“Neglecting Human Costs”: Harvard Business School’s Role In Widening Inequality
No institution is more responsible for educating the CEOs of American corporations than Harvard Business School – inculcating in them a set of ideas and principles that have resulted in a pay gap between CEOs and ordinary workers that’s gone from 20-to-1 fifty years ago to almost 300-to-1 today.
A survey, released on September 6, of 1,947 Harvard Business School alumni showed them far more hopeful about the future competitiveness of American firms than about the future of American workers.
As the authors of the survey conclude, such a divergence is unsustainable. Without a large and growing middle class, Americans won’t have the purchasing power to keep U.S. corporations profitable, and global demand won’t fill the gap. Moreover, the widening gap eventually will lead to political and social instability. As the authors put it, “any leader with a long view understands that business has a profound stake in the prosperity of the average American.”
Unfortunately, the authors neglected to include a discussion about how Harvard Business School should change what it teaches future CEOs with regard to this “profound stake.” HBS has made some changes over the years in response to earlier crises, but has not gone nearly far enough with courses that critically examine the goals of the modern corporation and the role that top executives play in achieving them.
A half-century ago, CEOs typically managed companies for the benefit of all their stakeholders – not just shareholders, but also their employees, communities, and the nation as a whole.
“The job of management,” proclaimed Frank Abrams, chairman of Standard Oil of New Jersey, in a 1951 address, “is to maintain an equitable and working balance among the claims of the various directly affected interest groups … stockholders, employees, customers, and the public at large. Business managers are gaining professional status partly because they see in their work the basic responsibilities [to the public] that other professional men have long recognized as theirs.”
This view was a common view among chief executives of the time. Fortune magazine urged CEOs to become “industrial statesmen.” And to a large extent, that’s what they became.
For thirty years after World War II, as American corporations prospered, so did the American middle class. Wages rose and benefits increased. American companies and American citizens achieved a virtuous cycle of higher profits accompanied by more and better jobs.
But starting in the late 1970s, a new vision of the corporation and the role of CEOs emerged – prodded by corporate “raiders,” hostile takeovers, junk bonds, and leveraged buyouts. Shareholders began to predominate over other stakeholders. And CEOs began to view their primary role as driving up share prices. To do this, they had to cut costs – especially payrolls, which constituted their largest expense.
Corporate statesmen were replaced by something more like corporate butchers, with their nearly exclusive focus being to “cut out the fat” and “cut to the bone.”
In consequence, the compensation packages of CEOs and other top executives soared, as did share prices. But ordinary workers lost jobs and wages, and many communities were abandoned. Almost all the gains from growth went to the top.
The results were touted as being “efficient,” because resources were theoretically shifted to “higher and better uses,” to use the dry language of economics.
But the human costs of this transformation have been substantial, and the efficiency benefits have not been widely shared. Most workers today are no better off than they were thirty years ago, adjusted for inflation. Most are less economically secure.
So it would seem worthwhile for the faculty and students of Harvard Business School, as well as those at every other major business school in America, to assess this transformation, and ask whether maximizing shareholder value – a convenient goal now that so many CEOs are paid with stock options – continues to be the proper goal for the modern corporation.
Can an enterprise be truly successful in a society becoming ever more divided between a few highly successful people at the top and a far larger number who are not thriving?
For years, some of the nation’s most talented young people have flocked to Harvard Business School and other elite graduate schools of business in order to take up positions at the top rungs of American corporations, or on Wall Street, or management consulting.
Their educations represent a substantial social investment; and their intellectual and creative capacities, a precious national and global resource.
But given that so few in our society – or even in other advanced nations – have shared in the benefits of what our largest corporations and Wall Street entities have achieved, it must be asked whether the social return on such an investment has been worth it, and whether these graduates are making the most of their capacities in terms of their potential for improving human well-being.
These questions also merit careful examination at Harvard and other elite universities. If the answer is not a resounding yes, perhaps we should ask whether these investments and talents should be directed toward “higher and better” uses.
By: Robert Reich, The Robert Reich Blog, September 13, 2014; This essay originally appeared in the Harvard Business Review’s blog.
