No one expected last week's United Auto Workers walkout against General Motors — the first national strike against GM since 1970 — to last long. And no one is expecting the problems that prompted the walkout to end any time soon either.
Perhaps the most basic problem of all: Trade unions in America’s private sector no longer have the clout that's needed to make sure the wealth working Americans create gets shared, not concentrated.
We have more, in this week’s Too Much, about auto work, walkouts, and inequality.
Nearly two decades ago, in a seminal 1990 Harvard Business Review paper, business prof Michael Jensen gave Corporate America an eagerly embraced academic blessing for the just-starting-to-ignite explosion in executive stock option pay. Now 
Jensen, a Harvard professor emeritus who splits his time between luxury homes in the Florida Keys and Vermont, sees “all kinds of mistakes” in current executive pay practices. In an interview last week, Jensen deplored the over $200 million severance packages that have gone to notorious nonperformers like Home Depot’s Robert Nardelli and Pfizer’s Henry McKinnell, two CEOs who failed to jack up their company share prices. But Jensen remains optimistic. The private equity firms now taking over American corporate giants like Chrysler, Jensen believes, will hold top executives to stiffer “pay for performance” standards. Could Jensen be as wrong about private equity as he was about stock options? Maybe. Cerberus Capital Management, the private equity giant that recently took over Chrysler, has made Robert Nardelli that company’s new CEO . . .
Network TV newscasts, the Business and Media Institute charged last week, hold a “natural antipathy” toward the free enterprise system that biases how they cover corporate executives and corporate executive pay. TV viewers, says the Institute’s new report on anti-business bias, see 1½ times more criminal businessmen on the news than philanthropist-businessmen. The Institute, whose board features former Reagan economic advisor Bruce Bartlett and an all-star array of conservative academics, is recommending that “the major media refrain from reflexively viewing money as evil in and of itself” and “maintain a sense of perspective on the issue of CEO compensation.”
A little perspective on American corporate executive pay came last week from Financial Week. The trade paper, citing data collected by corporate practice researchers with the Hay Group, noted that top executives in European corporations now earn approximately 50 percent less than U.S. executives doing the same work. Meanwhile, a European with what seems to be a significant anti-business bias, Pope Benedict XVI, told pilgrims at the Castelgandolfo papal residence outside Rome “that the logic of profit, if it prevails, increases the imbalance between rich and poor in a ruinous exploitation of the planet.” Catholic social doctrine, the pontiff added, “has always supported the idea that the equal distribution of wealth is a priority.” Profit, if well regulated, has its place, he added. But “equal and sustainable development” demands “the logic of sharing and solidarity.”
Peasant guerilla fighters in Vietnam, a generation ago, wore “flip-flops cut from old tires.” The winners in today’s Vietnam, the International Herald Tribune reports, think nothing of dropping $365 for a pair of Gucci beach sandals. The “free market reforms” now refashioning the Vietnamese economy have concentrated enough wealth in Vietnam to support a flourishing luxury market. In Hanoi boutiques, Vietnam’s new rich and beautiful can pick and choose from $1,000 Louis Vuitton handbags, $4,000 Roberto Cavalli leather jackets, and Dolce and Gabbana dresses that run up to $54,000. Most Vietnamese “still earn just a dollar or two a day toiling in the farm fields.”
Over 20,000 people wandered the waterfront of Monaco last month, for the world’s splashiest annual mega-yacht show, and some were even buying. But these American, European, and Asian yachtsmen-to-be will have to wait a bit for final delivery. Waiting lists on new mega-yacht orders now stretch six years. The biggest vessel on display at this year’s Monaco Yacht Show, the Alfa Nero, runs 270 feet long. The price? The builder, the OceAnco company, only divulges that detail to qualified prospective buyers. Similarly sized yachts, the French news agency AFP notes, have gone for $100 million, with annual maintenance costs that average 5 to 7 percent of each boat’s original purchase price.
Inequality
by the numbers
Newly revised!
Quote of the Week
“If we want to salvage our common heritage, a new and more balanced distribution of wealth is needed, both internationally and within each country. Social equity is our best weapon against the planet’s degradation.”
