Superclass

The Global Power Elite and the World They Are Making

by David Rothkopf

Farrar, Strauss, Giroux, 2008, paperback

Abraham Lincoln

Nearly all men can stand adversity, but if you want to test a man's character, give him power.

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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.

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Jean Anouilh

God is on everyone's side... and in the last analysis, he is on the side with plenty of money and large armies.

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The combined net worth of the world's richest thousand or so people - the planet's billionaires - is almost twice that of the poorest 2.5 billion.

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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.

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former Secretary of Defense John Lehman

Power corrupts. Absolute power is kind of neat.

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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.

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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.

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Plato

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.

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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.

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President Dwight Eisenhower, in his farewell address as president in 1961

[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.

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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.

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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 communications.

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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 nationality.

Although I disagree with some of Faux's more extreme antiglobal, antitrade impulses, his concerns about the dislocations caused by glob-

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Karl Marx, at the beginning of The Communist Manifesto

The history of all hitherto existing society is the history of class struggles.

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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.

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The late-nineteenth American social critic Thorstein Veblen ... coined the term "conspicuous consumption" to explain what the rich spend their money on - ostentations.

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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 trillion.)

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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.

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The United States has $50 trillion in assets and Europe nearly $30 trillion.

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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.

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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.

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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 world today.

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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 in assets.

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.

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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.

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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.

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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.

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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.

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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.

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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.

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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 airlines industry.

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Plutarch

An imbalance between rich and poor is the oldest and most fatal ailment of all republics.

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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.

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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.

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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.

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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.

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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 power?

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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.

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Inequality has been on the rise for almost seven decades, with a period of "steady and sharp" increase between 1982 and 1994.

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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.

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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.

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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.

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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 of time.

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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.

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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.

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Aristotle

History shows that almost all tyrants have been demagogues who gained the favor of the people by their accusation of the notables.

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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.

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The world's ten biggest corporations [are]: Wal-Mart, ExxonMobil, Shell, BP, General Motors, Chevron, DaimlerChrysler, Toyota, Ford, ConocoPhillips.

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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.

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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.

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Joseph Stiglitz

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.

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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.

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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.

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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.

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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.

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St. Augustine

In the absence of justice, what is sovereignty but organized robber?.

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John Adams

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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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 do it.

"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.

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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.

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Thomas Friedman

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...

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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 century.

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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 issues.

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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.

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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 history.

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.

p197
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.

p205
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.

p205
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 government leaders.

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.

p207
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.

p211
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.

p213
Late in 2006, the Chinese government ... announc[ed] plans to fund privately owned - as opposed to government owned - military equipment producers.

... 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 in China."

p214
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.

p214
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 demand.

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 Pakistan.

p221
Denis Diderot

Men will never be free until the last king is strangled with the entrails of the last priest.

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