July 9, 2007
Which nation in the world enjoys the most technologically advanced lifestyle? If you’ve been following all the hoopla over the new Apple iPhone, you might be inclined to pick the United States.
If you’ve been following the actual research, you have a distinctly different answer. We have more on innovation — and inequality — in this week’s Too Much.
Also this week: the latest on fortunes and foreclosures.
Top American companies, says a new analysis of recent corporate financial disclosures, aren’t just lavishing pay and perks on their CEOs. They’re even lavishing rewards on CEO spouses. Scores of major U.S. corporations, the Wall Street Journal reports, are routinely reimbursing senior executive spouses for “trips, gifts, recreation, medical check-ups, and product discounts.” Occidental Petroleum, for instance, shelled out $61,000 last year for travel by the wife of CEO Ray Irani — and another $45,306 to cover the taxes Irani owed on this spousal solicitude. The Irani household pocketed, in all, over $400 million from Occidental last year . . .
Think the world’s wealthy are wasting too much money on baubles? That waste, says the Sunday Times of London, could make you wealthy, too. Financiers are now marketing investment funds that aim to cash in on the “unprecedented surge in global wealth” that “has pushed prices for everything from fine wine to luxury goods to record levels.” The most esoteric of these new investment opportunities: the Fine Violins Fund. Last year, a Stradivarius sold at an all-time auction high of $3.5 million, and vintage violins, overall, have doubled in price over the past decade. Ready to plunge into an investment fund that specializes in the goods the world’s super-rich crave and collect? Only one catch: To do any plunging, you need to already hold a bit of a fortune. Case in point: the Fine Art Fund, an effort that invests in art from both Old Masters and contemporary artists, requires a minimum investment of $250,000 . . .
Russia has truly arrived. Moscow’s seedy, Soviet-era Intourist hotel has now become a sparkling new Ritz-Carlton where the cheapest room lets for $1,180 a night, tax included. But breakfast comes extra. For a special treat, try the Tsar's breakfast: Cristal champagne, Beluga caviar, and truffle omelet. Just $825. And to end the day? The hotel bar, just a quick jaunt from Red Square, offers an excellent Macallan Single Malt Scotch at $470 a shot. The average Russian might, to be sure, find that price a little stiff — Russian wages currently average only $600 a month — but the new Ritz-Carlton, insists general manager Oliver Eller, welcomes all Muscovites. Ordinary citizens, he tells Reuters, can “come in for a look and order a cup of coffee.”
Talk about great timing! Howard Lance became the CEO of Florida defense contractor Harris Corp. midway through 2003, just after the 
Iraq War began. Since then, war-related military communication contracts have helped jump company revenues nearly 40 percent — and company profits 80 percent. Also rising: Lance’s CEO compensation, up 173 percent last year over the year before, to just over $11 million. The secret to Lance’s paycheck success? A host of “performance-based” stock options and stock awards, the company explained late last month to the Orlando Sentinel. Fortunately for Lance, peace didn't break out and spoil his performance . . .
America’s banking giants may have run out of average Americans to squeeze. With middle-income Americans in debt at record levels, the nation’s biggest credit card issuers are turning their attention to the upper rungs of America’s income ladder — and unveiling new credit cards targeted directly at multi-million-dollar households. Elite credit cards — most notably the black American Express Centurion — have been around for a while. But now they face new big-time competition from the likes of Bank of America. The new cards, says Forbes, offer “outlandish perks like access to private jets.” The Coutts & Co. World Card, for instance, entitles cardholders to “everything from help chartering a yacht at the last minute to hiring a governess.” Costs for elite cards vary. The Amex black standard: a $2,500 annual fee and a $250,000 annual purchase minimum.
Quote of the Week
“Nobody has 17 butlers.”
Peter Newman, biographer of Conrad Black, the media mogul on trial in Chicago for fraud, after testimony revealed that Black’s three mansions and Park Avenue condo employed 17 butlers. Hamilton Spectator, The rich get richer and richer and . . ., July 5, 2007.
New Wisdom
on Wealth
Sebastien Berger, In Soweto, wealth is the new divide, Daily Telegraph, July 4, 2007. In the South African township that once symbolized the ravages of apartheid, a new luxury bus service now reflects South Africa’s new inequality.
The most upfront defenders of our current economic order like to see inequality as a trade-off. Some people do get fabulously rich, they readily acknowledge. But everybody else gets to live better.