Brazil President Luiz Inácio Lula da Silva, United Nations General Assembly, September 25, 2007
New Wisdom
on Wealth
Tom Clark, A sound case for taxing top pay, The Guardian, September 26, 2007. Why pols in the UK need to get serious about closing "the gap between the average and the rich."
In just five years, economists Samuel Bowles and Arjun Jayadev point out, the United States will sport “more private security guards than high school teachers.”
The two researchers don't find this projection from the U.S. Labor Department surprising. In the economically “polarized” United States, they observe in a recently published paper, many millions of Americans are no longer creating wealth. They’re guarding it.
The new Bowles-Jayadev analysis, The Garrison State, endeavors to distinguish those Americans producing the goods and services we consume — what Adam Smith called “productive” labor — from those who provide guard labor, a category that covers “the police, private security guards, military personnel, and others who make up the disciplinary apparatus of a society.”
This distinction, Bowles and Jayadev acknowledge, can be difficult to draw. The two, for instance, include supervisors in guard labor but not those “involved in the production of weapons for self protection,” goods that range from security cameras to locks.
Bowles and Jayadev actually calculate several different guard labor totals, each one based on a slightly different variation off their basic definition. Under one more restrictive version, they count a guard labor population that covers about a fifth of the U.S. workforce.
The ranks of guards in the literal sense — “police, corrections officials, and private security personnel” — have boomed over recent years. That boom, Bowles and Jayadev find, reflects a statistically “quite robust” relationship between guard labor and income inequality.
Why might inequality and guard labor go hand in hand?
“Two decades of behavioral experiments,” Bowles and Jayadev observe, “have provided convincing evidence that humans in diverse cultures are inequality-averse, and that violations of fairness or reciprocity norms provoke costly conflicts.”
“Illegitimate inequalities,” they note, will always be “costly to sustain.”
Only 7.4 percent of private sector workers in the United States currently belong to trade unions, about one-fifth the labor market presence the labor movement held a half-century ago. In the auto industry, once American labor’s cutting-edge bastion, less than 23 percent of workers now hold union cards.
What difference does this make?
Back in the mid twentieth century, organized auto workers — and the American labor movement as a whole — didn’t just successfully battle to improve the wages, hours, and working conditions of average Americans. Unions back then, and particularly the UAW, also helped cut America’s rich down to a more democratic size.
In 1942, for instance, UAW urgings helped convince President Franklin D. Roosevelt to call for a 100 percent tax — the equivalent of a “maximum wage” — on individual income over $25,000, about $330,000 in today’s dollars.
Congress didn’t buy FDR’s 100 percent plan, but lawmakers did set the nation’s top tax rate at 94 percent, and that rate would hover around 90 percent for the next two decades, years that would see the emergence of the first mass middle class the world had ever seen.
In those mid twentieth century years, high taxes on high incomes kept wealth — and political power — from concentrating at America’s economic summit. Charles Wilson, GM's top executive a half-century ago, took home $586,100 in 1950, the equivalent of about $4.5 million today. He paid $430,350 of that, or 73.4 percent, in tax.
Last year, by contrast, GM CEO Rick Wagoner took home $10.2 million. We don’t know exactly how much in taxes Wagoner paid on that income. But we do know that in 2005, the most recent year with data, Americans who reported over $10 million in income paid, on average, just 20.9 percent of that income in federal income tax.
In short, GM's current top executive is now enjoying, after taking taxes and inflation into account, about seven times more personal income than GM's top executive back in 1950.
Union strength, equality, and economic security for average Americans, in the meantime, have been headed south for over a generation now. Auto workers want that flow reversed. Their walkout last week, Bloomberg News notes, essentially amounted to a call on GM to “share the wealth.”
The UAW, as 54-year-old Detroit autoworker Art Ellsworth puts it, “is bargaining on behalf of the entire middle class of the United States.”
America's beleaguered middle class needs that help — and plenty more.
Stat of the Week
The wealth of America's wealthiest, new federal estate tax data suggest, has ratcheted up steadily since the new century began. In 2001, the IRS processed 628 estate tax returns from Americans worth at least $20 million when they passed away. In 2005, the hereafter claimed 760 Americans worth at least $20 million.
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