Boom Times for Billionaires, Bust for Workers and Children

A million bucks is chump change these days to the richest Americans. It took at least $475 million to get on this year’s Forbes 400 roster of the ultra-rich, up from $415 million in 1996. Oprah Winfrey, ranked 343 with $550 million, is the only Black person on the list.

If the lowliest Forbes 400 member gives away a million dollars, that’s equivalent to the median American household—which makes about $35,500 a year—giving less than $75.

"Money makes money," said Adam Smith long ago. Call it Horatio Algorithm—the magic of compounding interest, investment, and inheritance. Pretend the stock market doesn’t exist. A million dollars parked in a bank CD at 5 percent interest will produce $50,000 the first year and more thereafter. The median household’s counterpart $75 earning 5 percent would yield $3.75.

Today the United States has 170 billionaires by Forbes count (up from 135 last year) and more than 36 million people living below the official poverty line—and millions more living in poverty above it. The latest poverty thresholds are $7,995 for a single person and just $12,516 for a family of three.

While the average worker barely kept up with inflation last year, the richest American, Microsoft billionaire Bill Gates, more than doubled his net worth from $18.5 billion to $39.8 billion. That’s an average gain of about $410 million a week. Gates is already worth more than the combined Gross National Product (GNP) of Central America.

 

BillionHeirs

Many Forbes 400 members made their money the old-fashioned way. They inherited it. "Born on Third Base," a study by the Boston-based United for a Fair Economy, shows that a majority of the Forbes 400 inherited their way onto the roster, inherited already substantial and profitable companies, or received key start-up capital from a family member.

According to United for a Fair Economy, 42 percent of the Forbes 400 were Born on Home Plate. They inherited sufficient wealth not just to make them rich, but rich enough to make the Forbes 400 lineup. These include older billionheir dynasties like the Rockefellers and duPonts, and newer family fortunes from companies like Wal-Mart and the Gap. The Waltons of Wal-Mart hold positions 9 through 13 on the Forbes 400, with a combined $32 billion.

Multimillionheir Steve "flat tax" Forbes can relate. He inherited the leadership and majority stock in Forbes, Inc. from his father. The Forbes family is conspicuously absent from the 400, but Fortune magazine pegged Forbes’s personal wealth at $439 million in 1996, enough to make that year’s cut.

The estimated combined wealth of the Forbes 400 increased 31 percent from $477 billion in 1996 to upwards of $624 billion this year. When Forbes introduced the first 400 in 1982, their combined net worth was $92 billion. Today that wouldn’t even field a Forbes Five.

 

Just Do It With Cheap Wages

Rich Americans have been scoring off head starts, steals, and workers’ sacrifice flies for decades. The weekly wages of average workers have fallen about 16 percent since 1973, adjusted for inflation.

Real wages have fallen despite the fact that today’s workers are much more educated than before. Since 1973, the share of workers without a high school degree has been cut in half. The share of workers with at least a four-year college degree has doubled.

Greed inflation was way up in corporate America in 1996. Fortune 500 profits rose a record 23 percent. Average CEO compensation—salary, bonus, and long-term compensation such as stock options—skyrocketed 54 percent, reaching $5,781,300, according to Business Week’s annual executive pay report. Average CEO compensation comes to more than $111,000 a week.

Even Business Week calls CEO pay "out of control." The average U.S. CEO made 209 times the pay of factory workers in 1996. That’s way up from 1980, when CEOs made 42 times as much as U.S. factory workers.

Nike founder Philip Knight is number 17 on the Forbes 400 with $5.4 billion. By Forbes’s measure, he’s "self-made." But the high-priced Air Jordans and other apparel that lift Nike’s profits and stock aren’t self-made. The typical Nike worker is an Asian girl or woman working in a sweatshop for less than $10 a week—a fraction of the price of an average Nike sneaker.

In an ongoing search for cheaper wages, Nike has shifted production outside the United States from contractors in South Korea and Taiwan to Indonesia and Thailand, and even cheaper China and Vietnam. As William Greider wrote in One World, Ready or Not, Nike reportedly paid more in 1992 promotional fees to Michael Jordan ($20 million), "than the entire workforce earned in the Indonesian shoe industry—the 25,000 workers who made Nike, Reebok, L.A. Gear, Adidas and other famous brands." Earning $400 to $500 a year at most, says Greider—citing Pharis Harvey of the International Labor Rights Education and Research Fund—the workers’ total payroll amounted to less than $12.5 million.

Today, in Vietnam, Nike pays 20 cents an hour. That’s $1.60 in 8 hours. Unions in the United States and abroad, and groups like the San Francisco-based Global Exchange and New York-based National Labor Committee Education Fund in Support of Worker and Human Rights, are leading campaigns for living wages and decent conditions for the workers making products for Nike, Wal-Mart, Disney, and others.

Forbes magazine comments, "An unrepentant Phil Knight blasts his sweatshop critics: ‘This isn’t an issue that should even be on the political agenda today. It’s just a sound bite of globalization.’"

 

From Poorer to Richer

It took an annual income of $119,540 in 1996 to put an American household in the nation’s top 5 percent, reports the Census Bureau. That’s pocket change for the Forbes 400, but not for most people. Hey, if you have to ask the price of a Rolls-Royce Silver Spur, you can’t afford one ($186,100).

By Census Bureau count, which tends to understate income at the top, the upper 5 percent of households increased their share of national income from 15.6 percent in 1981 to 21.4 percent last year. The bottom 80 percent lost ground to those above.

