The Global Power Elite and the
World They Are Making
by David Rothkopf
Farrar, Strauss, Giroux, 2008,
Nearly all men can stand adversity, but
if you want to test a man's character, give him power.
The leaders of the financial world, despite their history of booms
and busts, of greed-driven bubbles that burst and crushed the
lives and hopes of countless innocent bystanders, were able their
influence to ensure that new financial instruments and many evolving
global markets could be, in their words, 'self-regulating."
They said ignore history and trust us. When an argument is so
indefensible on its face and it succeeds, it is testimony to the
power of those making the case. That alone would be impressive.
However, the stark power of the group is even better illustrated
by the fact that when markets did come up on the shoals of greed,
mismanagement, and minimization and misunderstanding of complex
new risks, these same financial titans who told government to
stay out were able to persuade government in many cases to step
in and pull their fat out of the fire... or at least what remained
of it. That's really stunning. The same people who gave you Too
Global to Regulate gave you Too Big to Fail.
God is on everyone's side... and in the
last analysis, he is on the side with plenty of money and large
The combined net worth of the world's richest thousand or so people
- the planet's billionaires - is almost twice that of the poorest
One cannot help but be disturbed and often horrified by those
who abuse political or military power, often to the detriment
of the most helpless.
former Secretary of Defense John Lehman
Power corrupts. Absolute power is kind
former foreign minister of the Soviet Union Eduard Schevardnaze
I know something about totalitarianism.
I have been a totalitarian ruler. And I have to admit, it was
a great job while it lasted.
Every U.S. national security adviser since Henry Kissinger has
either worked with or for Kissinger - or he or she has worked
with or for someone who worked with or for Kissinger.
Any city, however small, is in fact divided
into two: one the city of the poor, the other of the rich; these
are at war with one another.
The Power Elite by C. Wright Mills, 1956
[The national "power elite"
is] composed of men whose positions enable them to transcend the
ordinary environments of ordinary men and women; they are in positions
to make decisions having major consequences... They are in command
of the major hierarchies and organizations of modern society.
They rule the big corporations. They run the machinery of the
state and claim its prerogatives. They direct the military establishment.
They occupy the strategic command posts of the social structure,
in which are now centered the effective means of the power and
the wealth and the celebrity which they enjoy.
President Dwight Eisenhower, in his farewell address as president
[The] conjunction of an immense military
establishment and a large arms industry is new in the American
experience. The total influence-economic, political, even spiritual-is
felt in every city, every State house, every office of the Federal
government. We recognize the imperative need for this development.
Yet we must not fail to comprehend its grave implications. Our
toil, resources and livelihood are all involved; so is the very
structure of our society.
In the councils of government, we must
guard against the acquisition of unwarranted influence, whether
sought or unsought, by the military-industrial complex. The potential
for the disastrous rise of misplaced power exists and will persist.
a former U.S. official, about the participants in the annual
World Economic Forum, Davos, Switzerland
I think what is happening is in their
own self-identification. They have more allegiance to Davos and
their ilk than they do to the people at home.
Christopher Lasch in the book The Revolt of the Elites
The market in which the new elites operate
is now international in scope. Their fortunes are tied to enterprises
that operate across national boundaries... They have more in common
with their counterparts in Brussels or Hong Kong than with the
masses of Americans not yet plugged into the network of global
Jeff Faux, in his book The Global Class War
Markets within nations inevitably produce
groups of people who have more money and power than others. So,
it would be odd if global markets did not create an international
upper class of people whose economic interests had more in common
with each other than with the majority of people who share their
Although I disagree with some of Faux's
more extreme antiglobal, antitrade impulses, his concerns about
the dislocations caused by glob-
Karl Marx, at the beginning of The Communist Manifesto
The history of all hitherto existing society
is the history of class struggles.
Karl Marx, at the beginning of The Communist Manifesto
The history of all hitherto existing society
is the history of class struggles.
Freeman and slave, patrician and plebeian,
lord and serf, guild-master and journeyman, in a word, oppressor
and oppressed, stood in constant opposition to one another, carried
on an uninterrupted, now hidden, now open fight, a fight that
each time ended, either in a revolutionary reconstitution of society
at large, or in the common ruin of the contending classes.
In the earlier epochs of history, we find
almost everywhere a complicated arrangement of society into various
orders, a manifold gradation of social rank. In ancient Rome we
have patricians, knights, plebeians, slaves; in the Middle Ages,
feudal lords, vassals, guild-masters, journeymen, apprentices,
serfs; in almost all of these classes, again, subordinate gradations.
The late-nineteenth American social critic Thorstein Veblen ...
coined the term "conspicuous consumption" to explain
what the rich spend their money on - ostentations.
