February 26, 2007
Deeply unequal societies tend to do deeply dumb things. We touch on one of the dumbest in this week’s Too Much: the abject wasting of talent and time on comforting the already comfortable.
Also this week: We look at last week’s outbreak of intense happiness among CEOs in the computer industry.
At Las Vegas, the old saw goes, the house always wins. But that winning streak, for the corporate giants that dominate the Vegas casino scene, may be ending. Macau, the Hong Kong-like city that sits on the South China coast, last year emerged as the world’s “most lucrative gambling destination.” But MGM Mirage and other big-time Vegas operators are fighting back. They’re rolling out the red carpet for Chinese high-rollers. The Paiza Club, a “Chinese-themed gambling salon” run by the Las Vegas Sands, is now offering big bettors who trek in from Asia complimentary suites that come complete with “chartered jumbo jets, personal limousine service, and a 24-hour butler.” Will these freebies convince China’s new elite to sample Nevada’s charms? The Vegas gaming giants are hedging their bets. Two have opened up casinos in Macau . . .
How many highly educated American professionals make their living advising the “exceptionally affluent”? Enough to merit a magazine all their own, says one top U.S. publisher. The Charter Financial Publishing Network will debut this June a new glossy bimonthly entitled Private Wealth: Advising the Exceptionally Affluent. The magazine, Charter Financial announced last week, will go initially to asset managers, private bankers, stockbrokers, accountants, and assorted other professionals who cater to “the financial, legal, and lifestyle demands of the ultra-affluent.” And who qualifies as “ultra-affluent”? Anyone worth at least $5 to $10 million. About 30,000 professionals nationwide, Charter Financial market researchers note, currently service America’s $5-mil-and-up set . . .
Some highly educated professionals devote their careers to helping the rich add to their wealth. Others help them richly enjoy it. Young people eager to join this latter group can now prep for their life’s work in European academic programs that offer advanced degrees in “luxury brand management.” Outside Paris, the ESSEC business school attracts mostly Americans and Asians and offers, for the $36,000 tuition, both a standard MBA program and “specialized courses in luxury retailing.” Students even get to go on field trips, where they hone their skills at evaluating fine wines and gemstones. Global luxury giants — DeBeers, Christian Dior, and LVMH Moët Hennessy Louis Vuitton, among others — quickly snatch up ESSEC grads. Explains Floriane de St. Pierre, a Paris headhunter: “There's a real need for people with an international profile who understand the luxury world from inside.”
A tax revolt may be brewing in Switzerland — against the 3,500 super-rich foreigners who now call yodel land home. Swiss tax laws let fortunate foreigners pay a single “flat tax” that bears no relation to their actual incomes. The resulting tax savings can be staggering. Rich foreigners residing in Switzerland pay taxes that average only 75,000 Swiss francs, about $60,750, a pittance for tycoons like Ikea furniture mega-billionaire Ingvar Kamprad. But these tax windfalls are rubbing some Swiss the wrong way. The nation’s economics minister, Doris Leuthard, recently wondered why French rock star Johnny Hallyday, who left France “fed up with paying six out of every 10 euros he earned to the French trésor,” should now be paying less in taxes than home-grown products like tennis champ Roger Federer. Observers expect windfalls for foreign wealthy to figure as an issue in the upcoming 2007 Swiss elections . . .
Are the “superstar cities” of the United States — famed urban centers along the lines of New York and San Francisco — becoming a “luxury product” that only the prodigiously wealthy can enjoy? Trends, says Wharton business school analyst Joseph Gyourko, seem to be pointing in that direction. Less than 10 percent of households can now afford to buy a median-priced home in some star cities. What’s driving soaring prices? Urban affairs analyst Joel Kotkin cites one key factor: “a remarkable concentration of very high-earning families who can bid up real estate.” Many of these deep pockets don’t actually live in their well-appointed city pads. They just use them for holiday getaways. The result: “Vailization,” a dynamic that’s turning part of every superstar city, notes Kotkin, “into something akin to a high-amenity resort area, a ‘scarce luxury good’ for a relative few and those who must remain behind to service them.”
“No one has shown us any correlation between executive compensation and any metric of corporate success.”
Rep. Barney Frank
(D-Mass.), chair,
House Financial Services Committee, Forbes, February 22, 2007
New Wisdom
on Wealth
Mike Whitney, Crashing to Earth: The Second Great Depression, February 21, 2007. Comparing the Depression-generating inequality, speculation, and record debt of the 1920s with the inequality, speculation, and record debt of today.
The power suits at Hewlett-Packard, the nation’s biggest computer maker, were whooping in their suites last week. They had plenty to celebrate. On Tuesday, HP announced a stunning 26 percent annual leap in quarterly profits.
“I am pleased,” HP CEO Mark Hurd told reporters.
