TEDGlobal 2013

Chrystia Freeland: The rise of the new global super-rich

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Technology is advancing in leaps and bounds -- and so is economic inequality, says writer Chrystia Freeland. In an impassioned talk, she charts the rise of a new class of plutocrats (those who are extremely powerful because they are extremely wealthy), and suggests that globalization and new technology are actually fueling, rather than closing, the global income gap. Freeland lays out three problems with plutocracy … and one glimmer of hope.

- Plutocracy chronicler
In "Plutocrats," Chrystia Freeland explores the growing gap between the working poor and the increasingly disconnected mega-rich. Full bio

So here's the most important economic fact of our time.
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We are living in an age of surging income inequality,
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particularly between those at the very top
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and everyone else.
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This shift is the most striking in the U.S. and in the U.K.,
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but it's a global phenomenon.
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It's happening in communist China,
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in formerly communist Russia,
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it's happening in India, in my own native Canada.
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We're even seeing it in cozy social democracies
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like Sweden, Finland and Germany.
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Let me give you a few numbers to place what's happening.
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In the 1970s, the One Percent
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accounted for about 10 percent of the national income
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in the United States.
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Today, their share has more than doubled
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to above 20 percent.
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But what's even more striking
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is what's happening at the very tippy top
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of the income distribution.
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The 0.1 percent in the U.S.
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today account for more than eight percent
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of the national income.
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They are where the One Percent was 30 years ago.
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Let me give you another number to put that in perspective,
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and this is a figure that was calculated in 2005
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by Robert Reich,
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the Secretary of Labor in the Clinton administration.
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Reich took the wealth of two admittedly very rich men,
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Bill Gates and Warren Buffett,
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and he found that it was equivalent to the wealth
01:43
of the bottom 40 percent of the U.S. population,
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120 million people.
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Now, as it happens,
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Warren Buffett is not only himself a plutocrat,
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he is one of the most astute observers of that phenomenon,
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and he has his own favorite number.
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Buffett likes to point out that in 1992,
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the combined wealth of the people
02:09
on the Forbes 400 list --
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and this is the list of the 400 richest Americans --
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was 300 billion dollars.
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Just think about it.
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You didn't even need to be a billionaire
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to get on that list in 1992.
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Well, today, that figure has more than quintupled
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to 1.7 trillion,
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and I probably don't need to tell you
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that we haven't seen anything similar happen
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to the middle class,
02:38
whose wealth has stagnated if not actually decreased.
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So we're living in the age of the global plutocracy,
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but we've been slow to notice it.
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One of the reasons, I think,
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is a sort of boiled frog phenomenon.
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Changes which are slow and gradual
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can be hard to notice
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even if their ultimate impact is quite dramatic.
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Think about what happened, after all, to the poor frog.
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But I think there's something else going on.
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Talking about income inequality,
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even if you're not on the Forbes 400 list,
03:10
can make us feel uncomfortable.
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It feels less positive, less optimistic,
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to talk about how the pie is sliced
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than to think about how to make the pie bigger.
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And if you do happen to be on the Forbes 400 list,
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talking about income distribution,
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and inevitably its cousin, income redistribution,
03:29
can be downright threatening.
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So we're living in the age of surging income inequality,
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especially at the top.
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What's driving it, and what can we do about it?
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One set of causes is political:
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lower taxes, deregulation, particularly of financial services,
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privatization, weaker legal protections for trade unions,
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all of these have contributed
04:00
to more and more income going to the very, very top.
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A lot of these political factors can be broadly lumped
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under the category of "crony capitalism,"
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political changes that benefit a group
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of well-connected insiders
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but don't actually do much good for the rest of us.
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In practice, getting rid of crony capitalism
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is incredibly difficult.
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Think of all the years reformers of various stripes
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have tried to get rid of corruption in Russia, for instance,
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or how hard it is to re-regulate the banks
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even after the most profound financial crisis
04:36
since the Great Depression,
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or even how difficult it is to get the big multinational companies,
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including those whose motto might be "don't do evil,"
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to pay taxes at a rate even approaching that
