GOODBYE, MIDDLE CLASS, Part 4: Return of the Robber Barons. Or, Why the Rich Get Richer
Continued from Part 3: Increasing Poverty, Declining Health
“[Profit] is always highest in countries which are going fastest to ruin.” --Adam Smith, The Wealth of Nations
“Inequalities are inevitable under capitalism,” explains Hedrick Smith in Who Stole the American Dream? “But no other advanced economy has such a hyper-concentration of wealth. In fact, America looks far different from its own past. The primary cause of middle-class stagnation lies in the wedge economics practiced by business leaders.”
“Big government was not stripped away in the Reagan years; it was just redirected to the needs of private enterprise,” writes William Kleinknacht in The Man Who Sold the World, “Reagan unleashed or greatly accelerated the huge transfers of wealth, the vast restructuring of American industry, the disappearance of business ethics, and the insecurity of workers, communities, and corporate shareholders…It would generate vast new fortunes for some while leaving the majority of Americans, wide swaths of the poor and middle class, struggling to make ends meet in a new and uncertain world.”
According to Jeffrey D. Sachs in The Price of Civilization, “Workplace conditions have deteriorated during the past three decades. We derive most of our income and many of life’s pleasures from productive work. A healthy workplace is key to a healthy society. Yet the overriding reality of the past thirty years has been a sharply widening gap in power, compensation, and job security between senior management and professionals, on the one hand, and the rest of the workforce, on the other. This has been an era of soaring CEO pay combined with a grinding squeeze on the wages and working conditions of production and clerical workers. Job security has plummeted for relatively low-skilled workers (those with a high school diploma or less). The working class has been caught in the pincers of low-wage competition from abroad combined with the technological obsolescence of many traditional low-skilled jobs. The top CEOs have cashed in as never before. At the start of the 1970s, average top 100 CEO pay was roughly 40 times the average worker’s pay. By the year 2000, it had reached 1,000 times the average worker’s pay.”
That’s quite the wage gap – a gap that only grows with each year.
“If decreasing trust in government is one disturbing trend of the past two decades, equally disturbing is the inequality gap that has opened up over the same period in the private sector. Countless studies have shown that runaway executive pay results from the small incestuous circle of corporate boards, largely made up of other overpaid executives at other corporations. The decision of how best to distribute a firm’s profits is almost never made by the shareholders, much less the employees," writes journalist Steven Johnson in Future Perfect: The Case for Progress in a Networked Age.
For instance, according to Michael Goodwin in his amazing Economix:
In 1988, Disney CEO Michael Eisner was the highest paid executive in America, earning $40 million. In 1998, he was the highest paid executive in America, earning $575 million. By this logic, the average Disney employee did nothing to earn a paycheck equivalent to the rising standard of living, but somehow Eisner did 14 times more of whatever he was doing in 1988?
Must have been some good pixie dust there. Too bad it doesn't extend to any of the theme park employees whose wages are so low, many are forced to sleep in motels.
Like Eisner, CEOs who insist they deserve this pay scale argue they need this incentive to do their best, that they are worth every penny. Apparently, the thousands of employees below them doing the grunt work, work only for pennies.
It doesn’t take a doctorate to understand that there is zero connection between CEO pay and how well they do their jobs. If so, then maybe we should increase the President’s salary to more than $400,000 a year. Or at the very least, decrease Congress’ pay to mirror the average worker, preferably that of a part-time employee who doesn't get paid leave.
"Japanese CEOs continue to make about 26 times as much as their average worker," explains James W. Loewen in Lies My Teacher Told Me. "And it is hard to claim that the leadership of GM and Ford is that much better than Toyota's and Honda's."
So how did American CEOs come to collect such exorbitant salaries?
“It began with globalization, which pushed up capital income while pushing down wages," explains Jeffrey D. Sachs in The Price of Civilization. "These changes were magnified by the tax cuts at the top, which left more take-home pay and the ability to accumulate greater wealth through higher net-of-tax returns to saving. CEOs then helped themselves to their own slice of the corporate sector ownership through outlandish awards of stock options by friendly and often handpicked compensation committees, while the Securities and Exchange Commission looked the other way. It’s not all that hard to do when both political parties are standing in line to do your bidding.”
"CEOs have been able to take advantage of a corporate governance system that allows them to drive up their own pay. It creates ripe conditions for imbalanced bidding wars where executives hold the cards and prevent all but the most privileged insiders from understanding what is actually going on," reveals Jacob S. Hacker in Winner-Take-All Politics,
Consider these notable examples:
- Charles Prince earned at least $120 million from running Citigroup for four years, during which time $64 billion in company market value vanished.
- Stanley O’Neal received a $161 million package when ousted from Merrill Lynch after presiding over the biggest losses in the firm’s history.
- Robert Nardelli was ousted from Home Depot with $223 million after five years of absolutely flat stock value.
- Hank McKinnell left the helm of Pfizer with $200 million even though Pfizer lost $140 billion under his reign.
- Jack Welch left General Electric with $417 million golden parachute.
- Gerald Levin earned $600 million despite engineering the failed Time-Warner-AOL merger, which saw stock prices drop from $58 to $9, costing shareholders $100 billion.
- Tom Freston was paid to leave Viacom for over $100 million.
- Bob Simpson left XTO Energy for over $100 million.
- Leonard Schaeffer left WellPoint Health Network for almost $120 million.
- Meg Whitman left eBay for over $120 million.
- George David left United Technologies Corporation for $122 million.
- Wallace Malone left SouthTrust/Wachovia for $125 million.
- Joel Gemunder left Omnicare for $146 million.
- Jerry Grundhofer left U.S. Bancorp for almost $160 million.
- Bob Ulrich left Target for $164 million.
