Read an Excerpt
Chapter One: A World Without Limits
What's New About the New Economy
We have it in our power to begin the world all over again.
The young people in high tech, who have not learned to talk better, describe it as a "holy shit experience." This is how it works. You are a graduate student living in a group house and paying $375 a month. You have no steady source of income; you are just barely making ends meet. But you have a Big Idea for a company. You've developed software that enables corporate Web sites to handle large volumes of traffic. Or you've figured out a way to use the Net to improve efficiencies in the medical supplies business. Or you've got a new idea for making web sites more interactive. Whatever.
It doesn't matter who you are or where you come from. You are now the founder of a company. You come up with a cool, offbeat name something techno-sophisticated, like QuantumFour.com, or offbeat like Waitingforgodot.com. You approach investors with your plans for taking over a whole sector of the market. You promise the investors a "ten bagger," an investment that increases tenfold in value. They're skeptical about where your company's profits are going to come from, but you emphasize that at this point "mind share" is really important.
Somehow you manage to convince them that your idea is hot and you are cool. They give you start-up money, and you hire a lawyer and establish a corporate identity. You set up a bank account, find yourself a logo, design some letterhead, and then hire a dozen employees. You've got a bookkeeping guy, a Web guy, a marketing guy, and so on, but you've made it clear to them that there is no strict division of labor, and everyone takes turns taking out the trash. You give these employees options, which at this point are worthless pieces of paper.
You and your team set up shop in a beat-up old office that you've leased for a year at $1,000 a month. It doesn't get too much sun and the landlord had better hope the fire inspector doesn't drop by. Otherwise it serves the purpose. Basically, you move in. You put in eighteen-hour days. Sometimes you fall asleep on the secondhand sofa; soon you start keeping a toothbrush at the office. You dress like a slob and live on Whoppers, Twinkies, and cherry Coke. You rarely read the newspaper, and you don't return phone calls from friends and family. You're totally focused on making your concept work.
Sometimes it doesn't. That's the fear that haunts every start-up. And you know what failure means, because you've seen it happen and you know it ain't pretty. You don't want to default on the rent and have to fire all your employees. You don't want angry investors banging on your door because they got back only eight cents on the dollar. Most of all, you don't want a year and a half of your life to go to waste. But that's the chance you take, as you set your sights on that Wall Street version of Powerball: the initial public offering.
The IPO is the Silicon Valley equivalent of hitting the jackpot. It's even better than being bought by America Online or Yahoo! Either way, forget about moving up the ranks in a traditional company, meticulously putting aside a bit every month, and building up your savings so you can retire with a nest egg, a pension plan, and a gold watch. What you and your friends are after is instant tycoon status. The Big Score. So far things look promising. Your company seems to have people talking; you've got "buzz."
But what will the Big Day bring? You just don't know. So you and your employees sit around the table, and you wait. At first, nothing. The minutes tick by, slow and unforgiving. You get jitters. Then you feel the first nauseous pangs of a panic attack. And then, kaboom! It happens. Your stock price goes up, up, up...it isn't stopping...it's still going up...you can't believe it! By now your employees are cheering and shouting, "Holy shit! Holy shit! This is so insane!" Finally it stops and, almost delirious, you do the math: you are suddenly worth $51 million. Unbelievable! Everyone in the room is a millionaire.
Now you are rich. You can do anything you want with the rest of your life. What a feeling! Now you can afford to fly to Paris for the weekend. You can eat at the Tour d'Argent, and cheerfully pay $3,000 for a bottle of 1982 Château Pétrus to complement your meal. You relish the thought of tossing out a couple of hundred thousand to join that exclusive golf club that your father's boss, the grumpy old fool, still plays at. The there's the Lamborghini you've always wanted. You know you can't do all this right away; after all, your money is tied up in stock. You are, as they say, a multimillionaire "on paper." Even so, it doesn't hurt to plan ahead. What you find most striking is that even in your moment of triumph, you know that neither the French cuisine nor the golf, not even the Lamborghini, will be enough. You're beginning to get the germ of another Big Idea. You crave a second Big Score. In short, you have to do it again.
Yes, it's a new economy. If you read the business papers, if you listen to CNBC, you've heard that before. But if we're going to explore the ramifications of it, it is extremely important to understand what precisely is new about today's economy. Some commentators passionately assert that "interest rates don't matter" or that "stock prices have nothing to do with profits" or that "we've repealed the business cycle." That's wishful thinking. Economic logic and historical experience cut the other way. Others point to a more obvious novelty: technology, and specifically the new frontier of cyberspace. But even cyberspace isn't new. Cyberspace is where you are when you talk on the phone. It's been around since Alexander Graham Bell and his pal Watson had a rendezvous there more than a hundred years ago.
Still, the wishful thinkers are responding to something that is real and new, namely, that this is an economy on Viagra, an economy that is rafting on white water, the best economy the world has ever seen. Forget about the Gilded Age or the Roaring Twenties or the Halcyon Fifties and Soaring Sixties; the United States has witnessed an economic juggernaut that got started in 1983 and, far from losing force, has actually gained force and shows no signs of stopping. Somewhat to our surprise, we are in possession of a perpetual money machine, and it keeps spitting out silver coins and green notes.
Of course, there's been volatility. April 2000 was a very cruel month indeed, when the Nasdaq plunged 30 percent. It was motion-sickness time, especially for those who had invested in technology stocks with borrowed money or money they could not afford to risk. For the first time, there were news reports of Internet companies going under, laying people off. It's been a bumpy journey of late. Within a twelve-month period Internet giant Softbank Corporation saw its shares soar from $100 to $1,900 and then go down to $475. The people who say that markets are inherently rational have a lot of explaining to do.
