Stephen Schwarzman and the Schwarzman Scholarship advisors

This is a guest column; ‘Mihael Willman’ is the pseudonym for a concerned Canadian – JG.

This is the second of a two-part series.

By Mihael Willman

Schwarzman is the poster boy for the 1 per cent of the 1 per cent, known to many as “The King of Wall Street,” and notorious for his over the top, extravagant lifestyle. He did not achieve his enormous wealth by creating anything, like Bill Gates and Steve Jobs. His wealth came from “Private Equity Funds”, and the, often criticized, practise of leveraged buyouts. In his article entitled “Private Inequity,” published in “The New Yorker,” James Surowiecki provides an excellent commentary on just how private equity funds really work.

From a mere personal wealth of $3 billion in 2010, Schwarzman has managed to double his personal worth to at least $6.5 billion, by the beginning of 2013. (However, his actual worth is difficult to nail down. A “Newsweek Magazine” 2010 article put it at $8 billion, while another noted that his share in Blackstone was converted into $4.77 billion in shares, when the company went public in 2007.) Thus, while millions of ordinary Americans lost their jobs and homes following the 2008 financial meltdown, though the value of Schwarzman’s investments declined in 2008, he has still managed to increase his wealth and is still billions of dollars away from requiring public assistance. Yet he told “The New Yorker” a few years ago, “I don’t feel like a wealthy person.”

Unlike his fellow billionaire, Warren Buffett, who feels it is unfair for people like himself to be paying lower tax rates than their secretaries, Schwarzman has no such qualms. Instead he feels that it is billionaires like himself, who are the victims, who face financial threats from possible tax reform. When in 2010 President Obama announced plans to close what is considered an unfair tax loophole for hedge fund managers and private equity executives, Schwarzman responded “It’s a war. It’s like when Hitler invaded Poland in 1939.” The statement made at a private board meeting of a non-profit organization apparently stunned many in the audience. Schwarzman apologized for the “inappropriate analogy,” but not for the sentiment. While continuing the fight against closing the tax loophole for billionaires like himself, he soon went a step further, demanding a tax reform which would require low-income people to pay more tax! Clearly a concerned humanitarian of the highest order!

“Birds of a feather flock together.” Not surprisingly, during the Republican leadership race and later U.S. presidential elections, Schwarzman financially supported and hosted a fundraiser in his Park Avenue apartment for Mitt Romney, a former CEO of Bain Capital, which is ranked as the seventh largest private equity firm in the world. Did Schwarzman ever privately regret his support of Romney, when fellow Republican candidates attacked his Bain Capital years as an example of “vulture capitalism,” thus shining greater light on this system of doing business? His only publicly expressed regret was that Romney lost the election. Since the re-election of President Obama, Republicans in the Senate and Congress, particularly those belonging to the Tea Party wing, have gone out of their way to oppose closing tax loopholes or increased taxation on the “super rich” without massive spending cuts coming first. Instead of fighting for the middle-class, Republicans have taken up the cause of the poor maligned, tax-break deserving, super-rich like Stephen Schwarzman.

One would have to be a psychiatrist to even begin to understand why one of the world’s wealthiest men would donate to and raise funds for an educational institution in Communist China. It isn’t as if he made his fortune doing business with China and therefore, for some strange reason, felt he owed something back to that country. Most of the wealth was made buying American companies. So why not set up this scholarship in the United States to help American students? Unless he was made aware of the Chinese government’s disaffection regarding the loss in value of their investment in Blackstone? The stocks sold in June 2007 for $31, then in August 2010 had fallen to just over $10. As yet they have not fully recovered their original value. On a personal note, could the choice of location for the program be based on the fact that Schwarzman was rejected for both the Rhodes scholarship and a Cambridge fellowship?

In addition to Schwarzman’s donation, $100 million has been raised from corporations and donors, with the remaining $100 million to be raised by the end of the year. Among the major donors are: BP, second-biggest donor after Schwarzman, Boeing and Caterpillar, JP Morgan Chase, Bank of America and Credit Suisse, who all do business with China, as well as Bloomberg Philanthropies, the personal foundation of New York Mayor Michael Bloomberg. In addition to the above named, numerous donors would prefer to remain anonymous. Wonder what they have to hide or why they don’t want to reveal their identities?

Since former U.S. president Richard Nixon’s trip to China, the U.S. has had a rather ambivalent relationship with that country. While intelligence and national security agencies have urged caution in U.S. dealings with Communist China, especially in recent years, the business community has had no such concerns. Afterall it was large U.S. corporations who pushed for Washington to recognize and normalize relations with Communist China. Though they probably urged this policy with the argument that China was an untapped future market of a billion people for American-made goods, (which the majority of Chinese then, and now, still can’t afford), their actual goal very likely was to exploit the abundant, and very cheap, labor China had to offer.

The scholarship program has bi-lateral American political support. While Democratic U.S. President Obama sent a congratulatory letter which was read at the announcement ceremony (as did China’s new leader Xi Jinping), the majority of honorary advisors are from the Republican side of the political fence, a veritable “who’s who” of Conservative and American Republican politicians.

