Corrections Appended
The tributes to Sanford I. Weill line the walls of the carpeted hallway that leads to his skyscraper office, with its panoramic view of Central Park. A dozen framed magazine covers, their colors as vivid as an Andy Warhol painting, are the most arresting. Each heralds Mr. Weill’s genius in assembling Citigroup into the most powerful financial institution since the House of Morgan a century ago.
His achievement required political clout, and that, too, is on display. Soon after he formed Citigroup, Congress repealed a Depression-era law that prohibited goliaths like the one Mr. Weill had just put together anyway, combining commercial and investment banking, insurance and stock brokerage operations. A trophy from the victory — a pen that President Bill Clinton used to sign the repeal — hangs, framed, near the magazine covers.
These days, Mr. Weill and many of the nation’s very wealthy chief executives, entrepreneurs and financiers echo an earlier era — the Gilded Age before World War I — when powerful enterprises, dominated by men who grew immensely rich, ushered in the industrialization of the United States. The new titans often see themselves as pillars of a similarly prosperous and expansive age, one in which their successes and their philanthropy have made government less important than it once was.
“People can look at the last 25 years and say this is an incredibly unique period of time,” Mr. Weill said. “We didn’t rely on somebody else to build what we built, and we shouldn’t rely on somebody else to provide all the services our society needs.”
Those earlier barons disappeared by the 1920s and, constrained by the Depression and by the greater government oversight and high income tax rates that followed, no one really took their place. Then, starting in the late 1970s, as the constraints receded, new tycoons gradually emerged, and now their concentrated wealth has made the early years of the 21st century truly another Gilded Age.
Only twice before over the last century has 5 percent of the national income gone to families in the upper one-one-hundredth of a percent of the income distribution — currently, the almost 15,000 families with incomes of $9.5 million or more a year, according to an analysis of tax returns by the economists Emmanuel Saez at the University of California, Berkeley and Thomas Piketty at the Paris School of Economics.
Such concentration at the very top occurred in 1915 and 1916, as the Gilded Age was ending, and again briefly in the late 1920s, before the stock market crash. Now it is back, and Mr. Weill is prominent among the new titans. His net worth exceeds $1 billion, not counting the $500 million he says he has already given away, in the open-handed style of Andrew Carnegie and the other great philanthropists of the earlier age.
At 74, just over a year into retirement as Citigroup chairman, Mr. Weill sees in Carnegie’s life aspects of his own. Andrew Carnegie, an impoverished Scottish immigrant, built a steel empire in Pittsburgh, taking risks that others shunned, just as the demand for steel was skyrocketing. He then gave away his fortune, reasoning that he was lucky to have been in the right spot at the right moment and he owed the community for his good luck — not in higher wages for his workers, but in philanthropic distribution of his wealth.
Mr. Weill’s beginnings were similarly inauspicious. A son of immigrants from Poland, raised in Brooklyn, a so-so college student, he landed on Wall Street in a low-level job in the 1950s. Harnessing entrepreneurial energy, deftness as a deal maker and an appetite for risk, with a rising stock market pulling him along, he built a financial empire that, in his view, successfully broke through the stultifying constraints that flowed from the New Deal. They were constraints not just on what business could or could not do, but on every high earner’s take-home pay.
“I once thought how lucky the Carnegies and the Rockefellers were because they made their money before there was an income tax,” Mr. Weill said, never believing in his younger days that deregulation and tax cuts, starting in the late 1970s, would bring back many of the easier conditions of the Gilded Age. “I felt that everything of any great consequence was really all made in the past,” he said. “That turned out not to be true and it is not true today.”
The Question of Talent
Other very wealthy men in the new Gilded Age talk of themselves as having a flair for business not unlike Derek Jeter’s “unique talent” for baseball, as Leo J. Hindery Jr. put it. “I think there are people, including myself at certain times in my career,” Mr. Hindery said, “who because of their uniqueness warrant whatever the market will bear.”
He counts himself as a talented entrepreneur, having assembled from scratch a cable television sports network, the YES Network. “Jeter makes an unbelievable amount of money,” said Mr. Hindery, who now manages a private equity fund, “but you look at him and you say, ‘Wow, I cannot find another ballplayer with that same set of skills.’ ”
A handful of critics among the new elite, or close to it, are scornful of such self-appraisal. “I don’t see a relationship between the extremes of income now and the performance of the economy,” Paul A. Volcker, a former Federal Reserve Board chairman, said in an interview, challenging the contentions of the very rich that they are, more than others, the driving force of a robust economy.
The great fortunes today are largely a result of the long bull market in stocks, Mr. Volcker said. Without rising stock prices, stock options would not have become a major source of riches for financiers and chief executives. Stock prices rise for a lot of reasons, Mr. Volcker said, including ones that have nothing to do with the actions of these people.
“The market did not go up because businessmen got so much smarter,” he said, adding that the 1950s and 1960s, which the new tycoons denigrate as bureaucratic and uninspiring, “were very good economic times and no one was making what they are making now.”
James D. Sinegal, chief executive of Costco, the discount retailer, echoes that sentiment. “Obscene salaries send the wrong message through a company,” he said. “The message is that all brilliance emanates from the top; that the worker on the floor of the store or the factory is insignificant.”