And well he should be. The HP share price, in the less than two years since Hurd became the company’s top executive, has soared 95 percent. The company’s operating margins have exceeded Wall Street’s fondest expectations. But Hurd, with his performance at HP, hasn’t quite met everyone’s expectations. Just ask an HP employee or two.
Back in April 2005, HP staffers cheered their new CEO as he delivered his first speech as the company’s numero uno.
“Building a great company isn't all about a CEO,” Hurd proclaimed. “It’s a team sport.”
CEO Hurd hasn’t turned out to be much of a teammate. After accepting a pay package for 2005 worth $21.3 million — on top of $8.1 million “for relocation expenses and other hiring incentives” — Hurd proceeded to pump up HP’s bottom line by lengthening unemployment lines. Overall, Hurd has downsized away 14,790 workers, about a tenth of HP’s workforce.
Last week, for the employees who remain, Hurd had a special surprise. HP has decided, Hurd informed employees in an email, to end all company contributions to HP’s traditional pension plan. All employees currently under 55, workers also learned, will now have to pay the full cost of their health care when they retire.
These announcements came three weeks after news reports revealed that Hurd had collected $24 million in cash, options, and bonus in 2006 — and another $6.7 million in company shares early in 2007.
This excess leave a bad taste in your mouth? Thinking about buying your next computer from Dell, HP’s chief U.S. rival? Dell made some CEO news last week, too. The company disclosed Tuesday that Kevin Rollins, the company’s top executive until he was “replaced” in January, will collect $5 million in severance payments starting May 4.
Until then, Rollins will serve as a company “adviser” and receive his full chief executive salary and benefits.
The latest federal budget from the White House once again proposes total repeal of the estate tax, the only federal tax levy on grand accumulations of private wealth. If the estate tax were to be repealed, Senator Bernie Sanders from Vermont points out, the Wal-Mart Walton family would save an estimated $32.7 billion, nearly $5 billion more than the $28 billion the White House is proposing to cut Medicaid over the next decade.
The United States spends almost as much on health care as the rest of world combined. On this incredibly huge investment, unfortunately, Americans don’t get much of a return. The United States now ranks 30th in the United Nations global life expectancy rankings.
In 1960, Americans ranked 13th.
This core statistical reality raises a fascinating question: Will “more” health care make the United States healthier?
Top politicos seldom stop to pose this question. They simply assume that health care makes societies healthier. In the process, they never get around to asking what makes societies sick in the first place.
Fortunately, the world’s epidemiologists — the scientists who study the health of populations — have been exploring what makes some societies much healthier than others. And their findings suggest that inequality is quite literally killing us.
In modern societies, as British epidemiologists Richard Wilkinson and Kate Pickett note in a review of global research, “health is less good in societies where income differences are bigger.”
Ironically, the emerging “health care debate” in the United States isn’t just ignoring this core reality. Most “reform” plans now on the table would actually widen income differences in the United States.
These plans, Corporate Research Project analyst Philip Mattera explained last week, almost all give financially strapped Americans public tax dollars to pay the bloated premiums that powerhouse health care companies charge for health insurance.
“Public officials across the political spectrum,” observes Mattera, “are, in effect, seeking to expand the customer base for a highly profitable industry.”
This highly profitable industry barely existed a generation ago.
Before the 1970s, nonprofits ran the health care show in the United States. In the 1980s and 1990s, the power-suit crowd at corporate outfits like U.S. Healthcare and Columbia-HCA systematically “gobbled up” these nonprofit insurers and health providers. Between 1995 and 2005 alone, the American Medical Association reported last April, over 400 mergers swept across the U.S. health care landscape.
The health care empires this wheeling and dealing created have made themselves profitable — and kept investors happy — by squeezing health care workers, short-changing patients, and sometimes even flagrantly cheating Uncle Sam.
All this squeezing and short-changing has paid handsomely — for investors. In 2005, for instance, the four biggest private insurers in the United States — UnitedHealth, Aetna, WellPoint, and Humana — gave shareholders a 46 percent return on their money, nearly ten times the average return that year for companies in the S & P 500.
No one benefited more from that gold-plated performance than the top execs of those four companies. One of them, UnitedHealth’s William McGuire, won headlines last year after backdating stock options helped him amass a personal options stash worth over a billion dollars.
But McGuire hardly stands alone in excess. The 2004 merger of WellPoint and Anthem generated $265 million in executive bonuses — and health insurance rate increases that ran up to 30 to 40 percent.
The excess shows no sign of abating. Aetna just hired a new chief financial officer. Joseph Zubretsky, Financial Week reported last week, will rake in as much as $23.9 million over the next four years.
“Public officials,” corporate analyst Philip Mattera notes, “should abandon the mission of saving commercial insurance and devote themselves instead to creating a healthcare system that substitutes the public interest for private profit.”
In the process, those public officials would likely leave the United States considerably more equal — and healthy.
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Too Much is published by the Council on International and Public Affairs, a nonprofit research and education group founded in 1954.
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E-mail: editor@toomuchonline.org.
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