Corporate America has pretty much had its way in Washington for the past couple of years. Its CEOs and lobbyists got the Wall Street bailout. They got the auto bailout. They set the terms of the health care bill. They blunted financial regulation. They blocked climate legislation. If they were tied to the defense industry, they enjoyed a surge of military outlays. Of course they preserved the tax cuts for the rich. They did all of this, mind you, after the Democrats swept the 2006 and 2008 elections and gained control of Congress and the White House.
Remarkable, isn’t it?
Now, with business-friendly Republicans in control of the House, the most powerful corporate lobbies—the U.S. Chamber of Commerce, the Business Roundtable and the National Association of Manufacturers—have even more clout. They can, at minimum, stop just about anything they don’t like.
But they would be well advised to use their power sparingly.
I write this as a rational optimist, and as an unabashed believer in the power of business to do good—by creating jobs, generating wealth, satisfying people’s wants or needs, and enabling an unprecedented wave of economic growth during the past half century. (See China, cappuccino and cell phones, my first blogpost of 2011) But it’s hard for me to ignore the fact that the benefits of that growth are not being as broadly shared as they should be, at least here in the U.S., and that the reason for that, at least in part, is business’s outsized power in Washington.
The growth of inequality is especially troubling in the aftermath of the great recession. Wall Street is booming again, the stock indexes are up, corporate profits are growing…while the middle class and especially the poor—43.6 million of them, one in seven Americans—are being left behind.
These issues are on my mind because I just finished reading Winner-Take-All Politics by Jacob S. Hacker and Paul Pierson and Chrystia Freeland’s cover story in The Atlantic, The Rise of the New Global Elite. They differ in their explanations for why things have gone awry: Freeland cites the usual suspects—globalization and the rise of a knowledge economy that leaves less educated workers behind—while Winner-Take-All Politics argues that the very rich have, in effect, seized control of American politics and used their power to wage a “thirty-year war” on the rest of us. They’re both right, at least in part. But whatever the causes, the results are striking, as Hacker and Pierson write:
From 1979 until 2006, the top 1 percent received 36 percent of all the income growth generated in the American economy, while the highest-income one-tenth of one percent – one out of every 1,000 households – received nearly 20 percent, even after taking into account all federal taxes and all government and employer-provided benefits.
Inside companies, meanwhile, something similar is happening. Those at the top are capturing more than their fair share of the pie.
In 1965, the average chief executive officer (CEO) of a large U.S. corporation made around twenty-four times the earnings of the typical worker. By 2007, average CEO pay was accelerating toward 300 times typical earnings.
…Executive pay is set in a distorted market deeply shaped by public policy. CEOs have been able to take advantage of a corporate governance system that allows them to drive up their own pay…and prevents all but the most privileged insiders from understanding what’s going on.
The United States has changed from a country where prosperity was shared during the decades after World War II into one where rewards are concentrated at the top; the same could be said of most Fortune 500 corporations.
Freeland’s article nicely captures the way in which the super-rich have become accustomed to this state of affairs, and how they have convinced themselves that their elite status is a result of their superior brainpower and work ethic. In their view, those left behind have only themselves to brain.
For the super-elite, a sense of meritocratic achievement can inspire high self-regard, and that self-regard—especially when compounded by their isolation among like-minded peers—can lead of obliviousness and indifference to the sufferings of others.
This is a dangerous place for business to be, particularly given the growing suspicion that investment bankers, hedge fund managers and CEOs are playing a game that they have rigged for their own benefit.
So what’s to be done? Well, lots, but most of it (stricter financial regulation, campaign finance and lobbying reform, measures to make it easier for workers to form unions) has no chance of getting done anytime soon.
My own modes and 100% business-friendly proposal is that we fix corporate governance so that boards of directors serve the long-term interests of shareholders and are accountable to them. Reasonable pay-for-performance for executives would be one result; right now, at many companies, the link between pay and performance is weak, to put it mildly. Arguably, shareholder democracy would also bring about a more expansive sense of corporate responsibility, because most owners want their companies to treat people and communities well. Corporate governance experts like Nell Minow, Lucian Bebchuk and Bob Monks know how to get this done; thoughtful investors and a good number of CEOs won’t stand in the way of shareholder power because they understand the risks of operating in an America where wealth and power is concentrated in the hands of too few people.
CEOs, after all, need the rest of us. We work at their companies. We buy the stuff their companies make. Unfortunately, we also bail out their companies when their mistakes put the economy at risk.
If too many Americans feel like they are getting exploited by the rich, decide that the playing field is tilted against them and conclude that the powers-that-be don’t care about their plight, nothing good can come of it. It’s easy to imagine the economic polarization of America leading to an an upsurge in protectionism or punitive (and destructive) tax policy or the rise of who-knows-what kind of political demagoguery.
“The lesson of history,” Freeland writes, “is that, in the long run, super-elites have two ways to survive: by suppressing dissent or by sharing their wealth.”
Seems like an easy choice to me.