“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.
“If GOP Is So Right, Why Are Red States So Far Behind?”: Red States Are The Poorest States In The Country
I have a question for my Republican friends.
Yes, that sounds like the setup for a smackdown, but though the question is pointed, it is also in earnest. I’d seriously like to know:
If Republican fiscal policies really are the key to prosperity, if the GOP formula of low taxes and little regulation really does unleash economic growth, then why has the country fared better under Democratic presidents than Republican ones and why are red states the poorest states in the country?
You may recall that Bill Clinton touched on this at the 2012 Democratic Convention. He claimed that, of all the private sector jobs created since 1961, 24 million had come under Republican presidents and a whopping 42 million under Democrats. After Clinton said that, I waited for PolitiFact, the nonpartisan fact-checking organization, to knock down what I assumed was an obvious exaggeration.
But PolitiFact rated the statement true. Moreover, it rated as “mostly true” a recent claim by Occupy Democrats, a left-wing advocacy group, that 9 of the 10 poorest states are red ones. The same group earned the same rating for a claim that 97 of the 100 poorest counties are in red states. And then there’s a recent study by Princeton economists Alan Binder and Mark Watson that finds the economy has grown faster under Democratic presidents than Republican ones. Under the likes of Nixon, Reagan and Bush they say we averaged an annual growth rate of 2.54 percent. Under the likes of Kennedy, Clinton and Obama? 4.35 percent.
Yours truly is no expert in economics, so you won’t read any grand theories here as to why all this is. You also won’t read any endorsement of Democratic economic policy.
Instead, let me point out a few things in the interest of fairness.
The first is that people who actually are economic experts say the ability of any given president to affect the economy — for good or for ill — tends to be vastly overstated. Even Binder and Watson caution that the data in their study do not support the idea that Democratic policies are responsible for the greater economic performance under Democratic presidents.
It is also worth noting that PolitiFact’s endorsements of Occupy Democrats’ claims come with multiple caveats. In evaluating the statement about 97 of the 100 poorest counties being red, for instance, PolitiFact reminds us that red states tend to have more rural counties and rural counties tend to have lower costs of living. It also points out that a modest income in rural Texas may actually give you greater spending power than the same income in Detroit. So comparisons can be misleading.
Duly noted. But the starkness and sheer preponderance of the numbers are hard to ignore. As of 2010, according to the Census Bureau, Connecticut, which has not awarded its electoral votes to a Republican presidential candidate since 1988, had a per capita income of $56,000, best in the country, while Mississippi, which hasn’t gone Democrat since 1976, came in at under $32,000 — worst in the country. At the very least, stats like these should call into question GOP claims of superior economic policy.
Yet, every election season the party nevertheless makes those claims. It will surely do so again this fall. So it seems fair to ask: Where are the numbers that support the assertion? Why is Texas only middling in terms of per capita income? Why is Mississippi not a roaring engine of economic growth? How are liberal Connecticut and Massachusetts doing so well?
It seems to suggest Republican claims are, at best, overblown. If that’s not the case, I’d appreciate it if some Republican would explain why. Otherwise, I have another earnest, but pointed question for my Democratic friends:
How in the world do they get away with this?
NOTE: In a recent column, I pegged the indictment of Texas Gov. Rick Perry to his “Democratic opponents.” Though the indictment did come out of Austin, which is a blue island in the red sea that is Texas, I should have noted that the judge who assigned a special prosecutor in the case is a Republican appointee and the prosecutor he chose has, according to PolitiFact, ties to both parties.
By: Leonard Pitts, Jr., Columnist, The Miami Herald; The National Memo, September 3, 2014
“Wrong Way Nation”: The Growth Of The Sunbelt Isn’t The Kind Of Success Story Conservatives Would Have Us Believe
Gov. Rick Perry of Texas is running for president again. What are his chances? Will he once again become a punch line? I have absolutely no idea. This isn’t a horse-race column.
What I’d like to do, instead, is take advantage of Mr. Perry’s ambitions to talk about one of my favorite subjects: interregional differences in economic and population growth.
You see, while Mr. Perry’s hard-line stances and religiosity may be selling points for the Republican Party’s base, his national appeal, if any, will have to rest on claims that he knows how to create prosperity. And it’s true that Texas has had faster job growth than the rest of the country. So have other Sunbelt states with conservative governments. The question, however, is why.
The answer from the right is, of course, that it’s all about avoiding regulations that interfere with business and keeping taxes on rich people low, thereby encouraging job creators to do their thing. But it turns out that there are big problems with this story, quite aside from the habit economists pushing this line have of getting their facts wrong.
To see the problems, let’s tell a tale of three cities.
One of these cities is the place those of us who live in its orbit tend to call simply “the city.” And, these days, it’s a place that’s doing pretty well on a number of fronts. But despite the inflow of immigrants and hipsters, enough people are still moving out of greater New York — a metropolitan area that, according to the Census, extends into Pennsylvania on one side and Connecticut on the other — that its overall population rose less than 5 percent between 2000 and 2012. Over the same period, greater Atlanta’s population grew almost 27 percent, and greater Houston’s grew almost 30 percent. America’s center of gravity is shifting south and west. But why?
Is it, as people like Mr. Perry assert, because pro-business, pro-wealthy policies like those he favors mean opportunity for everyone? If that were the case, we’d expect all those job opportunities to cause rising wages in the Sunbelt, wages that attract ambitious people away from moribund blue states.
It turns out, however, that wages in the places within the United States attracting the most migrants are typically lower than in the places those migrants come from, suggesting that the places Americans are leaving actually have higher productivity and more job opportunities than the places they’re going. The average job in greater Houston pays 12 percent less than the average job in greater New York; the average job in greater Atlanta pays 22 percent less.
So why are people moving to these relatively low-wage areas? Because living there is cheaper, basically because of housing. According to the Bureau of Economic Analysis, rents (including the equivalent rent involved in buying a house) in metropolitan New York are about 60 percent higher than in Houston, 70 percent higher than in Atlanta.
In other words, what the facts really suggest is that Americans are being pushed out of the Northeast (and, more recently, California) by high housing costs rather than pulled out by superior economic performance in the Sunbelt.
But why are housing prices in New York or California so high? Population density and geography are part of the answer. For example, Los Angeles, which pioneered the kind of sprawl now epitomized by Atlanta, has run out of room and become a surprisingly dense metropolis. However, as Harvard’s Edward Glaeser and others have emphasized, high housing prices in slow-growing states also owe a lot to policies that sharply limit construction. Limits on building height in the cities, zoning that blocks denser development in the suburbs and other policies constrict housing on both coasts; meanwhile, looser regulation in the South has kept the supply of housing elastic and the cost of living low.
So conservative complaints about excess regulation and intrusive government aren’t entirely wrong, but the secret of Sunbelt growth isn’t being nice to corporations and the 1 percent; it’s not getting in the way of middle- and working-class housing supply.
And this, in turn, means that the growth of the Sunbelt isn’t the kind of success story conservatives would have us believe. Yes, Americans are moving to places like Texas, but, in a fundamental sense, they’re moving the wrong way, leaving local economies where their productivity is high for destinations where it’s lower. And the way to make the country richer is to encourage them to move back, by making housing in dense, high-wage metropolitan areas more affordable.
So Rick Perry doesn’t know the secrets of job creation, or even of regional growth. It would be great to see the real key — affordable housing — become a national issue. But I don’t think Democrats are willing to nominate Mayor Bill de Blasio for president just yet.
By: Paul Krugman, Op-Ed Columnist, The New York Times, August 24, 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
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