October 16, 2006

Two centuries ago, Thomas Jefferson worried quite a bit about the impact of grand concentrations of private wealth on his fledgling democracy. A republic, Jefferson would write, “cannot invent too many devices for subdividing property.”

In our day, reformers worried about excessive CEO pay have come up with a good many devices to limit executive compensation. But most all of them, says a provocative new analysis, are actually increasing the dollars that pour into CEO pockets.

In this week's Too Much, the scoop on this new analysis — and a bit of Jeffersonian blowback against the undivided property that so dominates our contemporary scene.

Greed at a Glance: Scamming Tommy J

The ever-mounting global concentration of wealth is creating a new growth industry: wine forgery. The “insatiable and escalating demand from wealthy wine collectors across the world,” reports the Times of London, has wine counterfeiters faking the labels of the world’s finest wines, then sticking these counterfeit labels on ordinary bottles of vino. Among the counterfeited classics: the 1945 Mouton-Rothschild that goes, at legitimate retail, for $92,800 per case. The latest wine snob snookered: American billionaire yachtsman William Koch. The wine bottles in his collection that were supposed to have come from the estate of Thomas Jefferson turned out to have been etched, in an antique style, by a high-speed diamond drill . . .

This fall, on football weekends in South Bend, Indiana, it’s cheer, cheer for old Notre Dame — and pay through the nose. Deep-pocket alumni are paying up to $500 for game-time parking passes, on top of tickets that can run, on eBay, up to $3,200 a pair. The local Marriott, meanwhile, is charging $649 per night for hotel rooms that go, on nonfootball weekends, for $149. Back in 1988, the last time Notre Dame football fever ran so high, the Marriott charged only $125 on football nights, notes one news report, “about $214 in today’s dollars.” To avoid hotel hassles, Wall Street bond trader Jim Crandall, who lives in New Jersey, has shelled out $280,000 to buy a South Bend condo. Says Crandall: “I’ll never have to worry again about having a place to stay for a football game.”

Late this past July, the House of Representatives voted to gut the federal estate tax, the only national levy on immense private wealth. The Senate, a few days later, refused to go along, the second time this year repealers failed to round up enough senators to kill the estate tax. But those repealers remain close, only a handful of Senate votes away. That’s why economic justice groups are now mobilizing to make the estate tax a prime issue in this fall’s Senate elections. United for a Fair Economy has set up an online action area where activists can find sample letters, questions for candidates, and all sorts of other resources to help voters understand the estate tax stakes in this year’s Senate races. And Citizens for Tax Justice has available a state-by-state breakdown of how much recent cuts in federal estate, capital gains, and dividend tax rates are saving wealthy households — and costing programs that benefit working families . . .

In the United States, over recent years, exceedingly affluent families have been fleeing into “gated communities.” In India, a nation substantially more unequal than the United States, developers are speeding plans for entire gated cities. The Indian government has already okayed land and tax breaks for over 300 “special economic zones” that will include both workplaces and luxury housing. The two “sister cities” that Reliance Industries, India’s largest company, wants to build outside Delhi and Mumbai will feature their own power plants and airports. Developers say they’re creating “islands of excellence” that will shield entrepreneurs from India’s crumbling public services. Critics call the new cities “islands of wealth” that will displace rural farmers and freeze in place India’s vast economic divide . . .

The world’s foremost “island of wealth” may soon be Singapore. Since 2004, residents of this city-state nation have faced no taxes whatsoever on domestic or overseas capital gains income. Increasing numbers of wealthy investors now seem incredibly eager to call Singapore home, at least for a big enough chunk of the year to qualify for residential status. Local builders, not surprisingly, seem equally eager to make these new residents comfortable. One new tropical garden complex just five minutes from Singapore’s luxury shopping center hosts 55 marble-floored apartments, each with an indoor waterfall. The units are selling for $2.9 million each. Singapore banks are now managing $200 billion in investments, with about 70 percent of those dollars from abroad.

China Slams the Brakes on Inequality, Maybe

Can a "harmonious" society tolerate a vast chasm between the rich and everyone else?

The leadership of the Chinese Communist Party has apparently concluded, after years of winking at what may be the world's most rapidly growing economic divide, that harmony and inequality just don't mix. That leadership is finally taking steps to brake the workplace exploitation that's driving China's furiously growing economy.

