July 30, 2007
“The top 300,000 income earners in America,” former Senator John Edwards announced last Thursday, “now make more than the bottom 150 million combined.”
Edwards, one of three “top-tier” candidates for the Democratic Presidential nomination, went on to propose higher tax rates on America’s wealthy and an end to tax loopholes that are concentrating America’s wealth at world-record levels.
Something’s happening here. We may finally have, in 2008, a Presidential campaign season that actually opens a debate on America’s colossally top-heavy distribution of income and wealth. Edwards and his two top rivals, Hillary Clinton and Barack Obama, have now all made nods in that direction.
In this week’s Too Much: the latest evidence, from pollsters, that average Americans desperately want that debate to begin.
Telecom giant Nokia, Reuters reports, has assembled at one workshop 350 of the world’s finest craftspeople, from locales as diverse as Cameroon and China. Their not-so-secret mission: to manufacture luxury cell phones “robust enough” to survive “a collision with a speeding Porsche.” Nokia’s luxury phone division, Vertu, has apparently identified quite a market for such instruments. The company is on track to move twice as many luxury phones — topping off at $372,000 each — this year as last. These high-end phones all come encrusted with rubies, sapphires, and other fine gems. But Vertu executives bristle when anyone dismisses their products as mere simple bling. Says Vertu president Alberto Torres: “We want to be known for craftsmanship, not just putting diamonds on mobile phones.”
Economists on MasterCard's payroll last year confidently predicted a coming “deluge” of new middle class families across the globe. But the number of developing world families that can lay claim to middle class status — because they can afford more than basic food, shelter, and clothing — is actually falling, says the Toronto Globe and Mail. Worldwide, notes World Bank economist Branko Milanovic, the ranks of nations with substantial middle classes has dropped from 41 in 1960 to 31 today. Nations, many economists believe, generally only become stable when at least 40 percent of their populations start leading middle class lives. The current middle class share of the world’s population: 7.6 percent. What’s the problem? Observes the Globe and Mail: “In some places, economic growth has created such intensive inequality, in booms that deliver their rewards only to the top, that it has driven millions of people out of the middle class and into poverty.”
Do the corporate powerhouses that make up the Fortune 1,000 still believe in guaranteeing employees retirement security? That depends on where those employees sit. Of the top 1,000 companies in the United States, says a just-released Wilson Wyatt consulting group report, only 638 guarantee their cubicle crowd a fixed monthly check when they retire, through 
a defined-benefit pension plan. Of these 638, 138 have either frozen or cut back their plans since 2003. Meanwhile, 90 percent of the Fortune 1,000 have set up deferred pay plans that let denizens of their executive suites set aside, tax-free, retirement income far above 401(k) limits, and 69 percent have set up “supplemental executive retirement plans” that shield execs from company-wide pension cutbacks. One typical beneficiary of this largesse: former Gannett media chain chairman Douglas McCorkindale, who retired last year with $46.1 million in retirement savings, with all but $1.7 million of that “derived from a special executive compensation plan that doesn't apply to normal employees.”
Where wealth concentrates, can polo be far behind? Certainly not in the UK, where rising fortunes have over doubled the polo-playing population over the last decade, from 1,700 riders in 1997 to almost 3,500 today. A British luxury gifts company, Red Letter Days, is now organizing day-long “Learn to Play Polo” orientations that run just under $900. Actually playing polo can cost quite a bit more. A horse will set you back $200 per chukka — that’s a period in a polo match, with up to eight chukkas per competition. Add another $800 for the “whites, boots, pads, and gloves” that make up the basic polo outfit, and don’t forget your polo club fees, up to $6,000 a year. The source of all the UK’s new polo players? One polo prince, quoted in the Independent, sees a major chunk of the chukka boom “fueled by New York bankers coming over” and pushing polo for their kids . . .
In “a period that lusts for symbols of the good life,” notes Wall Street Journal cultural analyst Christina Binkley, not everyone can afford a $3,000 crocodile handbag or a $250 bottle of olive oil. But just about anyone can afford to look preppy, and that may explain, says Binkley, why preppy, as a fashion statement, has come “back in full swing.” Only this time around, preppy and hip are marching together, complete with a new rap video that’s “a spot-on look at the intersection of preppy and cool.” Raps the video: “We keeps it REAL. By REAL we mean RICH. From New Hampshire to Vermont. From the Main Line to GreenwICH.” One hot preppy clothier, Vineyard Vines, has seen sales soar six-fold over the past three years.
Quote of the Week
“Today's tycoons defend their vast wealth as the fruit of their superior talent and hard work. Some, like Andrew Carnegie before them, realize that the blessings of being an American also had something to do with their success, and as a result, they donate much of their fortunes to charity. That's commendable.
“But, also like Carnegie, many of them don't share the wealth with the worker bees who helped make their fortunes possible. And if the robber barons won't do that, the only reasonable alternative may be to force them to share a portion of their fortunes through taxation.”
Editorial, Salt Lake Tribune, A gilded age: Tax policy should not favor the wealthy, July 25, 2007
New Wisdom
on Wealth
Rich man, poor man divide merely breeds seething society of discontent, Independent (Dublin), July 25 2007.
