One sunny afternoon last summer some friends and I rented a pontoon boat and traveled down the spectacular St. Lawrence River. The more-like-a-lake river carves the northeast neckline of the United States straddling its border with Canada.
Without stopping, we turned around for the return trip by circling the seven-acre Dark Island near Chippewa Bay. The island is home to a 28-room castle and outbuildings built in the early 1900s as a island “hunting” retreat by Frederick Bourne as a surprise for his wife and family.
He didn’t invent what Chrystia Freeland, the editor of Thomson Reuters calls “the smartphone” of that era, but at the time Bourne was stepping down from the helm after turning Isaac M. Singer’s sewing machine company into the world’s first global corporation. His castle is known by the name of one of its towers, which bears Singer’s name, and now privately-owned and operated as a tourist feature.
Obviously during the first “Guilded Age” as it is now during the second one today, a common way to climb into the 1% was to work for the 1%, something noted in Freeland’s exceptional book entitled Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else. However, as the Smartphone does today, the sewing machine also empowered the middle class and eventually low-income households.
First released three months ago, despite its sensational title and the alarming quotes made by many of its subjects, Freeland’s even-handed book is exactly what she hoped it would be and, and in my opinion, a must-read:
“This book is, therefore, an attempt to understand the changing shape of the world economy by looking at those at the very top: who they are, how they made their money, how they think, and how they relate to the rest of us…
This book takes as its starting point the conviction that we need capitalists, because we need capitalism – it being, like democracy, the best system we’ve figured out so far.”
Freeland recounts a remarkable speech by Franklin D. Roosevelt in San Francisco on September 23, 1932, just months before he would be elected to his first term as President of the United States.
In that speech, which rivals the eloquence and depth of Dr. Martin Luther King’s “I Have a Dream” speech delivered thirty years later, FDR lays out how important it was that the “heads of finance and industry instead of acting each for himself, must work together to achieve the common end…lest a rising tide of misery, engendered by our common failure, engulf us all.”
The plutocracy of that day took heed. As Freeland notes, from 1932 to 1976, “hired-gun CEOs” transformed into “capitalist civil servants – public spirited and self-restrained.”
During that period, CEOs were even paid a little less and the middle-class exploded, while the S&P 500 returned 7.6% while “America’s GDP quintupled.” What many refer to as a culture of restraint meant that during the first three decades of my life, as Freeland notes, “the U.S. economy grew at a faster, more consistent rate than ever before, and American companies were ascendant around the world.”
Then, as the specter of Marxism and Communism declined, the current age of “winner-take-all” and “legalized corruption” took hold, an aspect warned against by Adam Smith, the “father of capitalism” in what he considered his more superior work published in 1759, The Theory of Moral Sentiments.
As an example of this abrupt transition Freeland notes that “In the early 1970s CEOs earned less than thirty times what the average worker made; by 2005, the median chief executive made 110 time what the average worker did.”
At the time of FDR’s speech to the Commonwealth Club, the top 10% of earners were taking home 45% of all income. That fell to 33% from WWII through the subsequent three decades of spectacular economic growth and expansion of the middle class.
That incredible period of restraint and growth ended in the 1970s when these special interests turned instead to securing special treatment from government in what experts call “legalized corruption.” By 2006 the top 10% was raking in 50% of all income for themselves, more than they had in 1928 prior to the Great Depression.
By 2006, the year before the Great Recession began, the top 10% was capturing 50% of all income and the top 1% was taking three-quarters of all income growth between 2002 and 2006.
All of this, in my opinion, is to reiterate what FDR said so well eighty years ago [paragraph broken up for ease of online reading]:
“We have learned a great deal of both in the past century. We know that individual liberty and individual happiness mean nothing unless both are ordered in the sense that one man’s meat is not another man’s poison.
We know that the old "rights of personal competency," the right to read, to think, to speak, to choose and live a mode of life, must be respected at all hazards.
We know that liberty to do anything which deprives others of those elemental rights is outside the protection of any compact; and that Government in this regard is the maintenance of a balance, within which every individual may have a place if he will take it; in which every individual may find safety if he wishes it; in which every individual may attain such power as his ability permits, consistent with his assuming the accompanying responsibility.”