The world's two thousand largest corporations ... collectively
account for $27 trillion in annual sales and $103 trillion in
assets. (For a comparison, the total market value of the assets
traded in global capital markets is estimated by McKinsey at $140
In 1983, the top five hundred companies had revenues equal to
15 percent of global GDP; today that has more than doubled to
over 40 percent. Or, as another metric of growing influence and
global scope, consider the increase in the number of international
subsidiaries of global corporations: In 1962, the one hundred
largest corporations in the world had 1,288 foreign subsidiaries.
By 1998, the top one hundred had more than 10,000 such subsidiaries.
The United States has $50 trillion in assets and Europe nearly
The richest 10 percent of Americans owned nearly 85 percent of
all stock in 2001, with the richest 1 percent of Americans controlling
one-third of America's total wealth.
In just a few years, hedge funds have grown almost exponentially
in economic significance, from controlling $221 billion in 1999
to more than $2 trillion by mid-2007... These ten thousand funds
are, according to some estimates, responsible for between 30 and
50 percent of the trading on most major equity and debt markets
in which they participate means that the individuals controlling
these funds' trading activities, along with a handful of other
major institutional and professional investors, play the central
role in determining the share price of the world's largest companies.
The three hundred largest hedge funds control 85 percent of all
hedge fund assets and the one hundred largest control 60 percent
of such assets Thus, it is only a small fraction... that in turn
are a referendum on the future of an also comparatively small
group of top corporate leaders who exert such influence in the
A 2006 study by United Nations University (UNU-WIDER) reports
that the top 10 percent of adults worldwide own 85 percent of
global wealth, while the bottom half of the world's population
owns barely 1 percent of the total.
Within the top 10 percent ... requires
$61,000 in assets to qualify for entry, a similarly stark stratification
occurs. While this particular "elite" controls 85 percent
of global wealth, the top 2 percent in this group owns half the
planet's wealth, and the top 1 percent possesses around 40 percent.
Each of those in the top 1 percent owns a minimum of $500,000
This top 1 percent of global adults, this
group of quasi-millionaires, represents about 40 million people.
Within this group, however, according to a 2007 report by Merrill
Lynch and Capgemini, there are 9.5 million individuals whose financial
assets exceed $1 million.
... within this group of exceptionally
fortunate individuals is another group - the 1 percent of them,
or roughly 95,000, who each own financial assets in excess of
$30 million (these are the UHNWIs, or Ultra-High-Net-Worth Individuals),
for a total of $13 trillion. And we know that within this group
there is another approximately 1 percent elite, the world's thousand
or so billionaires.
here are a few examples.
Carlos Slim Helü, one of the richest men in the world with
over $67 billion, controls 94 percent of Mexico's telephone landlines
and 70 percent of the country's broadband Internet market through
the companies he owns.
As of 2007, [Rupert Murdoch's] News Corporation owned Fox Broadcasting
Company, 20th Century Fox, HarperCollins, the New York Post, The
Weekly Standard, The Wall Street Journal, MySpace, DirecTV, five
British newspapers, 110 newspapers in Australia, and satellite-TV
providers throughout Europe and Asia. Because its holdings include
Internet sites and services, News Corp. can reach the vast majority
of people in the world with a computer. AOL, Yahoo, MSN, and MySpace,
for example, together reach approximately 96 percent of all Internet
users in the United States.
The U.S. military possesses more than 10,000 nuclear warheads,
comprises over 2.5 million active and reserve military personnel,
and has an active presence in more than 130 countries around the
globe. The United States spent more than $630 billion on defense
in 2007, more than the rest of the world's defense budgets combined.
Fidelity Investments, the world's largest mutual fund, accounts
for 24 percent of the global 401(k) market and over 12 percent
of the world's equity market. It manages more than $3 trillion
in financial assets.
The foreign reserves of the People's Bank of China amount to more
than $1.4 trillion. The bank controls more financial assets than
any other single public financial institution in the history of
the world, with the total expected to pass $2 trillion by 2010.
ExxonMobil's energy reserves span six continents and produce nearly
twice as much oil and gas every day as all of Kuwait... earned
nearly $40 billion in profits, more than the combined GDP of Yemen
and Bahrain, and more than any other company in history.
Wal-Mart [is a] corporate behemoth with annual revenues in 200
exceeding $350 billion, more than the GDP of all but twenty-two
countries. Its annual sales are five times greater than those
of Microsoft, and more than those of Ford and General Motors combined.
The company is three times the size of the entire U.S. domestic
An imbalance between rich and poor is
the oldest and most fatal ailment of all republics.
The top 20 percent of Chileans earn almost 67 percent of the country's
income while the bottom 20 percent earn just over 3 percent. Indeed,
not only is the gap between rich and poor in Chile worse than
it was during the decidedly unsentimental Pinochet years, it is
among the worst in the world.
