too.
If you are a plutocrat, there is a sound economic rationale for paying a brilliant litigator like David Boies such a premium. But it is not just the stellar providers of business services, like lawyers, who profit from the rise of the super-elite. Purveyors of luxury, like interior designers, are becoming superstars, too. Michael Smith redecorated the Oval Office and the East Wing of the White House in 2009, but his most famous commission to date turned out to be his $1.2 million face-lift of the Manhattan waterfront office of John Thain, then the CEO of Merrill Lynch. The job made headlines in 2009, when Bank of America, which had rescued a struggling Merrill, got a $45 billion bailout from the U.S. government. Suddenly, Smith’s $800,000 fee, and some of his big-ticket purchases, including $87,000 for “area rugs” and a $35,000 antique commode—paid for by the company—became symbols of plutocratic excess. Those infamous furnishings are also an example of how the emergence of the global plutocracy is creating a class of superstar artists and professionals, the best and luckiest of whom can become plutocrats in their own right.
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
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,