Volatility is here to stay, especially in the Internet sector. The reason is that it is extremely hard to estimate the current value of companies with uncertain future earnings. Even so, let's keep a sense of perspective: we are in an economy where, most of the time, the bulls have been right. The bears have had their moments of vindication, but these moments have been brief. "See, we told you..." they say, but before they can finish the sentence the market has gone back up. In general the momentum has been relentlessly onward and upward. The last twenty years have seen a tripling of the gross domestic product from around $3 trillion in the early 1980s to around $9 trillion now. And don't forget: in 1982 the Dow Jones Industrial Average fell below 800. It tripled in the 1980s, then lost ground for a year or so, then tripled again during the nineties, surpassing the 10,000 mark. Meanwhile, the technology-heavy Nasdaq Composite Index skyrocketed from under 500 in 1991 to 5,000 before pulling back: that's still a seven- or eightfold increase in less than ten years.
Throughout this period of prosperity, there have been warnings of disaster. More than once I have heard the story about how Joseph Kennedy, upon hearing a stock tip from a newspaper boy, went straight to his office, sold all his stock, and got out of the market, shortly before the Great Market Crash. It's a good story but useless advice as far as I'm concerned. Everywhere I go I hear stock tips from waiters, office interns, non-English-speaking cabbies, and other extremely unorthodox investors. But I've been hearing from these folks for years, and if I had sold my mutual funds and gone into Treasury bills the first time it happened I would have missed several thousand points on the Dow and a virtual quintupling of the Nasdaq.
This is not to deny that many of the dot coms are grossly overvalued. Buying companies with price-earnings ratios in excess of 100 is not a winning long-term investment strategy. Most of these companies surely won't be around a few years from now. But will the market as a whole go down with them? So far, it hasn't happened. In fact, money managers with bearish investment strategies have been badly pummeled. Boom, boom, boom, the market has shot them down and stampeded over their carcasses. Those who have survived have watched in dismay as complete amateurs have whooped their way to triple-digit returns. The ultimate indignity: many of the surviving bears have been humiliated into joining the bulls. Better we all perish together, the bears now say, rather than going belly-up while the bulls stand around and cheer, smoking cigars made of hundred-dollar bills. So it is only a slight exaggeration to say that, in investment terms, we are all bulls now.
Another novel characteristic of our era is the revival of faith in free-market capitalism. Actually, we're seeing more than faith in the capitalist system; we're seeing a surge of confidence on the part of the average American that the system will benefit him directly. The stock market is a good indicator of this. In 1980, only one in ten American households owned stock; now 50 percent do, either directly or through mutual funds, IRA accounts, or 401(k) plans. Financial columnist James Glassman calls this "the rise of the investor class." More Americans own stock than vote in national elections. Even journalists, who have traditionally spurned such bourgeois pursuits, are now chasing big bucks. "I have decided that I want I need to make a million dollars in the stock market this year," writes David Denby in The New Yorker. Now we can't wait to read whether he did it. Ten years ago if someone had written that we'd have thought he was joking. O tempora, O mores!
You know the capitalist spirit has penetrated the culture when the Ladies' Home Journal features articles about "trader moms" who spend much of their day trying to exploit daily fluctuations in stock prices. Red Herring magazine recently featured investment advice from today's breed of stock picker: a cop, a bartender, the chief doorman of the Sir Francis Drake Hotel, and an astrologer who insists that stocks, like people, have birthdays. A stock's birthday, explains "financial astrologer" Yvonne Morabito, is the date of its IPO. In a mass movement of any kind, you get all types.
Indeed, the free market hasn't enjoyed such broad support for more than half a century. In fact, the twentieth century was the era of the welfare state, of big government. That era, which began in America in 1932 with the New Deal, ended in 1989, when the Berlin Wall collapsed. Now we know that capitalism is the only economic system that works and markets are the acknowledged arbiters of production and value. How ridiculous it seems that, as late as the 1980s, leading intellectuals and politicians were calling for blue-ribbon commissions made up of government bureaucrats, university intellectuals, and captains of industry to meet and decide questions such as how many computers should be made each year. They dubbed it "industrial policy" and modeled it on the supposedly invincible Japanese system. Today no one mentions industrial policy, and even though the government continues to chase down monopolies, any suggestion that state-sponsored committees should set timetables for how much and where to invest in high tech would meet with dismissive laughter. The issue is settled: the market will decide.
The triumph of the market has launched us into a new age: the Age of the Entrepreneur. One measure of the zeitgeist is that a number of senior corporate executives are giving up their careers in order to take the entrepreneurial plunge. The business press is full of reports of traditional gray-suiters jumping ship and joining new-economy companies that give them options. George Shaheen, who used to head Andersen Consulting, is now at Webvan, the Internet grocery service. Heidi Miller, former chief financial officer at Citigroup, is now at Priceline.com. Hey, who cares about being secure and comfortable when there's a chance to get fabulously wealthy? Of course, you're not supposed to say you're doing it for the money. Thus you piously intone, "I just felt ready for a new challenge." Liar!
As usual, young people are more candid about their motives. Heidi Miller has a younger colleague at priceline, twenty-six-year-old Magdalena Mik, who recently told Forbes that her goal was to be "obscenely wealthy by the time I'm 30." Geoff Cook, a Harvard undergraduate who has set up an Internet editing service, reports, "I will feel like a failure if I am not a millionaire by my twenty-fourth birthday." Naveen Jain, who is already a millionaire, left Microsoft to start his own Internet company, InfoSpace, "to make a billion dollars for myself." Given the number of young capitalists, it makes sense to have young venture capitalists. Joshua Newman, a twenty-year-old student at Yale, runs a $6 million venture capital fund that invests exclusively in student-run businesses. A recent Web poll of two thousand undergraduates at recruitment site jobtrak.com revealed that 25 percent of the respondents intended to start their own companies and be millionaires by the age of thirty; another 25 percent were sure they'd get there by forty.
Another sign of the times: talk to the deans of some of the nation's leading business schools. A quarter to a third of their students who enroll in a two-year MBA program don't come back for the second year. Why not? Because they get a summer job with an Internet company, or they have a friend who wants them to come on board at Yahoo!, or they have an idea for a start-up and they feel they've learned enough to make it work. "We've never had this before, never in our history," confesses Edmund Wilson, dean of students at Northwestern University's Kellogg School of Management. One dean who advised a student to complete his education and then shoot for IPO heaven got this response: "Hey, man, the time to attend school is during a recession! Not when there's this much money to be made." And the dean told me he couldn't argue with the kid. Two of his professors are considering leaving teaching to get involved with new-economy companies.