... For all its progress, Chile is much
like a number of other countries in the developing world, in that
it has a handful of elite families and individuals who dominate.
It is true of the oligarchs of Russia, the men and women who run
Korea's chaebol, the leading family-owned companies of the Philippines
and elsewhere in Southeast Asia.
Markets don't have consciences and would sooner leave behind the
sick, the untrained, and the aging. Markets seek efficiency, and
this often means consolidation of resources and power, economies
of scale, and considerable human costs.
The promise of heavenly rewards enabled clerical elites to collaborate
with political elites throughout history as a way of promoting
stability in the face of widespread suffering among the poor.
Bill Clinton's chief of staff, Mack McLarty
Generational wealth ... the big families
that have been dominant in their economies for a long time - many
of them have been disengaged from social issues or concerns. They
just kind of put the blinders on and run their particular enterprises.
Especially in cases where even the patriarchs today are third
or fourth generations of wealth and have been insulated their
whole lives, they simply don't get it or don't want to get it.
Moisés Naim, a former Venezuelan trade and industry minister
and the current editor of Foreign Policy magazine
In many respects, the elites are responsible
for the problems of these regions. How can the Saudi elite not
be responsible for what is happening in Saudi Arabia? How can
the Venezuelan elite not be responsible for having brought the
county to the point where a person like Chavez has ascended to
According to the United Nations, despite economic gains in many
regions, the world is less equal than it was even a decade ago.
Gaps exist within countries and between them. For example, the
richest countries in the world, such as the United States, the
EU, and Japan, are now on average more than one hundred times
richer than the poorest, such as Ethiopia, Haiti, and Nepal. A
hundred years ago, the ratio was closer to 9 to 1. In fact, the
ratio between the GDP of today's richest country in per capita
GDP terms, Luxembourg, and today's poorest, Guinea-Bissau, is
267 to 1, when thirty years ago the same ratio between the richest,
the United States, and the poorest, Bangladesh, was 88 to 1. The
world's billionaires, those roughly one thousand individuals,
have combined wealth greater than that of the poorest 2.5 billion.
In some places, the concentration of poverty is not unlike the
concentration of wealth you find in the United States, Europe,
and Japan. In sub-Saharan Africa, almost half of the population
lives on less than a dollar a day, while only 3.5 percent of Europeans
live with such agonizing, life-crushing deprivation. Even in China,
which has shown such remarkable growth over the past two decades,
%.-inequality is increasing.
Inequality has been on the rise for almost seven decades, with
a period of "steady and sharp" increase between 1982
Today the top one-tenth of 1 percent in Britain are taking a
bigger slice of the pie than at any time in modern history.
John Kenneth Galbraith
The salary of the chief of a large corporation
is not a market award for achievement. It is frequently in the
nature of a warm personal gesture by the individual to himself.
Throughout history, the best path to becoming a member of any
era's dominant elites was to be the offspring of a member of the
preceding generation's dominant elites... The drive that brings
people to the top is typically matched by a desire to hold on
to the position, power, and possessions that they have acquired,
and to pass them on to chosen successors-typically family members.
With this in mind, elites have most often tried to accumulate
the tools of maintaining power that they feel will be most valuable.
These could be armies, titles, or laws to secure their position
and keep others from seizing it.
Children raised in an atmosphere of power are educated in its
uses in ways that those who are distant from it cannot he. They
are taught tricks and given catchphrases to use to help maintain
the public's goodwill or cooperation ("noblesse oblige"
comes to mind), and they inherit networks of contacts and often
a support system of staff and/or institutional affiliates who
can assist them and who, as part of the existing establishment,
share their desire to maintain the status quo. It is a natural
system and one that has helped produce and maintain the class
structures that have dominated social hierarchies since the dawn
During the first quarter of 2007, the number one donor with over
$500,000 in contributions to presidential campaigns was Goldman
Sachs. The next nine companies on the list: Citigroup, UBS-Americas,
Credit Suisse, Merrill Lynch, Morgan Stanley, Lehman Brothers,
Bear Stearns, and two hedge funds.
Business and financial interests have regularly been at the heart
of decisions about war and peace, whether it is the cozy relationship
of ' big oil with U.S. administrations that has resulted in wars
to protect their vital supply lines in the Middle East, or the
wars to preserve mercantilist business interests during the colonial
era, or the resistance of big businesses in the United States
to confronting the Nazis prior to world War II.
History shows that almost all tyrants
have been demagogues who gained the favor of the people by their
accusation of the notables.
President Theodore Roosevelt, in his first inaugural address
Great corporations exist only because
they are created and safeguarded by our institutions; and it is
therefore our right and duty to see that they work in harmony
with these institutions.
