The Positive Voices

Every summer, several financial firms competing to get the banking business of the world’s mega millionaires release what amounts to scorecards on global wealth. These data-packed reports tally the current number of our international rich and superrich, by nation and region. World Wealth Report 2010 is the most comprehensive of these scorecards. It’s got some fascinating details about the planet’s wealthiest of the wealthy, those households worth at least $30 million--that’s not counting their primary residence and “collectibles.” These “ultra-high-net worth” households make up less than 1 percent of the global millionaire total, yet in 2009 and 2008 they held more than a third of combined global millionaire wealth. In other words, the global financial crash that mega-millionaire speculation triggered has ended up concentrating even more wealth in mega millionaire pockets. The Merrill Lynch and Capgemini researchers who prepared this report also offer some lusciously revealing information about what they call “passion investing,” the vast sums the rich plow into everything from country club memberships and yachts to jewelry and fine art. Global millionaires, they say, “returned to passion investments in 2009,” but the overall volume of these passion investments still hasn’t rebounded all the way back to pre-financial crash levels. That complete rebound, the report adds, may come shortly, since “auction houses, luxury goods makers, and high-end service providers all reported signs of renewed demand toward the end of 2009.” One sign of that increased demand: Late last year, an antique penny--a 1795 one-cent piece--went at auction for $1.3 million. That marked the first time a penny had ever gone for over $1 million. This resurgence in “passion investment” illustrates the latest World Wealth Report’s overall theme: The global millionaire “segment regained ground despite weakness in the world economy.” We have that weakness because average consumers still don’t have the buying capacity to get national economies going again. And those average consumers don’t have that buying capacity because income and wealth are getting even more concentrated at the top. An antique penny, thanks to that concentration, can now fetch more than a million dollars. But imagine if our wealth were more equally shared. Imagine that the $1.3 million that went for a 1795 penny had been sitting instead in the pockets of average consumers. Over 1,500 of those consumers could have bought brandnew energy-efficient refrigerators with that $1.3 million. And what do you suppose would do our economy--and our world--more good, one deep pocket spending $1.3 million on a penny or 1,500 households buying new energy-efficient refrigerators? The good folks at Merrill Lynch and Capgemini will most likely never ask that question. We should.

During the Great Depression, a pay package for the top executive at National City Bank--the Wall Street giant we know today as Citigroup-- scandalized the nation. It clocked in at more than $1 million, sparking an angry Congress to make corporations disclose their top executive salaries. Today, CEOs regularly rake in more than $20 million a year. But another landmark leap on executive pay disclosure could be around the corner. Congress may shortly shine the brightest light yet on executive pay excess, thanks to a simple little amendment introduced by Senator Bob Menendez (D-NJ). Menendez’s amendment would require all U.S. companies to disclose, for the first time, the gap between what they pay their CEOs on an annual basis and what they pay their average workers. Until now, we’ve only had broad “average” data on corporate pay gaps. We’ve been able to compare national CEO pay averages with national worker pay figures. But we’ve never been able to specify pay gaps within individual companies or compare the gaps between one corporation and another. This amendment would let us do that. Corporations would be required to compute “the median annual total compensation of their employees (excluding the CEO)” and reveal “the ratio between CEO and employee pay.” We already know, via required federal filings, how much top executives make. If this amendment becomes law, we’d know how much more than their workers these top execs bring home. This information, once publicly and widely available, could reframe--and recharge- -the CEO pay debate. That debate has been revolving rather listlessly around give-and-takes over “performance.” Mainstream reformers regularly rail against the huge paychecks that go to top execs who run their companies into the ground. Top execs who don’t “perform,” the mainstream CEO pay reform movement pronounces, simply don’t deserve windfall earnings. How can we prevent these “undeserved” windfalls? Mainstream reformers--mostly pension funds and other institutional investors- -argue that if lawmakers gave shareholders more rights and power, these shareholders could start holding corporate boards to a much more rigorous “pay for performance” standard. In a corporate America filled with empowered shareholders, the argument goes, only executives who really do perform- -by increasing corporate earnings or raising the corporate share price or meeting some other performance metric--would find themselves amply rewarded. But this mainstream case against “undeserved” executive pay cruises past a fundamental question that clearly deserves asking. In our current economy, ample rewards for successful corporate “performance” only seem to go to the power suits who sit at the corporate summit. Why shouldn’t ample rewards go to everyone within an enterprise who contributes to enterprise success? In fact, point out experts on the factors that make enterprises effective, rewards most definitely should go to everyone who contributes to enterprise success-- because we need to encourage these contributions. In our Information Age economy, the effective enterprise research tells us, enterprises only truly succeed when they tap the creativity of everyone who labors within them. The bottom line: Corporate compensation practices that lavish rewards at the top, and the top only, nurture defective enterprises. These practices don’t give us enterprises that efficiently provide goods and services that people value. They give us enterprises that overcharge and cut corners, downsize and outsource, and, if all else fails, cook the books to “prove” they’re “performing.” America’s corporate titans have reaped excessive rewards for over a generation now. Our major corporate CEOs used to average 30 times more pay than average workers. CEOs today make over 300 times average worker pay. Menendez’s amendment, if enacted, would zap a laser focus on that gap. With boards of directors required to reveal their CEO-worker pay ratios, we would see exactly which corporations are building a foundation for real performance and which are endangering our economic future. And if we had this information, we could start acting upon it.