“RNC Starts A Losing Fight Over Pay Equity”: Which Strategic Genius In Reince Priebus’ Office Came Up With This Idea?
When msnbc’s Chris Jansing asked Republican National Committee Press Secretary Kirsten Kukowski in April what policies her party would support to improve pay equity, Kukowski couldn’t think of anything. It was right around this time that the Texas Republican Party blamed women for the pay gap, saying women in the workforce would be better compensated if they became “better negotiators.”
It’s incidents like these that lead to discouraging results for the GOP: “A detailed report commissioned by two major Republican groups – including one backed by Karl Rove – paints a dismal picture for Republicans, concluding female voters view the party as ‘intolerant,’ ‘lacking in compassion’ and ‘stuck in the past.”
But that was last week. This week, as Laura Clawson noted, the RNC has a new message.
Remember the one about the man who killed his parents, then asked for mercy because he’s an orphan? Well, chutzpah has a new definition. On Labor Day, the Republican National Committee tweeted the following claim: “This #LaborDay, the White House & Democrats believe paying women less than men is an acceptable practice.” […]
Staggering. Stunstonishing. Mind-blowing. I mean, if tweeting that graphic means that the RNC is ready to line up every Republican in or running for Congress and seriously press them to talk about equal pay, great. Because so far what we’ve got does not seem to support this statement even a little bit.
It’s hard to even know where to start with a claim this audacious. Does one focus on Republican opposition to the Lilly Ledbetter Fair Pay Act? Or how about the GOP killing the Paycheck Fairness Act?
Do you highlight the prominent Republican officials who worry about what pay-equity measures might mean for men? Or focus on the prominent Republican officials who see the debate over wage discrimination as “nonsense”? Or maybe remind folks about the prominent Republican officials who are convinced that “most of the barriers” women face in the workplace have already “been lowered”?
But perhaps the toughest question to answer today is, why in the world would the RNC pick this fight today?
It’s easy to assume the Republican National Committee is just poking Democrats with a stick for the sake of getting attention – the party, in other words, is just trolling – but this is the kind of move that undermines the RNC’s own interests.
After all, this election season, Democrats would be absolutely thrilled to have a big, post-Labor Day fight over which party is more committed to pay equity.
Now the RNC wants to start this fight on purpose? Which strategic genius in Reince Priebus’ office came up with this idea?
By: Steve Benen, The Maddow Blog, September 2, 2014
“Ferguson, Watts And A Dream Deferred”: Things Have Gone Off Track And Unlikely To Be Reversed In The Foreseeable Future
When rioting broke out in the Watts section of Los Angeles in the summer of 1965, African-Americans didn’t — couldn’t — know it yet, but the next three decades would turn out to be a period of sustained gains in terms of income, jobs, education and the status of blacks relative to whites.
The rioting this past week in Ferguson, Mo., by contrast, follows more than a decade of economic stagnation and worse for many black Americans, a trend that appears unlikely to be reversed in the foreseeable future.
The Watts riots – set off by the traffic arrest of a 21-year-old black driver by a white police officer — left 34 dead, 1,032 people injured, and 600 buildings damaged or destroyed.
The week of violence in L.A. began just five days after President Lyndon B. Johnson signed the Voting Rights Act of 1965, and 13 months after he had signed the Civil Rights Act of 1964 – the impact of which had not yet been felt in the daily lives of African-Americans.
During the decades following this landmark legislation, African-Americans made immense progress. The percentage of blacks over the age 25 with a high school degree more than tripled, going from just under 20 percent, or less than half the white rate, to more than 70 percent, nearly matching the white rate. The percentage of blacks over 25 with a college degree quadrupled from 3 to 12 percent over the same period.
Similarly, black median household income grew, in inflation-adjusted dollars, from $22,974 in 1967 to $30,439 in 2000, a 32.5 percent increase, more than double the 14.2 percent increase for whites. Although black household income remained well below white levels in 2000 – 66.3 percent of the white median – it was significantly better than it had been in 1967, when it was 57.1 percent of white median income.
Things went off track, however, as the 21st century approached. The riots in Ferguson follow a period of setback for African-Americans, despite the fact that we have a sitting black president in the White House.