The world's ten biggest corporations [are]: Wal-Mart, ExxonMobil,
Shell, BP, General Motors, Chevron, DaimlerChrysler, Toyota, Ford,
There is a group of a few thousand people among the corporate
elite who effectively control perhaps $100 trillion, two-thirds
of the world's total assets.
Candidates for high political office and current occupants of
those offices frequently stop to meet with senior financial officials
whenever they are in New York or other financial capitals. The
rationale is straightforward. Political leaders recognize that
they now report to two constituencies - the voters who elected
them and the financial markets that daily conduct a referendum
on their policies. This is the market at work. The system offers
a check to political power. It results in major infusions of needed
capital and it helps produce transparency, fuel job creation,
and enforce rules that are proven to lead to economic growth.
For example, daily trading in the government
bonds market is influenced by traders' views on whether or not
government programs are likely to succeed at promoting growth
or stability, as well as other factors they feel impact the ability
of governments to repay their debts. In the same way, investors
reflect their perspectives on political leaders in the prices
they set for currencies, stocks, and key commodities that are
affected by the decisions of national governments. In just one
afternoon in late July 2007, for instance, the Argentine peso
fell to its lowest exchange rate level in four years; investors,
concerned about the country's upcoming elections and the antimarket
leanings of likely victor Cristina Fernández de Kirchner,
had grown skittish, reducing positions in the peso or betting
on it to fall. At the same time, Russian debt markets were pushed
down as investors worried that the Putin administration's pressure
for more mortgage lending as a stimulus for growth would expose
the country's banks to unacceptable risks if the economy soured.
While these decisions are not made by
a single individual in a room, the community of the largest traders
in Russian debt or Argentine pesos is small; they know each other,
they know how they will react, and together just a few shape market
sentiment. Sometimes, said one experienced trader, "It is
a dozen guys who set the price. Sometimes, when people worry about
a big investor, like a George Soros, it can be about what one
man thinks... or what investors think he thinks." In this
way big market players keep political leaders and other policy
makers on a short leash: If a minister or president or central
bank governor makes a pronouncement that markets find unpalatable
one day, the country may find it difficult to borrow the next.
This in turn will restrict economic growth, which means fewer
jobs or less money for consumers. The rise of the markets as a
counterweight to political leaders (coming as more countries are
linked to global markets) is primarily a healthy trend. But if
the system favors shorter-term returns, large-scale operations,
and partners who have influence on the markets, it is also a trend
that undercuts longer-term growth needs, hurts smaller countries
and economies, and exacerbates the inequitable distribution of
money and power in many of those countries worldwide.
Capital market liberalization-free and
unfettered movement of capital across borders-can, in some sense,
undermine democracy. Some developing countries have experienced
this very strongly: When a Wall Street-oriented party loses the
election, the markets become unhappy and start pulling their capital
out. And because voters know this, they worry about Wall Street's
reactions. Wall Street votes as much as the people of the country.
The interesting thing is that some markets, like Korea, do not
need the money from Wall Street because their people have saved
enough on their own. They've linked their market to the global
system, so that the people in the country with money can move
their money to Wall Street and the people from Wall Street can
move the money into and out of the country freely. Liberalizing
capital markets - making it easier for those on Wall Street to
move their money in and out of the country-gives more voting power
to Wall Street.
Private equity firms, like most financial institutions and big
corporations, have the ability to buy high-profile, well-connected
individuals who can help expand their networks and influence.
So it is in their interest to do so. They also, of course, have
another advantage: the ability to buy the best and the brightest
when they are still young. One top hedge fund executive said to
me, "There are only every year a few hundred people coming
out of the best schools in the U.S-maybe a few thousand worldwide-who
are the cream of the crop. Where do they start? Once it might
have been the foreign service or law or some other field. But
today, we have such a huge advantage in terms of the compensation
we can offer that we get first crack. Of course, all that ebbs
and flows too with market cycles. A couple years ago, we hedge
funds were the pinnacle because we were paying starting MBAs base
salaries of a couple hundred thousand and bonuses that could double
that. Now private equity firms are offering bases of $300,000,
$400,000, and total first-year packages of like $1.2 million.
This is to Harvard MBAs or whatever, twenty-five-year-olds. So
what would you do if you were that MBA? Where would you work?"
Trends in the financial community aside,
for the past several decades one of the surest answers to that
question has been Goldman Sachs. Since its founding in 1889, Goldman
[Sachs] grown to be the most respected name on Wall Street. The
firm's annual revenues are now heading toward the $70 billion
level, primarily as a result of its incredibly profitable proprietary
trading business and its leadership in investment banking. The
firm earned almost $10 billion in 2006. Its office tower at 85
Broad Street in New York City and satellites worldwide house a
remarkably privileged group of approximately thirty thousand employees.
