Saturday, 15 October 2011

Best Protest Sign Ever?

I have to agree with Matthew Yglesias: This is a huge step forward in protest sign communications...

Basically, this conveys the key point - for the overwhelming majority of Americans, the income growth that was enjoyed by earlier generations has not been a reality in our adult lifetimes. Wages have actually been stagnant for most Americans, which underplays the problem because the cost of essential things like housing and (most notably) health care have gone up drastically.

It's a reality that families have coped with as best they could for decades now - and because many of us now live in 2 income families instead of relying on a sole (male) breadwinner, because we have relied extensively on formerly cheap and easy to access credit, and because we've been willing to work harder and longer hours than ever before, the average American has just about gotten by.

Until the bottom fell out of the economy a few years ago, unemployment levelled off at over 9 percent and government gridlock put us in a position where we couldn't do anything about it.

But there is another story of America, as represented by that sign. A story of wealthy people who became insanely rich. Money that begat money that begat money forever and ever amen.

And a lot of these people - the wealthy 1% who spiralled into stratospheric income growth - are decent people who did good things. Many of them are people like the late lamented Steve Jobs or the affable Warren Buffet who got rich because they were smart and visionary and knew how to turn their smarts and vision into something useful or interesting (another bunch of them got rich by legally but unethically cheating the financial system - but for the sake of this argument, let's leave those out of this discussion as they are not relevant to the point I am making here).

The problem is not that some people are wealthy. The rising tide has not lifted all boats - the ratio between the  workers who labor in companies and the CEOs who lead them is not only higher than it's ever been in America - it's higher than it is anywhere else in the world.

Look hard at that chart above. Now think about the people in question.

Let's take a specific example: the CEO of a major Japanese car company. Let's say Toyota.

The Toyota corporation has over 317K employees. Last year it produced 7.3Million cars and generated $236Billion in revenue.

The President of Toyota is Akio Toyoda. He earns the equivalent of $1.7Million per year, not including stock options.

Now let's compare him to the CEO of a major US car maker. Let's steer clear of all companies that were recently rescued by government dollars and choose Ford, the only one that was profitable without federal intervention.*

Ford has 164K employees, about half what Toyota has.  Last year it generated about $129Billion in revenue - again, roughly half of Toyota's.

The President of Ford is called Alan Mulally. Last year he made $17.9Million dollars.

That's astonishing. (I had to research these numbers, by the way - they are worse than I thought...

Let's put that into a table, actually:

The American CEO earned ten times the salary for running a company about half as big. How does that make any sense at all?

Now, Ford would probably argue that they need to pay top dollar to get the best people. And there's some truth in that. (Mind you, sometimes companies also pay top dollar to get mediocre-at-best people...) The economic arms race at the very top levels has led to a kind of ever increasing mine-is-bigger-than yours cycle of insanity.

But I find it hard to image that there isn't someone out there who could run Ford Motor Company very well indeed for the knock down price of a mere $1.7M  per year. For $1.7 million a year you can send your children to the best schools, you can live in the most lavish home(s), you can eat out ever night if you want at the finest restaurants - you are rich.

And I can't help but think that if they DIDN'T need to spend that extra $10Million per year on making their already-very-rich CEO opulant-to-the-point-of-insanity rich instead, maybe they could have used that money in some other way that would be useful.

They could raise their workers wages, of course.

But they could also take that cash and pay a dividend to shareholders if they wanted - many of whom are just a different set of insanely wealthy folks, but many more of whom are smaller investors or 401K holders who could take that money and invest it in their own businesses (putting people to work), or upgrade their home (putting consturciton workers to work) or buy consumer goods (putting people who make them to work).

Or, they could take that $10M and invest it in more equipment, putting the manufacturers of that equipment to work.

Or, they could use it to hire more people directly. Or design a new car that will finally be better, cheaper and more fuel efficient than the ones Toyota produces, so that maybe someday it will be Ford that is twice the size of Toyota - putting some Japanese workers out of work. (Oops, sorry.)

Basically, they could do almost anything with that money other than let it sit in the bank account of  Alan Mulally, where it sits there earning interest and turning into even more money (all of which is taxed at a very low rate as capital gains).

But they can't. Because they think if they don't pay Alan Mulally $17.9M per year, they won't be able to find anyone good enough to do the job. They have their backs up against a wall - this is what CEOs expect to earn in America and they want to be company that hires the best CEOs available.

What can be done? Well, the government can take that decision out of their hands. If we increased the upper rate of taxation, one of two things would happen. Either:

  1. CEO's would stop expecting or demanding insanely high salaries, freeing the companies to spend that money on something else. Or:
  2. They would actually pay that money in taxes, leaving the government free to spend that money on something else. Like educating future workers for Ford. Or funding scientific research that can later be used to benefit Ford. Or building a highway on which the cars that Ford produces can drive. Or, if God forbid it should ever become necessary, bailing out the car industry yet again to keep Ford in business.*
The people who have taken to the streets in the Occupy Wall Street Protests in America are making a fair, important and too often ignored point: Income inequality in America is terribly out of control and it is hurting us all. 

* By the way, the bailout of GM and Chrysler that took place 2 years ago almost certainly also wound up saving Ford as well. Not to mention the $5.9M government loan they took at that time to help shore up the industry. If you don't believe me, believe Forbes