Democracy Lab

Tycoon Warning

How the obscenely rich are becoming the new dictators of the 21st century.

Earlier this month, the investment bank Credit Suisse published its annual survey of global wealth. The bank's report is filled with illuminating findings, but one in particular caught my eye. It has to do with the distribution of assets in Russia, where, as the report notes, a mere 110 people own a mind-boggling 35 percent of the country's entire wealth. At the same time, 93.7 percent of Russians are worth $10,000 or less.

As the report notes, this makes Russia the country with the greatest wealth disparities in the world. Americans, who are now increasingly concerned about deepening inequality in their own country, might seek some consolation from this dismal conclusion. Even under present circumstances, wealth in the United States is still spread a lot more evenly than that (as this comparison shows). Things could be worse, right?

Well, maybe. But I see little cause for jubilation. Russia is merely the most extreme case of a worldwide trend that potentially represents one of the greatest threats that democracy faces today: the spread of oligarchy.

The problem isn't just that some people in today's world are fabulously rich. It's that disproportionate wealth increasingly goes along with disproportionate power. Russia, again, offers a textbook example of the dangers. Back in the 1990s, a handful of politically well-connected business tycoons managed to profit from their close relations with Boris Yeltsin's Kremlin by taking advantage of the privatization of the country's industrial jewels -- above all its vast oil wealth. Those magnates weren't shy about exploiting their economic power to political ends. They bankrolled Yeltsin's re-election as president in 1996, controlled ministerial appointments, and dictated government policy. No wonder these businessmen-cum-politicians were soon dubbed the "oligarchs." ("Oligarchy" is Greek for "government of the few.")

One of them, the recently deceased, arch-Machiavellian Boris Berezovsky, engineered the rise of an ex-KGB officer to the prime ministership. Vladimir Putin ultimately proved less than grateful, though. Once Putin became president in his own stead, he was quick to cut his erstwhile patron down to size,  forcing Berezvosky into exile. Putin curtailed the power of other Yeltsin-era tycoons, too (most notably Mikhail Khodorkovsky, who today marks his 10th year of imprisonment in a labor camp), but in their place he raised up a new group of businessmen -- many with ties to the old Soviet security services -- who owed their fortunes to him. One of them, another KGB alumnus named Igor Sechin, who heads the country's largest oil company, is regarded by some as the second-most powerful man after Putin himself. (Sechin is shown at left in the photo above.)

But this isn't only Russia's problem. As has now become apparent, globalization and the powerful economic forces it has unleashed have awarded unparalleled wealth and power to a tiny new elite. Call them what you will: the superclass, the plutocrats, the "global meritocracy." What they exemplify is the nexus of wealth and political power. And that's a problem that is increasingly vexing voters in places from London to Kuala Lumpur.

It's a challenge that takes different forms. In China, membership in the ruling Communist Party is often the easy road to wealth. Many of today's political scandals center on the antics of well-connected "princelings," the descendants of senior party officials who embody the country's peculiarly potent blend of Marxist-Leninist crony capitalism. Thanks to some remarkable digging by enterprising journalists in recent years, we've learned some astonishing things about the scale of privilege enjoyed by the extended families of notables such as President Xi Jinping and ex-Prime Minister Wen Jiabao. But this hardly comes as a surprise. When you consider that the People's Republic is governed by the seven members of the Standing Committee of the Politburo of the Communist Party, you're talking about a tiny number of families who exercise unchecked control over one of the world's largest economies. In such a setting, it's only natural that political and economic power are mutually reinforcing.

The situation in China is, of course, the outcome of an economic liberalization program steered by an autocratic elite. In the countries of the developed West the situation is rather different. The number of players is larger; wealth and political influence are more widely distributed. But that is presumably small comfort to, say, the Americans who have emerged as losers from the country's latest Gilded Age. Economic equality in the United States grew steadily during the first three decades of the period following World War II, but ground to a halt amid the stagflation and increasing international competition of the 1970s. As economist Joseph Stiglitz notes in a recent editorial:

Last year, the top 1 percent of Americans took home 22 percent of the nation's income; the top 0.1 percent, 11 percent. Ninety-five percent of all income gains since 2009 have gone to the top 1 percent. Recently released census figures show that median income in America hasn't budged in almost a quarter-century.

