Super Capitalism, Super Imperialism and Monetary Imperialism

Henry C.K. Liu

Part I: A Structural Link

Part II: Deregulation: Global War on Labor

This article appeared in AToL on October 13, 2007

The long-range consequence of the Carter deregulation policies and practices that had begun during 1977-1981 was magnified during the Reagan period of 1981-89, with greater emphasis on changing the tax regime to favor the rich, industry deregulation to lower prices by lowering quality, and a shift of power from unions to management. Carter took the first steps towards dismantling the post-World War II social safety net and retirement/pension system, and encouraging job market restructuring in the name of freedom and efficiency. Reagan’s conservatism was merely skin-deep and rhetorical, being the president with the largest federal deficit in history, whose policies were outright antagonistic towards the interests of the poor whose rank was constantly enlarged by the steady decline of the middle class. Reagan’s rhetoric labeled government as the enemy, not the protector of the people. Ironically, his policies made his rhetoric ring true.  The Reagan government had been the ruthless enemy of the US middle class.

Bush Sr. Lost to Clinton: It’s the Economy, Stupid!

During the presidency of George Bush senior, 1988-1992, the emphasis shifted to policies promoting US corporate investment overseas, trade, and on implementing neo-liberal policies in emerging offshore economies and markets. The Bush policies produced a prosperous corporate state while the nation fell into a domestic recession to which Bush was personally oblivious and which caused him to lose the White House to an unknown challenger from a minor Southern state, despite victory at war in Iraq. The slogan: “It’s the economy. Stupid!” entered US political nomenclature and dominated the entire Clinton presidency.

Under Clinton, 1992-2000, the policy focus centered largely on promoting and expanding neo-liberal “free trade” under dollar hegemony. Additionally, the Clinton period was characterized by the introduction of new formulas for enabling health care cost shifting from corporations to workers, by accelerating the diversion of social security payroll taxes to the US general budget to create the false appearance of declining federal budget deficits and by passing government rules encouraging the further decline of the traditional private pension system. The Clinton fiscal surplus was largely funded from the pockets of US workers. Clinton deregulated world trade and introduced dollar hegemony to put the US middle class in debt in order to feed corporate global profit. The Clinton prosperity was built on debt addiction, otherwise known as Rubinnomics, after Clinton Treasury Secretary Robert Rubin.

The Bush Tax Cut for the Rich

Under George W. Bush, once again tax cuts for corporations and the wealthy became the pre-eminent policy focus and hailed as the indispensable dynamo of prosperity while further expanding “free trade” to advance democracy. Bush tax and trade policies contributed to a new wave of income shift toward income disparity, combining the worst aspects of both the Reagan and Clinton eras, the former being an inequitable tax policy and the latter being an anti-labor trade policy. Not surprisingly, the income inequality gap accelerated at the fastest rate during the Bush period of 2000-2006, but the stage had been set by Carter, Regan, Bush and Clinton. In addition to tax and trade-driven income inequality, under George W. Bush other new income-shifting policy initiatives were launched as well in health care cost shifting, retirement system restructuring, and legislated wage compression by government edict, targeting overtime pay for millions of hourly paid workers.

US Workers Squeezed by Government and Employers

While the tax, trade, wage and benefits policies were being implemented top down during the two decades between 1980-2006 under four presidents from both parties, deregulated corporate policies and practices that further contributing to the growing income inequality gap were being simultaneously overhauled from the bottom-up, shifting from full-time, permanent jobs to part-time, temporary, and independent contract work. Growing consistently since the 1980s, more than 44 million of the 137 million employed workforce in the US, close to one third, are now part-time, temporary, and contract workers earning 60-70% of the pay of full-time workers and typically receiving only 20% of the benefits.

Management promoted de-unionization policies launched in the 1980s resulted in the decline of union membership from 22% of the workforce in 1980 to barely 7% in the private sector in 2006. Two decades of corporate job outsourcing policies sent millions of high-paying, liberal benefit jobs in manufacturing, technology, and business professional services overseas, a loss filled with lower paying domestic service jobs—frequently part-time, temp, and contract jobs. Corporate fringe benefits policies shifted fundamentally during the same period, resulting in the dismantling of more than 100,000 traditional pension plans and their replacement with cheaper cost 401-K plans; the discontinuance and/or shifting of costs of health insurance plan coverage; widespread unilateral corporate elimination of retiree health benefits; reduction of paid vacation and other paid time-offs; and other similar company-driven cost reduction measures.