How privileged? The average employee makes $622,000 a year. (Next
highest paid on Wall Street in 2006: Lehman Brothers at $334,000
a year per employee. The firm filed for bankruptcy in September
2008 in the midst of the global financial crisis following the
American subprime mortgage collapse.) The top twenty-five executives
in the firm in 2006 were estimated to make $25 million each, with
CEO Lloyd Blankfein the top earner on Wall Street with $54 million.
Goldman's influence extends beyond the
ability of its analysts and traders to drive stock or bond prices
up and down, as they do daily with the reports they write and
the decisions they make to buy or sell securities. The firm shapes
new views of the world, as it did in 2003, for example, with its
suggestion that Brazil, Russia, India, and China were a special
class of emerging markets they called BRIGs that would become
especially important in the decades ahead. It creates new financial
instruments that shape the global marketplace, it can make or
break the CEOs and government ministers who regularly pass through
its doors looking for capital and for "buy" recommendations
linked to their decisions, and it serves as the hub of an international
network of deal makers.
a Wall Street gray eminence about Treasury Secretary Henry Paulson
There's been a lot of talk about why he
did it [took the job of Treasury Secretary in George W. Bush Administration],
and the best explanation I have heard is that he and a lot of
the guys he is close to worry about potential market disruptions
that could be big problems if the right guy is not in there with
his hand on the tiller.
On of the primary achievements of the leaders of the global financial
community over the past several decades has been its ability to
globalize markets while promoting the concept of self-regulation,
or very light supervision. Having senior representatives of that
community in the government helps ensure that this remains the
case and that any regulatory initiatives that are put forth are
crafted with them at the table in influential roles. Especially
since these individuals ultimately usually return to the financial
sector after their time in government, there are often more than
just ideological rewards in store for keeping the system strong.
Daniel Yergin, author of the book "The Prize"
When the Iranians say something about
their nuclear program or regional politics, they can drive up
the price of their oil... and everyone else's. They make a statement
or two and the price climbs $5 a barrel and, like that, they've
made an extra $85 million that week.
In the absence of justice, what is sovereignty
but organized robber?.
There is danger from all men. The only
maxim of a free government ought to be to trust no man living
with power to endanger the public liberty.
The top job in the U.S. political structure is actually not the
president. It is the voter. But voters cede power when they fail
to meet their responsibility as citizens to understand and deliberate
on the choices before them.
a prominent political consultant
Americans tend to act based on what they
believe rather than what they know, and they like leaders who
have similar impulses.
The international policy community in Washington ... is a very
small, tightly knit group of influentials, many of whom have known
each other and worked together for most of their careers. The
group who have served or are likely to serve in top foreign policy
and national security positions and those who have the greatest
influence among them number no more than a few hundred.
... Members of this set typically belong
to the Council on Foreign Relations and other groups that link
them closer together, and they often work together for administration
after administration. Also, as a consequence of their domination
in the top U.S. policy jobs, they are the few with the greatest
ties to the foreign policy elites of governments around the world
which in turn makes them that much more valuable in Washington.
To run for president, candidates need teams of top advisers, not
just for advice but also as "validators" who can demonstrate
the candidate's competence in, for example, international affairs.
Not surprisingly, the best validators are those who have held
high positions in the past. Consequently, those who have done
so are the most likely to do so again... it is one of those communities
in which the best credential for entry is already being a member.
The result is a highly interconnected group of decision makers
and a remarkable concentration of power in a small circle.
The revolving door that allows policy makers to leave top firms
to go into government and then to reenter those firms... is one
way that the financial community maintains its influence.
Major General Smedly Butler, two-time recipient of America's highest
military award, the Congressional Medal of Honor, and one of the
most outspoken iconoclasts in U.S. military history
I spent thirty-three years and four months
in active service in the ) country's most agile military force,
the Marines. I served in all ranks from second lieutenant to major
general. And during that period I spent most of my time being
a high-class muscle man for Big Business, for Wall Street and
the bankers. I was a racketeer, a gangster for capitalism
Thus I helped make Mexico, and especially
Tampico, safe for American oil interests in 1914. I helped make
Haiti and Cuba a decent place for the National City Bank boys
to collect revenue in. I helped in the raping of half-a-dozen
Central American republics for the benefit of Wall Street. The
record of racketeering is long. I helped purify Nicaragua for
the benefit of the banking house of Brown Brothers and Co. in
1909-1912. I brought light to the Dominican Republic for the sugar
interests in 1916. I helped make Honduras "right" for
American fruit companies in 1903. In China, in 1927, I helped
see to it that Standard Oil went its way unmolested.
To a much greater extent than in most other countries (where political
campaigns are publicly financed), America's system of campaign
finance has what can only be described as a corrupting effect,
making politicians dependent first on donors and only secondarily
on voters at large. This in turn gives a special advantage to
those who run large institutions and can use those positions,
resources, and networks to play leading roles as fund-raisers.
