“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.
“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
“The Four Biggest Right-Wing Lies About Inequality”: Don’t Listen To All Those Right-Wing Lies
Even though French economist Thomas Piketty has made an air-tight case that we’re heading toward levels of inequality not seen since the days of the nineteenth-century robber barons, right-wing conservatives haven’t stopped lying about what’s happening and what to do about it.
Herewith, the four biggest right-wing lies about inequality, followed by the truth.
Lie number one: The rich and CEOs are America’s job creators. So we dare not tax them.
The truth is the middle class and poor are the job-creators through their purchases of goods and services. If they don’t have enough purchasing power because they’re not paid enough, companies won’t create more jobs and economy won’t grow.
We’ve endured the most anemic recovery on record because most Americans don’t have enough money to get the economy out of first gear. The economy is barely growing and real wages continue to drop.
We keep having false dawns. An average of 200,000 jobs were created in the United States over the last three months, but huge numbers of Americans continue to drop out of the labor force.
Lie number two: People are paid what they’re worth in the market. So we shouldn’t tamper with pay.
The facts contradict this. CEOs who got 30 times the pay of typical workers forty years ago now get 300 times their pay not because they’ve done such a great job but because they control their compensation committees and their stock options have ballooned.
Meanwhile, most American workers earn less today than they did forty years ago, adjusted for inflation, not because they’re working less hard now but because they don’t have strong unions bargaining for them.
More than a third of all workers in the private sector were unionized forty years ago; now, fewer than 7 percent belong to a union.
Lie number three: Anyone can make it in America with enough guts, gumption, and intelligence. So we don’t need to do anything for poor and lower-middle class kids.
The truth is we do less than nothing for poor and lower-middle class kids. Their schools don’t have enough teachers or staff, their textbooks are outdated, they lack science labs, their school buildings are falling apart.
We’re the only rich nation to spend less educating poor kids than we do educating kids from wealthy families.
All told, 42 percent of children born to poor families will still be in poverty as adults – a higher percent than in any other advanced nation.
Lie number four: Increasing the minimum wage will result in fewer jobs. So we shouldn’t raise it.
In fact, studies show that increases in the minimum wage put more money in the pockets of people who will spend it – resulting in more jobs, and counteracting any negative employment effects of an increase in the minimum.
Three of my colleagues here at the University of California at Berkeley — Arindrajit Dube, T. William Lester, and Michael Reich – have compared adjacent counties and communities across the United States, some with higher minimum wages than others but similar in every other way.
They found no loss of jobs in those with the higher minimums.
The truth is, America’s lurch toward widening inequality can be reversed. But doing so will require bold political steps.
At the least, the rich must pay higher taxes in order to pay for better-quality education for kids from poor and middle-class families. Labor unions must be strengthened, especially in lower-wage occupations, in order to give workers the bargaining power they need to get better pay. And the minimum wage must be raised.
Don’t listen to the right-wing lies about inequality. Know the truth, and act on it.
By: Robert Reich, The Robert Reich Blog, May 5, 2014
“Jobs And Skills And Zombies”: Skills Gap, An Idea That Should Have Been Killed By Evidence But Refuses To Die
A few months ago, Jamie Dimon, the chief executive of JPMorgan Chase, and Marlene Seltzer, the chief executive of Jobs for the Future, published an article in Politico titled “Closing the Skills Gap.” They began portentously: “Today, nearly 11 million Americans are unemployed. Yet, at the same time, 4 million jobs sit unfilled” — supposedly demonstrating “the gulf between the skills job seekers currently have and the skills employers need.”
Actually, in an ever-changing economy there are always some positions unfilled even while some workers are unemployed, and the current ratio of vacancies to unemployed workers is far below normal. Meanwhile, multiple careful studies have found no support for claims that inadequate worker skills explain high unemployment.
But the belief that America suffers from a severe “skills gap” is one of those things that everyone important knows must be true, because everyone they know says it’s true. It’s a prime example of a zombie idea — an idea that should have been killed by evidence, but refuses to die.
And it does a lot of harm. Before we get there, however, what do we actually know about skills and jobs?
Think about what we would expect to find if there really were a skills shortage. Above all, we should see workers with the right skills doing well, while only those without those skills are doing badly. We don’t.
Yes, workers with a lot of formal education have lower unemployment than those with less, but that’s always true, in good times and bad. The crucial point is that unemployment remains much higher among workers at all education levels than it was before the financial crisis. The same is true across occupations: workers in every major category are doing worse than they were in 2007.
Some employers do complain that they’re finding it hard to find workers with the skills they need. But show us the money: If employers are really crying out for certain skills, they should be willing to offer higher wages to attract workers with those skills. In reality, however, it’s very hard to find groups of workers getting big wage increases, and the cases you can find don’t fit the conventional wisdom at all. It’s good, for example, that workers who know how to operate a sewing machine are seeing significant raises in wages, but I very much doubt that these are the skills people who make a lot of noise about the alleged gap have in mind.
And it’s not just the evidence on unemployment and wages that refutes the skills-gap story. Careful surveys of employers — like those recently conducted by researchers at both M.I.T. and the Boston Consulting Group — similarly find, as the consulting group declared, that “worries of a skills gap crisis are overblown.”