The pillars of American conservative thought and action—top officials from over a dozen national groups—assembled along the Potomac last month. At Northern Virginia’s historic Mount Vernon, the home of George Washington, these luminaries met to “recommit” themselves to the one ideal they believe all conservatives can share. That ideal: small government. “Through the Constitution,” the solemn conservatives declared in a position paper they dubbed the Mount Vernon Statement, “the Founders created an enduring framework of limited government based on the rule of law.” That “principle of limited government,” the Mount Vernon Statement urges, ought to be applied to “every proposal” that comes before America’s lawmakers. Americans of a more progressive bent tend, of course, to consider all this solemnity around the “principle of limited government” as just so much mumbo-jumbo, meant to keep the rich and powerful safe from any challenge to their wealth and power. And progressives also don’t much appreciate conservative moves to claim the generation of 1776 as the original carriers of the conservative torch. But right-wingers, on this one, have a point. The founders, the most progressive of them included, did believe in limited government. The question for us today: Why? Today’s conservatives don’t bother with that question, and for good reason, as historian James Huston explained over a decade ago in his still timely epic, Securing the Fruits of Labor: The American Concept of Wealth Distribution 1765-1900: The founders believed in “limited government” because they wanted to limit what today’s conservatives celebrate-- the concentration of wealth. America’s revolutionaries had read their history. Every previous attempt to establish republican rule, they knew, had failed. Athens. Rome. Venice. Florence. The cause of that failure, as the founders saw it: a deep and divisive maldistribution of wealth. The founders came to believe, notes Huston, that a republic could only endure with “an equal or nearly equal distribution of landed wealth among its citizens.” OK, at least the land-owning white male citizens, but bear with me. To the generation of 1776, equity seemed nature’s way. Most colonials lived on small, semi-subsistence family farms. In this overwhelmingly agrarian setting, grand fortunes hardly ever accumulated. Some farmers did work harder than others, but the earth could yield, no matter how much work was performed upon it, only so much wealth. That reality, observes historian Huston, had kept gaps in colonial income and wealth relatively limited. And those gaps would stay limited, the generation of 1776 devoutly believed, so long as all who labored were guaranteed the “fruits of their labor.” America’s original revolutionaries agreed that republican liberty would surely fail if their new nation ever let elites expropriate what average citizens labored so hard to earn. And how did elites expropriate? By manipulating politics to gain economic advantage. The aristocrats of Europe did that manipulating all the time. If the economy were just left alone, America’s original revolutionaries believed, equality would grow naturally. No one could ever become fabulously wealthy in an economy where labor, and labor alone, determined a citizen’s worth. The founders, in sum, cared deeply about the link between democracy and equality and worried that vast extremes of wealth and poverty would doom their new republic. You won’t find one whit of that worry in the new conservative Mount Vernon Statement. The founders wouldn’t be pleased.