At the same time, the extraordinary permissiveness of U.S. laws on lobbying and campaign financing has allowed wealthy elites to gain immense sway over the political process. By now, anyone who follows American politics has heard the stories about the vast sums of cash spent by conservative business magnates like the Koch Brothers; less often discussed, perhaps, are the rich Democrats, such as George Soros or Tom Steyer, who are happy to leverage their wealth to shape policy. But even less visible are the big corporations and industrial associations who can purchase lawmakers and fix legislation to boost their own bottom lines.

One recent academic study calculates that 40 percent of political campaign contributions in 2012 came from one hundredth of one percent of U.S. households. That figure probably reflects the new economic elite's growing awareness of its own political power -- not to mention the apathy among other segments of the population who feel increasingly divorced from meaningful participation. The erosion of alternate power centers, such as labor unions, undoubtedly contributes to a sense of rising cynicism and disengagement. It all serves to undermine the promise of America's democratic system. (Given this context, it's no wonder that the U.S. Supreme Court is once again weighing the question of limits on individual contributions to political campaigns.)

As a result, the United States is now experiencing a remarkable discussion of the causes of the new inequality and its political consequences. Authors from George Packer to Tyler Cowen are stirring impassioned debate about the perceived breakdown of the American social compact. The new book from economist Angus Deaton, The Great Escape (see DemLab's excerpt here), includes a memorable quote from the lawyer Louis Brandeis: "If democracy becomes plutocracy, those who are not rich are effectively disenfranchised."

Can we stop the trend? Some -- like Cowen, who believes that current inequality is largely a function of technological change -- are skeptical. Others insist that we can counter the drift towards government by the few with smart policies designed to level the playing field -- above all in education, infrastructure, and health care. Measures to limit the role of money in politics probably wouldn't be a bad idea either (presuming we can find some that actually work). For those who still believe in the primacy of the market, the package might also include measures designed to promote genuine competition in the place of today's corporate welfare for politically plugged-in superfirms.

This certainly doesn't mean giving up on capitalism. As development economists point out, globalization has brought relative prosperity to many around the world who couldn't even dream of it before. (Think, for a start, of all those Chinese peasants who can now afford three meals a day -- unthinkable in times past.) Overall health and development indicators have improved dramatically over the past fifty years. But none of this obviates the need to ensure that the extraordinary benefits accruing to the superstars at the top don't end up disenfranchising the rest of us. Otherwise the future looks dark.

But will the wealthy really give up their acquired power that easily? Though Occupy Wall Street targeted the 1 percent with considerable verve and passion, its actual political impact was arguably close to zero. It's high time for new political movements that can aggregate the power of individuals and marshal coherent responses to the intensifying concentration of influence by a few at the top. And there's even the chance that some of the more enlightened plutocrats will offer ideas for empowering the majority. Where's Bill Gates when you need him?

ALEXEI NIKOLSKY/AFP/Getty Images

Democracy Lab

Peer Pressure

The British Commonwealth is stirring up unaccustomed controversy -- and that's a good thing.

Meetings of the Commonwealth of Nations, an international grouping made up primarily of countries that were once parts of the British Empire, are generally sedate affairs. The group's summits tend to evoke the genteel aura of afternoon tea. Controversies rarely surface.

But 2013 threatens to depart from the rule. The next Commonwealth summit, set to take place in the Sri Lankan capital of Colombo next month, looks like it's going to be a doozy. Canadian Prime Minister Stephen Harper says that he's going to boycott the proceedings to protest the deteriorating human rights records of the summit's hosts. Harper accuses Sri Lanka of a slide into authoritarianism, citing "ongoing reports of intimidation and incarceration of political leaders and journalists, harassment of minorities, reported disappearances, and allegations of extra-judicial killings."

Just in case anyone missed the point, the Canadians are also going after Commonwealth Secretary General Kamalesh Sharma, of India. Last week, Canada's special envoy to the Commonwealth, Hugh Segal, accused Sharma of "acting as a shill [for the Sri Lankan leadership], defending their every mistake." Not exactly croquet and cucumber sandwiches.

As if that weren't enough, the small West African country known as The Gambia has just made good on its threat to withdraw from the Commonwealth. President Yahya Jammeh, in power for the past 19 years, denounced the group as a "neo-colonial institution" and an "extension of colonialism." His ire probably has something to do with British criticisms of his miserable human rights record. (Jammeh castigated the Commonwealth in his speech at last month's United Nations General Assembly, where he also seized the occasion to rail against homosexuality, which he described as "one of the biggest threats to human existence." He's also notorious for his claims that he can cure female infertility and that AIDS can be healed with an herbal body rub.)

