Posts Tagged ‘CEOs’

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CEO salaries continue to soar—last year reaching a ratio to average-worker pay of 347 to 1.

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While the profits of U.S. corporations have reached historic highs.

But corporate CEOs and boards of directors still want more—more deregulation, more tax cuts. And, as Matthew Goldstein explains, since his inauguration Donald Trump has met with hundreds of executives, including at least 41 of last year’s 200 best-paid CEOs.

Back in 1848, it was already clear that

The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.

 

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According to the AFL-CIO Executive Paywatch project, in 2016, CEOs of S&P 500 Index companies received, on average, $13.1 million in total compensation. In contrast, production and nonsupervisory workers earned only $37,632, on average, in 2016—a CEO-to-worker pay ratio of 347 to 1.

Above is a list of the top twenty CEOs, ranging from Kenneth Lowe of Scripps Networks Interactive at over $28 million to Sundar Pichai of Alphabet, who managed to capture over $100 million in executive compensation.

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Both Peter Temin and I are concerned about the vanishing middle-class and the desperate plight of most American workers. We even use similar statistics, such as the growing gap between productivity and workers’ wages and the share of income captured by the top 1 percent.

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And, as it turns out, both of us have invoked Arthur Lewis’s “dual economy” model to make sense of that growing gap. However, we present very different interpretations of the Lewis model and how it might help to shed light on what is wrong in the U.S. economy—with, of course, radically different policy implications.

It is ironic that both Temin and I have turned to the Lewis model, which was originally intended to make sense of “dual economies” in the Third World, in which peasant workers trapped by “disguised unemployment” and receiving a “subsistence” wage (equal to the average product of labor) in the “backward,” noncapitalist rural/agricultural sector could be induced via a higher “industrial” wage rate (equal to the marginal product of labor) to move to the “modern,” capitalist urban/manufacturing sector, which would absorb them as long as capital accumulation increased the demand for labor.

That’s clearly not what we’re talking about today, certainly not in the United States and other advanced economies where agriculture employs a tiny fraction of the work force—and where much of agriculture, like the manufacturing and service sectors, is organized along capitalist lines. But Lewis, like Adam Smith before him, did worry about the parasitical role of the landlord class and the way it might serve, via increasing rents, to drag down the rest of the economy—much as today we refer to finance and the above-normal profits captured by oligopolies.

So, our returning to Lewis may not be so far-fetched. But there the similarity ends.

Temin (in a 2015 paper, before his current book was published) divided the economy into two sectors: a high-wage finance, technology, and electronics sector, which includes about thirty percent of the population, and a low-wage sector, which contains the other seventy percent. In his view, the only link between the two sectors is education, which “provides a possible path that the children of low-wage workers can take to move into the FTE sector.”

The reinterpretation of the Lewis model I presented back in 2014 is quite different:

What I have in mind is redefining the subsistence wage as the federally mandated minimum wage, which regulates compensation to workers in the so-called service sector (especially retail and food services). That low wage-rate serves a couple of different functions: it’s a condition of high profitability in the service sector while keeping service-sector prices low, thereby cheapening both the value of labor power (for all workers who rely on the consumption of those goods and services) and making it possible for those at the top of the distribution of income to engage in conspicuous consumption (in the restaurants where they dine as well as in their homes). In turn, the higher average wage-rate of nonsupervisory workers is regulated in part by the minimum wage and in part by the Reserve Army of unemployed and underemployed workers. The threat to currently employed workers is that they might find themselves unemployed, underemployed, or working at a minimum-wage job.

In addition, the profits captured from both groups of workers are distributed to a wide variety of other activities, not just capital accumulation as presumed by Lewis. These include high CEO salaries, stock buybacks, idle cash, and financial-sector profits (with a declining share going to taxes). And, if the remaining portion that does flow into capital accumulation takes the form of labor-saving investments, we can have an economic recovery based on private investment and production with high unemployment, stagnant wages, and rising corporate profits.

For Temin, the goal of economic policy is to reduce the barriers (conditioned and created by an increasingly segregated educational system) so that low-wage workers can adopt to the forces of technological change and globalization, which can eventually “reunify the American economy.”

My view is radically different: the “normal” operation of the contemporary version of the dual economy is precisely what is keeping workers’ wages low and profits high across the U.S. economy. The problem does not stem from the high educational barrier between the two sectors, as Temin would have it, but from the control exercised by the small group that appropriates and distributes the surplus within both sectors.

And the only way to solve that problem is by eliminating the barriers that prevent workers as a class—both black and white, in finance, technology, and electronics as well as retail and food services, regardless of educational level—from participating in the appropriation and distribution of the surplus they create.

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Noah Smith is right about one thing: mainstream economists tend to use the word “capital” pretty loosely.

It just means “anything you can spend resources to build, which lasts a long time, and which also can be used to produce value.” That’s really broad. For example, it could include society itself. It also typically includes “human capital,” which refers to people’s skills, talents, and knowledge.

But then Smith proceeds, like the neoclassical equivalent of Humpty Dumpty, to make his definition of human capital the master—because, in his view, “it helps to convey some important truths about the world.”

Human capital, as I’ve explained in some detail before, is a profoundly misleading concept.

I don’t want to repeat those arguments here. But I do want to make two additional points.

First, if Smith wants to invoke human capital to say “education and skills are a form of wealth,” then why not include other ways people are able to earn more or less than their counterparts? Why not, for example, go beyond his reference to credentials (he has a Stanford degree) and intellectual abilities (apparently, he can do math well and write well) and refer to some of the other important ways people are sorted out within existing economic relations. I’m thinking of such things as gender, race and ethnicity, immigration status, and so on. They’re all ways workers are able to receive more or less income that have nothing to do with the effort they put into their jobs. Does Smith want to argue that masculinity, whiteness, and native birth are forms of human capital?

No, I didn’t think so.

Second, there’s the issue of capital itself. When capital is treated as a thing (which is what one finds in Smith’s account, as in most versions of mainstream economics), then it’s possible to forget about or overlook the historical and social conditions necessary for those things to operate as capital. Buildings, machinery, and raw materials, robots and computer software, even skills, talents, and knowledge—they only operate as capital within particular economic relations. Only when workers are forced to have the freedom to sell their ability to work to a small group of employers, only then does capital become a means to extract surplus labor from those workers. Once appropriated, that surplus labor then assumes a variety of different, seemingly independent forms—from capitalist profits to land rents, including payments to merchants and finance, the super-profits of oligopolies, taxes to the state, and, yes, the salaries of CEOs and supervisors.

But those payments are not “returns” to independent forms of capital, human or otherwise. They’re all distributions of the surplus-value that both presume and produce the conditions under which laborers work not for themselves, but for their capitalist employers.

They, and not the various meanings neoclassical economists attribute to capital, are the real masters.

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