The one piece of evidence you might cite in favor of the skills-gap story is the sharp rise in long-term unemployment, which could be evidence that many workers don’t have what employers want. But it isn’t. At this point, we know a lot about the long-term unemployed, and they’re pretty much indistinguishable in skills from laid-off workers who quickly find new jobs. So what’s their problem? It’s the very fact of being out of work, which makes employers unwilling even to look at their qualifications.
So how does the myth of a skills shortage not only persist, but remain part of what “everyone knows”? Well, there was a nice illustration of the process last fall, when some news media reported that 92 percent of top executives said that there was, indeed, a skills gap. The basis for this claim? A telephone survey in which executives were asked, “Which of the following do you feel best describes the ‘gap’ in the U.S. workforce skills gap?” followed by a list of alternatives. Given the loaded question, it’s actually amazing that 8 percent of the respondents were willing to declare that there was no gap.
The point is that influential people move in circles in which repeating the skills-gap story — or, better yet, writing about skill gaps in media outlets like Politico — is a badge of seriousness, an assertion of tribal identity. And the zombie shambles on.
Unfortunately, the skills myth — like the myth of a looming debt crisis — is having dire effects on real-world policy. Instead of focusing on the way disastrously wrongheaded fiscal policy and inadequate action by the Federal Reserve have crippled the economy and demanding action, important people piously wring their hands about the failings of American workers.
Moreover, by blaming workers for their own plight, the skills myth shifts attention away from the spectacle of soaring profits and bonuses even as employment and wages stagnate. Of course, that may be another reason corporate executives like the myth so much.
So we need to kill this zombie, if we can, and stop making excuses for an economy that punishes workers.
By: Paul Krugman, Op-Ed Columnist, The New York Times, March 30, 2014
“Hot Air Is Cheap”: Paul Ryan’s Culture Attack Is An Excuse To Do Nothing About Poverty
Blaming poverty on the mysterious influence of “culture” is a convenient excuse for doing nothing to address the problem.
That’s the real issue with what Rep. Paul Ryan (R-Wis.) said about distressed inner-city communities. Critics who accuse him of racism are missing the point. What he’s really guilty of is providing a reason for government to throw up its hands in mock helplessness.
The fundamental problem that poor people have, whether they live in decaying urban neighborhoods or depressed Appalachian valleys or small towns of the Deep South, is not enough money.
Alleviating stubborn poverty is difficult and expensive. Direct government aid — money, food stamps, Medicaid, housing assistance and the like — is not enough. Poor people need employment that offers a brighter future for themselves and their children. Which means they need job skills. Which means they need education. Which means they need good schools and safe streets.
The list of needs is dauntingly long, and it’s hard to know where to start — or where the money for all the needed interventions will come from. It’s much easier to say that culture is ultimately to blame. But since there’s no step-by-step procedure for changing a culture, we end up not doing anything.
This is what Ryan said in a radio interview: “We have got this tailspin of culture, in our inner cities in particular, of men not working and just generations of men not even thinking about working or learning the value and the culture of work, and so there is a real culture problem here that has to be dealt with.”
What exactly does he mean by culture? In the context of “our inner cities,” Ryan can’t be talking about rap music and baggy pants. If so, he ought to visit any high school in any affluent suburb, where he will find kids listening to the same music and wearing the same clothes — kids who will grow up to be doctors and lawyers.
Is he talking about the breakdown of family structure? To me, that’s looking suspiciously more like effect than cause. As President Obama has noted, the rise in out-of-wedlock births and single-parent households seen years ago among African Americans is now being seen among whites, especially in communities hit hard by economic dislocation.
Ryan surely can’t be talking about the use of illegal drugs, since most surveys indicate that young blacks and Hispanics are no more likely to be drug users than are young whites.
Ryan refers specifically to “the value and the culture of work,” and he may be onto something — almost. His description of “just generations of men not even thinking about working” is ridiculous. That would be like demanding to know what cultural shortcoming keeps me from spending time thinking about sailing my mega yacht to my private island.
In depressed urban and rural communities, there is an acute shortage of meaningful work. There was a time when young men who didn’t plan to go to college could anticipate finding blue-collar work at “the plant” nearby — maybe a steel mill, maybe an assembly line. There they could have job security, enough income to keep a roof over a family’s head, a pension when they retired. Their children, who would go to college, could expect lives of greater accomplishment and affluence.
This was how the “culture of work” functioned. How is it supposed to happen without work?
Confronting the devastation suffered by what used to be working-class communities is hard; adjusting to post-globalization economic realities is harder. Say the word culture and you sound erudite and concerned, especially if you drop the name of the Harvard scholar Samuel Huntington, who described world affairs as a clash of civilizations with different cultural values.
My problem is that when you identify something so amorphous as culture as the fundamental issue, you excuse yourself for not proposing concrete solutions.
As you might have gathered, I’m suspicious of the cultural hypothesis as a way to explain who succeeds and who doesn’t. I believe outcomes mostly depend on opportunities and that people are much less likely to engage in self-destructive behavior if they see opportunities that make sense to them.
If we had universal pre- kindergarten that fed all children into high-quality schools, if we had affordable higher education, if we incentivized industry to invest in troubled communities — if people had options for which they were prepared — culture would take care of itself.
But all of that is expensive. Hot air, as Paul Ryan knows, is cheap.
By: Eugene Robinson, Opinion Writer, The Washington Post, March 24, 2014
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