Inside Money: An Interview with Zachary Karabell

by | June 7, 2021

A Conversation with Zachary Karabell, author of INSIDE MONEY: Brown Brothers Harriman and the American Way of Power.

Q: Why did you decide to write this story? 

A: I wanted to find a topic that allowed me to write a sweep of American history through the lens of how money made America and how the people who made money then created the period of global American dominance that we now call “the American century.”  Brown Brothers Harriman is perhaps the only company that makes it possible to tell that story through the evolution of one firm and one family. 

Q: Other names come to mind as instrumental to the building of America—Vanderbilt, Rockefeller, Carnegie. These figures have an outsized role in our common imaginations when we think about wealth and power. Can you explain the role that BBH had in shaping our ideas about money, wealth and self-interest, one that is less well-known, but no less important?

A: There is arguably no firm that has had a greater impact on American life and history than Brown Brothers Harriman. Over more than two centuries, Brown Brothers helped to create paper money as the primary medium of American capitalism; underwrote the first major railroad; almost unilaterally created the first foreign exchange system; and, more troublingly, was a central player in the cotton trade and, by association, the system of slave labor that prevailed in the South until the Civil War. That history alone makes the firm compelling, but it’s what came after, in the 20th century, that truly catapulted the firm’s influence and magnified its effect. Brown Brothers was at the center of the American financial elite—educated at Ivy League colleges and northeast boarding schools—that eventually morphed into what was referred to, not without ambivalence, as the Establishment. And for better or for worse, that Establishment with key Brown Brothers partners at the helm created the architecture of the world we live in today, from global institutions such as the UN and the World Trade Organization to the Pentagon and the CIA in the United States. The firm’s partners believed that they had a responsibility to put aside their parochial self-interest to serve the greater good, that the United States was bound to lead the world and that they and their country would prosper together. 

Q: Can you give a few illustrations or examples of how that philosophy played out? 

A: The ethos of service—that core belief that suffused the culture of the firm and of generations of Browns—propelled the firm to fund the construction of the first major railroad in the United States—The Baltimore & Ohio—not because the firm and its founder Alexander Brown stood to make much money but because a vital piece of transportation infrastructure would unlock more of the commercial potential of Baltimore and the mid-Atlantic and would, therefore, ultimately benefit Brown Brothers but also the entire community. Later, on a less altruistic note, they worked hand in glove with the U.S. government to take over the finances of Nicaragua in 1912, in part to ensure that the firm’s loans were repaid and in part to extend American influence into Central America as part of the first wave of American imperialism abroad, thereby giving the firm and the country an appetite for foreign ventures that were at once commercial and cultural, economic and political, and created a template for American global power after World War II. And of course, a coterie of the firm’s partners—Robert Lovett, Averell Harriman and Prescott Bush (father and grandfather of the two Bush presidents)—revolved between Washington and Wall Street to form that “the Establishment” of the 20th century that saw an almost seamless merger between business and government that was part of the formula of the American century. That legacy remains to this day.

Q: We don’t usually think about character and responsibility when we talk about bankers and financiers these days, our image is typically one of greed, privilege and excess. How does BBH fit into that image and what can their model teach us as we try to cope with the vast inequality that exists in America today? 

A: Brown Brothers began as a family partnership, and it remains a closely held partnership more than 200 years later. A partnership is limited in how much risk it can take because every deal relies of the money of the partners, not as in the case of publicly-traded financial firms, on a mass of silent shareholders or loans from other banks. 

That doesn’t mean that private partnerships can’t be greedy or immoral, but it does mean they can almost never become too big to fail, can never endanger the entire financial system, and tend to be driven by more than the pursuit of more profit and money at any cost. What’s more, Brown Brothers Harriman retained throughout its history an ethos that with great power and money comes public responsibility, which again allowed for a wide range of activities including complicity in the slave system during the pre-Civil War cotton economy but which also propelled the partners to always consider not just their personal gain but the public good. And in the end, for these reasons, the firm never joined the drunken capital party of the 1980s through the financial crisis of 2008

Q: You write: “Preventing a crisis never gets the same attention as responding to one… Perhaps if we spent more time focusing on those who toiled to maintain the floodgates, we might be less prone to the deluge.”  Let’s focus on those who managed the floodgates over the years—what can we learn from their actions?

A: First, there is the dominating figure of Alexander Brown, Irish émigré to the United States in 1800 who founded a modest linen importing business that morphed into one of the most influential merchant banks of the 19th century. His advice to his sons verged on platitudes, with repeated urgings to focus on one thing, remember that trust is hard won and easily lost and that the point of business is to serve clients and preserve the family—a far cry from the relentless pursuit of profit that ungirds today’s shareholder capitalism. 

Then there is Robert Lovett, Yale man, member of the secretive Skull & Bones fraternity, an early proponent of air war in World War I who became a Brown Brothers partner and in-law before going on to help create the modern Air Force during World War II. He was then the number 2 official in both the State Department and the Defense Department (which he shaped) before becoming Secretary of Defense during the Korean War, lauded, on the cover of Time magazine, and embodying the marriage wealth and political power in the service of the United States during the Cold War. 