What's new, of course, is not that people want to go into business and make money; what's new is that this impulse is seen as cool. Recall that a few decades ago John F. Kennedy inspired a generation of Americans by saying to them, if you are young, if you are idealistic, you should become a "public servant," you should join the Peace Corps. Millions did. The government worker was regarded as the summit of youthful idealism. By contrast, the businessman was viewed as a selfish bastard.
But the last few decades have witnessed a dramatic switch. The selfless public servant has now metamorphosed into the do-nothing bureaucrat. The term "government worker" now seems like a bit of an oxymoron. Indeed, for the first time in many decades, the government is seen as largely irrelevant to what is really happening in America. And what is happening is the entrepreneurial explosion. The entrepreneur has moved to center stage as the embodiment of American possibility. More parents probably want their children to be like Bill Gates than like Bill Clinton.
Do people still want to work for the Peace Corps? Not many. Recently the magazine Fast Company asked young people whether they wanted to join a government agency such as the Peace Corps, work for an old-line, salary-and-bonus company such as General Motors, or join a fast-growing company such as Yahoo!, with a base salary plus options. Four percent opted for the Peace Corps, 30 percent chose the old-line company, and the rest said they would sign up with a fast-growing company with a stock option.
The secret of the rapid-growth sector of the economy is, of course, technology. The new technologies of the Internet and telecommunications the microcosm and the telecosm have the unique power to unify the world economy in a single moment of space and time. Never has the global economy previously been integrated to this degree. Earlier technologies, such as the automobile, the airplane, and the telephone, reduced distance barriers and improved communications channels. But there remained powerful physical barriers, such as the time it took to fly from one place to another, or the number of people who could communicate with one another over a phone line. Moreover, there were political barriers that proved difficult, if not insurmountable. Large parts of the world were hostile and closed off to the West.
Now, for the first time, it is meaningful to speak of a single "world economy." We drive cars made in Japan, wear clothes made in Indonesia, use computers assembled in Mexico, and eat fresh fruit grown in Chile. The political walls haven't completely disappeared, but the ones that remain are more porous than ever before. Countries previously inhospitable to capitalism, such as India and Vietnam, are now courting foreign investment and opening their doors to technology. The Internet has made it possible for large numbers of people located anywhere on the planet to communicate with one another simultaneously. Information that was simply unavailable, or that used to require lengthy, time-consuming searches, is now accessible at the click of a mouse. The world is going to become a smaller and much more efficient place.
Even as the world lurches toward the new technology, however, we should not forget that one country is leading the pack. It is not a statement of chauvinism, only of fact, to point out another new feature of our era: it is the era of American dominance. America is the experiment that has produced this technological revolution. Technology has simply consolidated America's military, political, and cultural hegemony worldwide. Here's a single indicator: in 1970, U.S. per capita income was only 10 percent higher than that of other major industrialized nations. Now that gap has widened to 22 percent. For the first time in half a century, America is pulling away from the pack.
American hegemony isn't new; the twentieth century belonged to America in much the same way that the fifteenth century belonged to the Portuguese, the sixteenth to the Spanish, or the nineteenth to the British. But for decades now many people believed that American power had reached its apogee after World War II. After that, America's role in the world was supposed to decline. In 1989, the Yale historian Paul Kennedy published a highly touted book, The Rise and Fall of the Great Powers. Had Kennedy warned that the Soviet regime was fragile or that Soviet power was overextended, his book would have proved uncannily prophetic, for that was the year the wall came tumbling down. But, alas, Kennedy's point was that America had run its course, America was on its way out, and Americans should learn to manage their country's diminishing role on the world stage. Never was a book so spectacularly discredited by events.
Today, in Paris and Kuala Lumpur and Addis Ababa, the American influence is everywhere. You can't escape it. There are Burger King and Starbucks coffee on the street corner, Britney Spears on the radio, and Michael Jordan or Tiger Woods on the TV screen. The kids are wearing Gap T-shirts and Nike sneakers, most waiters speak English, and the bellhop is whistling the theme song from Titanic. The United States now enjoys unprecedented domination over the political, economic, cultural, and technological life of the world. The Mongols, the Spanish, and the English may have had military control, but none of them enjoyed this kind of comprehensive global superiority. Alexander the Great would be envious. For better or worse, we are living on Planet America.
Not surprising, given the technological edge enjoyed by America, the country is leading the world in the creation of new businesses and new fortunes. Many of these don't just happen to have started in America; they could not have arisen anywhere else. Pierre Omidyar should be thankful that he got the idea for eBay while living in Silicon Valley; if his family had never emigrated to the United States from France, his idea for an Internet auction site would never have taken flight, and he'd be worth a lot less than his current $4.9 billion. French law permits only a small number of certified auctioneers to operate in the country, and eBay isn't even operational in France. Andy Grove, the famous longtime CEO of Intel, would have kept his real name, Andras Grof, and his obscurity if he had remained in his native Hungary. Only in America could Jerry Yang, an immigrant from Taiwan who came to this country at the age of ten not speaking a word of English, start a company like Yahoo! in his twenties and find himself a boy billionaire. These are uniquely American success stories.
You might have concluded, especially from the cases of Omidyar, Grove, and Yang, that I've been holding out on you. It's true. I have mentioned, but neglected to discuss, the most obvious new aspect of the new economy: money! Being filthy rich is fashionable again. As late as the 1980s, it was okay to have a lot of money as long as you inherited it or built it up over many years. Old money was better than new money. Old money meant that you put numbers at the end of your name (Eli Lilly II, Marshall Field V), belonged to the Woodhill Country Club or the Knickerbocker Club, sat on the board of the art museum, and proved your social worth by tithing to the right causes and charities. If, however, you earned a great deal of money by inventing junk bond financing, like Michael Milken, or taking over unprofitable companies, like Carl Icahn, you were a greedy scoundrel. In fact, the 1980s were dubbed the Era of Greed.
