The World's Biggest Outlet Malls

Roger Cohen calls it “autocratic hypercapitalism.” By that he means the new swashbuckling capitalism practiced by China, Russia and various developing nations.

These nations, especially China, have produced an extraordinary economic boom, but have done so without the benefit of democratic institutions or a respect for the rule of law.

Thus, the mega-rich in those countries do not trust their governments and choose to hedge their bets by buying property in London and New York. We should add the influx of South American money in Miami.

It’s like buying an insurance policy. If worse comes to worse, governments in the Anglosphere are far less likely to confiscate your money. And they are far less likely to have you thrown in jail for God knows what. Witness what happened to Mikhail Khodorkovsky.

In London and New York, in particular, the mega-rich have been pricing local residents out of the real estate markets. And out of the luxury goods markets, too.

Cohen describes the situation in London:

There is talk of a bubble. Nobody cares. Foreign money pours in, to the City of course, where the Shard skyscraper now rises over 1,000 feet, but also into houses and apartments often used only a few weeks a year. In Belgravia, Mayfair and Marylebone the oligarchs of Kazakhstan, the oil-rich of the Gulf and the newly affluent of Asia bivouac with their staffs. They shop, oblivious to the displaced masses with day jobs. The average masters of the universe in London, unlike those in the United States, can enjoy residency without being taxed on global income.

Large numbers of luxury properties sit empty most of the time, palatial slivers of big portfolios. If Vladimir V. Putin is serious about defending Russian speakers wherever they are, he may have to annex the Royal Borough of Kensington and Chelsea, where Russian is a lingua franca on the King’s Road.

One notes Cohen's use of the term: “bubble.”

One likes to think that these foreign investors are confident that their real estate holdings cannot lose value. One likes to think that they will continue paying the common charges on their condos when the market heads south. And one needs to recall that it all depends in part on the ability of these people to export their money.

If the Chinese government decides to stop the outflow of capital… what then?

Cohen continues to describe the bubble in the New York property market:

None of this will be unfamiliar to New Yorkers. The other great global city — like London a magnet to strivers of every kind and home to every kind of bad English — has its own bubble. It sucks in money from across the globe, even without those tax advantages. Real estate prices soar. Ordinary people are pushed out. As in London, far-flung districts rise. Bushwick has arrived; East New York looms. New York is a world apart, even if its relative weight in the national economy is much smaller than that of the British capital.

Now, Cohen suggests subtly that people who have accumulated an extraordinary amount of money in Russia and China are crooks and crony capitalists.

In his words:

Having made it big in autocratic countries with parlous legal systems (if that), a cowed press and rampant corruption — say, Russia and China — oligarchs and crony capitalists wake up one day and find that, gosh, they like nothing as much as democratic systems under the rule of law held accountable by an independent press. Having trashed the West, they trust the West with their money.

Autocratic hypercapitalism without Western checks and balances produces new elites whose dream is an American or British lifestyle and education for their children, and whose other goal, knowing how their own capricious systems really function, is to buy into the rule of law by acquiring real estate, driving up prices in prime markets to the point where the middle classes of those countries, with incomes often stagnant or falling, are pushed aside.

To be fair, Russia and China are not the same thing. One hears far more talk about Russian oligarchs than about Chinese oligarchs. In China, at the least, the economic boom has been fairly widely distributed.

It’s nice to think that these people are setting up outposts in New York because they love the New York Times. One suspects, however, that they are more concerned with the stability of the dollar. If the currency turns against them... Katie bar the door!

One understands why Cohen wants to find a saving grace in London and New York. It’s not very much fun believing that your greatest cities are someone else’s outlet malls.