Special mention

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Special mention

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The typical American has no idea how much corporate CEOs make—but they still believe CEOs are making much too much.

That’s according to a new study from researchers at the Stanford Graduate School of Business (pdf):

Public frustration with CEO pay exists despite a public perception that CEOs earn only a fraction of their published compensation amounts. Disclosed CEO pay at Fortune 500 companies is 10 times what the average American believes those CEOs earn. The typical American believes a CEO earns $1 million in pay (average of $9.3 million), whereas median reported compensation for the CEOs of these companies is approximately $10.3 million (average of $12.2 million). . .

The vast majority (74 percent) of Americans believe that CEOs are not paid the correct amount relative to the average worker. Only 16 percent believe they are paid an appropriate amount.

Even more:

Nearly two-thirds (62 percent) of Americans believe that there is a maximum amount CEOs should be paid relative to the average worker, regardless of the company and its performance. . .

Those who believe in capping CEO pay relative to the average worker would do so at a very low multiple. The typical American would limit CEO pay to no more than 6 times (17.6 times, based on average numbers) that of the average worker. These figures are significantly below current pay multiples, which are approximately 210 times based on recent compensation figures.

More CEOs

Posted: 5 February 2016 in Uncategorized
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Yesterday, I wrote about the cult of CEOs.

I wonder if Hamid Bouchikhi and John R. Kimberly would also celebrate Martin Shkreli, former chief executive of Turing Pharmaceuticals, who is currently facing federal securities fraud charges.


Contemporary capitalism has a big problem. And no one seems to be able to refute it.

The problem, as Robert J. Gordon sees it, is that economic growth is slowing down, it has been for decades, and there’s no prospect for a resumption of fast economic growth in the foreseeable fure. After fifty (from 1920 to 1970) years of relatively fast growth, and a single decade (the 1950s) of spectacular growth, the prospects for continued growth seem to have dimmed after 1970.

In the century after the end of the Civil War, life in the United States changed beyond recognition. There was a revolution—an economic, rather than a political one—which freed people from an unremitting daily grind of manual labour and household drudgery and a life of darkness, isolation and early death. By the 1970s, many manual, outdoor jobs had been replaced by work in air-conditioned environments, housework was increasingly performed by machines, darkness was replaced by electric light, and isolation was replaced not only by travel, but also by colour television, which brought the world into the living room. Most importantly, a newborn infant could expect to live not to the age of 45, but to 72. This economic revolution was unique—and unrepeatable, because so many of its achievements could happen only once. . .

Since 1970, economic growth has been dazzling and disappointing. This apparent paradox is resolved when we recognise that recent advances have mostly occurred in a narrow sphere of activity having to do with entertainment, communications and the collection and processing of information. For the rest of what humans care about—food, clothing, shelter, transportation, health and working conditions both inside and outside the home—progress has slowed since 1970, both qualitatively and quantitatively.

From what I have read, Gordon appears to privilege technical innovation over other factors (such as dispossessing noncapitalist producers and creating a large class of wage-laborers, concentrating them in factories and cities, and so on). He also seems to argue that the fruits of past economic growth were evenly distributed and that the drudgery of work itself has been eliminated.

Still, the idea that rapid economic growth took place during a relatively short period of time dispels one of the central myths of capitalism, much as the discovery that relative equality in the distribution of wealth and constant factor shares characterized an exceptional phase of capitalism.

And that’s a problem: the presume and promise of capitalism are that it “delivers the goods.” It did, for a while, and now it seems it can’t—which has mainstream commentators worried.

They’re worried that capitalism can no longer guarantee fast economic growth. And they’re worried, try as they might, that they can’t refute Gordon’s analysis. Not Paul Krugman or Larry Summers or, for that matter, Tyler Cowen.

All three applaud Gordon’s historical analysis. And all three desperately want to argue he’s wrong looking forward. But they can’t.

The best they can come up with is the idea that the future is uncertain. Thus, as Cowen writes, “many past advances came as complete surprises.”

Although the advents of automobiles, spaceships, and robots were widely anticipated, few foretold the arrival of x-rays, radio, lasers, superconductors, nuclear energy, quantum mechanics, or transistors. No one knows what the transistor of the future will be, but we should be careful not to infer too much from our own limited imaginations.

Indeed. We certainly don’t know what lies ahead. But, since the 1970s, we’ve witnessed growing inequality in the distribution of income and wealth, which resulted in and in turn was exacerbated by the most severe economic crisis since the 1930s. Capitalism’s legitimacy, based on “just deserts” and economic stability, was already being called into question. Decades of slow economic growth and the real possibility that that trend might continue for the foreseeable future mean that capitalism (not to mention those who spend their time celebrating capitalism’s successes and failing to imagine alternatives) has an even bigger problem.