The two approaches - corporate policy changes at the company-industry level and government policy changes - worked in close concert with each other. Government tax, depreciation, and free trade policies provided significant financial incentives to corporations for expanding off-shoring jobs and consequently dismantling and transferring abroad much of the manufacturing sector in the US. For the first time in US economic history, large sacle layoffs became an easy corproate profit option. Shares in pulbicly listed companies rose in value whenever large cost cutting job reduction was announced. Corporate bankruptcy became a legal escape from costly labor contracts.

Health Care and Pension

Government agency rule changes allowed corporations to extract for general business use, pension fund surpluses resulting from an anti-labor business culture, and/or to delay properly funding of pension plans. Government bodies such as the National Labor Relations Board directly aided corporate efforts to de-unionize while government de-regulation and privatization of entire industries further decimated union membership ranks and undermined union market power and bargaining effectiveness.

On the health front, government policy in the form of managed health care under Clinton and consumer-driven health care and health savings accounts under George W. Bush, encouraged corporations to more rapidly shift health care costs to workers.

The recent settlement of the 3-day old General Motor strike involving 74,000 workers (having shrunk from 125,000 in four years) was a staged farce to mask a submissive union as a defiant fighter for worker benefits and job security. The new contract freezes worker base pay for four years.  It allowed GM to shift to a new independent trust called Voluntary Employees Beneficiary Association (VEBA) $51 billion in liabilities for union retiree health care by contributing to it only $35 billion of tax deductible income. The new contract will pay new UAW workers lower wages for the same work the GM pays current workers. The two-tier wage regime has been credited as a key factor in strong corporate profits. After a bitter battle with the union during the 1990s and several bitter strikes, one of which lasted 17 months, Caterpillar emerged victorious with a two-tier wage system that has allowed it to grow and prosper. The agreement pays new employees far less: about $22 an hour, as opposed to the $40 an hour plus benefits that starting workers used to make.

The push by GM to unload its “legacy cost” is aimed at matching lower Japanese worker benefits. Both GM and Japanese wage are now around $25 per hour. The gap in total labor cost between Detroit and Japan is in benefits, with $75 an hour for GM as compared to Japanese producers of $55.  A pro-labor solution would be to force the Japanese car makers to raise its benefit cost to $75 an hour rather than to lower GM worker benefit to $55. A pro-labor trade policy would impose countervailing tariff to offset the difference to level the playing field between GM workers and Japanese car maker workers.  But neo-liberal free trade is designed to push global wages down, not up.

Income Shift from Workers to Corporate Profit

Given the magnitudes of these income shifts from workers, it is not surprising that corporate profits have increased at double digit rates every quarter for the last three and a half years to more than $1.4 trillion; or that CEOs and the top 5 managers of US corporations have increased their total share of national income from around $50 billion a year in 2001 to more than $140 billion a year in just five years; or that the wealthiest 1% (1.1 million) households have seen their share of total national income reported grow to levels of 20-22% of total national income, levels not seen since the gilded age of the 1920s.

National income that passes through the conduit of the corporation is disbursed to shareholders, senior managers, and CEOs in the form of dividends, interest payment, capital gains, and various forms of deferred and total compensation. What is not disbursed may be accumulated and expended on corporate expansion (i.e., invested) or held by the corporation as retained profits or used for share buy-backs to lift share prices. Official figures for retained profits by US corporations are now at the level of more than $500 billion a year, about $200 billion a year higher than long term historical averages.

And those figures only represent retained profits that are reported.  Largely unreported are additional profits by multinational corporations that get transferred by various accounting means to their offshore subsidiaries and affiliates and then held there as un-repatriated profits for years to avoid US taxes. The precise totals for such un-repatriated profits are not known, either by the IRS or the US government. Morgan Stanley in 2005 reported that the total in offshore un-repatriated profits held by US corporations amounted to about $700 billion.

A third and even more opaque category of profits consists essentially of unknown profits from domestic US or foreign operations that are diverted to offshore tax shelters and never reported to the IRS. The latest unofficial indication of the level of income held today in offshore tax shelters is about $7 trillion, up from $250 billion in the mid-1980s. At least $4 trillion of that $7 trillion is held by US corporations and wealthy households, the mix between corporate and individuals remaining unknown. An annual additional net flow of income from the US into such shelters is easily around $200 billion a year, not counting interest earned annually on the $4 trillion already there.