While the economic downturns of the last decade-and-a-half have taken their toll on the median income of all races and ethnic groups, blacks have been the hardest hit. By 2012, black median household income had fallen to 58.4 percent of white income, almost back to where it was in 1967 — 7.9 points below its level in 1999. (This Census Bureau chart shows the long-term income trends for major demographic groups in America.)
Income is a powerful measure of well-being, but equally important is the chance a person has of improving his or her position in life — of whether expectations are rising or falling.
Inequality in America is not news, and there have been a number of studies published recently that challenge the old notion that the United States is the land of opportunity for all, but for African Americans, the findings are particularly bleak.
From 1965 to 2000, the poverty rate among blacks fell from 41.8 percent to 22.5 percent. Since then, it has risen to 27.2 percent. The white poverty rate also rose during this period, but by a more modest 3.2 points.
Blacks suffered more than whites as a result of the 2008-9 financial meltdown and its aftermath, but the negative trends for African-Americans began before then.
A 2007 pre-recession Brookings Institution study by Julia Isaacs, “Economic Mobility of Black and White Families,” found that “a majority of blacks born to middle-income parents grow up to have less income than their parents. Only 31 percent of black children born to parents in the middle of the income distribution have family income greater than their parents, compared to 68 percent of white children from the same income bracket.”
White children, Isaacs reports, “are more likely to move up the ladder while black children are more likely to fall down.” Thirty-seven percent of white children born to families in the middle quintile of the income distribution move up to the top two quintiles, compared with only 17 percent of black children. Forty-five percent of black children from solidly middle class families “end up falling to the bottom of the income distribution, compared with only 16 percent of white children,” Isaacs found.
A more recent April 2014 study of black and white mobility by Bhashkar Mazumder, a senior economist at the Chicago Federal Reserve, showed similar results. That report is even more explicitly pessimistic.
The Chicago Fed study found that among black children born between the late 1950s and the early 1980s into families in the bottom fifth of the income distribution, half remained there as adults, compared with 26 percent of whites born in the bottom quintile.
Of black children born to families in the top half of the income distribution, 60 percent fell into the bottom half as working age adults, compared with 36 percent of similarly situated whites.
Mazumder concluded that if future generations of white and black Americans continued to experience the same rates of intergenerational mobility, “we should expect to see that blacks on average would not make any relative progress.” He noted that this recent time period stood “in direct contrast to other epochs in which blacks have made steady progress reducing racial differentials.”
One optimistic note is that the white reaction to events in Ferguson, including the commentary of some outspoken white conservatives, has been sympathetic to the anger and outrage over the police shooting of an unarmed black teenager. This stands in sharp distinction to the aftermath of the violence in Los Angeles in 1965.
Watts – and the string of urban riots in African-American neighborhoods from 1964 to 1968 — was crucial to the expansion of the conservative coalition that dominated most federal elections from 1966 to 2004. Fear of violence helped elect Ronald Reagan governor of California in 1966 and Richard Nixon to the presidency in 1968. Law and order, white backlash, the silent majority, and racial integration became core political preoccupations for once loyal Democratic whites as they converted to the Republican Party.
Just two years after the Democratic landslide of 1964, in the 1966 midterm election, Republicans picked up 47 seats in the House. “How long are we going to abdicate law and order favor of a soft social theory that the man who heaves a brick through your window or tosses a firebomb into your car is simply the misunderstood and underprivileged product of a broken home?” Gerald Ford, then the House minority leader, asked, with the answer assumed by the question.
Nearly half a century later, however, conservatives have voiced ambivalent responses to the Ferguson rioting. On Aug. 15, Erick Erickson, a popular conservative blogger at Red State, wrote a widely circulated posting titled “Must We Have a Dead White Kid?”
“Given what happened in Ferguson, the community had every right to be angry,” Erickson wrote. “The police bungled their handling of the matter, became very defensive and behaved more like a paramilitary unit than a police force. Property damage and violence by the citizenry cannot be excused, but is also the result of a community seeing those who are supposed to protect and serve instead suiting up and playing soldier.”