They—and all the stewards of the firm—ensured that the system survived because they always placed the greater good ahead of their personal gain, even though that greater good as they understood was not all inclusive and allowed for a ruling class that could not easily be entered.

Q: In the heyday of the 1980s, reflecting on the decision to turn away institutional clients because they couldn’t service them without expanding, one Brown Brothers partner said, “We didn’t ask ourselves what size we should be to meet the business. We asked what business we should take to match our size.” Doesn’t this represent a failure of ambition on their part? 

A: The mantra for companies today, and especially Wall Street firms, is to get bigger and bigger, with more revenue, more profits accelerating every quarter. Shareholders of publicly traded companies demand that, and executives are paid on how much they boosted the stock and market share. That, however, is not the only way companies could be run. They could be run on the basis of sustainable growth, slow and steady tending to the franchise, and to reputation and to serving clients well and not simply serving more. The idea of enough is alien in today’s financial world. BBH are by any measure other than the distorted lens of Wall Street today a success story that has lasted generations. The problem isn’t their culture of enough; it’s wider culture that doesn’t value that.

Q: When people talk about money in politics now, they often mean campaign finance, or lobbying. But how did money and political power originally become intertwined in our culture? Were they always married? 

A: For most of the 19th century, money and political power occupied largely separate realms. It wouldn’t have occurred to Carnegie or Morgan to enter politics. Why would they? They had immense power and autonomy largely unimpeded by government and sometimes facilitated by it. In the 20th century, however, a self-conscious elite coalesced, educated at the same private schools such as Groton and then at a few elite colleges such as Harvard, Yale and Princeton. It was that elite that began the revolving door between Washington and Wall Street, between major corporations and political powers, especially after World War II, when the unique position of the United States as the most dominant economic and political power combined with the Cold War rivalry with the Soviet Union and communism propelled that class to the political apex, with Brown Brothers Harriman partners in a leading role.

Q: Do you see this same relationship between money and political power playing out in recent history – for example, with the leaders of the tech world today and the way they influence policy? Can you imagine their progeny joining the ranks of the powerful in government in a similar fashion, or was that a result of the age?

The tech world today is in a similar position to the financial world in the 1930s, immensely powerful and wealthy but still at odds with and removed from Washington. World War II propelled the financial elite into government service, and they helped write the rules of the global economic system in a way that served them, the United States and, they believed, the world. The tech leaders of today, however, remain largely scornful of government as slow, inefficient and uninteresting, and while tech companies are galvanized to fight the rising calls for regulations, they have not yet embraced an ethos of public good expressed through public service. It might be better for society as a whole for tech companies and their leaders to think about the public good in terms of not just what their technologies offer the world but in terms of how government is often a necessary element in meeting the needs of society.

Q: If we’re entering a boom phase of infrastructure and jobs creation, as the Biden administration hopes, would you expect a similar path for those tasked with the development of both? What might we do differently in this period of change, and hopefully, growth – to make things more equitable for future generations?

A: Here again, the lesson of Brown Brothers is that no company or individual can thrive fully unless they are both of a collective that is thriving. Yes, partnerships are not a panacea solving all of the ills of capitalism, and in fact, you need some small percentage to be willing to risk everything to gain everything. Elon Musk could never have emerged from Brown Brothers. But as we contemplate the massive needs of society going forward, and the imperative for business and government each to work in harmony to rebuild the country’s infrastructure, provide for high-speed internet everywhere and ensure the vitality of the economic system in the decades ahead, business leaders have to integrate the question of what will maximize collective prosperity with as much urgency as they ask what will maximize their own.

Filed Under: Economics . Featured . Politics

About the Author

Alex is the co-founder of Jackson Hole Economics, a non-profit research organization which provides analysis of key topics in the political economy, and develops actionable ideas for how sustainable growth can be achieved

Alex is also the co-founder and Chief Executive Officer of Novata, a mission-driven and technology-powered public benefit corporation designed to improve the process of Environmental, Social, and Governance (ESG) diligence in the private markets. Backed by a unique consortium, which includes the Ford Foundation, S&P Global, Hamilton Lane and Omidyar Network, Novata has created an independent, unbiased and flexible platform for the private markets to more consistently measure, analyze and report on relevant ESG data.

With two decades of experience in the financial and non-profit spaces, Alex has led a number of sustainable growth and transformation efforts. He is a former CEO of GAM Holdings and Chief Investment Officer of UBS, and also served as the Chief Financial Officer of the Bill & Melinda Gates Foundation, where he created the foundation's strategic investment fund.

Alex was a White House Fellow and an assistant to the Secretary of Defense. He is a member of the Board of Directors of Franklin Resources, Inc. (Franklin Templeton), a member of the Council on Foreign Relations, Chair of the Advisory Board of Project Syndicate and a board member of the American Alpine Club. Alex also writes regularly for various news outlets and is the author of Babu's Bindi and The Big Thing: Brave Bea, both children's books.

Alex holds a JD from Columbia Law School, where he was a Harlan Fiske Stone Scholar, an MBA from Columbia Business School, and a BA from Princeton University.

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