This income shift to the wealthy has been a result of government policies providing record tax cuts on capital (dividends, interest, capital gains, estate, gift tax, etc), extending from Reagan’s then record $752 billion tax cut in the early 1980s which launched the nation towards the largest peacetime deficit up to that time, to George W. Bush’s sequence of annual tax cuts from 2001 to 2006.  During George W. Bush’s first term alone, more than $4 trillion in tax cuts were passed. Approximately 80% of these cuts are accruing to the wealthiest 20% households and largely in turn to the highest income groups within that 20%. Should the Bush tax cuts be made permanent, the amount will grow to $11 trillion, again with the highest income groups receiving the lion’s share of the cuts and income. Additional corporate tax cuts amounting to more than $1 trillion were also passed under Bush and have contributed significantly to the bulge in corporate retained profits.

Who Widened Inequality?

Reich continues in his WSJ Opinion piece: “Yet the philosophical debate [on inequality] is coming up all the time these days, and it helps explain the new economic populism. Consider, for example, the Bush cuts. They’ve mainly benefited the top fifth of taxpayers. Supply-siders argue the cuts have generated enough extra revenues to pay for themselves so they haven’t enlarged the budget deficit. That’s debatable but let’s make the heroic assumption the supply-siders are correct and no one has been made worse off. Yet even so, most Americans have not benefited – nothing has trickled down. Real median wages have barely budged since they were enacted. So the underlying question is whether they’re justified by the fact that rich Americans have gained from them while no one has lost ground. The answer is no. They’ve widened inequality.”

Reich reminds one of the famous fable by Mencius (372-289 BC) in which those who retreated 50 paces from the battle line turning around and laughing at those who retreated 100 paces for being cowards. The Bush administration has not been the only one adding inequality to the US economy. The philosophical issue of inequality has only come up “these days” because neo-liberals thought it was not a worthwhile issue as long as all income is rising even though some may rise much faster than others.

Moyers the True Liberal

Bill Moyers, key participant in President Johnson’s Great Society that was tragically aborted by the Vietnam War, in a June 3, 2004 speech: The Fight of Our Lives, given at the Inequality Matters Forum at New York University, said: “Astonishing as it seems, no one in official Washington seems embarrassed by the fact that the gap between rich and poor is greater than it’s been in 50 years – the worst inequality among all western nations. Or that we are experiencing a shift in poverty. For years it was said those people down there at the bottom were single, jobless mothers. For years they were told work, education, and marriage is how they move up the economic ladder. But poverty is showing up where we didn’t expect it – among families that include two parents, a worker, and a head of the household with more than a high school education. These are the newly poor. Our political, financial and business class expects them to climb out of poverty on an escalator moving downward.”

The inequality that Moyers rightly protests about did not start with the second Bush administration. It started with the Carter deregulation policies and the neo-liberal trade policies of the two-term Clinton administration and Clinton’s adoption of the “Third Way” radical centralism approach promoted by British sociologist Anthony Giddens.


One month before the Reich article in The American Prospect, I wrote in my article: Paulson, China and the turmoil beneath that appeared in AToL on December 14, 2006, the following about the anti-labor and anti-equality approach of Rubinomics:

The widening gap between the richest and poorest US residents has not been the focus of attention by anyone in the Bush administration until Henry Paulson, the new Treasury Secretary who sees it as a long-term economic policy challenge. Paulson appears to attempt to reframe the policy debate on this fundamental issue as a solution to the trade problem. The trade problem is rooted in global income inequality which is a problem that the US cannot solve without first addressing its domestic income inequality.

The wealth gap is a fixture of the industrialization phase of
US economic history but relative income equality has been the dynamo of the US consumer economy. Fordism put the US on the road to rising industrial wages to create the US middle class out of factory workers and allowed the US economy to overtake its older European competitors. The two world wars gave US workers income growth that consistently outstripped inflation and allowed productivity growth to sustain spectacular growth of consumer demand, a key component in the success of the US economy.

