“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.
“Happy Labor Day, Mom”: A Harsh Labor Market Where Women Were Regularly Punished For Not Being Men
I know this sounds absurd—it is absurd—but for some odd reason Labor Day reminds me of my mother. She was a school teacher, and I think she would have a good laugh to learn that so-called “education reformers” are accusing school teachers of being too powerful and protected. My father, who was himself a long-time member of our local school board, would probably snort at the ignorance of highly educated experts.
Together, they could set the record straight on education from the facts of their own lives. They fell in love when they were young and optimistic and talented. This was the 1920s when women had just won the right to vote, and both were newly graduated from four-year colleges—the very first in my mother’s family. My father completed graduate work in chemistry and was hired as a researcher by a Philadelphia manufacturer where he later invented useful products.
They faced one obstacle in their promising lives. My mother had to sign a teaching contract with a local school district in western Pennsylvania that would prohibit her from getting married. This crude violation of a young woman’s civil rights was commonly enforced around the country. Years later, I learned that my wife’s mother had to do the same thing to get a teaching job in Iowa. Recently, I reread the steamy love letters my parents wrote to one another during that school year of frustrated desire. I blushed for them.
At the Thanksgiving break, they abandoned abstinence and broke the school contract. But secretly. On the long holiday, they eloped to West Virginia and got married there. They told no one. My parents, I should add, were no-nonsense conservative Republicans, not given to reckless adventure or inflammatory political statements. I did think of my mother as an assertive proto-feminist. In retirement, both became Democrats because they thought Goldwater was a dangerous crackpot. In 1972, my dad declared early for George McGovern, while Mom held out for Shirley Chisholm.
Keeping the secret of their marriage may have been done to protect her eligibility for many more years as a teacher. It worked. Toward the end of her long life (she died three days short of 100) my mother got a letter each year from Ohio governors, congratulating her on being the oldest living recipient in Ohio’s teacher retirement system.
I tell this intimate story to make a point that the latter-day reformers do not seem to grasp. They have left out the human dimensions of a harsh labor market where women were regularly punished for not being men. School teachers from the beginnings of America’s public schools have been vulnerable to blatant exploitation—lower wages and harsher terms—and they have been exploited. The jobs could be filled by an abundance of educated single young women in need of incomes. Married women might have babies in the middle of the school year—an inconvenience to school administrators—so married women were banned. Similar gender biases affected nursing and other caring occupations, and to some degree still do.
The fundamental power shift for school teachers did not occur until the 1960s, when frustrated teachers rebelled against traditional school systems run top-down by superintendents and principals. As a young reporter in Louisville, Kentucky, I witnessed one of the early skirmishes in 1962.
One day I got a phone call from an organizer for the American Federation of Teachers who blithely announced that AFT intended to shut down the Louisville schools the following week with a citywide strike. I thought he was joking. AFT was based in East Coast big cities and had no more than fifty members among Louisville’s 2,000 teachers. The National Education Association (NEA) dominated most states those days, and it was run by and for the administrators, not rank-and-file teachers.
The AFT’s strike in Louisville was like a thunderclap—teachers did walk off and virtually shut down the system. Teachers were fed up. They were demanding a stronger voice and power in school affairs and school politics. In rural states like Kentucky, the poorest counties were frequently dominated by matriarchal political machines—women superintendents who controlled more jobs in their county than the men in county offices. The NEA got the message and swiftly adjusted. It became a full-fledged labor union like AFT. Instead of fronting for old-style political bosses, both organizations now try to speak for the interests of teachers and to defend them against political intrusions and other abuses.
These are the relevant facts that self-appointed billionaire reformers skip past. By demonizing the teachers unions and denouncing the tenure laws that protect teachers from arbitrary political reprisals, the do-good foundations have unwittingly cast themselves as a malevolent Daddy Warbucks ready to bury their opposition with tons of money.The Gates Foundation and some others do seem to be belatedly backing away from obvious mistakes, but the reform engine still threatens to undermine the common public school in favor of a deeply fractured system of sectarian and secular private sponsors claiming public money.
Impatient hedge-fund billionaires do not attempt to conceal their contempt for the rest of us. They are used to making money—fast—with no excuses for dawdlers. Witness what they have done to large segments of the overall economy. Education does not thrive in those conditions, because there is no standard of perfection in any schoolhouse that can survive brutal suppression of uniformity imposed by clumsy testing. A successful school not only makes room for dissent. It constantly nourishes it.