But now prejudice against self-made wealth has completely evaporated. Now new money is better than old money, because it means that you actually earned it. If there's any group that's slightly infra dig today, it's the White Anglo-Saxon Protestants who inherited their wealth and speak with a refined New England accent. The old farts may still belong to the right clubs and call each other "Sport" and "Whizzer," but they are no longer in charge; they know it, and everybody else knows it. Author Louis Auchincloss reports that "the old WASP world is dead and gone." How can we be sure of the triumph of the nouveau riche? Because nobody calls them "nouveau riche" anymore.
New money means that it has to be on display and out in the open, which wasn't the case before. Bob Colacello, who covers the rich and famous for Vanity Fair, told me that in New York social circles, until recently, "we knew who the rich people were because they lived on Park Avenue and sent their children to private schools, but we didn't know how much money they had." So discretion was the hallmark of the old affluent class. But now, as Colacello rightly points out, "Rich people have price tags attached to them. Every time people see Michael Dell, they think: 'Twenty billion dollars.'"
Well, perhaps that's not surprising: twenty billion dollars is a lot of money. Yet Dell is hardly alone. Never in the history of the world have so many people made so much money. Many of the richest guys have made it in high tech, but the technology boom has also reverberated in the traditional economy, creating massive fortunes in real estate, financial services, entertainment, even consumer goods retailing. And once again, this degree of affluence is an American phenomenon, although the rest of the world is quickly catching up.
One way of keeping track of all the money made is to observe the lavishness with which it is spent. We've all heard about Bill Gates spending upward of $50 million for his 40,000-square-foot home in Medina, Washington. Apparently he has started a trend among the superrich that might be called "keeping up with the Gateses." Industrialist Ira Rennert recently built a 42,000-square-foot mansion in Sagaponack, Long Island. Herbalife guru Mark Hughes is not impressed; he's spending $75 million for a 50,000-square-foot Italian-style villa overlooking Beverly Hills. If you've dropped in on Oracle CEO Larry Ellison lately, you could update us on his $40 million Woodside, California, home, built in the style of a sixteenth-century Japanese imperial palace. By contrast, the $14 million, 16,000-square-foot home that Gateway head Ted Waitt bought atop Mount Soledad in San Diego seems positively spartan. Entertainment mogul David Geffen apparently wanted a Hollywood landmark worthy of his legendary status and finally contented himself with the enormous Jack Warner estate.
Not long ago, I visited a young tycoon who owned a plantation on the James River in Virginia. When I arrived, I noticed that there were construction crews on the property. I asked if he was doing some new building. No, he said, he was having an old building lifted and relocated to another part of the property so it would give him a more pleasing view of the ducks in the pond. "My architect assures me that this can be done without spilling a single drop of champagne from a glass on the banister," the man enthusiastically informed me. "I've decided to test him on this."
Impressive though these displays are, they are not exactly new. Indeed, William Randolph Hearst's San Simeon is fully comparable to anything being built today, and none of our tycoons has produced anything that could hold a candle to the palace of Blenheim or Versailles. But at no time did Hearst command anything like the resources of today's tycoons. Louis XIV was admittedly in a class by himself, but that's another way of saying there was only one Louis XIV, while today there are hundreds of people living in monarchical residences. What's new is neither affluence or extravagance but rather the number of superrich people today and the amounts of money they possess.
Consider the world's richest man, Bill Gates. Arguably, Bill is not the richest man ever. John D. Rockefeller had around $1 billion in 1913, nearly 2 percent of America's gross domestic product. Bill's net worth is less than 1 percent of the United States' current GDP. Still, Rockefeller at his peak had a net worth of $17 billion in today's money. As of early 2000 Bill's net worth had reached nearly $100 billion. Of course, Bill's net worth has suffered massive fluctuations due to the Microsoft antitrust case. At one point it dipped to $50 billion, making Larry Ellison of Oracle the world's richest man. Fortunately, Melinda Gates did not have to start selling the family china. Bill's second-place humiliation lasted only a day or two. Where he'll be five years from now is anyone's guess. But the wealth that Gates has piled up over the past several years dwarfs anything that any other private individual has been able to accumulate at any time in history.
How much is a hundred billion dollars? The popular magazines know that numbers with a lot of zeros at the end mean nothing to most people, so they try to make it easy for us to understand them. If Bill's entire fortune were made up of one-dollar bills, they explain, they would stretch from the earth to the moon six thousand times. These sorts of explanations inspire great wonder while conveying no real information. Here's a more revealing way to put it: Bill and his descendants could spend $10 million a day in perpetuity and never run out of money.
Here are some comparisons to put Bill's stash into perspective: twenty-six states have a gross domestic product that is less than Bill's net worth. If Bill were a country, he would be number thirty-five in the world rankings. His net worth surpasses the gross domestic products of Hungary, Ireland, Israel, and New Zealand. He ranks just ahead of Finland (GDP $97 billion) and just behind Greece (GDP $106 billion). Indeed, in a single market swing, such as we've seen recently, his net worth can fluctuate more than the GDP of small countries. Moreover, Bill could very well become the world's first trillionaire. If his net worth grows at the double-digit rate the S&P 500 has been averaging for the past several years, he'll be the sole member of the "four comma" club in 2015.
The Man from Microsoft is a bit of a special case, so let's consider some folks a few rungs down the economic ladder. At a net worth of $50 billion, the world's second richest man, Larry Ellison, tops the gross domestic products of Ecuador (GDP $47 billion) and Tunisia (GDP $43 billion). With a net worth of $40 billion, Paul Allen, who is next in line, scores a narrow victory over Guatemala and Kenya (GDP $39 billion each). Warren Buffett's $31 billion puts him safely ahead of Ghana (GDP $27 billion) and the Dominican Republic (GDP $30 billion). At $23 billion, Steve Ballmer compares favorably with North Korea and Bolivia (GDP $21 billion each). Michael Dell's $20 billion lets him surpass Tanzania and Costa Rica (GDP $19 billion each). Gordon Moore, at $15 billion, must content himself with outdoing Honduras (GDP $11 billion) and El Salvador (GDP $12 billion). Craig McCaw's $6.4 billion outperforms Fiji and Iceland (GDP $5 billion each). Even John Doerr, Vinod Khosla, and Sanford Weill, each at a relatively measly $1 billion, get to score symbolic victories over Monaco (GDP $800 million) and Greenland (GDP $892 million).