Market capitalism naturally produces income disparity and polarization that lead to recurrent economic crises. To correct this structural flaw, the nation adopted an income policy. Income redistribution has been the tradition of the US tax regime since the New Deal. With the onset of 8 years of supply-side Reaganomics, followed by another 8 years of neo-liberal Rubinomics under Clinton, whom orthodox liberals Democrats accuse as the best Republican president in history, inequality has been growing in US society to fuel a vibrant economy. While the Republicans adopted a new income policy to redistribute income upward with the watering down of the progressive income tax, the neo-liberal Clinton Democrats used outsourcing in a globalized market economy to keep US wages from rising, and built a fiscal surplus by starving social spending. The net result is to expand the globalized economy at the expense of the US domestic economy.

For the past two decades, two-party democracy has failed to provide alternative choices in economic policy for the US electorate. And outsourcing is not the only factor driving US wages down, even as average worker productivity within the US has surged, average hourly earnings have stagnated, while the nation’s economic elites have prospered with astronomical levels of incomes. New sectors such as the high-tech, information technology and financial services operate on the model of low salaries and high stock options. Even for investors, the trend has been to favor equity appreciation over dividend income. Neo-liberal economists seemed to have forgotten the basic rule in finance: Income is all. Economic growth without income is a fantasy.

Income disparity has now reached obscene levels. Capital One Financial CEO Richard Fairbank exercised 3.6 million options for gains of nearly $250 million, on which he pay tax on the lower capital gain rate rather the income tax rate. His personal take exceeded the annual corporate profits of more than half of the Fortune 1000 companies, including Goodyear Tire & Rubber, Reebok and Pier One. Median pay among chief executives running most of the nation's 100 largest companies soared 25% to $17.9 million in 2005, dwarfing the 3.1% average gain by typical US workers. And Congress is in the midst of a passionate debate over raising the minimum wage from the current $5.15 an hour to $7.25 an hour in 2009 in three steps, with opponents to the proposed bill claiming that such a raise would destroy the US economy. The idea of indexing the minimum wage to inflation is considered a legislative non-starter.

US corporate earnings are at an all-time high because wages have been stagnant. Corporations are overflowing with cash but they refuse to pass it on to their workers. Instead, corporations adopt share buybacks scheme with the surplus cash to raise the market value of the stocks.

To his credit, Paulson is the first Treasury Secretary in recent history to focus on the inequality problem. In his first major speech as Treasury secretary, Paulson said: “Amid this country's strong economic expansion, many Americans simply aren't feeling the benefits. Their increases in wages are being eaten up by high energy prices and rising healthcare costs, among others.” Paulson gave notice that this issue will be a priority in his agenda to restructure the US economy.

A Federal Reserve survey shows that between 2001 and 2004, the median income of US workers with college degrees barely budged, rising from $72,300 to $73,000, after adjusting for inflation. Clinton Administration did almost nothing to advance the interests of organized labor or working people more generally. Union membership continued its long decline during the Clinton presidency, standing at 13.5 percent of the total workforce when he left office.  A paper co-authored by Rubin observed: “Prosperity has neither trickled down nor rippled outward. Between 1973 and 2003, real GDP per capita in the United States increased 73 percent, while real median hourly compensation rose only 13 percent.”

New Populism Against Rubinomics

A new wave of economic populism is surging along with Democratic victory at the [2006 mid-term] polls. Yet these new populists seem to exclusively target foreign trade, not realizing that the imbalanced trade is the result rather than the cause of the new age of economic inequality, the fountainhead of which originated in US domestic policy. If Paulson really wants to deal with the problem of persistent US trade deficits, the solution lies not in Beijing, but at home in the US.

The new populists argue that the trade agreements beginning with NAFTA and continuing through the various World Trade Organization negotiations have failed to protect workers’ rights to organize unions and thus raise wages in the low-wage countries. Instead, wages in high wage countries have continued to stagnate or drift downwards in real purchasing power. They also insist not only on an increase in the minimum wage but on tying it to the cost of living so that future inflation will not erode its real value, as it has in the past.

