The (Profits) System is Working
CEO Pay Soars While Workers Pay Stalls
A recent article in USA Today (the thin nationwide paper that gets distributed for free with your “continental breakfast” at Comfort Inn) epitomizes the limits of what right-wing, paranoid-style propagandists like Sean Hannity and Glenn Beck call “left wing bias” in American mass media. Titled “CEO Pay Soars While Workers’ Pay Stalls,” the story seems calculated to spark left-populist outrage across the country. It reports that:
“CEOs didn’t have to cry poor for long. The heads of the nation’s top companies got the biggest raises in recent memory last year after taking a hiatus during the recession.”
“At a time most employees can barely remember their last substantial raise, median CEO pay jumped 27% in 2010 as the executives’ compensation started working its way back to pre-recession levels…Workers in private industry, meanwhile, saw their compensation grow just 2.1% in the 12 months ended December 2010….”
“Two years of scaling back amid tough economic times proved temporary as three-quarters of CEOs got raises in 2010 — and, in many cases, the increases were substantial.”
“….The big increases in executive compensation are difficult for workers to swallow, given that many Americans are struggling just trying to find a job or make ends meet…”
Here are some of the most remarkable American 2010 CEO incomes reported on USA Today’s web version of the report: P. Daummon (Viacom) - $84,469, 515; Ray Irani (Occidental Petroleum) - $76,107, 101; Michael White (DirectTV) - $32,932, 618; John Lundgren (Stanley Black&Decker) – $32,570,596; Robert Iger (Walt Disney)- $28,017, 414; Samuel Palmisano (IBM) – $25,180,681; Howard Schultz (Starbucks) – $21,733,013….all quite remarkable to glean when it is understood that 19 million Americans (6.3 percent) live in extreme poverty, with cash incomes of less than half of the federal government’s notoriously inadequate poverty level – at less than roughly $11,000 for a family of four.
USA Today reporters Matt Krantz and Barbara Hansen explain that part of the outsized CEO compensation has to do with significant increases in the value of stock share prices in a period when executive pay is significantly comprised of company stock options. “Many CEOs receive roughly the same number of shares or options each year, “Krantz and Hansen note, “so when the value of those shares rises, so do pay packages.” But this only deepens the reporters’ seeming sense of discomfort with the gap between what working people get and what top corporate officers “earn,” since company profits (and stock prices) are rising out of proportion to actual economic activity/growth: “Yet the fact that CEOs’ pay is rising along with stock prices underscores the disconnect between pay and companies’ true underlying performance… While companies in the S&P 500 boosted profit 47% last year, much of that was due to cost-cutting and layoffs, not from the creation of businesses and growth….Revenue, a gauge of the money flowing into businesses for selling goods and services, grew at a much slower pace than profit — and ended the year up just 7%.”
I am glad that USA Today reported this disturbing data, but this last statement goes to the nub of the story’s deep, capitalist conservatism, consistent with the private ownership of the mass media. It reflects a core false assumption that no seriously radical left journalist would accept: that a working American capitalist profits system is one that produces good paying jobs and economic growth for all Americans, including the nation’s working class majority. But when has Hannity and Beck’s (and Obama’s) cherished capitalism ever been about the creation of good jobs and lives for working people and the broad mass of citizens in the U.S. or any other specific country? My Webster’s New Twentieth Century Dictionary (unabridged) usefully defines cap/i-tal-ism, n. as: “the economic system in which all or most of the means of production and distribution as land, factories, railroads, etc., are privately owned and operated for profit, originally under fully competitive conditions; it has been generally characterized by a tendency toward concentration toward concentration of wealth, and, in its later phases, by the growth of great corporations, increased government control, etc.” Notice, please, the absence of any reference in that definition to various things that are routinely identified with capitalism in American political and intellectual discourse – democracy, human freedom, free trade, trade per se, and/or a “free market,” characterized by widespread competition and/or little or no government interference. Notice also the absence of any reference to any commitment to job creation in any specific nation or indeed in any location at all. Capitalism is about profit for the owners of capital, period, to be attained through any number of un-specified means, including simple and complex dispossession of land and materials, chattel slavery (for centuries prior to its outlawing in 1863-65 in the U.S.), the hiring of workers, the firing of workers, the slashing of wages, the “out-sourcing” of labor tasks across nations, the de-skilling of workers, the automation of labor tasks, purely speculative investment, monopoly-/oligopoly formation and pricing, the dismantlement of competing firms, sectors, and industries, the endless eco-cidal pollution and perversion of the natural environment, the appropriation of public assets, the cutting and theft of wages and benefits, … etc…the list goes on.