All of this is very new. As late as 1982, Forbes counted only thirteen billionaires in the United States; the richest, shipping magnate Daniel Ludwig, weighed in at $2 billion. The total net worth of all the American billionaires in 1982 was $15 billion. In those days, a mere $100 million was sufficient to qualify as one of Forbes's 400 richest Americans. Today there are at least 267 American billionaires and around 450 billionaires worldwide. The U.S. billionaires alone are collectively worth over a trillion dollars. In 1999, you needed at least $625 million to make the bottom of the Forbes list.
Moreover, look at the speed at which many of these tycoons made their fortunes. It took Henry Ford and Andrew Carnegie decades to become centimillionaires; Jeff Bezos managed the feat in just three years. Indeed since Netscape launched the IPO boom following its public offering in August 1995, not just Bezos but several of today's superrich, including David Filo and Jerry Yang of Yahoo!, Jay Walker of Priceline.com, Rob Glaser of RealNetworks, Joe Ricketts of Ameritrade, Pierre Omidyar and Meg Whitman of eBay, and Steve Case of America Online, have all become billionaires.
It's one thing for a country to produce a small number of superrich people; it's far more spectacular to see affluence extended to tens, even hundreds of thousands of people. This is exactly what has happened in America in the past two decades. Not so long ago there weren't many affluent people; you'd have to go to Beverly Hills to find them, or Manhattan's Upper East Side, or (more recently) to high-tech meccas such as Palo Alto and Seattle. But now the rich have proliferated, and they are everywhere.
Drive through the opulent neighborhoods of Jupiter Island, Florida; Brookville, New York; Saddle River, New Jersey; Weston, Massachussetts; Aspen, Colorado; Hunting Valley, Ohio; Kenilworth, Illinois; Paradise Valley, Arizona; Medina, Washington; and Rancho Santa Fe, California. You will see a collection of exquisite homes surrounded by manicured lawns, set against an Elysian backdrop of tall trees, golf courses, and polo fields. The homes measure 7,000 square feet, 10,000, even 15,000. They have fountains, Jacuzzis, media rooms, guest houses, maids' quarters, swimming pools, and tennis courts.
The insides of these homes are sumptuous: chandeliers bedazzle, a marble floor adorns the entryway, some sort of art and wine collection is mandatory, hand-painted murals and walk-in playhouses are nice touches for the child's room, and the sheets in the master and guest bedrooms are Egyptian cotton and cost in the range of $2,000 for a set. A little imagination is always appreciated: Limited chairman Leslie Wexner has a dining table that after meals descends into a subterranean kitchen, where the staff can clear the plates. Let's not, however, forget the exterior landscaping. In Rancho Santa Fe, where I live, a typical sight is a man in his fifties, wearing his perky thirty-three-year-old second wife on his arm, supervising the installation in his front yard of full-grown palm trees just flown in from Hawaii. "Paul just couldn't wait all the time that it takes for them to grow," the wife explains.
What's the point of living well if you cannot entertain on an equally opulent scale? The hosts of a recent San Francisco "Arabian Nights" party sent a team to Bangkok, Bali, and New Delhi for ten weeks to find furnishings for Ali Baba's cave at a cost of $1 million. The party featured costumed genies carrying beaded maharaja umbrellas escorting guests up the carpeted entryway, with carved idols on every table and twelve thousand feet of hand-stitched quilts and coverings. Meanwhile, New York socialite gatherings, already known for extravagance, have now reached limits that flabbergast even social circuit regulars. "It's impossible to hold a real conversation," reports one member of Manhattan's inner circle. "You are too distracted by the wall hangings, the furniture, the china, and the chandeliers. In fact, it's hard to resist the temptation to take home a spoon."
The new rich also believe that there is little point in travel unless it is pursued with indulgence. Dermot Duggan, who manages financial records for Sun Microsystems, feels that his particular choice of vehicle is getting, well, a bit too common. "There are two Ferraris parked in our lot at work every morning," Duggan says. "That doesn't count mine, and that doesn't count the guys who choose not to drive theirs to work." Harvey Vengroff, who owns a bill collection agency, believes it is only reasonable that he drive a different car each day of the week; two of his cars are Rolls-Royces. A frequent business traveler of my acquaintance has some brilliant tips for going light: travel without luggage; buy everything when you get there; and don't bring small items such as socks, underwear, and ties home throw them out after you use them.
Who are these people whose everyday lifestyle would scandalize much of the world and every previous generation that has gone before them? To answer this question, let's not focus on billionaires; that's still a pretty small club. Rather, let's come down from Mount Olympus and consider Americans whose annual income exceeds $1 million. A hundred years ago, only a few familiar names, such as Carnegie, Mellon, and du Pont, took in that kind of money. By 1980, that number had swelled to 13,500 but remained largely confined to the heads of the biggest corporations, partners of major law firms, highly successful entrepreneurs, world-renowned surgeons, top athletes and entertainers.
Today 144,000 American households making up close to half a million people earn seven figures or more each year. That number, which comes from the Internal Revenue Service, dates back to 1997, the latest year for which data are available. Since we all know that Americans routinely seek to minimize their reported incomes, experts are confident that the actual number of households whose annual income tops $1 million is much higher. No longer is this group confined to a tiny elite: it includes many CEOs of small and medium-sized corporations, many successful lawyers and doctors, virtually all major actors and players on major sports teams, and innumerable small-business owners.
Let's look at net worth instead of income. Here too we find some pretty impressive numbers. According to the latest data from the Federal Reserve Board, more than 250,000 American households have a net worth exceeding $10 million, and at least 500,000 American households have a net worth in excess of $5 million. A million American households are worth $3.7 million or more.