Just as the neo-conservatives have hijacked foreign policy in the Bush Administration, the neo-liberal Clinton wing of the Democratic Party hijacked the party’s economic policies. The Clinton neo-liberals imported the Republican ideology that the economy could achieve sustained growth only if markets were allowed to operate unregulated globally. Treating labor as a captured constituency, the Clinton administration vigorously supported free trade agreements like Nafta and agreed to China’s admission into the World Trade Organization (WTO) to expand the global economy at the expanse of the US domestic economy, with half-hearted promises of worker retraining and other safety-net measures that Clinton’s balanced budget could not fund. The adverse effects of Reubinomics were masked by a temporary burst of unsustainable economic prosperity caused by corporate and consumer debt.

The new populists want an alternative to Rubinomics, one that register growths by the income received by the middle class. They argue that the national income has increasingly flowed disproportionately into corporate profit and the rich. They call for a review of US-led globalization and for new terms of trade that do not put the cost of economic expansion entirely on the chronic poor, the newly poor and the powerless both domestically and globally. They call for government regulation in the terms of trade to distribute the benefits more equitably.

The free traders accused the new populists of being protectionists. Rubin admits that globalization has not brought job security or rising incomes to US workers and that as the global economy expands to benefit the US in general, it does so at the expense of shrinking the middle class’ share of the economic pie. Yet US Rubinomists stick to the worn-out Maragret Thatcher claim of TINA (There is no alternative), arguing that regulating trade and imposing market restrictions would be self-defeating. There is now enough historical data to question the false claim of benefits of financial globalization which has brought about monetary and financial crises around the world every few years. The emergence of unregulated capital, debt and currency markets has prevented government around the world from effectively use sovereign credit to finance domestic development and force all nations to distorting their economies toward over-reliance on exports for fiat dollars that cannot be used in their home economy and to compete by joining the race to the bottom on wages and environmental abuse.

And it is not even clear that Rubinomics was really responsible for economic growth of the 1990s. Historical data suggest that the information revolution greatly improved productivity even in economies insulated from Rubinomics, such as China and India. economy. The idea of indexing the minimum wage to inflation is considered a legislative non-starter.

The free market does not know best. Left undirected, a free market will race ahead at unsafe speed towards accidents waiting to happen. A more balanced US economic policy away from maximization of profits might have let that productivity burst lift the global economy into a higher plane without distortions that are haunting it now.

In his 2003 book, In an Uncertain World, Rubin admits: “In retrospect, the effect of the Clinton economic plan on business and consumer confidence may have been even more important than the effect on interest rates.” Business investment during the Clinton boom years was not exceptional vigorous. It was the brain-power intensive information revolution that helped trigger big gains in productivity and growth despite a comparative low capital input compared to earlier capital-intensive cycles, such as the railroad age.

The 1997 Economic Report of the President [Clinton] released in February, five months before the 1997 Asian financial crisis, predicted that growth would average a meager 2.2% over the next four years. The actual growth rate turned out to be 3.9%, almost twice. A case can be made that the high growth rate was the result of the Fed’s monetary easing in response to the Asian financial crises which started on July 2, 1997 in Thailand and whirled around Asia via contagion like a tornado. When contagion hit Wall Street in October, the Fed did what no other central banks could do. It printed dollars to provide liquidity to the US banking system to not only contain the crisis, but also to allow US banks to buy up distressed Asia assets at fire sale prices. It was a clear example of how dollar hegemony works.

Rubinomicsis a doctrine of aggressive trade liberalization paid for by squeezing domestic and foreign workers while balancing the fiscal budget at home by cutting social programs to avoid the need for raising taxes progressively. The Clinton Federal surplus came directly from the pockets of workers. Yet Rubin has said publicly that he understands that income inequality, both domestic and around the world, will produce a political backlash at the core that threatens the neo-liberal trading system, even the stability of capitalistic democracy. Rubin acknowledges the ill effect of globalization on US wages which takes on political significance when the squeeze shift from just the poor who seldom vote, to the politically active middle class. The favoritism of government policy towards the rich, particularly the tax structure, has become so embarrassingly obscene that even the super rich such as Warren Buffet complained about its unfairness.

Rubin has launched the Hamilton Project, a policy group of like-minded economists and financiers who are developing ameliorative measures to aid the threatened workforce and to create a broader political constituency that will defend the trading system against populist backlash. Yet how can one defend a system that creates wealth by making the majority poor? It is not possible to deify Mammon, the demon of the love of money.