When the profits system (capitalism) is properly understood for what it is really and only about (investor profit and nothing more) at the end of the day, then there is nothing paradoxical about its failure to serve working people and the common good in the U.S. or anywhere else. If corporate profits are high, the system is working for its architects and intended beneficiaries – capitalists. Its great capital-agglomerating corporations are working as they are supposed to under U.S. law, which holds (under the terms of the Michigan Supreme Court’s ruling in the Dodge v. Ford Motor Company 204 Mich. 459, 170 N.W. 668. [Mich. 1919]) that “managers have a legal duty to put shareholder’s interests above all others and no legal authority to serve any other interests.”
That is what the profits system’s “true underlying performance” is all about: the bottom line for the investor class. As the great American Marxist Paul Sweezy noted in a 1989 essay titled “Capitalism and the Environment,” the direct “purpose of capitalist enterprise has always been to maximize profit, never to serve social ends.” Benefits to the broader community flowing from such enterprise have always been incidental, contingent, and subject to reversal when those who might have momentarily and indirectly gained from its operation become obstacles to its “single-minded pursuit of profit, in which [no capitalist] can refuse to join on pain of elimination” – thanks to inter-capitalist competition that compels businesses who wish to survive and thrive to accumulate ever more capital.
In an article last January bearing the curious title “Profits are Booming, Why Not Jobs?” the New York Times reported that corporate “earnings” had exploded “even as 15 million Americans remain mired in unemployment, a number without precedent since the Great Depression,” and while the citizenry experiences “record levels of foreclosures and indebtedness.” Times business writer Michael Powell found numerous logical reasons for the American profits-jobs disconnect:
- Some big American firms were showing higher profits simply because their competition had collapsed. (Following the financial collapse of 2008, for example, the Wall Street giants Goldman Sachs and Morgan Chase no longer had to compete with Bear Stearns, Lehman Bros. and Merrill Lynch. Many jobs disappeared with the departure of the defeated firms.)
- Many companies were sitting on capital and storing up liquidity like never before in the wake of the financial collapse, Powell found. Firms who no longer believe they can borrow quickly had decided to keep a lot more cash on hand for precautionary purposes. Low interest rates produced by the recession create an incentive for many companies to simply “exploit the spread between a zero funds rate and rates on Treasury bonds” and thereby to “mark profits without selling much or hiring anyone.”
- Many companies were producing abroad, in order to garner the profits dividend afforded by dramatically lower wages, salaries, and benefits in “developing” counties likeIndia and China.
- A large reserve army of unemployed workers was a profits boon for corporate America. Desmond Lachman, a former managing director at Salomon Smith Barney who works as a “scholar” at the influential right-wing policy group the American Enterprise Institute, spoke about this in candid terms. “Corporations,” Lachman told Powell, “are taking huge advantage of the slack in the labor market — they are in a very strong position and workers are in a very weak position,” he said. “They are using that bargaining power to cut benefits and wages, and to shorten hours.”
That’s not unemployment as an anomaly for capitalist profits, its joblessness as a source of them, straight out of Karl Marx. There is contradiction in the American profits-jobs disconnect, but the contradiction is not internal to the profits system. It exists, rather in the conflict between the selfish, amoral, and borderless logic of capital and the material and social needs of ordinary people within the U.S.
The popular neo-Keynesian anti-neoliberal economist Ha-Joon Chang’s recent bestselling book 23 Things They Don’t Tell You About Capitalism is dedicated to the proposition that (as its dust-jacket claims) “we can shape [capitalism] to humane ends.” That’s a pipe dream. We can and must impose limits on the rapaciousness of the “free market” (code language for un-checked rule by the market’s Frankenstein-like creations and masters, the world’s leading corporations and financial institutions) from both the bottom up and the top down, of course, but capitalism at its core is simply unable to substantively consider anything other than the short-term bottom line. That deep, incapacity now threatens not merely the working and living standards of billions the world over but also – in an age of unfolding ecological catastrophe – the very viability of the human species in the ever more near-term future. The environmentally exterminist logic of the profits system’s “treadmill of accumulation” for the Few – one of a few things that Ha-Joon Chang doesn’t tell you about capitalism – is becoming ever more painfully evident, undermining the attractiveness of neo-Keynesian growth strategies and suggesting rather starkly that it is (as Istvan Mezaros says) “socialism or barbarism if we are lucky.”
Paul Street (www.paulstreet.org) is the author of many articles, chapters, speeches, and books, including Empire and Inequality: America and the World Since 9/11 (Boulder, CO: Paradigm, 2008); Racial Oppression in the Global Metropolis (New York: Rowman & Littlefield, 2007; Segregated Schools: Educational Apartheid in the Post-Civil Rights Era (New York: Routledge, 2005); Barack Obama and the Future of American Politics (Boulder, CO: Paradigm, 2008); The Empire’s New Clothes: Barack Obama in the Real World of Power (Boulder, CO: Paradigm, 2010); and (co-authored with Anthony DiMaggio, Crashing the Tea Party: Mass Media and the Campaign to Remake American Politics (Boulder, CO: Paradigm, May 2011). Street can be reached at firstname.lastname@example.org