04:50
paid by the middle class.
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But while getting rid of crony capitalism in practice
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is really, really hard,
04:57
at least intellectually, it's an easy problem.
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After all, no one is actually in favor of crony capitalism.
05:03
Indeed, this is one of those rare issues
05:09
that unites the left and the right.
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A critique of crony capitalism is as central
05:14
to the Tea Party as it is to Occupy Wall Street.
05:17
But if crony capitalism is, intellectually at least,
05:22
the easy part of the problem,
05:26
things get trickier when you look at the economic drivers
05:28
of surging income inequality.
05:31
In and of themselves, these aren't too mysterious.
05:34
Globalization and the technology revolution,
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the twin economic transformations
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which are changing our lives
05:43
and transforming the global economy,
05:45
are also powering the rise of the super-rich.
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Just think about it.
05:51
For the first time in history,
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if you are an energetic entrepreneur
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with a brilliant new idea
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or a fantastic new product,
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you have almost instant, almost frictionless access
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to a global market of more than a billion people.
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As a result, if you are very, very smart
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and very, very lucky,
06:13
you can get very, very rich
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very, very quickly.
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The latest poster boy for this phenomenon
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is David Karp.
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The 26-year-old founder of Tumblr
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recently sold his company to Yahoo
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for 1.1 billion dollars.
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Think about that for a minute:
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1.1 billion dollars, 26 years old.
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It's easiest to see how the technology revolution
06:39
and globalization are creating this sort of superstar effect
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in highly visible fields,
06:46
like sports and entertainment.
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We can all watch how a fantastic athlete
06:50
or a fantastic performer can today leverage his or her skills
06:54
across the global economy as never before.
06:58
But today, that superstar effect
07:02
is happening across the entire economy.
07:04
We have superstar technologists.
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We have superstar bankers.
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We have superstar lawyers and superstar architects.
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There are superstar cooks
07:14
and superstar farmers.
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There are even, and this is my personal favorite example,
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superstar dentists,
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the most dazzling exemplar of whom
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is Bernard Touati, the Frenchman who ministers
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to the smiles of fellow superstars
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like Russian oligarch Roman Abramovich
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or European-born American fashion designer
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Diane von Furstenberg.
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But while it's pretty easy to see how globalization
07:37
and the technology revolution
07:40
are creating this global plutocracy,
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what's a lot harder is figuring out what to think about it.
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And that's because,
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in contrast with crony capitalism,
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so much of what globalization and the technology revolution
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have done is highly positive.
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Let's start with technology.
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I love the Internet. I love my mobile devices.
08:01
I love the fact that they mean that
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whoever chooses to will be able to watch this talk
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far beyond this auditorium.
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I'm even more of a fan of globalization.
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This is the transformation
08:15
which has lifted hundreds of millions
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of the world's poorest people out of poverty
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and into the middle class,
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and if you happen to live in the rich part of the world,
08:24
it's made many new products affordable --
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who do you think built your iPhone? —
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and things that we've relied on for a long time much cheaper.
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Think of your dishwasher or your t-shirt.
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So what's not to like?
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Well, a few things.
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One of the things that worries me
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is how easily what you might call meritocratic plutocracy
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can become crony plutocracy.
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Imagine you're a brilliant entrepreneur
08:53
who has successfully sold that idea or that product
08:56
to the global billions
08:59
and become a billionaire in the process.
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It gets tempting at that point
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to use your economic nous
09:05
to manipulate the rules of the global political economy
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in your own favor.
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And that's no mere hypothetical example.
09:15
Think about Amazon, Apple, Google, Starbucks.
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These are among the world's most admired,
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most beloved, most innovative companies.
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They also happen to be particularly adept
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at working the international tax system
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so as to lower their tax bill very, very significantly.
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And why stop at just playing the global political
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and economic system as it exists
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to your own maximum advantage?
09:42
Once you have the tremendous economic power
09:45
that we're seeing at the very, very top of the income distribution
09:49
and the political power that inevitably entails,
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it becomes tempting as well
09:55
to start trying to change the rules of the game
09:58
in your own favor.
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Again, this is no mere hypothetical.
10:03
It's what the Russian oligarchs did
10:06
in creating the sale-of-the-century privatization
10:08
of Russia's natural resources.
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It's one way of describing what happened
10:13
with deregulation of the financial services
10:15
in the U.S. and the U.K.
10:17
A second thing that worries me
10:19
is how easily meritocratic plutocracy
10:21
can become aristocracy.
10:24
One way of describing the plutocrats
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is as alpha geeks,
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and they are people who are acutely aware
