Free Market Madness
WASHINGTON — With Labor Day approaching, it must not go unnoticed that Angelo Mozilo, chief executive of Countrywide Financial — the company that has helped drive world markets into turmoil with its lending — raked in $42.9 million last year. The Nobel laureate Harold Varmus, chief executive of the Memorial Sloan-Kettering Cancer Center, was paid $2.5 million.
Roughly speaking, here is what their relative compensation means: We now value the contributions of someone who has left homeowners frantic about whether they will be able to keep a roof over their heads about 18 times as much as we do those of a brilliant scientist whose groundbreaking research on the genetic basis for cancer could save millions of lives.
Yet what new mother, dreamily rocking her infant, wishes that her child one day will grow up to invent a convoluted mortgage instrument?
We’ve known for years that executive pay is obscenely out of whack with the earnings of today’s workers. The current ratio, according to public data analyzed by the Institute for Policy Studies, is that CEO pay among the chieftains of Fortune 500 companies is about 364 times the pay of an average worker. The data, drawn from an Associated Press survey of executive pay, do not reflect the latest Census Bureau finding that earnings of men and women who work full time dropped by about 1 percent last year. It’s the third consecutive year that earnings have dropped, the government says.
Here is another way to measure the madness: If you count only the value of “perks” — private jets used for personal travel, reimbursement of country club fees and commuting expenses, even company payment of taxes owed on bonus income — a minimum-wage earner would have to work for 36 years to earn the equivalent of what corporate chiefs averaged just in perks last year, according to the IPS, a liberal-leaning economic research group.
Whatever populist urge arises from these juxtapositions is lost, oddly, in what sometimes seems to be boredom with the truth. The level of inequality in our society is at a high point in contemporary American history, a new “Gilded Age” is upon us and, according to conventional thought, there just isn’t much to be done about it. The legislative fixes that from time to time arise — limiting egregious tax loopholes for hedge-fund managers, capping the amount that can be put away in increasingly robust, tax-deferred retirement accounts for top executives — are nip-and-tuck tactics. They won’t change the overall contour of a business culture run amok.
It is not only that American business executives are doing far, far better now than before when compared with their own workers. They’re doing far, far better than business leaders in Europe — the very executives against whom American CEOs say they must compete in the global economic market. In 2006, according to the IPS, the 20 highest-paid European managers made a combined average of $12.5 million. That’s about a third as much as the top 20 American managers.
And American business leaders are doing far, far better than American leaders in other professions. Scientists and doctors, university presidents and others who run large enterprises don’t come close to their compensation. Nor do U.S. military leaders now running two complex wars — they earn a tiny fraction of what the heads of major U.S. defense contractors take in.
“How do we deal with the bigger drift here?” asks Chuck Collins, senior scholar for the IPS. “We tilted the rules so that asset owners became winners over wage earners. We lifted up capital and betrayed work.”
There’s been a cultural shift of historic proportion. In the decades that followed the Great Depression and World War II, public policy was shaped to support creation of a mass middle class. Now, contemporary politics concentrates power in the hands of campaign donors. The public is fascinated with individual riches — even if they’re displayed in the debauchery of a Paris Hilton.
Yet it seems we have reached this unacceptable extreme less by design than by dereliction of some communal duty. Politics has played a role, beginning with the Reagan-era delusion of trickle-down economics. But so, too, has a failure of heart.
Even after the spectacular collapse of Enron, no fundamental change came about to prevent future corporate manipulations. Now we are in the midst of a mortgage meltdown.
Rebalancing portfolios is the recommended short-term palliative. Rebalancing our culture is the only long-term hope.
Marie Cocco’s e-mail address is mariecocco(at)washpost.com.
© 2007, Washington Post Writers Group