The distribution of wealth is much more unequal than income. The top 5 percent of households have about 60 percent of all net worth, according to New York University economist Edward Wolff.

Workers have not made up the ground they lost in the last recession, much less income lost since the peak wage year of 1973. In the words of the Washington-based Center on Budget and Policy Priorities, "The last business cycle peak was 1989, the final year before the recession of the early 1990s. Unemployment rates were nearly identical in 1996 and in 1989, and the U.S. economy was larger and richer in 1996 than in 1989. But the new Census data show that on average, only affluent Americans were doing better in 1996 than in 1989." Real median household income in 1996 was more than $1,000 below the 1989 level. The 13.7 percent poverty rate was above 1989’s 12.8 percent. The poverty rate looks even worse compared to the 11.1 percent rate for 1973.

Using recently released information on after-tax family income from the Congressional Budget Office, the Center on Budget and Policy Priorities reports that if averaged out, after-tax family income rose 9.5 percent during 1977-1994, adjusted for inflation. The problem is that behind the average, families in the bottom 60 percent lost income while families on top gained sharply. While the bottom 20 percent of families lost 16 percent of their after-tax income during 1977-1994, the top 20 percent gained 25 percent and the top 1 percent shot up 72 percent.

We’re talking about large amounts of money, as the accompanying table shows. If the poorest fifth had received the same share of after-tax income in 1994 as they did in 1977, they would have had $55 billion more in income. The top 1 percent, on the other hand, would have had $146 billion less in income. Recent federal tax changes will disproportionately benefit upper-income Americans. Citizens for Tax Justice estimates that the richest 1 percent will receive nearly one-third of the benefits from the new tax cuts when they are fully in effect.

 

Children and Young Families Go Bust

While many Forbes 400 members were raised in wealth, more than one out of five American children are raised in poverty. The understated official 1996 child poverty rate was 20.5 percent. In 1969, when the poverty measure more closely reflected reality, the overall child poverty rate was 14 percent.

While the top 1 percent of American households doubled their share of national wealth since the 1970s, the percentage of children living in extreme poverty has also doubled.

Summing up an important study comparing industrialized nations, the Washington-based Children’s Defense Fund says, "An American child was two times more likely to be poor than a British child, three times more likely to be poor than a French or German child, and at least six times more likely to be poor than a Belgian, Danish, or Swiss child."

Poverty not only hurts; it kills. The United States is number one in the world in wealth and number 26 in child mortality (under age five). A 1989 state study of child death rates in Kansas found that low-income children were three times more likely to die from all causes combined, four times more likely to die from fires, five times more likely to die from infectious diseases and parasites, and six times more likely to die from other diseases.

In the United States, where health care is managed for healthy profit, fewer children had health insurance in 1996 than in 1995. The Census Bureau reports that the number of children without private or public health insurance grew by nearly one million to reach 10.6 million (14.8 percent of all children). Among officially poor children, 23.3 percent had no private insurance, no Medicaid, no health insurance at all.

The impact of falling wages and rising inequality has fallen hard on young families with children—those headed by persons under 30. According to the Children’s Defense Fund (CDF), "The typical (median) income of young families with children plunged by one-third (33 percent) from 1973 to 1994 after adjusting for inflation—a loss greater than the 27 percent drop in per capita personal income that occurred during the Great Depression from 1929 to 1933." That’s the grim news from their new report, Rescuing the American Dream for Young Families. Half the children in young families have incomes below 125 percent of the official poverty line.

The CDF comments, "If the fruits of economic growth had been shared equally among all families between 1973 and 1994...then the median young family with children would have seen its income rise by 15 percent instead of falling by 33 percent."

Looking just at the families of young married couples, incomes fell by 12 percent between 1973 and 1994, despite the increase in mothers working at paid jobs. The CDF reports, "The typical annual paycheck of young married fathers dropped by 30 percent between 1973 and 1994. These losses were partially obscured in the family income statistics, however, by the growing earnings of young married mothers, who increased their average paid work time from 18 weeks per year in 1975 to 29 weeks per year in 1994." The poverty rate of two-parent young families more than doubled from 6.2 percent in 1973 to 15.7 percent in 1994.

A full-time, year-round minimum wage job used to bring a family of three above the official poverty level. Now it barely passes the official poverty line for a family of two. The current minimum wage of $5.15 comes to only 85 percent of the 1997 poverty line for a family of three, which at $12,516 is absurdly low. The official poverty line for a two-person family is $10,233. Imagine paying for child care out of that on top of housing, food, transportation, health care, and other necessities.

Imagine paying for college. It’s hard for middle-income people, and even harder for those with low income. The CDF reports, "The average cost of tuition, room, and board at a public college equaled 26 percent of the income of a moderate-income family in 1994, according to the U.S. Department of Education, up from 16 percent in 1975."

To reverse the fall in wages and the rise in inequality, we can join and support unions. We can back campaigns against sweatshops and for living wages at the local, state, national, and international level. We can end subsidies for the wealthy such as the deduction of exorbitant executive compensation from corporate taxes and the deduction of mortgage interest for expensive homes from personal taxes. We can work for real full employment and national health care. We can support Clean Money campaigns and publicly financed elections at all levels. We can elect government officials who represent us. We can salvage the Bill of Rights we’ve got, and work for an Economic Bill of Rights. We have a hard road ahead. It will be impossible unless we connect with many more people.                                        

 

Holly Sklar is the author of Chaos or Community? Seeking Solutions, Not Scapegoats for Bad Economics and a member of the board of United for a Fair Economy.