This has never been truer than today, when the leading candidates
running for president in 2008 have had to raise more than $100
million each. The financial hurdles to the highest office in the
United States are so high that it is inconceivable that one could
surmount them without rich and powerful allies from both the private
and the public sectors.
former Senator Bill Bradley
Democracy and capitalism are separate
parts of the American dream and keeping that dream alive depends
on keeping one from corrupting the other.
Timothy Geithner, a former Rubin protégé is today
president of the Federal Reserve Bank of New York
... Geithner acknowledged that a significant
portion of the work done today to manage markets, from currencies
to derivatives, must be done in conjunction with the leaders of
the world financial community.
... Geithner suggested that within this
[world financial] community, collaboration with big corporate
players is key. Recalling a situation in which he had to manage
a crisis in the derivatives market, he said, "What we did
is, we got the fourteen major firms in a room down the hail here
with their primary supervisors, a group of the largest global
institutions and their supervisors from five countries. And we
said to them, 'You guys have got to fix this problem. Tell us
how you are going to fix it and we will work out some basic regime
to make sure there are no free riders to give you comfort, so
you know that if you move individually everybody else will move
with you.' And there is nothing written, no guidance, no regulation,
no formal process. We did it without a formal request to us. We
told everybody we were going to do it but we were not asked to
"These fourteen firms," he continued,
"accounted for something like 95 percent of all the activity
in this market. The Fed, the SEC, the FSA, the Swiss, and the
Germans were there. And those were the principals, and each firm
brought three people, they had an executive committee of four
firms that ran, almost weekly at the beginning, a conference call
among the other firms. And the best thing about the process was
that it was efficient, there was nothing written except letters
from the firms laying out their commitments. There's no formal
mechanism we could have used to force this on anybody so we had
to invent it. I think the premise going forward is that you have
to have a borderless, collaborative process. It does not mean
it has to be universal, every jurisdiction or every institution.
It just needs a critical mass of the right players. It is a much
more concentrated world. If you focus on the limited number of
the ten to twenty large institutions that have some global reach,
then you can do a lot. It's interesting, actually. Of the fourteen
big firms... chairman and CEO of Goldman Sachs] Lloyd Blankfein
jokingly called them 'the fourteen families,' like in The Godfather...
The Japanese were not in it, which was interesting. It is really
the Swiss, Germans, U.S., UK. Really mostly the U.S. and Europe.
Richard Darman, senior advisor at the Carlyle Group
By the 1990s, private capital flows had
come to dominate so much that central bankers were borderline
irrelevancies in terms of what they could do through intervention.
Their regulatory powers gave them some control, but there were
ways to get around much of their reach. So the 'club' expanded
further to include a bunch of the financial players ... And those
financial players themselves were increasingly globalized to adapt
to the increasing scope and complexity of the real economic world.
We now have a whole set of issues that
have arisen as globalization has intensified that require global
governance, but there is no global government. So that creates
a fundamental core problem. Not only is there no global government
for all these issues which require global governance, there is
not going to be global government. Sovereignty is always going
to trump that. So the question is, then, what fills that gap?
Well, what fills that gap is to some degree NGOs, operating transnationally
on discrete issues. What fills it is sometimes global coalitions...
NGOs worldwide have total turnover in excess of $1 trillion a
year, making them a force to be reckoned with... NGOs' might evolve
into "among the most influential institutions of the twenty-first
On the one hand you have weak international institutions are on
the other you have growing global governance needs. Informal institutions
evolve. Some are public-private... But others are public-public,
such as networks of government representatives who collaborate
to coordinate policies on everything from trade to security-related
The most famous of the G groupings is the G7, which was established
in 1976 and includes the United States, Canada, France, Germany,
Italy, Britain, and Japan. G7 finance ministers meet four times
a year, with central bank governors attending three of those meetings.
In 1997, Russia was invited to join the G7-creating the G8-although
it does not participate in economic and financial meetings because
of its comparatively small GDP. It does, however, participate
in regular G8 ministerial meetings on energy, education, environment,
development, labor, and health policy. Within the G7 and G8 there
are also regular meetings of heads of state. In fact, from a global
policy perspective, this group has become one of the most influential
mechanisms of informal coordination on the planet.
For example, while the majority of world
leaders who get face time with the American president see him
infrequently and only a few may
... Beyond the G7/8, there are other G
groupings, each creating similar clusters for the leaders and
top representatives of its member nations. Among these are the
Group of 20, established in 1999 to fill in some of the gaps created
by the still more powerful G7/8. This group, which meets just
once a year, actually represents 90 percent of global GDP, 80
percent of global trade, and 60 percent of the world's population.