Or consider ordinary millionaires, those with a net worth in excess of $1 million. A hundred years ago, according to one study, there were 4,000 millionaires in the United States. In 1989 the number had reached 1,260,000. But today the number of American families whose net worth is at least a million dollars has soared above 5 million. Five million families that's more than 15 million people! And some analysts predict that over the next decade that number will quadruple. Many Americans (and a fair number of Europeans) have reached a standard of affluence that, in the words of novelist Tom Wolfe, would "make the Sun King blink."
In the past two hundred years the great achievement of the modern West was to create a middle class, allowing the common man to escape poverty and live in relative comfort. Now the United States is ready to perform an even greater feat: it is well on its way to creating the first mass affluent class in world history. A mass affluent class is just starting to emerge in other European countries as well. Call it the overclass. These are the new equivalents of the lords and barons of the Middle Ages. Only today's overclass is already large and growing so fast that perhaps one day it will outnumber the peasants.
The emergence of the overclass has important implications for politics, education, and philanthropy. Already it is dramatically changing the way we think about wealth and opportunity, thus redefining the American Dream. Here let's explore a single implication: the birth of the overclass means that terms like "rich," "middle class," and "poor" don't mean what they used to. Remember reading Tom Wolfe's Bonfire of the Vanities in the 1980s? We all chuckled at the woes of Sherman McCoy, who was having trouble making ends meet on a salary of $980,000 a year. McCoy was intended to illustrate the immense wealth and extravagance of the period, but today he would be recognizably upper middle class.
Many Americans haven't figured out that wealth in our time has been completely redefined. The premise of the TV hit show Who Wants to Be a Millionaire? is that a million dollars makes you rich. The authors of the best-selling book The Millionaire Next Door agree: they define "wealthy" as someone whose net worth exceeds $1 million. Sorry, guys, but it's time to redo your calculations: a million just isn't enough anymore. After all, recall that the term "millionaire" became synonymous with "wealthy" and acquired its mystique at a time when the average American was making $10,000 to $12,000 a year.
Indeed, in the old days (around 1980), you were rich if your net worth exceeded $1 million. Even if you had a modest bank account, you were really well off if you earned more than $75,000 a year. After all, a $75,000 salary put you at four times the median annual income of the time and ensured that you could afford the accoutrements of success, such as a four-bedroom house, a new $18,000 car, and a maid to come in and clean once a week. Looking back, these aspirations seem embarrassingly modest. Today $75,000 a year barely qualifies as upper middle class, and in cities such as San Francisco, Los Angeles, and New York it is the starting salary of young professionals, who often think it's scarcely enough to make ends meet.
So let's redraw the lines for the new class structure in America today. Making some allowance for differences in the cost of living, you are poor if your household income is less than $15,000 and your net worth is close to zero. Approximately 20 million households, about a fifth of the population, are poor in this sense.
If you earn between $15,000 and $35,000, you are in the lower middle class. Author Paul Fussell in his book Class calls you a "prole," which is short for proletariat. You are one of a nonelite population of 29 million households. Your net worth is less than $72,000, which is the median net worth in the United States today. Virtually none of it is in liquid assets.
Americans who earn between $35,000 and $75,000 are middle class. Being middle class does not mean that you are at the midpoint of the income distribution; indeed, the median income in this country, $39,000, comes in at the low end of the new middle class. Interestingly, most Americans think of themselves as middle class, but only 34 million households, about a third of the population, belong to this group. Middle-class people have a net worth between $72,000 and $500,000, most of it in home equity and retirement accounts.
In most parts of the country, an income in excess of $75,000 allows you to claim you are upper middle class. Around 19 million households, just under a fifth of the population, fit into this category. In big cities, full of high-earning peers, the bar should be set somewhat higher. In those areas your earnings should place you in the top 5 percent of the general population to be eligible for upper-middle-class status. That would mean you'd have to make at least $150,000 to qualify.
What about net worth? To reinforce your upper-middle-class credentials, it helps to demonstrate a net worth that is impressive at least to people in the class right below you. For younger people that figure could be as low as $489,000 the level needed to place you in the top 10 percent of wealth owners in this country. If you're near retirement, you need at least $1 million and preferably closer to $5 million to be assured of maintaining an upper-middle-class lifestyle for the rest of your life.
Feel like catering a small party at your apartment, leasing that new Lexus, or flying first-class to London for your wedding anniversary? Being upper middle class means that you can do these things. But you cannot do them all at the same time. Money remains a constraint. Upper-middle-class people aren't rich, because they can't do whatever they want.
Being rich means being able to do, within reason, whatever you want. In his book Money, political scientist Andrew Hacker estimates that to be rich you need an income of at least $1 million a year. That seems about right. In Arkansas and West Virginia $500,000 or even $300,000 a year may be enough. In the places where most rich people want to live, however, a million dollars is the minimum required.
Still, a seven-figure annual income doesn't capture the significance of being rich today. Being rich means you don't have to work. That's why in ancient times the affluent class was the landed aristocracy; they lived off the income generated by their estates. It was considered disreputable to work. Work carries no stigma today, but being rich still should mean being able to maintain a very comfortable standard of living without working. What does it take? If you're a cautious but competent investor, you should be able to earn 5 percent on your portfolio after taxes and allowance for inflation. So a net worth of $10 million can generate around $500,000 in spending money. That's about as good as a $1 million salary and qualifies you as being rich. By this criterion, there are approximately 250,000 rich families in America today.
Even rich folk have their limits, however. They can fly first class, but they cannot own their own Gulfstream V. They can have two homes, typically a permanent home and a vacation cottage, but they cannot maintain homes around the world. They can afford live-in maids but not small platoons of "domestic staff" to manage their various households. They can eat in fine restaurants but they can't, as one Las Vegas tycoon reportedly did, fly in world-famous chef Wolfgang Puck and his staff to cook for a private party. Rich people can get season tickets to the ballpark, but they cannot, as Paul Allen, Wayne Huizenga, and Ted Turner have done, buy a sports team. A well-connected guy can get front-row seats to a Rod Stewart concert. But he can't, as one Santa Barbara multimillionaire recently did, have Rod Stewart himself perform at his wedding.30 In short, rich people can do whatever they want within reason, but they cannot do whatever they want, period.