Brydie Ragan, The Key To Good Health That No One Is Talking About: Money. YES! magazine, July 25, 2007. Why how we distribute our wealth determines our health.
A half dozen years ago, in Northern California’s Silicon Valley, the dot.com bubble that had made instant mega millionaires — and more — out of young computer whizzes and their power-suited patrons suddenly popped.
The collapse of this wild speculative frenzy, observers figured, would shift California's concentrated wealth epicenter back down to Los Angeles. Those observers would turn out to be wrong. The richest households in America’s richest state, says a new San Jose Mercury News analysis, once again call Silicon Valley home.
In Silicon Valley’s Santa Clara County, households with at least $1 million in income took home an average $4.7 million in 2005, $1 million more than the average take-home of their awesomely affluent counterparts in Los Angeles County.
That concentration of Silicon Valley income, news reports last week indicated, isn’t slowing. The latest big winner in the Silicon Valley wealth sweepstakes: Marc Andreessen, the original “boy wonder” of the dot.com boom.
Back in 1996, the 24-year-old Andreessen made the cover of Time after the stock offering of his software company, Netscape, upped his personal net worth, in just one day, by $58 million. Netscape would eventually go to fizzle as a product, and Andreessen would go on to other things, namely setting up another software company.
That new company, Opsware, has now earned Andreessen another fortune. Computer kingpin Hewlett-Packard last Monday shelled out $1.6 billion to buy up Opsware, in a transaction that netted Andreessen, now 36, $138 million.
Opsware must be one blockbuster of a company to rate a $1.6 billion price-tag, right? In fact, Opsware hasn’t exactly been setting the world afire. In the latest ranking of Silicon Valley’s 150 top companies, Opsware rates 148th, with just $102 million in annual revenue. Over the first quarter of 2007, the company actually registered $10.6 million in losses.
So why did Hewlett-Packard ante up $14.25 per share for Opsware, a price 39 percent over what Opsware shares were selling at just the week before?
Ask Mark Hurd, Hewlett-Packard’s chief executive. Hurd took over HP's CEO reins two years ago, collecting $24 million in signing “inducements” right after his HP predecessor, superstar exec Carly Fiorina, flamed out the door with $42.5 million in severance.
Hurd, ever since, has been cutting away at employee jobs and pension benefits and advancing a new “vision” for HP’s future. The new exec wants to turn Hewlett-Packard, traditionally a computer hardware company, into a software company as well.
Hurd could, of course, try to accomplish that goal by investing in R & D and training and building HP’s internal capacity to do software. But that process could take years, and Hurd might not even be around as CEO when the process bears fruit.
So Hurd, instead, has been on a frenetic buying spree, spending $6.5 billion over the last two years gobbling up software companies like Mark Andreessen’s Opsware.
The strategy is working — for Hurd. Last year, he pulled in Silicon Valley’s biggest bonus, second-highest salary, and fifth-highest perk package. Hurd walked off with $23.9 million in total income, a mere appetizer for the stock option windfalls that loom down the road on Hurd's HP horizon.
Marc Andreessen, with the $138 million he pocketed last week, has certainly also done rather nicely by Hurd’s vision. But the same can’t be said for Silicon Valley's more average folks.
Between 2004 and 2005, Santa Clara County ’s seven-digit set — those fortunates who, like Hurd and Andreesssen, took home at least $1 million — saw their incomes soar 38 percent. Over that same year, the most current year with tax data available, typical Santa Clara County households saw their incomes increase all of 2 percent.
A sweeping new survey of public opinion in the United States and Europe’s five largest countries has found, says the Financial Times, that citizens of these rich nations “worry about rising inequalities” and “want politicians to make the world more equal.”
Indeed, in four of the European nations surveyed — Britain, France, Italy, and Spain — at least 60 percent of the public want to see their government “set pay caps” for top corporate executives. In Germany, citizens support pay caps for top execs by a 47-43 percent margin.
In the United States, by contrast, only 32 percent of those surveyed currently support capping executive pay. But America's top executives won’t find much else in the poll to cheer. Besides the third of Americans who like the idea of executive pay caps, another 22 percent, the poll notes, remain open to thinking about the pay cap notion.
Overall, an amazing 77 percent of Americans say corporate executives “earn too much.” And only 11 percent of Americans admire “those who run” America’s “largest companies” either “a great deal” or “quite a bit.”
The new survey, conducted for the Financial Times by the Harris Poll, quizzed over 1,000 adults in each of the six target nations earlier this month. In all six nations, “very large majorities” feel “the gap between the rich and the poor in their countries is getting larger.”
Majorities also want to see the rich pay more in taxes. In the United States, only 12 percent of Americans feel their country “correctly taxes those who earn the highest incomes.” Over five times that number — 61 percent — believe wealthy Americans “should be taxed more.”
Stat of the Week
In 1980, analyst Holly Sklar notes in the Hartford Courant, average CEOs at major U.S. corporations took home 97 times the pay of a minimum-wage worker. By 1997, that gap had soared to 728 times. Last year's differential: 1,419 times.
The increase in the minimum wage that went into effect last week, from $5.15 to $5.85, leaves the minimum “still worth less” than the minimum's 1997 value, $6.67 in today's dollars.
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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