happening in communist China,

  • in formerly communist Russia,

  • it's happening in India, in my own native Canada.

  • We're even seeing it in cozy social democracies

  • like Sweden, Finland and Germany.

  • Let me give you a few numbers to place what's happening.

  • In the 1970s, the One Percent

  • accounted for about 10 percent of the national income

  • in the United States.

  • Today, their share has more than doubled

  • to above 20 percent.

  • But what's even more striking

  • is what's happening at the very tippy top

  • of the income distribution.

  • The 0.1 percent in the U.S.

  • today account for more than eight percent

  • of the national income.

  • They are where the One Percent was 30 years ago.

  • Let me give you another number to put that in perspective,

  • and this is a figure that was calculated in 2005

  • by Robert Reich,

  • the Secretary of Labor in the Clinton administration.

  • Reich took the wealth of two admittedly very rich men,

  • Bill Gates and Warren Buffett,

  • and he found that it was equivalent to the wealth

  • of the bottom 40 percent of the U.S. population,

  • 120 million people.

  • Now, as it happens,

  • Warren Buffett is not only himself a plutocrat,

  • he is one of the most astute observers of that phenomenon,

  • and he has his own favorite number.

  • Buffett likes to point out that in 1992,

  • the combined wealth of the people

  • on the Forbes 400 list --

  • and this is the list of the 400 richest Americans --

  • was 300 billion dollars.

  • Just think about it.

  • You didn't even need to be a billionaire

  • to get on that list in 1992.

  • Well, today, that figure has more than quintupled

  • to 1.7 trillion,

  • and I probably don't need to tell you

  • that we haven't seen anything similar happen

  • to the middle class,

  • whose wealth has stagnated if not actually decreased.

  • So we're living in the age of the global plutocracy,

  • but we've been slow to notice it.

  • One of the reasons, I think,

  • is a sort of boiled frog phenomenon.

  • Changes which are slow and gradual

  • can be hard to notice

  • even if their ultimate impact is quite dramatic.

  • Think about what happened, after all, to the poor frog.

  • But I think there's something else going on.

  • Talking about income inequality,

  • even if you're not on the Forbes 400 list,

  • can make us feel uncomfortable.

  • It feels less positive, less optimistic,

  • to talk about how the pie is sliced

  • than to think about how to make the pie bigger.

  • And if you do happen to be on the Forbes 400 list,

  • talking about income distribution,

  • and inevitably its cousin, income redistribution,

  • can be downright threatening.

  • So we're living in the age of surging income inequality,

  • especially at the top.

  • What's driving it, and what can we do about it?

  • One set of causes is political:

  • lower taxes, deregulation, particularly of financial services,

  • privatization, weaker legal protections for trade unions,

  • all of these have contributed

  • to more and more income going to the very, very top.

  • A lot of these political factors can be broadly lumped

  • under the category of "crony capitalism,"

  • political changes that benefit a group

  • of well-connected insiders

  • but don't actually do much good for the rest of us.

  • In practice, getting rid of crony capitalism

  • is incredibly difficult.

  • Think of all the years reformers of various stripes

  • have tried to get rid of corruption in Russia, for instance,

  • or how hard it is to re-regulate the banks

  • even after the most profound financial crisis

  • since the Great Depression,

  • or even how difficult it is to get the big multinational companies,

  • including those whose motto might be "don't do evil,"

  • to pay taxes at a rate even approaching that

  • paid by the middle class.

  • But while getting rid of crony capitalism in practice

  • is really, really hard,

  • at least intellectually, it's an easy problem.

  • After all, no one is actually in favor of crony capitalism.

  • Indeed, this is one of those rare issues

  • that unites the left and the right.

  • A critique of crony capitalism is as central

  • to the Tea Party as it is to Occupy Wall Street.

  • But if crony capitalism is, intellectually at least,

  • the easy part of the problem,

  • things get trickier when you look at the economic drivers

  • of surging income inequality.

  • In and of themselves, these aren't too mysterious.

  • Globalization and the technology revolution,

  • the twin economic transformations

  • which are changing our lives

  • and transforming the global economy,

  • are also powering the rise of the super-rich.

  • Just think about it.

  • For the first time in history,

  • if you are an energetic entrepreneur

  • with a brilliant new idea

  • or a fantastic new product,

  • you have almost instant, almost frictionless access

  • to a global market of more than a billion people.

  • As a result, if you are very, very smart

  • and very, very lucky,

  • you can get very, very rich

  • very, very quickly.

  • The latest poster boy for this phenomenon

  • is David Karp.

  • The 26-year-old founder of Tumblr

  • recently sold his company to Yahoo

  • for 1.1 billion dollars.

  • Think about that for a minute:

  • 1.1 billion dollars, 26 years old.