That honor belongs to the superrich, a new category that didn't even exist in 1980. To be superrich you need at least $100 million in assets and $10 million in annual income. Probably around 5,000 Americans, and perhaps 10,000 people worldwide, have this kind of money. These levels of wealth and income ensure that money is simply not an issue in the way you live your life. In some cases you may even feel entitled to make your own foreign policy, like investment mogul George Soros, who travels through eastern Europe and boasts of having "one president for breakfast and another for dinner."31 Despite his megalomaniacal aspirations, Soros isn't really a Master of the Universe, but at the very least superrich people like him are masters of their own destiny.
Don't like the kind of music you hear? Follow author Stephen King's example and buy a radio station. Tired of having to sign up to play golf? Build a nine-hole course on your private estate, as one Long Island Midas recently did. Worried about asteroids flying too close to earth? Pump in a hundred grand, like Infoseek founder Steve Kirsch, to identify and track them. Looking for other similar thrills? Join the few dozen rich and intrepid souls, such as software tycoons Jack Thompson and Richard Garriott, who have paid hefty deposits to sign up for the first commercial rides into space. Millionaire magazine even features ads, which do not appear to be a joke, that offer rich people a chance to purchase "an authentic Scottish or French title" in case you feel like calling yourself a duke or a marquis.
In short, being superrich allows you to go totally insane, a fate that has actually befallen more than one American tycoon. No wonder it's hard to keep one's balance when the line between fantasy and reality is erased. Superrich people are limited in what they can do only by their imagination.
The overclass, as I've defined it, doesn't include just wealthy and superwealthy people. It also includes a segment of the upper middle class. Making the usual allowances for how old you are and where you live, in general you are a member of the overclass if you have an annual income in excess of $150,000 and a net worth of at least $1 million. Right now around 5 percent of Americans (5 million to 6 million households) can be counted in this group.
Perhaps what is most romantic about this group is that increasingly it is made up of young people. Call it the "junior overclass." Its members are frequently found in fields such as telecommunications, financial services, and computer programming. What previous age produced the equivalent of child tycoons such as David Filo and Jerry Yang? Only in the last decade have we seen twenty-eight-year-olds sporting a net worth in excess of $1 billion. The emergence of so many young people with so much money has changed all the rules about affluence in America.
One prominent representative of the junior overclass is Russell Horowitz, who started Go2Net in his late twenties and convinced his mother to pull out $40,000 from her IRA account and invest in his new Internet portal. "If this fails," she warned him, "we're going to be selling T-shirts on the beach." Fortunately for her, Russell did not fail. In March 1999, Paul Allen bought a controlling interest in Go2Net for $750 million. Suddenly Russell was rich, and so was his mom. "I don't know what I did to deserve all this," Sylvia Horowitz says. "All I did was change a few diapers." To which Russell replies, "But you changed the right diapers."
Of course, multimillion-dollar portfolios are not typical for young people in their twenties and thirties. But as the rewards of today's technologically driven economy go disproportionately to those who are comfortable with technology and willing to take entrepreneurial risks, they will be. Already six-figure salaries and seven-figure retirement accounts are common among young entrepreneurs and young professionals in major cities. The Census Bureau reports that in 1997, the latest year for which data are available, there were already more than a million people between the ages of fifteen and thirty-five who earned more than $75,000 a year. Today that number is probably closer to 2 million.
Some might say that by today's standards $75,000 is not a lot of money. But that's only because our standards have become so extravagant. For a sense of perspective, reflect on the fact that in 1980 only 11 percent of all households earned an inflation-adjusted equivalent of $75,000 a year. This means that many twenty-somethings are starting out at higher incomes than their parents enjoyed at the height of their earning power. No wonder some of the old boys are feeling a bit peeved.
Of all the new features of today's economy, I have saved the most important for last: the unique power conferred on human beings by the new technologies. Technology today has become not only the primary means of generating wealth but also the most obvious expression of our ability to manipulate our environment. Of course, there is nothing novel about the idea of technology itself. Ever since the earliest cave dweller started to make tools, technology has been man's apprentice, assisting him in shaping his environment to meet his needs. The twentieth century has seen the introduction of important technologies, such as television and the airplane. So what makes today's new technologies any different?
At first glance, it seems that the answer is: nothing. Indeed the computer, the cell phone, and the Internet seem continuous with earlier communications technologies in that they reduce the distance between people and speed up their ability to relate to one another. If this were so, we as individuals and as a society should have no more trouble adjusting to the Internet than we did to the car. This view, which is correct as far as it goes, is a necessary antidote to the Internet hoopla that something radically new has come into the world that requires what author Harry Dent, Jr., calls a "new order of consciousness."
Yet upon reflection the hype turns out to be justified. Something new has come into the world, only it's not the Internet. Rather, it is the other technological revolution, the one that is being ignored, or at least downplayed, in all the excitement about the wonders of on-line retailing and e-mail. This other revolution goes by several names: nanotechnology, biotechnology, robotics. Its economic impact is only beginning to be felt, and its social implications are far wider. Basically it involves giving us as a species unprecedented power to control and transform nature, including our own human nature. Biologist E. O. Wilson says we are about to enter "a new epoch of life" based upon "our power to change the essence of our humanity." It is the ability to will our future as a species a power conferred by these new technologies that separates our predicament from that of every generation that has come before us.
If the nineteenth century was the century of chemistry and the twentieth century the century of physics, the twenty-first century promises to be the century of biology. Today's biology, however, is no longer restricted to laboratory experiments with test tubes and microscopes; it also involves computerized processing of huge amounts of data, computerized simulations of biological processes, and the sharing, via the Internet, of biological information among experts around the world. Biologists today can perform experiments at much greater speed and much more inexpensively "in silico" than in the laboratory. So biology has become an information science, and the marriage of biology and technology has given rise to a new field: biotechnology.
We think of the effects of biotechnology as confined to producing better crop yields and better vaccines. But the field is crossing a new threshold. In theoretical terms, the threshold was crossed half a century ago with James Watson and Francis Crick's 1953 discovery of the structure of DNA. Practical applications of Watson and Crick's monumental find were slow in coming and were mostly restricted to animals. Most of the excitement over the news in February 1997 that an obscure animal husbandry laboratory in Scotland had cloned a sheep named Dolly was based on the supposition that the next step was going to be the cloning of human beings. Indeed, the knowledge and the means of cloning people already exist; the only question is whether we are going to do it.