The populist tidal wave may well build up to tsunami scale. As outsourcing move up the skill ladder, threatening the job security of not just assembly line workers, but highly educated, resourceful and active workers in high-tech, information technology, medicine and finance, the democratic process will turn against neo-liberal globalization. The backlash can turn ugly, mixing xenophobia with anti-Semitism.  [End of excerpt]

The Below Minimum Wage

The minimum wage was $5.15 per hour in 2006. The Fair Minimum Wage Act of 2007 (Pub.L  110-28, Title VIII) amends the Fair Labor Standards Act of 1938 of the Depression New Deal era and gradually raises the federal minimum wage from $5.15 per hour to $7.25 per hour. It was signed into law on May 25, 2007 as part of the US Troop Readiness, Veterans Care, Katrina Recovery and Iraq Accountability Appropriation Act, 2007. The act raises the Federal minimum wage in 3 increments: to $5.85 per hour 60 days after enactment (2007-7-24), to $6.55 per hour 12 months after that (2008-07-24), and finally to $7.25 per hour 12 months after that (2009-07-24). If the minimum wage were to rise at the same rate as CEO pay, it would be $22.61 per hour in 2006, about what Japanese auto makers pay their workers.

In his WSJ Opinion article, Reich did attack income inequality between CEOs and workers. But he asserts that “depending on shareholders to rein in CEO pay is like relying on gamblers to rein in the owners of Las Vegas casinos.” Yet casino operators are more honest than most corporate management the governance of which is notoriously abusive of minority rights.

CEO Pay Obscene

The Financial Times reported in a front page story on October 8 that US companies are facing fresh pressure from regulators and shareholders to rein in excessive executive pay.

In a special to CorpWatch June 26th, 2007 entitled Soaring Executive Pay Attacked by Shareholder Activists, Sam Pizzigati detailed the efforts of shareholder activists.

In 2006, the CEOs of the 500 biggest U.S. companies averaged $15.2 million in total annual compensation, according to Forbes business magazine’s annual executive pay survey. The top eight CEOs on the Forbes list each pocketed over $100 million.

Larry Ellison, CEO of business software giant Oracle, was not in the top eight. Butas the 11th richest man in the world, who ended 2006 being worth more than $16 billion, he should not complain on missing being among the top ten. University of Chicago economist Austan Goolsbee points out that a CEO like Ellison literally cannot spend enough on personal consumption to stop his fortune from growing. Goolsbee calculates that Ellison would have to spend over “$183,000 an hour on things that can’t be resold for gain, like parties or meals, just to avoid increasing his wealth.”

In 2006, Yahoo shares had sunk 35%, or about $20 billion, in value. Top talent, according to press reports, was jumping ship, not because of low pay but because of loss of confidence in the company’s future. A leaked internal Yahoo memo -- known in tech sector circles as the “Peanut Butter Manifesto” – said that, like peanut butter on toast, Yahoo management was spreading the company dangerously thin.

Yahoo CEO Terry Semel pocketed $71.7 million in 2006, over twice the take-home of any other chief executive in Silicon Valley. Since 2001, the year he left Hollywood to take Yahoo’s top slot, Semel has cashed out an additional $450 million in personal stock option profits.

By early June, three major shareholder advisory companies – which advise large investors how to vote at corporate annual meetings – urged a “no” vote on the re-election of three Yahoo board members who had served on the company’s executive pay committee. One of the three companies, Proxy Governance Inc., noted that Semel’s compensation was running 926% “above the median paid to CEOs at peer companies.” Shareholder activism forced the Yahoo corporate board to announce Semel’s resignation.

Angelo Mozilo is CEO of Countrywide Financial, the largest U.S. home mortgage lender which the New York Times describes its entire operation, from its computer system to its incentive pay structure and financing arrangements, as intended to wring maximum profits out of the mortgage lending boom no matter what it costs borrowers. He collected over $285 million in the last 11 years, and $48 million in 2006. At Countrywide’s annual meeting in May, 2007, Mozilo presented a list showing that Countrywide was 12th in a list of U.S. companies that had generated the greatest returns for shareholders. That placed it ahead of corporate giants Dell and Berkshire Hathaway whose top guns, Michael Dell and Warren Buffett, he noted, had both become  “multibillionaires.” Mozilo’s not-so-subtle message to shareholders: At $285 million, I’m a bargain. Two months later, Countrywide, facing insolvency from exposure to the subprime mortgage melt-down, had to be bailed out by Bank of America.