Erickson was by no means alone among conservatives. Sharing his views were Senator Rand Paul of Kentucky, a prospective Republican presidential candidate, and Charles C. W. Cooke, a National Review columnist, who argued that conservatives should “acknowledge that — even when our understanding of the facts is limited — incidents such as this open old and real wounds.”
The fatal shooting of Michael Brown has produced a rare right-left convergence, a shared recognition that the overwhelmingly white police department of Ferguson has become a hostile occupying force for much of the town’s majority black population.
There is, however, no left-right consensus about how to turn back the grim economic trends for African-Americans, much less what caused them.
Competing explanations for the difficulties that continue to plague African-Americans are a central element in the contemporary polarization between left and right; in fact, they help define it.
Liberals and conservatives disagree vehemently over the role of such factors as the decline of manufacturing jobs, the rise of single parenthood, racial discrimination, the poor quality of public schools, residential segregation, high incarceration rates, test score differentials, parental investment, crime rates, welfare incentives, the lack of engaged fathers – the list goes on.
Democrats in the main are convinced that impediments to black advancement are structural, amenable to government intervention: a strong and better-funded safety net; public investment in manufacturing and infrastructure employment; more rigorous enforcement of anti-discrimination laws.
Many Republicans focus instead on what they see as moral collapse and the erosion of such values as hard work and traditional family formation among the poor. Government spending on social programs, according to this view, creates disincentives to work and more trouble.
The urban riots of the second half of the 1960s prompted Washington to pump out money, legislation, judicial decisions and regulatory change to outlaw de jure discrimination, to bring African-Americans to the ballot box, to create jobs and to vastly expand the scope of anti-poverty programs.
Civil unrest also drew attention to the necessity of addressing police brutality.
Today, however, political and policy-making stasis driven by gridlock — despite a momentary concordance between left and right on this particular shooting — insures that we will undertake no comparable initiatives to reverse or even stem the trends that have put black Americans at an increasing disadvantage in relation to whites — a situation that plays no small part in fueling the rage currently on display in Ferguson.
By: Thomas B. Edsall, Contributing Op-Ed Writer, The New York Times, August 19, 2014
“What’s Exceptional About Ferguson, Missouri?”: Not The Heart Of The Crisis So Much As A Capillary That Finally Broke
“This whole area, this city is a racial powder keg,” one man at a protest in Ferguson, Missouri told the LA Times, two days after a police officer shot and killed an unarmed black teenager named Michael Brown. In an attempt to explain why the St. Louis suburb has been filled with demonstrators, showered in tear gas and rubber bullets, and patrolled by armored vehicles in the days since, reporters have unearthed a “history of racial segregation, economic inequality and overbearing law enforcement” that, editors of The New York Times wrote, “produced so much of the tension now evident on the streets.”
The racial disparities that define Ferguson are indeed shocking. More than two-thirds of the town’s residents are black, but almost all of the officials and police officers are white: the mayor and the police chief, five of six city council members, all but one of the members of the school board, 50 of 53 police officers.
Most of the time, those officers search and arrest people who don’t look like them. In 2013, 92 percent of searches and 86 percent of traffic stops in Ferguson involved black people. The skewed numbers don’t correspond at all to the levels of crime. While one out of every three whites was found carrying illegal weapons or drugs, only one in five blacks had contraband.
But is Ferguson really exceptional? The town is just north of one of the most segregated metropolitan areas in the country, St. Louis. Most cities in America, however, are still highly segregated when it comes to their black and white populations. The high percentage of black Ferguson residents below the poverty line—28 percent—is in fact consistent with the percentage of black Americans who live in poverty throughout the country. The point is not that Ferguson’s particular history and statistics don’t matter; rather, it is that whatever shock, outrage, and action they inspire should be amplified exponentially. It’s easier to accept ugliness, though, by pretending a mirror is a window to somewhere else.
The unequal application of the force of the law is also well documented across the country. Five times as many whites use illegal drugs as black Americans, and yet black people are sent to prison on drug charges at ten times the rate of whites. And disparity is evident in other police forces; for example, only 10 percent of the New York Police Department’s recruits in 2013 were black.
The whiteness of Ferguson’s political leadership is a national trait, too. Since Reconstruction, only four states have elected black senators: Illinois, Massachusetts, South Carolina, and New Jersey. Voters in 25 states still have never elected a black representative to the House.