But this braking is sparking some intense opposition — from a powerful phalanx of big-time American corporations. These companies are threatening to shut down their extensive Chinese operations should China's top officials adopt a draft new law that increases labor rights for Chinese workers.

China's ruling elite, consequently, now faces a choice that could determine levels of global inequality for years to come.

That elite can choose to placate global corporate giants — or challenge them. The pressure to placate will be enormous. Wal-Mart, Nike, and other major U.S. companies currently generate two-thirds of the products China exports to the rest of the world.

But Chinese leaders also face pressure to resist this corporate power. Last year, 87,000 "mass protests" took place inside China, up from just 10,000 in 1994. And that has Chinese officialdom deeply worried.

A generation ago, the leadership of the Chinese Communist Party abandoned the "class struggle," embraced the market, and declared that "to get rich is glorious." Now that leadership sees widening inequality as chief among the "contradictions and problems that impair social harmony."

Chinese officials, as one analyst with the China Foundation for International and Strategic Studies noted last week, "know well that it is dangerous when the disparities and differences become too wide to be bridged, and threaten to disrupt the social fabric."

That fabric is stretching at an incredible rate. The latest annual China Rich List, released last week by the Shanghai-based Hurun Report, counts 500 Chinese nationals worth at least $100 million. The first China Rich List, published just eight years ago, counted only 50 Chinese affluents worth over $6 million.

We have more on China's grand debate over inequality and the just-published report from Global Labor Strategies, an American watchdog group, that's aiming to mobilize pressure on U.S. corporations to reverse their opposition to the new China labor code.

The Sorry History of CEO Pay Reforms

Back in 1970, America’s CEOs made no more, after adjusting for inflation, than they made in 1940. But since then, over the past three dozen years, CEO pay has soared well over tenfold.

What happened? “Reform” happened, or so suggests an analysis by business reporters Joann Lublin and Scott Thurm published last week in the Wall Street Journal. Two decades worth of efforts to slow executive pay hikes “through regulations, legislation and shareholder pressure,” Lublin and Thurm charge, have badly “backfired.”

Moves that have mandated greater disclosure of what CEOs make, the two reporters document, have pushed “pay higher by revealing to CEOs what their peers receive.” Shareholder pressure to fire poorly performing CEOs has driven incoming CEOs to demand “more financial guarantees” in their signing agreements.

Another example of reform backfiring: In 1984, after widely circulated news reports about massive “golden parachutes” for top executives at companies merged out of existence, Congress rushed to passage a special tax on golden parachutes that more than tripled an executive’s average pay over the last five years.

Before this tax, only 8 percent of America’s top 1,000 companies had golden parachute clauses in effect. By 1991, just seven years later, over half America’s biggest companies offered executives lucrative parachutes.

“By taxing parachutes at a certain level,” note Lublin and Thurm, “Congress in effect blessed their existence.”

Last week’s Wall Street Journal report doesn’t draw conclusions from the litany of failed reforms that Lublin and Thurm chronicle. But apologists for fortune are already beating the drums for legislation that would end misguided reforms once and for all, not by plugging the loopholes that pockmark these reforms but by wiping the reform slate clean.

Government attempts to regulate executive pay, the anti-reform argument goes, only make pay problems worse.

Last month, at congressional hearings over the ongoing stock option backdating scandal, the drum beating against efforts to legislatively limit executive pay went public in a big way. We have that story.

Stat of the Week: An American Who Welcomes Debt

Next year, estimates Susan Sterne of Economic Analysis Associates, the dollars Americans pay to service their credit card and other debt will equal 15.6 percent of total personal disposal income, the highest debt service percentage ever. One reason: Credit card late fees are up more than 160 percent over the past ten years. Over the past five years, the top-paid CEO in the debt industry, Richard Fairbank of credit card giant Capital One, has pocketed $448.6 million in personal compensation.

Quote of the Week: Torah, Coyote, and Greed

“Stories born of many traditions warn of the consequences of greed. Torah teaches God will 'seal up the heavens so no rain will fall.' Tribal stories tell of Coyote turning the greedy to stone. We may dispute details, but this we know: When humankind violates the fundamentals, feedback loops get ugly.”
Rev. John Pitney, First United Methodist Church of Eugene, Oregon and Rabbi Yitzhak Husbands-Hankin, Temple Beth Israel of Eugene, Register-Guard, October 13, 2006

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