I’m amazed at the over-reaction, in some quarters, to Occupy Wall Street. A bunch of young adults who have nothing better to do, thanks to the lousy economy engineered by those older, sit around in a park and beat on some bongo drums, and suddenly the world is coming to an end. I get the feeling certain people and media outlets are outraged they aren’t doing anything that would allow them to be arrested and thrown in jail. The reason, I believe, is that Occupy Wall Street is undoing the carefully engineered amnesia about the events of and leading up to the financial crisis of 2008, followed by a mass attempt to deflect blame elsewhere and gut any new financial regulation. But there is a way for Occupy Wall Street to really, really terrify the top one percent.
Chanting “End Capitalism” isn’t going to get it done, because once alternatives are considered not only would most Americans prefer the free market alternative, but probably most of those in Occupy Wall Street would as well. Given who controls our federal and state governments, would they really want to give those governments even more power and control over their lives? To decide where they could shop, what they could buy, what would be charged, where they would work and what those working in different fields would be paid – presumably based on campaign contributions and connections with powerful lobbyists? Would they really want to have no alternative to “Too Big to Fail” state-connected organizations, and no possibility of them being challenged by new, competing organizations? No. But there is a very capitalist chant that would have the top one percent recoiling in terror and sputtering with rage. That chant is…“Cut Executive Pay In Half and Increase Dividends.”
All this talk of powerful corporate interests is enough to send me off to look at my retirement savings statements. Only a modest share of those savings is invested in the stock market, because I don’t trust those who control most public companies. But for those savings that are in stocks, surely the power of those powerful corporations, and the rising share of national income going to capital rather than labor, means that as a part owner of every corporation in America I’m striking it rich!
Actually, no.
As I described in more detail here, one of the reasons the gains from the economy became so lopsided is the power of the rent-seeking, de-facto union of corporate executives and directors. Executive pay has soared, and dividends for investors have plunged. Basically, the executives sit on each other's boards and vote each other a higher and higher share of private sector wealth. They all hire the same pliable executive pay consultants, knowing those consultants will recommend ever rising executive pay (if they didn’t make that recommendation, they wouldn’t have been hired). Every increase they give other executives as members of the Board of Directors as one company becomes a precedent for more for themselves as executives in other companies later. This has nothing to do with any free labor market. It is a manipulated upward spiral.
Executive pay soared during the 1990s, during the stock market bubble. At the time, the executives claimed their soaring compensation was justified by the “shareholder value” they were creating. But that value was an illusion. The real value of stocks is the dividends investors actually receive as a share of the profit. This has historically provided a return averaging 4.3% per year, but since the 1990s it has generally averaged 2.0% of less. As for making it up on rising stock prices, this assumes that someone else will be willing to pay even more for the same income. Eventually, people were bound to catch on that they were being had, and rising stock prices without dividends behind them were nothing but a Ponzi scheme.
Even as stock prices fell back to normal (actually, still above normal as the low dividend yield shows), executive pay never fell back to what it had been. Despite the fact the original reason given for the executive pay explosion has been exposed as a fraud. In fact, the top executives often appoint their own board members, and end up negotiation their pay packages with their own cronies.
And they have stopped giving any justification for their pay packages at all, now that “shareholder value” can no longer be used. It’s more a matter of “I get what I am getting because I have been getting it.” It isn’t socialism, under which you get what you need at least in theory. And it isn’t capitalism, under which you get what you earn at least in theory. It is more like feudalism, under which those with power continue to get what they have been getting, and then a little bit more, whether they need it or not, deserve it or not. It is exactly the way our politics has worked in reality, and it is inherently unjust.
This situation, in fact, is exactly the same as it is for the public employee unions and the state and local politicians they control. In exchange for support, those politicians have repeatedly negotiated to enrich, retroactively, the pensions those unionized public employees will receive, in secret and with the costs hidden or fraudulently disclosed. Those pension increases were also justified by the 1990s stock market bubble, but haven’t been given back in the years since it was proven to be illusory. Instead, public services are being gutted and taxes increased, and lower pay and benefits have been imposed on future generations of public employees. In some cases, as in New York State, over and over again. Often, the state legislators who passed the richer pensions benefit from them themselves. And when pension actuaries were hired to describe what the deals would cost, only those willing to lie got the job.
It isn’t that our public institutions and corporations are profiting by becoming powerful. It is that they are being raped to benefit those who control them, and left in ruins. They aren’t strong. They are being sucked dry to the point of collapse. The federal government has been bailing out those that reach the collapse point, but now it is so in debt that it might collapse itself.
In the case of corporations, what about the shareholders? Public corporations are supposed to be democracies. Won't the shareholders vote for new boards of directors, directors who will get a better deal from executives in negotiations over pay and dividends?
No. Because most of the shares in public corporations are controlled not by shareholders but by their intermediaries in the financial sector, who are even more overpaid. You invest in mutual funds, and the mutual fund managers vote their class interest in the companies they own, not their investors’ interest. It isn’t a bunch of Marxists who think so. It is honest executives like John Bogle, the founder of Vanguard Funds. Here is what he had to say.
“Today's capitalism has departed, not just in degree but in kind, from its proud traditional roots, a system that served us admittedly imperfectly, but with remarkable effectiveness for the better part of the past two centuries—a free enterprise system based on open markets and private ownership, and on trusting and being trusted.”