In the early years of the cold war, a new idea took root in the
American consciousness and its government operations: permanent
war. The idea was proposed by several men simultaneously, most
notably a gentleman who might be considered one of the founding
fathers of the modern military-industrial establishment. Charles
"Engine Charlie" Wilson, who was president of General
Motors when World War II broke out, guided the company's massive
war effort and helped set priorities for the U.S. economy during
the conflict as director of the War Production Board. In this
capacity, when an Allied victory seemed imminent in 1944, he argued
that in order to avoid a postwar recession, the country would
need to create a "permanent war economy." Less than
a decade later, as secretary of defense, Wilson helped to usher
in the "new look" reforms at the Pentagon that marked
the beginning of such a transformation. Working with President
Eisenhower, Wilson set out to modernize the U.S. defense establishment,
rationalize spending, and make the chain of command more efficient.
Wilson was the first in a line of corporate
chieftains to head the Defense Department. Following him in 1957
was Neil McElroy, the former president of manufacturing giant
Procter & Gamble. McElroy took office just a few days after
the launch of the Russian satellite Sputnik - the dawn of a new
era in the cold war-and his term in office oversaw the continued
realization of Wilson's "permanent war" agenda. McElroy
managed a major and costly restructuring mandated by the 1958
Defense Reorganization Act. For each of the three years of his
term, the annual Defense Department budget exceeded $40 billion,
which amounted to 10 percent of GDP and substantially more than
half the federal budget of $70 billion. (Although the United States
spends more than ten times as much on defense today, the level
of the official defense budget is "just" 4 percent of
GDP, one and half percentage points below the historical average
for the preceding forty-five years.)
The close relationship between U.S. secretaries
of defense and the business community had begun with Wilson's
predecessor, Robert A. Lovett. Prior to his appointment, Lovett
was an investment banker at Brown Brothers Harriman (the same
firm where Prescott Bush, a senator as well as the father and
grandfather of two presidents, worked). Following Wilson and McElroy,
both corporate titans, came Thomas S. Gates, who worked at the
banking and investment firm Drexel & Company and later became
president and CEO of J. P. Morgan Bank. Succeeding Gates was another
rising star of the corporate world, Robert McNamara, who was president
of Ford Motor Company at the time of his nomination to be secretary
of defense. Such have continued for years, as has the idea of
permanent war. In fact, the revolving door between government
defense leadership positions and leadership positions in the defense
contracting community has become a fixture of Washington life.
The threat of conflict with the Soviet
Union, made manifest by the "police action" in Korea
and competitive parries and thrusts from Iran and other proxies,
provided a rationale for permanent war footing. That in turn provided
a rationale for the United States to embark on a half century
of record defense spending, without question the single biggest
public sector investment of any society-at any time, for any purpose-in
Once the cold war wound down and a momentary
period of "new world order" semi-euphoria had passed,
the "rationale" for permanent war came roaring back.
On September 11, 2001, in a spasm of national overreaction, the
United States embarked on its "war on terror," the first-ever
military campaign against a feeling. This new war was undertaken
in an emotionally wrought, post-trauma environment and without
much in the way of reasoned debate. (Indeed, at the time, debate
itself was considered unreasonable and, to many, unpatriotic.)
Defense expenditures skyrocketed, sending hundreds of billions
of dollars directly to military suppliers and contractors.
Training programs have been defining the future elite of the U.S.
military for two hundred years. More recently, they have also
started training an increasing number of young future officers
from other countries.
... One of the most controversial of such
programs is the training program the U.S. military has run since
1946 for Latin American military leaders. Known for much of its
existence as the School of the Americas, the program changed its
name in 2000 due to its association with human rights violations
committed by some of its graduates, often in the context of America's
cold war struggle with perceived Communist threats. The program
is now called the Western Hemisphere Institute for Security Cooperation,
and its graduates include a stunning collection of notorious names:
Argentina's former president General Leopoldo Galtieri, known
both for the Falklands fiasco and for accusations concerning the
disappearance of leftist opponents; the interim Argentine president
Roberto Eduardo Viola, who spent nearly two decades in prison
for human rights violations during that country's dirty war; the
Ecuadoran dictator General Guillermo Rodriguez; the Salvadoran
death squad leader Major Roberto D'Aubuisson; the Guatemalan general
and former de facto president José Efrain RIos Montt, whose
regime was responsible for a long list of documented atrocities
during that country's civil war; Panama's Manuel Noriega, who
later ran afoul of his former sponsors in the United States; and
Peru's discredited and corrupt spymaster Vladimiro Montesinos-to
name but a few.