  • It's easiest to see how the technology revolution

  • and globalization are creating this sort of superstar effect

  • in highly visible fields,

  • like sports and entertainment.

  • We can all watch how a fantastic athlete

  • or a fantastic performer can today leverage his or her skills

  • across the global economy as never before.

  • But today, that superstar effect

  • is happening across the entire economy.

  • We have superstar technologists.

  • We have superstar bankers.

  • We have superstar lawyers and superstar architects.

  • There are superstar cooks

  • and superstar farmers.

  • There are even, and this is my personal favorite example,

  • superstar dentists,

  • the most dazzling exemplar of whom

  • is Bernard Touati, the Frenchman who ministers

  • to the smiles of fellow superstars

  • like Russian oligarch Roman Abramovich

  • or European-born American fashion designer

  • Diane von Furstenberg.

  • But while it's pretty easy to see how globalization

  • and the technology revolution

  • are creating this global plutocracy,

  • what's a lot harder is figuring out what to think about it.

  • And that's because,

  • in contrast with crony capitalism,

  • so much of what globalization and the technology revolution

  • have done is highly positive.

  • Let's start with technology.

  • I love the Internet. I love my mobile devices.

  • I love the fact that they mean that

  • whoever chooses to will be able to watch this talk

  • far beyond this auditorium.

  • I'm even more of a fan of globalization.

  • This is the transformation

  • which has lifted hundreds of millions

  • of the world's poorest people out of poverty

  • and into the middle class,

  • and if you happen to live in the rich part of the world,

  • it's made many new products affordable --

  • who do you think built your iPhone? —

  • and things that we've relied on for a long time much cheaper.

  • Think of your dishwasher or your t-shirt.

  • So what's not to like?

  • Well, a few things.

  • One of the things that worries me

  • is how easily what you might call meritocratic plutocracy

  • can become crony plutocracy.

  • Imagine you're a brilliant entrepreneur

  • who has successfully sold that idea or that product

  • to the global billions

  • and become a billionaire in the process.

  • It gets tempting at that point

  • to use your economic nous

  • to manipulate the rules of the global political economy

  • in your own favor.

  • And that's no mere hypothetical example.

  • Think about Amazon, Apple, Google, Starbucks.

  • These are among the world's most admired,

  • most beloved, most innovative companies.

  • They also happen to be particularly adept

  • at working the international tax system

  • so as to lower their tax bill very, very significantly.

  • And why stop at just playing the global political

  • and economic system as it exists

  • to your own maximum advantage?

  • Once you have the tremendous economic power

  • that we're seeing at the very, very top of the income distribution

  • and the political power that inevitably entails,

  • it becomes tempting as well

  • to start trying to change the rules of the game

  • in your own favor.

  • Again, this is no mere hypothetical.

  • It's what the Russian oligarchs did

  • in creating the sale-of-the-century privatization

  • of Russia's natural resources.

  • It's one way of describing what happened

  • with deregulation of the financial services

  • in the U.S. and the U.K.

  • A second thing that worries me

  • is how easily meritocratic plutocracy

  • can become aristocracy.

  • One way of describing the plutocrats

  • is as alpha geeks,

  • and they are people who are acutely aware

  • of how important highly sophisticated

  • analytical and quantitative skills are in today's economy.

  • That's why they are spending

  • unprecedented time and resources

  • educating their own children.

  • The middle class is spending more on schooling too,

  • but in the global educational arms race

  • that starts at nursery school

  • and ends at Harvard, Stanford or MIT,

  • the 99 percent is increasingly outgunned

  • by the One Percent.

  • The result is something that economists Alan Krueger

  • and Miles Corak call the Great Gatsby Curve.

  • As income inequality increases,

  • social mobility decreases.

  • The plutocracy may be a meritocracy,

  • but increasingly you have to be born

  • on the top rung of the ladder to even take part in that race.

  • The third thing, and this is what worries me the most,

  • is the extent to which those same largely positive forces

  • which are driving the rise of the global plutocracy

  • also happen to be hollowing out the middle class

  • in Western industrialized economies.

  • Let's start with technology.

  • Those same forces that are creating billionaires

  • are also devouring many traditional middle-class jobs.

  • When's the last time you used a travel agent?

  • And in contrast with the industrial revolution,

  • the titans of our new economy

  • aren't creating that many new jobs.

  • At its zenith, G.M. employed hundreds of thousands,

  • Facebook fewer than 10,000.

  • The same is true of globalization.

  • For all that it is raising hundreds of millions of people

  • out of poverty in the emerging markets,

  • it's also outsourcing a lot of jobs

  • from the developed Western economies.

  • The terrifying reality is

  • that there is no economic rule

  • which automatically translates

  • increased economic growth

  • into widely shared prosperity.

  • That's shown in what I consider to be

  • the most scary economic statistic of our time.