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of how important highly sophisticated
10:33
analytical and quantitative skills are in today's economy.
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That's why they are spending
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unprecedented time and resources
10:42
educating their own children.
10:45
The middle class is spending more on schooling too,
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but in the global educational arms race
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that starts at nursery school
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and ends at Harvard, Stanford or MIT,
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the 99 percent is increasingly outgunned
10:58
by the One Percent.
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The result is something that economists Alan Krueger
11:03
and Miles Corak call the Great Gatsby Curve.
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As income inequality increases,
11:09
social mobility decreases.
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The plutocracy may be a meritocracy,
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but increasingly you have to be born
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on the top rung of the ladder to even take part in that race.
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The third thing, and this is what worries me the most,
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is the extent to which those same largely positive forces
11:28
which are driving the rise of the global plutocracy
11:32
also happen to be hollowing out the middle class
11:35
in Western industrialized economies.
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Let's start with technology.
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Those same forces that are creating billionaires
11:44
are also devouring many traditional middle-class jobs.
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When's the last time you used a travel agent?
11:51
And in contrast with the industrial revolution,
11:54
the titans of our new economy
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aren't creating that many new jobs.
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At its zenith, G.M. employed hundreds of thousands,
12:02
Facebook fewer than 10,000.
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The same is true of globalization.
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For all that it is raising hundreds of millions of people
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out of poverty in the emerging markets,
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it's also outsourcing a lot of jobs
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from the developed Western economies.
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The terrifying reality is
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that there is no economic rule
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which automatically translates
12:27
increased economic growth
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into widely shared prosperity.
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That's shown in what I consider to be
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the most scary economic statistic of our time.
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Since the late 1990s, increases in productivity
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have been decoupled from increases
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in wages and employment.
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That means that our countries are getting richer,
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our companies are getting more efficient,
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but we're not creating more jobs
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and we're not paying people, as a whole, more.
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One scary conclusion you could draw from all of this
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is to worry about structural unemployment.
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What worries me more is a different nightmare scenario.
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After all, in a totally free labor market,
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we could find jobs for pretty much everyone.
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The dystopia that worries me
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is a universe in which a few geniuses
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invent Google and its ilk
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and the rest of us are employed giving them massages.
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So when I get really depressed about all of this,
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I comfort myself in thinking about the Industrial Revolution.
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After all, for all its grim, satanic mills,
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it worked out pretty well, didn't it?
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After all, all of us here are richer, healthier, taller --
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well, there are a few exceptions —
13:51
and live longer than our ancestors in the early 19th century.
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But it's important to remember
13:58
that before we learned how to share the fruits
14:01
of the Industrial Revolution
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with the broad swathes of society,
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we had to go through two depressions,
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the Great Depression of the 1930s,
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the Long Depression of the 1870s,
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two world wars, communist revolutions
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in Russia and in China,
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and an era of tremendous social
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and political upheaval in the West.
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We also, not coincidentally,
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went through an era of tremendous
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social and political inventions.
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We created the modern welfare state.
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We created public education.
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We created public health care.
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We created public pensions.
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We created unions.
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Today, we are living through an era
14:44
of economic transformation
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comparable in its scale and its scope
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to the Industrial Revolution.
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To be sure that this new economy benefits us all
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and not just the plutocrats,
14:57
we need to embark on an era
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of comparably ambitious social and political change.
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We need a new New Deal.
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(Applause)
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About the Speaker:

Chrystia Freeland - Plutocracy chronicler
In "Plutocrats," Chrystia Freeland explores the growing gap between the working poor and the increasingly disconnected mega-rich.

Why you should listen

Author Chrystia Freeland looks under the hood of global capitalism to expose the technological, economic and structural inequalities pushing society in unforeseen directions. Along the way, she takes the temperature of a rising caste -- the super rich -- and shows how the creation of vast fortunes at the top hollow out the middle class in western industrialised countries. This rising income inequality, she argues, has a structural character, and is becoming a cultural and social issue, with consequences for social cohesion and social mobility.

Freeland began her career as an “accidental journalist” with frontline bulletins from the Ukraine in the heat of the Soviet collapse. She is now an editor at Thomson Reuters, and is frequently featured on media outlets ranging from the International Herald Tribune to The Colbert Report.