Special mention

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The United States suffers from an obscene cult of CEOs. Whether we’re talking about “Neutron Jack” Welch (who was celebrated for raising GE’s market value while laying off tens of thousands of workers) or Bill Gates (who made Microsoft competitive by engaging in anticompetitive practices) or Lloyd Blankfein (head of the “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money”)—they’re routinely feted as being ruthless, “transgressive” leaders who make change happen in the corporate world.

I suppose it comes as no surprise, then, that two business professors—Hamid Bouchikhi and John R. Kimberly [ht: kc]—would extend that celebration to CEOs in the academy, by studying the decision by Dean of Arts and Letters Mark Roche to divide the Department of Economics at the University of Notre Dame.*

Transgressive leaders are those who are expected by members to abide by sacred organizational norms but who deliberately violate them for the sake of what they believe to be the greater good of the organization. . .The model of transgressive leadership we propose emerged in the wake of field work at the University of Notre Dame, where a new Dean of the College of Arts and Letters forced a paradigmatic, organizational, and managerial reorientation of economics after a long period of repeated and failed attempts by others to redirect the department.

What’s bizarre about this study is that the authors make clear that Roche did, in fact, violate many of the “sacred organizational norms” of the academy—and then they go on to celebrate him as a transgressive leader who managed to create a new, exclusively neoclassical department of economics.

What did Roche do to get to the point of forcing a split within the department? According to the authors, he “committed a series of lower intensity transgressive acts,” including expressing his own view of the paradigmatic orientation of the department, producing and publicly sharing numbers about members’ research productivity, and violating “the sacred norm of academic self-governance and democratic decision making in a research university” by appointing an advisory board, vetoing hiring proposals, and recruiting a new outside chair against the formal opposition of the existing departmental faculty. Those, of course, were all in the way—once the department itself didn’t cave to his demands—of preparing for, in 2003, the splitting of the department into two separate and unequal departments.

The department voted (15-6) against the split. So did the College Council (by a tally of 25 to 14). And the decision was challenged by several prominent mainstream economists, including Robert Solow (in a letter to the president of the university):

You should know that I am a mainstream economist, in fact a mainstream mainstream economist. But I am not an uptight mainstream economist. Economics, like any discipline, ought to welcome unorthodox ideas, and deal with them intellectually as best it can. It does pretty well, in fact. To conduct a purge, as you are doing, sounds like a confession of incapacity. I grant that you are not shooting the Trotskyites in the back of the head, but merely sending them to Siberia, That is not much of an improvement.

And Deirdre McCloskey (in an article in the Eastern Economics Journal):

What’s the problem nowadays at Notre Dame? … The Dean of the College of Arts and Letters, one Mark Roche, together with his agent in Economics, Richard Jensen, and with the backing of the Provost, Nathan Hatch, and the apparent entrepreneurship of the Dean of the Graduate School, Jeffrey Kantor, has decided that Notre Dame’s Econ Dept is broke . . . and should become mainstream…The Department has resisted. It’s being punished with appointments imposed on it; its promotions have been turned back. It may be abolished entirely, its distinctive graduate program scrapped, and a new one started that will be drearily Samuelsonian.

But the dean, with the protection of the university administration, ultimately got what he wanted. And, according to the authors, Roche’s transgressions ultimately served the good of his college because he sought to appease the faculty (by opening new communications channels and rewarding faculty members whose work met his criteria), thus leading to a celebratory self-evaluation (in his own private notes):

When I stepped down there was a truly joyful reception, as much like a wedding reception as a retirement party. It may be self-deception, but my sense was that there was more gratitude for what had been accomplished than for my leaving office.

Ultimately, Bouchikhi and Kimberly celebrate the cult of CEOs—who “have a clear vision of what needs to change and accept the collateral human cost, for others and for themselves, if they perceive causing hardship to others as a requirement.” It is a model that is well established in the corporate world and is increasingly becoming the norm in the new corporate university.


*Disclaimer: as regular readers of this blog know, I was a member of the Department of Economics when, in 2003, Roche, with the support of the university administration, decided to divide the department into two (one of which, the Department of Economics and Policy Studies, of which I was also a member, was dissolved by Roche’s successor, in 2010). I didn’t know about this research when it was being conducted but I am cited numerous times in the paper.