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4 SUPERCAPITALISM, SUPER
IMPERIALISM PART 2: Deregulation: Global
war on
labor By Henry C K Liu
Fair Labor Standards Act of 1938 of
the Depression New Deal era and gradually raises
the federal minimum wage from $5.15 per hour to
$7.25 per hour. It was signed into law on May 25,
2007 as part of the US Troop Readiness, Veterans
Care, Katrina Recovery and Iraq Accountability
Appropriation Act, 2007. The act raises the
federal minimum wage in three increments: to $5.85
per hour
60
days after enactment (2007-7-24), to $6.55 per
hour 12 months after that (2008-07-24), and
finally to $7.25 per hour 12 months after that
(2009-07-24). If the minimum wage were to rise at
the same rate as CEO pay, it would be $22.61 per
hour in 2006, about what Japanese auto makers pay
their workers.
In his article, Reich did
attack income inequality between CEOs and workers.
But he asserts that "depending on shareholders to
rein in CEO pay is like relying on gamblers to
rein in the owners of Las Vegas casinos". Yet
casino operators are more honest than most
corporate managements, whose governance is
notoriously abusive of minority rights.
CEO pay is obscene The Financial
Times reported in a front page story on October 8
that US companies are facing fresh pressure from
regulators and shareholders to rein in excessive
executive pay.
In a special to CorpWatch,
June 26th, 2007 entitled "Soaring Executive Pay
Attacked by Shareholder Activists", Sam Pizzigati
detailed the efforts of shareholder activists. In
2006, the CEOs of the 500 biggest US companies
averaged $15.2 million in total annual
compensation, according to Forbes business
magazine's annual executive pay survey. The top
eight CEOs on the Forbes list each pocketed over
$100 million.
Larry Ellison, CEO of
business software giant Oracle, was not in the top
eight. But as the 11th richest man in the world,
who ended 2006 being worth more than $16 billion,
he should not complain on missing being among the
top 10.
University of Chicago economist
Austan Goolsbee points out that a CEO like Ellison
literally cannot spend enough on personal
consumption to stop his fortune from growing.
Goolsbee calculates that Ellison would have to
spend over "$183,000 an hour on things that can't
be resold for gain, like parties or meals, just to
avoid increasing his wealth".
In 2006,
Yahoo shares had sunk 35%, or about $20 billion,
in value. Top talent, according to press reports,
was jumping ship, not because of low pay but
because of loss of confidence in the company's
future. A leaked internal Yahoo memo - known in
tech sector circles as the "Peanut Butter
Manifesto" - said that, like peanut butter on
toast, Yahoo management was spreading the company
dangerously thin.
Yahoo CEO Terry Semel
pocketed $71.7 million in 2006, over twice the
take-home of any other chief executive in Silicon
Valley. Since 2001, the year he left Hollywood to
take Yahoo's top slot, Semel has cashed out an
additional $450 million in personal stock option
profits.
By early June, three major
shareholder advisory companies - which advise
large investors how to vote at corporate annual
meetings - urged a "no" vote on the re-election of
three Yahoo board members who had served on the
company's executive pay committee. One of the
three companies, Proxy Governance Inc, noted that
Semel's compensation was running 926% "above the
median paid to CEOs at peer companies".
Shareholder activism forced the Yahoo corporate
board to announce Semel's resignation
Angelo Mozilo is CEO of Countrywide
Financial, the largest US home mortgage lender.
The New York Times describes its entire operation,
from its computer system to its incentive pay
structure and financing arrangements, as intended
to wring maximum profits out of the mortgage
lending boom no matter what it costs borrowers.
Mozilo collected over $285 million in the last 11
years, and $48 million in 2006. At Countrywide's
annual meeting in May, 2007, Mozilo presented a
list showing that Countrywide was 12th in a list
of US companies that had generated the greatest
returns for shareholders. That placed it ahead of
corporate giants Dell and Berkshire Hathaway whose
top guns, Michael Dell and Warren Buffett, he
noted, had both become "multibillionaires".
Mozilo's not-so-subtle message to shareholders: At
$285 million, I'm a bargain. Two months later,
Countrywide, facing insolvency from exposure to
the subprime mortgage meltdown, had to be bailed
out by Bank of America.
