Book Report – Saving Capitalism by Robert Reich

If you happened upon the Business section of the Sunday Globe on 3/20/16, you may recall a snippet that suggested there are two Bostons. A study by the Boston Redevelopment Authority contains “stark numbers that show few benefits from the economic boom going to those near the bottom of the income scale,” further concluding that nearly half of the city’s residents make less than $35,000 in annual income. What Robert Reich, author of the excellent new book Saving Capitalism, would tell you is that the growing divide of the income gap is a national crisis and you’d best sharpen your debating skills should you want to captain some sort of counterargument. With a nod to philosopher John Rawls, the author notes that a truly healthy democracy should have outcomes that improve the lives of the vast majority; unfortunately, the reality is that new rules “instead enhance the wealth of a comparative few at the top while keeping almost everyone else relatively poor and economically insecure.” Groovy!

Bloated, egomaniacal CEOs are at the heart of the problem in at least a couple of key ways. First off, rampant cronyism allows them to nominate each other for plum director positions, and seats on S&P 500 companies’ boards carried an average wage of $251,000 in 2012. Naturally those salaries are sharply higher today because compensation consultants – whom the author considers whores – are motivated to benchmark pay based on other overpaid CEOs such that “pay packages ratchet upward annually in this faux competition.”  The other major issue is the trend of artificially inflating stock values in the short run for personal gain. Picture if you will Buddy the CEO as an insatiable pig at an all-you-can-eat diner, inhaling the left side of the menu before diving headlong into the dessert bar. Buddy emerges sticky and unrecognizable, tanked on chocolate and cheesecake as he staggers around helplessly in an ogre haze, frosting covering his thinning silver hair, custard dripping from his suit onto his designer dress shoes. This is more or less what we’ve been seeing the past 20 years as growing percentage of executive compensation packages has come in the form of corporate stock options and stock awards. When shares drop, boards – you know, the ones similarly swine populated – close the compensation gap with more options and awards so that even a temporary future gain gives Buddy an irresistible opportunity to quickly liquidate a portion for a tidy profit. Around and around we go, all at the expense of the R&D a prior generation’s executive ranks would have invested in for the benefit of the many, society included.

John Maynard Keynes, the British economist whose theories fundamentally changed governmental economic policy in the first half of last century, believed that the standard of living in Europe and the United States in 2028 would be such that no one would have to worry about money. (Try telling that to haggard parents and students whose loans run second only to home mortgages as far as U.S. debt goes.) What Keynes couldn’t foresee, and what worries Reich – and perhaps most of us – is that the middle class has lost its bargaining power. Whereas in the “three decades after World War II, the average hourly compensation of American workers rose in lockstep with productivity gains,” inarguably median household income has been shrinking for years. When adjusting for inflation, the average hourly pay in this country in September 2014 – some five years after the recession supposedly ended – was less than it was in… wait for it… January 1973, back in the halcyon days when net productivity and real hourly compensation were inextricably linked. No longer. A pity Howard Schultz decided not to run for president as maybe he could’ve shown all of us how to make a strong cup of coffee and about $150,000,000 a year. Grande indeed.