- Jim Kilts left Gillette for $164 million.
- Tom Ryan left CVS for $185 million.
- Lou Gerstner left IBM for $189 million.
- Fred Hassan left Schering-Plough/Merck & Co. for $189 million.
- John Kanas left North Fork Bank for over $210 million.
- Ed Whitacre left AT&T for $230 million.
- Lee Raymond left Exxon for $320 million
- Carly Fiorina departed Hewlett Packard with $100 million, while the company’s value declined significantly and endured massive layoffs.
According to Christopher Hayes in Twilight of the Elites: America after Meritocracy, only a handful of CEOs have lost their jobs for the roles they played in creating our financial crisis.
In a prison system that incarcerates more people than any other country, it’s loaded with minorities with minor drug offenses, yet free of nearly every Wall Street executive who helped bring down the financial system, save for one Ponzi schemer who screwed over fellow 1%-ers.
This is not a coincidence.
Consider that in lieu of federal charges, Ken Lewis of Bank of America got a multi-million dollar pension and Dick Fuld of Lehman Brothers exercised half a billion in options. This imbalance is embedded in the current fabric of the American workforce.
As Christopher Hayes writes, “A society in which cheaters, shirkers, and incompetents face no sanction, where bad behavior meets reward, is a morally hazardous one. In economics, the term ‘moral hazard’ refers to the perverse incentives that can arise when agents are insulated from the cost of their actions…major financial institutions only took risks they did because at some institutional level they assumed that if things went terribly wrong the government wouldn’t let them fail…that the government would step in to prevent failure of institutions big and powerful enough to bring down the entire system.”
But the epidemic of corporate fraud that’s followed Enron’s malfeasance is self-evident: With that much money at stake, executives rationalize behavior. The potential wealth is so large it induces misconduct.
“Competition and outsize monetary reward are just one half of the fraud equation,” explains Hayes. “The other is lack of regulatory oversight and an internal culture of corruption.” More about that in the “wasteful government spending” section.
Why are these stats relevant? Because the billions of dollars given to this select group of people represent billions of dollars evaded in taxes to our government, and denied by low-level employees earning less than their parents did 30 years ago.
These numbers illustrate how the hard working wealth of the 99% is being redistributed to the 1%, both unwarranted and unacceptable.
Why does anyone need a going away package? It’s rewarding failure, while the most menial jobs – and most necessary ones – show no reward for success.
To put things in the proper perspective:
CEOs can earn in one day what most workers earn in a whole year. And while CEOs' taxes have decreased, the average workers' have increased. (Truthdig.com)
If the minimum wage had risen as fast as CEO pay since 1990, the lowest paid workers in the U.S. would be earning $23.03 an hour today, not $5.15 an hour. (Thom Hartmann, Screwed: The Undeclared War on the Middle Class)
If the median household income had kept pace with the economy since 1970, it would be nearly $92,000, not $50,000. (Mother Jones, August 2011)
And to bring everything home in one sobering – if not sickening – example:
The wealthiest American family, the Waltons of Wal-Mart own more wealth than the bottom 40% of Americans. This is a staggering number not just because they are such a wealthy dynasty, but because the rest of us are so poverty-stricken. (Steven Jonas, “An Economic Cancer”)
Yet Wal-Mart spends $6.5 billion per year on stock buybacks to enrich investors, the same annual amount billed to taxpayers for food stamps, Medicaid, housing, and other safety net programs for the company’s notoriously underpaid employees. (PBS NewsHour, “The Biggest Scam Bankrupting Business and the Middle Class”)
Before retiring in February 2009, Wal-Mart CEO Lee Scott Jr. took home in one biweekly paycheck what his average employee earned in a lifetime. (Ellen Ruppel Shell, CHEAP: The High Cost of Discount Culture) In 2015 Wal-Mart's current CEO earned a salary of $19.4 million, or more than $9,000 an hour, while claiming it couldn't afford to raise the minimum wage to $15 an hour. (Bernie Sanders, Our Revolution)
According to a 2014 report from Americans for Tax Fairness, U.S. taxpayers subsidize Wal-Mart's low wages to the tune of $6.2 billion each year. Wal-Mart made more than $15 billion in profits in 2015. (Bernie Sanders, Our Revolution)
This is particularly discouraging when noting Wal-Mart isn’t just the biggest retailer in the world, but also the largest private employer in the United States, explains Naomi Klein in No Logo.
Not since the era of the robber barons has a financial aristocracy so dominated finance policy and been such a high concentration of American wealth and power.
Make no mistake: The demise of the middle class is a direct result of government policy, and the unfair tilt of wealth works against our economic growth.
Consider: "In the United States, the top 1% of earners account for 15% of total income. As compared to 4% or 5% in countries like France and Japan. So if we exclude the top 1% of earners in the country from all comparisons, we find that 99% of people in countries like Germany, Japan, the UK and France, actually have a higher income than 98%-99% of Americans," explains Clyde Prestowitz in The Betrayal of American Prosperity.
As entrepreneur Nick Hanauer has stated, "The trillion-dollar elephant in the room…is the transfer of wealth from workers to owners.”
“When inequality is as large as it is in the United States, it becomes less noticeable – Perhaps because people with different incomes and wealth don’t even mix,” explains Nobel Prize winner in Economics Joseph Stiglitz in The Price of Inequality.
And this suits the 1% just fine, as “the top has persuaded those in the middle to see the world in a distorted way, leading them to perceive policies that advance the interest of those at the top as consonant with their own interests.”
However, as Justice Louis D. Brandeis once remarked, “We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can't have both.”
So, as a result, we have crippling debt, which we'll see in Part 5: Credit Debt. Or, The Only Way We Get By