A legendary chief executive from an earlier era is similarly critical. He is Robert L. Crandall, 71, who as president and then chairman and chief executive, led American Airlines through the early years of deregulation and pioneered the development of the hub-and-spoke system for managing airline routes. He retired in 1997, never having made more than $5 million a year, in the days before upper-end incomes really took off.
He is speaking out now, he said, because he no longer has to worry that his “radical views” might damage the reputation of American or that of the companies he served until recently as a director. The nation’s corporate chiefs would be living far less affluent lives, Mr. Crandall said, if fate had put them in, say, Uzbekistan instead of the United States, “where they are the beneficiaries of a market system that rewards a few people in extraordinary ways and leaves others behind.”
“The way our society equalizes incomes,” he argued, “is through much higher taxes than we have today. There is no other way.”
The New Tycoons
The new Gilded Age has created only one fortune as large as those of the Rockefellers, the Carnegies and the Vanderbilts — that of Bill Gates, according to various compilations. His net worth, measured as a share of the economy’s output, ranks him fifth among the 30 all-time wealthiest American families, just ahead of Carnegie. Only one other living billionaire makes the cut: Warren E. Buffett, in 16th place.
Individual fortunes nearly a century ago were so large that just 30 tycoons — Rockefeller was by far the wealthiest — had accumulated net worth equal to 5 percent of the national income. Their wealth flowed mainly from the empires they built in manufacturing, railroads, oil, coal, urban transit and mass retailing as the United States grew into the world’s largest industrial economy.
Today the fortunes of the very wealthiest are spread more widely. In addition to stock and stock options, low-interest credit has brought wealth to more families — by, for example, facilitating the sale of individual businesses for much greater sums than in the past. The fortunes amassed in hedge funds and in private equity often stem from deals involving huge amounts of easy credit and vast pools of capital available for investment.
The high-tech boom and the Internet unfolded against this backdrop. The rising stock market multiplied the wealth of Bill Gates as his software became the industry standard. It did the same for numerous others who financed start-ups on a shoestring and then went public at enormous gain.
Over a longer period, the market lifted the value of Mr. Buffett’s judicious investments and timely acquisitions, and he emerged as the extraordinarily wealthy Sage of Omaha, in effect, a baron of the new Gilded Age whose views are strikingly similar to those of Carnegie and Mr. Weill.
Like them, Mr. Buffett, 78, sees himself as lucky, having had the good fortune, as he put it, to have been born in America, white and male, and “wired for asset allocation” just when all four really paid off. He dwelt on his good fortune in a recent appearance at a fund-raiser for Hillary Rodham Clinton, who is vying for Mr. Buffett’s support of her presidential candidacy.
“This is a significantly richer country than 10, 20, 30, 40, 50 years ago,” he declared, backing his assertion with a favorite statistic. The national income, divided by the population, is a very abundant $45,000 per capita, he said, a number that reflects an affluent nation but also obscures the lopsided income distribution intertwined with the prosperity.
“Society should place an initial emphasis on abundance,” Mr. Buffett argued, but “then should continuously strive” to redistribute the abundance more equitably.
No income tax existed in Carnegie’s day to do this, and neither Mr. Buffett nor Mr. Weill push for sharply higher income tax rates now, although Mr. Buffett criticizes the present tax code as unfairly skewed in his favor. Like Carnegie, philanthropy is their preference. “I want to give away my money rather than have somebody take it away,” Mr. Weill said.
Mr. Buffett is already well down that path. Most of his wealth is in the stock of his company, Berkshire Hathaway, and he is transferring the majority of that stock to the Bill and Melinda Gates Foundation so the Gateses can “materially expand” their giving.
“In my will,” he has written, echoing Carnegie’s last wishes, “I’ve stipulated that the proceeds from all Berkshire shares I still own at death are to be used for philanthropic purposes.”
Revisionist History
The new tycoons describe a history that gives them a heroic role. The American economy, they acknowledge, did grow more rapidly on average in the decades immediately after World War II than it is growing today. Incomes rose faster than inflation for most Americans and the spread between rich and poor was much less. But the United States was far and away the dominant economy, and government played a strong supporting role. In such a world, the new tycoons argue, business leaders needed only to be good managers.
Then, with globalization, with America competing once again for first place as strenuously as it had in the first Gilded Age, the need grew for a different type of business leader — one more entrepreneurial, more daring, more willing to take risks, more like the rough and tumble tycoons of the first Gilded Age. Lew Frankfort, chairman and chief executive of Coach, the manufacturer and retailer of trendy upscale handbags, who was among the nation’s highest paid chief executives last year, recaps the argument.
“The professional class that developed in business in the ’50s and ’60s,” he said, “was able as America grew at very steady rates to become industry leaders and move their organizations forward in most categories: steel, autos, housing, roads.”
That changed with the arrival of “the technological age,” in Mr. Frankfort’s view. Innovation became a requirement, in addition to good management skills — and innovation has played a role in Coach’s marketing success. “To be successful,” Mr. Frankfort said, “you now needed vision, lateral thinking, courage and an ability to see things, not the way th
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