The advisory board is full of influential western politicians who are honorary members. Advisers include Henry Kissinger, Condoleezza Rice and Colin Powell, three former U.S. secretaries of state and National Security Advisors, and former western government leaders: French President Nicolas Sarkozy; English Prime Minister Tony Blair, Kevin Rudd of Australia and Canada’s Brian Mulroney.

Henry Kissinger as an advisor is not surprising, since he was the chief architect of Nixon’s 1972 China visit and the subsequent normalization of U.S. relations with China. What is surprising is that Colin Powell, a retired four-star general, and Condoleezza Rice, who are both clearly aware of the growing threat Communinist China poses for the U.S. and the West, should be supportive of the Schwarzman program. All three served Republican presidents and are also members of that party.

Also serving as honorary advisors are Henry Paulson and Robert Rubin who both served as Secretary of the Treasury, the former a Republican and the latter a Democrat. One interesting fact is that both worked for Goldman Sachs, one of the companies which profited heavily from America’s subprime mortgage crisis. Paulson started in 1974, becoming a partner in 1982. Before he became Treasury Secretary in 2006, he had to divest his stock in the company. As a result of his time at Goldman Sachs, according to a July 2008 report in The Daily Telegram, he “has intimate relations with the Chinese elite” acquired during his more than seventy visits to China. Rubin joined Goldman Sachs in 1966, and became a general partner in 1971, leaving in 1992 to become Clinton’s Secretary of the Treasury.

Richard Haass, an American diplomat, has served in various capacities, including as Special Assistant to George H.W. Bush, and on the National Security Council, a policy director for the State Department and an advisor to Colin Powell. Since 2003 he has been president of the Council on Foreign Relations.

Some of the other advisors include the Presidents of Yale and Duke universities. In the press release among the supportive quotes are the following from Condoleezza Rice and Henry Kissinger.

“The rise of China presents both opportunities and challenges. The future of our countries is intertwined both economically and politically. There is no better way than through the development of the next generation of leaders to ensure mutual respect and understanding going forward. That is the critical mission of the Schwarzman Scholars.” Condoleeza Rice

“The rise of China is one of the central challenges of our time and as global citizens, we need to forge a deeper understanding between the U.S. and China, and diminish cultural biases to mitigate possible tensions and create opportunities for both countries. Close relationships, cultural understanding and open communication are required to sustain a peaceful world and to avoid conflict. Our hope is that, based on the knowledge, relationships and perspectives gained through this pivotal experience, Schwarzman Scholars will one day help shape the future of international discourse and interaction.” Henry Kissinger

Not to be omitted is Canada’s own Brian Mulroney who described the program as: “This prestigious program will attract talented individuals with the vision to see that they must understand where the world is moving. It offers an unrivaled opportunity for future leaders to spend a year gaining first-hand exposure to China. Through travel to all corners of the country, access to China’s leadership, exposure to the culture and way of life, and the lifetime bonds they will forge with their peers, Schwarzman Scholars will be poised to make their mark in the decades to come.”

The Academic Advisory Council consists of fifteen academics, with eight from American universities and only two Chinese nationals among them.

The importance the Chinese Communist government places on this program was evident from the fact that the scholarship announcement was held in the “Hall of the People,” and not on the campus of Tsinghua University.

Despite being ranked in 151st place with fifty other universities, Tsinghua University has managed to attract many distinguished guest speakers. These include former U.S. presidents George W. Bush, during his term as president, Bill Clinton, as well as Henry Kissinger, Henry Paulson and Tony Blair, to name just a few.

Clearly Stephen Schwarzman has been able to attract influential individuals to serve as advisors for the Schwarzman Scholarship program. Those connected to or supportive of the scholarship program forsee a wonderful future arising from it, a time of peace, understanding and mutual prosperity. Only time will tell whether this program will bring about a better understanding or whether it will be used to further the interests of the Chinese Communist regime. Or will those connected to the program prove the veracity of Vladimir Lenin’s attributed quote, about capitalists selling the communists the rope to hang them with? He may yet be proven right in his assessment of capitalists, his only mistake being that it will be Communist China which will profit and about one hundred years later than anticipated.

As this article was being completed, reports appeared about an article in the “Washington Post” that designs for more than two dozen of America’s most sensitive, advanced weapons systems, had been compromised by Chinese hackers. Nothing really new about this report, since espionage and computer-hacking by China has become rather commonplace. Is this the example of “close relationships, cultural understanding and open communication” we can continue to expect from the Communist Chinese going forward? Or does the future hold the Utopia that the supporters of the Schwarzman Scholarship Program have painted for us?

Read “American Financier Stephen A. Schwarzman Endows International Scholarship Program in China” (Businesswire.com, April 21st, 2013) here.

Read Part one of this series, “The Schwarzman China Scholarships – A good idea?” here.

You can also read The New Yorker’s article “Private Inequity” by James Surowiecki dated January 30th, 2012 here.

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