commercial potential, one of the council’s members asked him a question that underscored the difference between these two outcomes.
The questioner was Farooq Kathwari, the CEO of furniture manufacturer and retailer Ethan Allen. Kathwari is one of Citigroup’s dopamine-rich risk takers: he arrived in New York from Kashmir with thirty-seven dollars in his pocket and got his start in the retail trade selling goods sent to him from home by his grandfather.
Here’s what he asked Stephenson: “Over the last ten years, with the help of technology and other things, we today are doing about the same business with 50 percent less people. We’re talking of jobs. I would just like to get your perspectives on this great technology. How is it going to overall affect the job markets in the next five years?”
Not to worry, Stephenson said: “While technology allows companies like yours to do more with less, I don’t think that necessarily means that there is less employment opportunities available. It’s just a redeployment of those employment opportunities. And those employees you have, my expectation was, with your productivity, their standard of living has actually gotten better.”
Unfortunately, at least in the short term, that benign scenario isn’t turning out to be true. The technology revolution is certainly making both Ethan Allen and AT&T more productive, and delivering windfalls to the bosses able to navigate that change. (Stephenson’s compensation in 2010 was $27.3 million.) But both companies have been shedding workers. AT&T has fifty thousand fewer workers today than it did before the financial crisis.
Kathwari has made a point of continuing to manufacture in the United States—70 percent of Ethan Allen’s products are made in North America. But to remain competitive—“Most of our competitors manufacture outside the U.S.,” he told me—Kathwari has turned to technology. His seven North American plants have taken the place of twenty; over the past eight years, Kathwari’s workforce has shrunk by about half.
“The big question is what it does to the people, because it creates unemployment,” Kathwari told me. “If you look at it from an individual business perspective, you are saying, Great! Technology is key to survival from an individual company point of view. But in the long run we can only be successful if the country is working. Business leaders should be concerned.”
Even for those workers who do find new jobs, the consequences of being fired are brutal. Three economists analyzing the 1982 recession have found that U.S. workers take an average 30 percent pay cut when they find a new job after being laid off. Even after twenty years, their earnings were still 20 percent lower than those of peers who kept their jobs in the recession. In emerging markets, the cost of change can be even higher: in the 1990s, the decade when the Russian oligarchs became billionaires, the incomes, health, and birth rates of ordinary Russians plummeted. India’s economic rise has coincided with an epidemic of suicides among its rural farmers. The same is true of inland China, which has been left out of the coast’s economic renaissance.
Our democratic impulse is to imagine that economic forces affect us all equally and that there exists a set of “management skills”—the equivalent of knowing how to read or to add—that serve all of us equally well. But the tougher reality is that economic transformation—the waves of revolution we are living through—has a very uneven impact. As Nobel laureate Michael Spence put it, “Your education isn’t fungible the way an investment portfolio is.” Soros can respond to revolution by cutting his losses and making a different bet; finding a new profession at forty- five, after your old one has been rendered redundant, isn’t so simple.
We are living through a tale not of two cities but of two economies. Hoffman makes the essential point that the winners of the old economic order are among those whose lives and careers are being disrupted. “For the last sixty or so years, the job market for educated workers worked like an escalator. After graduating from college, you landed an entry-level job at the bottom of the escalator at an IBM or a GE or a Goldman Sachs…. There was a sense that if you were basically competent, put forth a good effort, and weren’t unlucky, the strong winds at your back would eventually shoot you to a good high level. For the most part this was a justified expectation.” Hoffman is right about both those expectations and the disappointment of the upper middle class stuck on a jammed career escalator. But what about the telecom or furniture factory workers Kathwari is worried about? Even if they see the revolution coming, do they have the room in their father’s home and the contact book of a venture capitalist stepmom to help them respond to it?
Even Hoffman, who wants to be a sunny self-help guru, is too much of a scholar and an empath not to see that. “Remember: If you don’t find risk, risk will find you,” he warns in one of his book’s scarier passages. “In the past, when you thought about stable employers, you thought IBM, HP, General Motors—all stalwart companies that have been around a long time and employ hundreds of thousands of people…. Imagine what it must have been like for someone who thought he was a lifer at HP; his skills, experience, and network were all inextricably linked to his nine-to-five employer. And then: BOOM. He’s unemployed.”
FIVE
RENT-SEEKING
They steal and steal and steal. They are stealing absolutely everything and it is impossible to stop them. But let them steal and take their property. They will become owners and decent administrators of this property.
Eating increases the appetite.
Raghuram Rajan is a professor at the University of Chicago, the intellectual home of free market economics. He is also a former chief economist of the International Monetary Fund, another institution not known for its hostility to global capitalism. A tall, slim forty-nine-year-old, Rajan favors the pressed button-down shirts and short, neat hair of an investment banker, rather than the stereotypical rumpled tweeds of a college teacher. In 2008 he returned to his native India to address the subcontinent’s most prestigious business association, the Bombay Chamber of Commerce and Industry, which, founded in 1836, was largely responsible for the first railway built in India and whose members’ wealth could buy about a third of India’s annual economic output. But Rajan was there to caution his country’s rising capitalists, rather than to rally them.
India, he said, risked becoming “an unequal oligarchy, or worse, perhaps far sooner than we think.” One piece of evidence Rajan cited was a spreadsheet compiled by Jayant Sinha, an old classmate of his from the Indian Institute of Technology, the country’s MIT and alma mater to many of its software entrepreneurs. Sinha had calculated the number of billionaires per trillion dollars of GDP in a number of countries around the world. Russia, with eighty-seven billionaires and a national GDP of $1.3 trillion, had the highest billionaire-to-GDP ratio. India, Rajan said, was number two, with fifty-five billionaires and $1.1 trillion of GDP.
Rajan assured his audience that he had nothing against billionaires per se: “We should certainly welcome it if businessmen make money legitimately.” But he argued that India’s high billionaire-to-GDP ratio was “alarming” because most of the country’s super-rich weren’t software pioneers or inventive manufacturers. Instead, “too many people have gotten too rich based on their proximity to the government…. Land, natural resources, and government contracts or licenses are the predominant sources of the wealth of our billionaires and all of these factors come from the government.
“If Russia is an oligarchy,” Rajan warned the assembled magnates, “how long can we resist calling India one?”
In the wake of the financial crisis, some critics have warned that America, too, risks becoming an oligarchy. Simon Johnson, another former chief economist of the IMF, has compared the bankers of the world’s superpower to emerging market oligarchs, arguing that they similarly have succeeded in diverting national resources—notably the bailout trillions—to themselves. The financiers, he says, have pulled off a “quiet coup.”