Some have said that The Gambia's exit is a sign of waning influence, signaling a darker future for the Commonwealth, whose membership roster now falls from 54 countries to 53. But I disagree. The very fact that Jammeh felt compelled to leave the club suggests that he was feeling threatened by the Commonwealth's insistence on the primacy of freedom and human rights.

Yet the Commonwealth has few formal tools for compelling its members to comply with its aims. It commands no weapons, no armed forces. It arrives at its decisions by consensus, not by fiat -- and each member has an equal vote (in stark contrast to the United Nations). One could describe it, with some justice, as a glorified social club.

And yet, as any member of a social club knows, the aspiration to remain a member in good standing can be a powerful force for persuasion. The Commonwealth proved its soft power mojo when it organized the sanctions regime against South Africa in the 1980s (successfully pushing back against then-British Prime Minister Margaret Thatcher, who was opposed to pinching the apartheid government). On six occasions in its history, the Commonwealth has taken the drastic step of excluding countries for backsliding on democratic principles, and the organization's defenders say that the resulting bad PR was instrumental in leading at least two of them (Pakistan and Fiji) back into the democratic fold (and back into the Commonwealth). (The black sheep is Zimbabwe, which responded to its exclusion in 2002 by withdrawing from the Commonwealth altogether a year later.)

As Zimbabwe's example demonstrates, this low-key approach has its limits: Robert Mugabe is still in power (and, indeed, recently won yet another dubious election). Nonetheless, the restraint of the Commonwealth model looks pretty good in the wake of America's deeply problematic efforts to implant democracy at gunpoint. "With the discrediting of the neo-Conservative dream of imposing democracy by force, it is the ideal vehicle for the quiet promotion of democracy," wrote British columnist Peter Oborne a few years ago. "In the Commonwealth, the means used are never invasion, but subtlety and quiet pressure."

British Conservative Party politician Michael Ancram has argued that it's time to reboot the Commonwealth by stressing its role as a democracy promotion organization. Far from being an antiquated relic of the past, he says, the Commonwealth network makes it perfectly suited to the 21st-century era of decentralized power. He's even suggested moving the headquarters of the Commonwealth from London to New Delhi as a way of boosting its credibility as an organization that's overcome its colonial past.

I think he's on to something. The fact that even some countries that weren't British colonies have decided to join the Commonwealth (Rwanda and Mozambique) suggests that the organization still has a certain cachet. A club that encompasses 2.2 billion people is not to be sneezed at, perhaps. The citizens of some of its member countries have voting rights in others; those wishing to migrate from one Commonwealth country to another also often enjoy preferential immigration status. And even though membership in the Commonwealth club doesn't explicitly encompass commercial privileges, several studies show that member countries trade much more with each other, and under more favorable terms, than with non-members.

But the "badge of respectability" that comes with Commonwealth membership shouldn't come too cheap. While there is something to be said for the organization's consensus-based philosophy, the Commonwealth needs to make a clear stand on the need to protect democratic values in a world where increasingly assertive autocracies are challenging the primacy of freedom. British colonialism committed plenty of sins in its day, but it has also bequeathed to the world a positive legacy of respect for human rights and the rule of law that remains treasured in many of the places that have been touched by it. (I'm looking at you, Hong Kong.)

In any case, next month's summit meeting could end up giving the Commonwealth a serious reality check. The British government has so far managed to keep aloof from the Canadian's accusations against the Sri Lankan government, but that could change, now that the government of Prime Minister David Cameron has also come under fire for failing to chide Colombo for its authoritarian airs. Last week a member of the British parliament challenged  Cameron for failing to address the killing of a British citizen in Sri Lanka two years ago -- allegedly at the hands of a close adviser of Sri Lankan President Mahinda Rajapaksa.

There's no question that the Commonwealth urgently needs reform. Too many of the organization's events are empty diplomatic exercises. To get things back on the right track, the group could start by holding countries to account when they show contempt for democratic norms, perhaps even culling the membership roster accordingly. Surely that would be a small price to pay for increased credibility. It's time for the Commonwealth to live up to its high standards.

Ishara S.KODIKARA/AFP/Getty Images