That’s because, the argument goes, wealth acts as an incentive for innovation. If you take away this incentive to become fabulously wealthy — by doing something silly, like actually expecting rich people to pay taxes — you take away the incentive to innovate.
This argument should be easy to prove. If huge rewards really do act as an incentive for innovation, then the world’s more equal nations ought to be technological backwaters — and people in nations that encourage grand fortunes ought to be living the vida high-tech.
The United States falls, of course, in the encourage-grand-fortune camp. No single nation, over the past quarter-century, has done more than the United States to help make “innovators” rich.
Founders and CEOs of American tech companies now pack the ranks of the world’s ultra wealthy. Three of them have spent over a dozen years on the annual world’s ten richest list.
So what do average Americans have to show for this enormous concentration of wealth? The United States, according to the latest Organization for Economic Cooperation and Development figures, ranks a lowly 15th in the world on broadband Internet access, perhaps the single most important yardstick of a modern society’s capacity to fully exploit the potential of the Information Age.
Other countries are eating America’s technological lunch, notes Robert Atkinson, the president of the Information Technology and Innovation Foundation, a Washington, D.C. think tank.
“Iceland’s broadband subscription rate is more than 50 percent greater than that of the United States,” he notes. “And average speeds in Japan are 20 times faster than in the United States.”
Another new report, from the Communications Workers of America, notes that 30 to 40 percent of Americans are still using dial-up. In Finland and Sweden, only around 5 percent of households still dial in.
Other nations, adds Robert Atkinson, have “leapfrogged” past the United States “not just in broadband, but in a host of digital applications: Japan in mobile commerce; the Netherlands in health IT; Korea in telematics (applying IT to transportation); Belgium for smart IDs; Germany for smart cards.”
Meanwhile, in California’s Silicon Valley, reports the San Jose Mercury News, six high-tech CEOs — from Oracle, Google, eBay, Globalstar, Nvidia, and Apple — now hold personal stashes of company stock worth at least $415 million.
Could rewards these huge actually be operating as a brake on innovation? Bill George would likely consider that question a query worth asking.
Once a rising executive suite star on track to become the CEO at high-tech giant Honeywell, George now teaches at the Harvard Business School. Last week, in a Colorado lecture, George brought a simple but powerful message: “When CEOs don’t share the wealth, they end up destroying themselves.”
Bill George, in his years at Honeywell, watched excessive executive pay trigger an management meltdown. He would go on to a successful CEO career at Medtronic, a successful medical technology company. But he today claims little credit for Medtronic’s success.
“Frankly, the most valuable people at Medtronic were not the executives like myself but the people coming up with innovations to save lives in hospital operating rooms.”
Momma, don’t raise your babies to be real estate agents. But if you do, at least make sure they specialize in luxury properties.
Count Beverly Hills realtor Jeff Hyland as one of those luxury specialists. Hyland tools his clients around town in a Bentley. And those clients are buying.
Over the first four months of 2007, the Los Angeles Times reports, high-end realtors sold 23 L.A. estates worth at least $10 million — at a time when overall home sales in Los Angeles County were sinking 19.1 percent.
Housing industry experts see that same pattern — boom times for luxury homes, hard times for average homeowners — in most every major metropolitan area.
Nationwide, note researchers at RealtyTrac, over 175,000 American families lost their homes in May, 90 percent more than lost their homes the same month the year before. In the mean time, at the top end of the housing market, luxury realtors are setting all-time highs.
“At least five U.S. sellers are so optimistic that the luxury home market will stay strong,” gushes Laurie Moore-Moore of the Institute for Luxury Home Marketing, “that they've priced their homes at more than $100 million.”
Veteran realtor Joshua Saslove is representing one of those properties, the $135-million Hala Ranch estate just outside of Aspen, Colorado. Saslove spends most of his time saying no — to people who want to tour the Hala home. If you’re not a billionaire, don’t bother asking.
Hala’s original owner, a former Saudi ambassador to the United States, used this rustic mansion as a mountain getaway. With 16 bathrooms and a restaurant-grade basement kitchen, the home can handily host an intimate reception for 450 or so friends and family.
Whoever buys Hala, realtor Saslove expects, will likely use the Rockies redoubt as a “second, third, or fourth home.”
Stat of the Week
Over the first half-dozen years of our new century, from 2000 to 2006, the 93 million Americans in production and nonsupervisory jobs saw their earnings increase, after inflation, by less than half the total bonuses paid out in just one year by Wall Street’s top investment firms, notes research by Andrew Sum of Northeastern University’s Center for Market Labor Studies.
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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