We know also that the killing of a young, unarmed black person isn’t unique to Ferguson. It wasn’t unique to Sanford or Jacksonville; nor to Staten Island; Beavercreek, Ohio; Dearborn Heights, Michigan; Pasadena, California; or any of the other cities that, as Jelani Cobb writes, now bleed together in “the race-tinged death story” that “has become a genre itself.”
There’s a crisis all right. But Ferguson is not its heart so much as a capillary finally burst. That many find the sadness and rage in Ferguson more needing of explanation than the militarized response is particularly telling.
By: Zoe Carpenter, The Nation, August 13, 2014
“A Systemic Problem Of Enabling The Rich”: Growing Income Gap Is Ripping The Social Fabric
Perhaps it’s a sign of the times that one man’s act of altruism has attracted national attention. Raymond Burse, interim president of Kentucky State University, has given up more than $90,000 of his annual salary in order to boost pay for the lowest-paid workers at the college, some of whom earn as little as the minimum wage of $7.25 an hour. His donation will bump their wages to $10.25.
Burse has noted that his sacrifice will hardly leave him impoverished. He is a retired General Electric executive (as well as a former president of the college) with good benefits, as he told the Lexington Herald-Leader. While his job as interim president is “not a hobby, in terms of the people who do the hard work and heavy lifting, they are at the lower pay scale,” he said.
Yet, Burse is not Mitt Romney rich, and he could easily have kept his entire $349,869 annual paycheck without raising an eyebrow among his peers. As acting head of a historically black institution, he’s not in the growing circle of college presidents whose annual compensation tops a million bucks. Still, his act of generosity shines a spotlight on the growing divide between the haves and the have-nots, the well-off and the working stiffs, the 1 percent and the rest of us.
The nation’s growing income inequality is one of its biggest challenges, a widening rip in the social fabric. The United States is not held together by a common religion or language or ethnicity, but by its promise of equal opportunity for all. While that’s always been a bit exaggerated, the nation has generally made good on the ideal that those who work hard can at least provide for their families.
But that notion has been less and less true since the 1980s, as globalization and technology starting stealing the factory jobs that paid good wages and gave average workers a toehold in the middle class. Then came the financial meltdown of 2008, which sped the decline. It’s no wonder that 49 percent of Americans, according to a new NBC-Wall Street Journal poll, think the country is still in a recession.
The Great Recession, though, just put rocket-boosters on a trend evident for decades. The problem is systemic. We’ve managed to create an economy that makes the rich richer while most others struggle to get by. Those with college degrees generally fare better than those with high school diplomas, but there are lots of twenty-something college grads working part-time jobs and living with their parents. They can’t afford to rent an apartment.
The economic climate isn’t the fault of Congress or the president. This globe-shaking dislocation is a mega-trend — the sort of frightening reordering of the universe that shook millions at the start of the Industrial Revolution. It’s not necessarily a bad thing that thousands of bank tellers, for example, are slowly being replaced by smart ATMs, but it does signal the disappearance of jobs that paid a decent wage.
Most Americans, however, aren’t buying the mega-trend explanation. They place the blame for their economic decline squarely on the shoulders of their elected leaders. The NBC-Wall Street Journal poll, conducted late last month, found that “seven in 10 adults blamed the malaise more on Washington leaders than on any deeper economic trends,” the Journal said.
That is easy enough to understand. Even if political leaders didn’t instigate a tectonic shift in the economy, they have done next to nothing to ease the dislocations. Indeed, a dysfunctional Republican Party, now comfortable in its role as enabler to the rich, will barely acknowledge the growing income gap.
Democrats, for their part, have recognized the problem but present few long-term solutions. Yes, raising the minimum wage would help, but it’s just a start. The nation needs an overhaul of its educational system, cheaper college costs and a public works program that pays a decent wage.
Burse’s noble sacrifice could help a few workers, but it’s not clear that it will stay in effect after he leaves. Still, his gesture is a step in the right direction. Too few men and women in his position have even noticed the plight of their poorly paid workers.
By: Cynthia Tucker, Visiting Professor, The University of Georgia; The National Memo, August 9, 2014
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