But why stop there? Biologists are on the verge of crossing another great barrier with the completion of the work of the Human Genome Project, a multibillion-dollar, multinational collaboration to identify and decipher the 80,000 to 100,000 genes in the human body. Francis Collins, head of the Human Genome Project, has called it the most important scientific project ever undertaken more important than the Manhattan Project, more important than the moon landing.
The reason is that the human genome is the periodic table of life. Just as the periodic table gave scientists a new understanding of the elements, so the genome project will give biologists a comprehensive view of the genetic code. Once scientists have mastered the workings of genes they will, for the first time, possess a new kind of power. Radical ideologies such as communism and Nazism aspired to power of this sort, but they never attained it. It is nothing short of the power to abolish human nature, the power to create a new kind of human being.
By altering the genes of new embryos, we human beings alive today will have dominion not merely over the succeeding generation but over every generation to follow. Scientists say that within a short time we will have the technology to alter the genetic code of our children. What do you think of the idea of designing and custom-ordering your children? Some people scoff at the idea, convinced that we'll never be able to do that. But this is the same crowd that, without ever setting foot in a lab, declared that scientists would never be able to fertilize embryos in a test tube until they did and that cloning was science fiction until it happened.
The people who know about these things assure us that "designer children" will soon be a real option for families. James Watson, codiscoverer of the structure of DNA, is enthusiastic about the prospect: "If we could make better human beings by knowing how to add genes, why shouldn't we do it?" Watson isn't talking just about eliminating genetic diseases; he is concerned about what he terms "genetic injustice." Evolution, he remarks, "can be very cruel." He wants to "treat other people in a way that maximizes the common good of the species." So how about a grand project to reform the species itself? Watson adds, "If you could cure what I feel is a very serious disease that is, stupidity it would be a great thing for people."
This, right here, is the threshhold. E. O. Wilson told me, "Once we set about remaking not defective but normal genes, then we will have begun the task of remaking man." Then we will be limited almost exclusively by our imagination. It is possible to devise all kinds of ambitious projects for changing our humanity. Biologist Lee Silver envisions the raising of human intelligence to create a new species more advanced than Homo sapiens, just as Homo sapiens itself emerged from more primitive apelike beings. Alternatively, we could try to eradicate aggression and become a more passive species or to eliminate the genetic differences that lead to inequality.
Some visionaries of the high-tech world have a much more ambitious idea: they think we should choose to relinquish our humanity and merge with our computers. Computer scientist Peter Cochrane, head of research for British Telecom, predicts "a radical symbiosis between humans and machines." He writes, "We will have to allow computer chips to become part of us, and allow ourselves to become part of machines." Scientist and entrepreneur Ray Kurzweil argues that this would simply represent an ongoing evolutionary movement to something higher than ourselves: "Computers started out as extensions of our minds, and they will end up extending our minds....Evolution's grandest creation human intelligence is providing the means for the next stage of evolution, which is technology." We can consciously guide this evolutionary process by choosing to enter what cybertheorist Donna Haraway calls "the cyborg era."
To some these will seem like implausible, even wacky ideas, but they are taken very seriously by the best minds in the high-tech world. Already leading scientists are trying to make computers that function like living creatures. This field is called "artificial life." Inventor Danny Hillis, who designs supercomputers, has given himself a challenging project: "I want to build a computer that is proud of me." What kind of talk is this? We know that computers can do many of the things human beings do, such as lift things and count and communicate. Some jobs, such as landing airplanes, guiding cruise missiles, and doing other massively complicated calculations, computers seem to do better. But there are other notable human activities feeling sorrow, for instance, learning from experience, making babies, or telling right from wrong that computers seem unable to perform. Many scientists think that these barriers are not invincible, and they are working to produce a computer that can replicate every function of living beings. The premise of this line of research is that we living creatures are, at bottom, mere atoms and molecules, our brains are nothing more than sophisticated electronic circuits, and our genes are fundamentally units of information or code. Biologist Leroy Hood remarks that "our genome may be viewed as the most incredible software program ever written." In this view, we are protein-based computers. So there is no reason in principle that biologists and software programmers cannot replicate by electronic means the complicated material process called life.
Of course, many people doubt that this effort will succeed in practice. Even if scientists are unable to create artificial life, however, they can achieve the same result by inserting living cells into nonliving objects. This is not only possible, it is already being done. And it works. For example, if you take the cells of a glowworm and insert them into a packet of tobacco, the tobacco glows! There is every reason to believe that human cells can be inserted into electronic frames to create "living machines." As we get better at doing this, scientists say, these machines will become more and more "alive" until the distinction between the natural and the artificial is completely abolished.
Of course, "living machines" can also be constructed in another way. Electronic devices can be implanted in our bodies and our brains to turn us into mechanized humanoids, or cyborgs. To some extent this is going on now with retinal implants, cochlear implants, pacemakers, artificial limbs, and so on. Some paraplegics have implants in their legs, arms, chest, and brain. Scientists tell us that silicon implants will monitor many of our body functions in the next several years. Even so, the focus of this enterprise is narrow: to remedy disability. But the concept of disability makes sense only when measured against a widely accepted norm of health, just as the concepts of "subhuman," "inhuman," and "superhuman" are meaningful only when measured against some agreed-upon definition of human nature.
Technology is now giving us the power to get rid of these norms and make of ourselves what we will. By using implants to enhance our physical and mental functions, we can become cyborgs. By becoming cyborgs, we can achieve the superhuman powers that the computers of the future will surely possess. At the same time, our nostalgia over losing our humanity may be overcome by the recognition that we have gotten rid of the sins, follies, and weaknesses that were an intrinsic part of our old "crooked timber." And then the history of our species can be written with the epitaph that we tried out humanity, found it wanting, and opted for something better.
Copyright © 2000 by Dinesh D'Souza