CEO Robert Toll of
home builder Toll Brothers earned $29.3 million in
2006. The company's net income in 2006 fell 15%.
For the fiscal first quarter ended January 31,
2007, Toll Brothers earned $54.3 million, or 33
cents per share, down from $163.9 million, or 98
cents per share, in the year-earlier quarter. The
results included write-downs of $96.9 million for
the lower value of the land Toll owns and from
forfeiting payments for land options Toll decided
not to exercise, as well as a $9 million goodwill
impairment charge related to its 1999 acquisition
of Silverman Co in Detroit. Total revenue for the
quarter fell 19% to $1.09 billion while contracts
for new homes fell 33% to 1,027 units. The value
of the contracts fell 34% to $749 million. During
the third quarter of 2007, Toll's revenue fell
some 21% to $1.21 billion compared to $1.53
billion in 2006. Its net income fell to $26.5
million or 16 cents a share from $174.6 million or
$1.07 a share in the comparable period last year.
Finally, its backlog of orders stood at $3.67
billion, which is a decline of about 34% from the
previous year.
Did the $29.3 million CEO
pay provide an incentive to stimulate Robert Toll
to do better in the future? He owns nearly a fifth
of the 5,500-employee company's outstanding
shares. That should already be enough incentive to
want the company to do well.
Or is $29.3
million the "sufficiently competitive" going rate
for CEOs in homebuilding? Over the past three
years, Robert Toll has taken home almost seven
times more than his CEO counterparts in the
homebuilding industry.
Reich is aware
of inequitable worker pay Reich admits that
the real scandal of CEO pay has to do with what
has happened to the pay of most workers as CEO pay
has soared. Shareholder returns have kept up with
CEO pay, but median wages have not. In 1980, the
CEO of a major company took home about 40 times
what the median worker earned; by 1990, CEO pay
was about 100 times the median worker's pay; in
2006 it was close to 300 times. In 2006,
Wal-Mart's Lee Scott Jr earned 900 times the pay
of the average Wal-Mart worker.
Reich
recognizes that CEO pay is part of a much larger
problem: the growing portion of the nation's
income that is going to a small number of people
at the top. The pay packages of many denizens of
Wall Street are even more outrageous than CEO pay
- last year reaching $40 million for top traders
and over $1 billion for top hedge-fund managers.
Not since the robber-baron era have income and
wealth been as concentrated as they are today.
This doesn't threaten shareholders; after
all, most shares are held by the wealthy. It
threatens democracy, as the wealthy bankroll
politicians who tilt public policies in the
direction of the wealthy - by, say, reducing their
taxes and cutting public services for everyone
else. It also threatens our economy, as more and
more investment decisions are made by fewer and
fewer people, and as the middle class loses its
capacity to pay for the goods and services the
economy produces. Amazingly, Reich claims that
"the answer is not to grant more rights to
shareholders. It's to enact a far more progressive
income tax, including a sharply higher marginal
rate on yearly incomes above, say, a measly
million."
A fair tax regime The
purpose of taxation is not to be punitive but to
anchor fiat currency while maintaining equity.
What gives the dollar currency its role as legal
tender for payment of US taxes and for "all debts,
public and private", as inscribed on every dollar,
which is a Federal Reserve note. The key to fair
taxation lies on both the revenue side and the
expenditure side: where the tax revenue comes from
and how the tax revenue is spent. A fair tax
regime requires revenue to be sourced from all
fairly, but not equally, and to be spent on public
services and affirmative action programs to
moderate inequality. The problem with the current
US tax regime is that not only is the revenue
sourced from the working poor but it is also spent
to further enhance the already substantial
advantages of the rich.
Tax cuts for the
rich coupled with privatization of public utility
and services add up to a most onerous regime, on
which the former labor secretary is strangely
silent. In simple terms, it is a regime that puts
money in the pockets of the rich, who do not need
it, and takes money from the pockets of the
working poor who already are in debt up to their
ears. It is bad enough to milk prosperity from a
debt economy, but a debt economy that allows the
rich to borrow to make obscene profits and forces
the working poor to borrow merely to survive will
soon turn populism into radicalism. It is time for
all countries to seek solutions to problems
created by runaway exploitative terms of world
trade by focusing again on fundamental issues of
domestic development before the prodigal global
trading system collapses from its own
contradictions to bring forth a global depression.
Unless and until an equitable international
trading system is negotiated, economic nationalism
is a proper response to neo-imperialism.
Henry C K Liu is chairman of a
New York-based private investment group. His
website is at http://www.henryckliu.com.
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