“The system worked. Or at least it did work. And then, late in the twentieth century, something went wrong, a ‘pathological mutation in capitalism,’ in the words of journalist William Pfaff. The classic system—owners' capitalism—had been based on a dedication to serving the interests of the corporation's owners in maximizing the return on their capital investment. But a new system developed—managers' capitalism—in which, Pfaff wrote, ‘the corporation came to be run to profit its managers, in complicity if not conspiracy with accountants and the managers of other corporations.’ Why did it happen? ‘Because the markets had so diffused corporate ownership that no responsible owner exists. This is morally unacceptable, but also a corruption of capitalism itself.’ And so it is.”
The failure of those agents on Wall Street who control other people’s shares has caused, among other things, the explosion of executive pay according to Bogle. “CEO pay has risen from 42 times the compensation of the average worker in 1980 to 340 times currently, a 756 percent rise after inflation, while the real income of the average worker has barely kept pace with the cost of living. Long ago, Herbert Hoover, one of our few businessmen to serve as President, put it well: ‘The only trouble with capitalism is capitalists. They're too darn greedy.’ Imagine what he'd say today."
From 42 times the average worker pay to 340 times. Sounds like cutting executive pay in half would still leave them pretty well off. And that kind of savings might get dividend payments for investors back up to their long term average as a share of stock prices. Of course when I say half, that is an average. Not every executive is that overpaid. And some industries are much worse.
You want to know the real reason the business elite turned against President Obama? It isn’t something they are saying, or would ever admit. The Dodd-Frank financial reform had a provision called “say on pay,” which required shareholders to be informed what the top executives were actually getting and gave them a non-binding, advisory vote on it. It is a completely toothless provision in reality, yet it was enough to get the phony capitalists in the executive suite yelling “socialism!” and shifting all their campaign contributions over the Republicans. And if the Republicans take power, or come close, expect “say on pay” to be the first “excessive regulation” to be repealed.
So what could Occupy Wall Street do about executive pay? The first question young people have to ask is whether our public and private institutions are salvageable, and worth fighting for. Or whether they should be boycotted, defunded, forced into bankruptcy, destroyed (with all their guaranteed paper promises the powerful have made to themselves destroyed with them) and perhaps replaced. That’s what would have happened if the government hadn’t stepped in during 2008 – paper wealth, stocks and bonds, would have evaporated in a rapidly spreading wildfire of bankruptcy.
When all the additional money New Yorkers have paid for the New York City schools in recent years ended up being diverted to having New York City teachers retire years earlier on more favorable terms, after a series of secret political deals, I concluded that the city’s public schools are beyond hope. Even now, as actual education is repeatedly cut, and the media calls for diminished pay and benefits for future teachers to make up for the theft by those cashing in and moving out, a massive propaganda machine works tirelessly to spread lies about the reason. A propaganda machine that has even infiltrated Occupy Wall Street. It seems that nothing short of a revolution or perhaps bankruptcy would force unionized public employees to provide those who pay for them with a fair deal, or even to consider their needs when grabbing for themselves.
There is, however, something Occupy Wall Street could do about executive pay. They could buy one share of every large public company in America. Just one share, perhaps owned by the most eloquent person who lives near the place where that company’s annual shareholders’ meeting is to be held. The last thing we would want to do is temporarily drive up stock prices, so executive stock options vest and they grab even more money. And then, have that one share owner show up at the annual shareholder’s meeting, get a turn in line, walk up to the microphone and demand that executive pay be cut in half with all the savings returned to shareholders in the form of higher dividends. The dividends would be funded by the executive pay cuts, not by increasing company debt or reducing reinvestment. Otherwise, the executives should be fired and replaced by those willing to work for less money. The way American jobs have been outsourced to those willing to work for less money. Has that every happened?
While the one shareholder was speaking on the inside, Occupy Wall Street members – and whoever else they could attract, could chant “Cut Executive Pay in Half and Increase Dividends” outside, and then march to the nearest Statehouse or City Hall and demand, as taxpayers on the hook for public employee pension costs, that those pension funds disinvest in firms with overpaid executives and inadequate dividend payments. Because by increasing the actual (as opposed to phony projected) returns those public employee pension funds receive, higher dividends could also reduce the harm to ordinary people of that other set of thieves in the political class.
Just remember this important difference between the public and private sectors. Elections for both government legislative offices and corporate boards of directors of corporations are rigged affairs, and it is difficult to get the self-dealers out in either case. But the government has the power of violence. It can provide less and less in public services and benefits and charge more and more, and people have no choice but to pay. Otherwise, a police officer will come to arrest and imprison you and, if you resist, kill you.
Private corporations have no such power over anyone. Instead, they have to con people into slaving away for a worse and worse deal – as workers, as customers and, most crucially, as investors. Boycotts, general strikes and mass stock sales could all have an effect. If people stopped pouring money into stocks at low dividend yields, there would be less money for executive pay. That’s why some want to get Social Security money invested in the stock market. After twelve years of zero returns, other than the public employee pension funds there are fewer and fewer victims left to exploit.
And since younger generations are much poorer than those who preceded them, they have less money to invest in stocks and have diverted to higher executive pay. Generation Greed seems to have this fantasy that all the sacrifices required by our massive public and private debts could be shifted to younger generations, and younger generations would still be able to pay high prices for their stocks and houses to pay for their cushy retirement. With what money?
By chanting “Cut Executive Pay in Half and Increase Dividends,” Occupy Wall Street would sent out a message that savers should demand better terms or sell en-mass. Even non-rich members of Generation Greed would be in favor, because the retired need to live off those dividends. And that would truly be a nightmare for the top one percent.