Home builder Toll Brothers CEO Robert Toll earned $29.3 million in 2006. The company’s net income in 2006 fell 15 percent.  For the fiscal first quarter ended January 31, 2007, Toll Brothers earned $54.3 million, or 33 cents per share, down from $163.9 million, or 98 cents per share, in the year-earlier quarter. The results included write-downs of $96.9 million for the lower value of the land Toll owns or from forfeiting payments for land options Toll decided not to exercise, as well as a $9 million goodwill impairment charge related to its 1999 acquisition of Silverman Cos. in Detroit. Total revenue for the quarter fell 19 percent to $1.09 billion while contracts for new homes fell 33 percent to 1,027 units. The value of the contracts fell 34 percent to $749 million. During third quarter 2007, Toll’s revenue fell some 21% to $1.21 billion compared to 1.53 billion in 2006. Its net income fell to $26.5 million or 16 cents a share from $174.6 million or $1.07 a share in the comparable period last year. Finally, its backlog of orders stood at $3.67 billion, which is a decline of about 34% from the previous year.

Did the $29.3 million CEO pay provide an incentive to stimulate Robert Toll to do better in the future? He owns nearly a fifth of the 5,500-employee company’s outstanding shares. That should already be enough incentive to want the company to do well.
Or is $29.3 million the “sufficiently competitive” going rate for CEOs in homebuilding? Over the past shares of stock, so seems three years, Robert Toll has taken home almost seven times more than his CEO counterparts in the homebuilding industry.

Reich is Aware of Inequitable Worker Pay

Reich admits that the real scandal of CEO pay has to do with what has happened to the pay of most workers as CEO pay has soared. Shareholder returns have kept up with CEO pay, but median wages have not. In 1980, the CEO of a major company took home about 40 times what the median worker earned; by 1990, CEO pay was about 100 times the median worker’s pay; in 2006 it was close to 300 times. In 2006, Wal-Mart’s Lee Scott Jr. earned 900 times the pay of the average Wal-Mart worker.

Reich recognizes that CEO pay is part of a much larger problem: the growing portion of the nation’s income that is going to a small number of people at the top. The pay packages of many denizens of Wall Street are even more outrageous than CEO pay – last year reaching $40 million for top traders and over a billion dollars for top hedge-fund managers. Not since the robber-baron era has income and wealth been as concentrated as they are today. This doesn’t threaten shareholders; after all, most shares are held by the wealthy. It threatens democracy, as the wealthy bankroll politicians who tilt public policies in the direction of the wealthy – by, say, reducing their taxes and cutting public services for everyone else. It also threatens our economy, as more and more investment decisions are made by fewer and fewer people, and as the middle class loses its capacity to pay for the goods and services the economy produces. Amazingly Reich claims that “the answer is not to grant more rights to shareholders. It’s to enact a far more progressive income tax, including a sharply higher marginal rate on yearly incomes above, say, a measly million.”

A Fair Tax Regime

The purpose of taxation is not to be punitive but to anchor fiat currency while maintaining equity. What gives the dollar currency is its role as legal tender for payment of US taxes and for “all debts, public and private”, as inscribed on every dollar, which is a Federal Reserve note. The key to fair taxation lie on both the revenue side and the expenditure side: where the tax revenue comes from and how the tax revenue is spent. A fair tax regime requires revenue to be sourced from all fairly, but not equally, and be spent on public services and affirmative action programs to moderate inequality. The problem with the current US tax regime is that not only the revenue is sources from the working poor but it is also spent to further enhance the already substantial advantages of the rich.

Tax cuts for the rich coupled with privatization of public utility and services add up to a most onerous regime, on which the former labor secretary is strangely silent. In simple terms, it is a regime that puts money in the pocket of the rich who do not need it, and take money from the pockets of the working poor who already are in debt up to their ears.  It is bad enough to milk prosperity from a debt economy, but a debt economy that allows the rich to borrow to make obscene profits and forces the working poor to borrow merely to survive will soon turn populism into radicalism.  It is time for all countries to seek solutions to problems created by run-away exploitative terms of world trade by focusing again on fundamental issues of domestic development before the prodigal global trading system collapses from its own contradictions to bring forth a global depression. Unless and until an equitable international trading system is negotiated, economic nationalism is a proper response to neo-imperialism.