If you want to understand the forces that are shaping democratic capitalism, I have a terrific book for you. It’s Chrystia Freeland’s Plutocrats, the winner of this year’s Lionel Gelber Prize for the best English-language book on international affairs. (I was the least illustrious member of the stellar jury, and I got to read a lot of wonderful books.)
Plutocrats is an intimate portrait of the world’s new super-elites, some of whom Ms. Freeland has gotten to know well. None of them are cartoon villains. They are a genuine meritocracy – men (and they’re all men) who worked their way up to dominate the tech world or finance. They honestly believe that what’s good for them is good for the rest of us, and they’re hurt and baffled that not everyone agrees.
One of the good guys in this book is Mark Carney, the Bank of Canada Governor who’s heading to the Bank of England. In 2011, he had a showdown with Jamie Dimon, the head of JPMorgan Chase (by some measures, the world’s largest bank). At a meeting of leading bankers in Washington, Mr. Carney explained why he supported a new set of international financial rules that would constrain the banks and cost them money. Mr. Dimon’s response was a rant; he called the rules “cockamamie nonsense” and “anti-American.”
Mr. Dimon, a self-made man who ascended to the pinnacle of Wall Street by way of Harvard Business School, sincerely believes that regulatory overreach is stifling the financial system. Mr. Carney believes that plutocrats need to be reined in when their interests collide with ours. They’re on different sides of a titanic struggle for power. The battle is a test of our ability to defend democracy from the plutocrats when the markets don’t work the way they’re supposed to.
As Ms. Freeland writes, the super-elites are often the product of a strong market economy. But as their influence grows, they can become its opponents. They claim they’re pro-market, but what they really are is pro-business. Ms. Freeland cites University of Chicago professor Luigi Zingales as saying they use their lobbying power to tilt the playing field, not to level it. “As a result, serious tensions emerge between a pro-market agenda and a pro-business one.”
You’d think the crash of 2008 would have taught Wall Street some humility. Instead, those tensions are as bad as ever. Last year, Mr. Dimon’s firm got into a mess with “whale trades” – a series of huge bets on derivatives that blew up. JPMorgan suffered large losses. But the scary part is that nobody in charge had a clue what was going on. A damning Senate investigation has concluded that bank officials ignored the warning signals and misled regulators and the public. In other words, nothing has changed. Wall Street is still unable to police itself, and the regulators are unable to police it, either.
There are no simple answers to these problems. The fundamental challenges of democratic capitalism won’t be resolved by a wealth tax or by redistributing more money from rich to poor (although making sure no bank is too big to fail might be a good idea). As Ms. Freeland writes, the credibility of capitalism itself is at stake. “Businessmen who cannot even persuade their own children that business is a morally legitimate activity are not going to succeed, on their own, in persuading the world of it.”
Endnote: There’s lots of Canadian content to celebrate here. The Gelber Prize was launched by the Canadian diplomat Lionel Gelber. Ms. Freeland is a Canadian journalist who lives in New York and contributes a column to The Globe and Mail. This year’s other finalists are listed on the Gelber Prize website. Read them all.
Earlier online versions and the original print column about Chrystia Freeland’s Plutocrats incorrectly attributed a statement about tensions between a pro-market agenda and a pro-business one to Ms. Freeland. In fact, in her book, Ms. Freeland quoted University of Chicago professor Luigi Zingales from a 2009 essay with that statement.