The blending of military and defense industry leadership cadre
significant on several levels. Power is concentrated among a few
people with similar backgrounds and, on key issues, similar outlooks
about core concerns such as the size of defense budgets, which
programs to promote and which to cut, or where the greatest imminent
threats may lie. These similarities predispose those at the top
to sharing special relationships based on aligned interests, which
predispose them to certain behavior, such as the granting of special
business advantages. This might be as modest as offering casual
hints as to when programs will be bid out or what features will
be especially valued in a proposal, or they may be tips about
what is on the mind of key decision makers elsewhere in a process.
It can come in the form of hiring valued friends or of placing
ads that support particular political agendas.
In less than a decade, what had been more than fifty major defense
suppliers had been consolidated into only five or six dominant
firms. The executives of Lockheed Martin themselves have said
that the concentration of power among military contractors is
more intense than in any other sector of business outside banking.
Since the attacks of 9/11 and wars in Iraq and Afghanistan, business
has been booming. The top five U.S. contractors-Lockheed, Boeing,
Northrop, General Dynamics, and Raytheon-have increased sales
10 percent a year every year since 2001. (The Pentagon's budget
has grown by a nearly identical average 11 percent during the
same period.) In 2005 the profits of the top five rose 25 percent
from the year before, to $12.94 billion.
... The [military defense] industry's
tendency toward consolidation, especially in the last quarter
century, has strengthened the leadership class at its core, giving
a few individuals greater influence. In 2006, only a dozen or
so companies around the world accounted for the majority of international
defense revenues. Before the end of the cold war, power within
the industry was much more diffuse. But as the industry consolidated
on an international level, the leaders of the largest firms emerged
as a clique of powerful individuals, each with his own ties to
One result of this concentrated network
is that in addition to consolidating at an unprecedented rate,
defense firms around the world are becoming more and more global
in orientation. Cooperation among nations in certain aspects of
arms production is nothing new, but in the past twenty years,
international arms collaboration has expanded significantly in
pace and scope.
While defense firms have become more integrated into a global
network, they have also become more autonomous, taking the initiative
in restructuring the international defense industry base-a role
formerly taken by the state. Naturally, they advocate for the
kinds of projects that suit them, either by virtue of what they
are best positioned to produce, what produces the biggest margins,
or what they perceive their best contacts within the military
as being interested in. This in turn leads to a self-perpetuating
process in which what was produced is likely to be most like what
will be produced next. Incrementalism triumphs because it is more
profitable and it builds on past efforts to sell an idea or the
military doctrine underlying it. Thus gain we see the pattern:
a few leaders from a few big [arms manufacturing] companies playing
a dominant market role and assuming responsibility once held by
public institutions for decisions affecting very broad cross sections
of the public at large, including decisions that play a role in
shaping a nation's defense doctrine. They are particularly active
a advocates of big and/or expensive weapons systems such as carrier
battle groups, major aircraft, and high-tech space weaponry, all
of which are both profitable and offer maximum prestige to service
leaders. Real change and reevaluation are resisted.
If PMFs [private military firms] do in fact represent "the
new business face of warfare," governments will no longer
have a monopoly on violence, and state power will he greatly undermined.
Late in 2006, the Chinese government ... announc[ed] plans to
fund privately owned - as opposed to government owned - military
... This comes at roughly the same time
that China is announcing record military spending, with the 2007
budget the highest in five years. The increase, officially to
nearly $45 billion, is almost 18 percent more than in 2006.
Said a senior partner of one of the West's
top private equity firms active in China, "There's twists
upon twists on all this. The PLA creates new enterprises in order
to get its top guys rich. The government cracks down on the ties
when too much money is being made and corruption stories spread.
Then, these companies are cut loose to become more truly private,
more independent and, often, more successful. What happens next
is illustrated by a dinner I attended not too long ago in Shanghai
when, sitting with the CEO of a big tech company and talking about
an upcoming set of meetings in Beijing, he said, 'Why do you bother
even to see those old men anymore? We are the future of power
On the basis of dollars invested alone, more than fifty years
of "permanent war" have confirmed America's status as
the world's one true military superpower. According to the highly
respected Stockholm International Peace Research Institute (SIPRI),
of the roughly $1.2 trillion in global defense spending by governments
in 2006, $529 billion, approximately half, was spent by the United
States. Approximately 80 percent of the total was spent by America
and its NATO allies.
From 2001 to 2005, a full 43 percent of Russia's sales went to
China, and 25 percent went to India. Thus, these two emerging
giants were responsible for over two-thirds of all Russia's export
Given its domination of the private arms
industry, America's prospects for retaking the top position among
arms sellers on SIPRI's lists look good, with the country virtually
tied with Russia for market share... The Indian relationship is
seen as particularly important because of the potential size of
that market but also because India is now a vital counterbalance,
both to an increasingly martial China and to a politically unstable
Men will never be free until the last
king is strangled with the entrails of the last priest.
Ruling Elites page