Of course, I am biased. But I think that was my mother’s teaching style. She taught first grade in an “inner city” neighborhood of Cincinnati where the students were not poor black kids but white kids from the mountains of Eastern Kentucky. They shared many of the same handicaps. Mom developed her own theories on how to teach reading to such children. It involved hand-eye coordination and other elements I could not follow. I have no proof that she succeeded, but I have a hunch she drove the principal nuts.
By: Wiliam Greider, The Nation, August 30, 2014
“We Need To Be More Ambitious”: Why The Minimum Wage Should Really Be Raised To $15 An Hour
Momentum is building to raise the minimum wage. Several states have already taken action — Connecticut has boosted it to $10.10 by 2017, the Maryland legislature just approved a similar measure, Minnesota lawmakers just reached a deal to hike it to $9.50. A few cities have been more ambitious — Washington, D.C. and its surrounding counties raised it to $11.50, Seattle is considering $15.00
Senate Democrats will soon introduce legislation raising it nationally to $10.10, from the current $7.25 an hour.
All this is fine as far as it goes. But we need to be more ambitious. We should be raising the federal minimum to $15 an hour.
Here are seven reasons why:
1. Had the minimum wage of 1968 simply stayed even with inflation, it would be more than $10 an hour today. But the typical worker is also about twice as productive as then. Some of those productivity gains should go to workers at the bottom.
2. $10.10 isn’t enough to lift all workers and their families out of poverty. Most low-wage workers aren’t young teenagers; they’re major breadwinners for their families, and many are women. And they and their families need a higher minimum.
3. For this reason, a $10.10 minimum would also still require the rest of us to pay Medicaid, food-stamps, and other programs necessary to get poor families out of poverty — thereby indirectly subsidizing employers who refuse to pay more. Bloomberg View describes McDonalds and Walmart as “America’s biggest welfare queens” because their employees receive so much public assistance. (Some, like McDonalds, even advise their employees to use public programs because their pay is so low.)
4. A $15/hour minimum won’t result in major job losses because it would put money in the pockets of millions of low-wage workers who will spend it — thereby giving working families and the overall economy a boost, and creating jobs. (When I was Labor Secretary in 1996 and we raised the minimum wage, business predicted millions of job losses; in fact, we had more job gains over the next four years than in any comparable period in American history.)
5. A $15/hour minimum is unlikely to result in higher prices because most businesses directly affected by it are in intense competition for consumers, and will take the raise out of profits rather than raise their prices. But because the higher minimum will also attract more workers into the job market, employers will have more choice of whom to hire, and thereby have more reliable employees — resulting in lower turnover costs and higher productivity.
6. Since Republicans will push Democrats to go even lower than $10.10, it’s doubly important to be clear about what’s right in the first place. Democrats should be going for a higher minimum rather than listening to Republican demands for a smaller one.
7. At a time in our history when 95 percent of all economic gains are going to the top 1 percent, raising the minimum wage to $15 an hour isn’t just smart economics and good politics. It’s also the morally right thing to do.
Call your senators and members of congress today to tell them $15 an hour is the least American workers deserve. You can reach them at 202-224-3121.
By: Robert Reich, The Robert Reich Blog, April 9, 2014
“Calling The Republican’s Bluff”: Who Cares About The Value Of Work?
Finding a way out of our current political impasse requires some agreement on what problems we need to solve. If anything should unite left, center and right, it is the value of work and the idea, in Bill Clinton’s signature phrase, that those who “work hard and play by the rules” ought to be rewarded for their efforts.
This is why one of last week’s most important and least noted political events was the introduction of the 21st Century Worker Tax Cut Act by Sen. Patty Murray, D-Wash. Murray favors a minimum wage increase to $10.10 an hour, but she also has other ideas that would help Americans at the bottom of the income structure to earn more.
Let’s start with principles, and then move to specifics.
There’s a new vogue among conservatives: to talk less about entrepreneurs and to stop talking altogether about “makers” and “takers.” Instead, many of the wisest heads on the right are urging a focus on work. The new emphasis reflects a realization that President Obama won in 2012 in large part because Mitt Romney and his party failed to convey empathy for those who live on wages and salaries.
An early champion of this view was Ramesh Ponnuru, a writer for National Review. “The Republican story about how societies prosper — not just the Romney story — dwelt on the heroic entrepreneur stifled by taxes and regulations,” he wrote shortly after the election. It is, Ponnuru added, “an important story with which most people do not identify.”
Writing earlier this year in National Affairs magazine, Henry Olsen of the Ethics and Public Policy Center was more biting. “Modern conservatives,” he argued, “have tended to discount the moral value of the average person, focusing instead on extolling the moral superiority of the great.”
Two other conservative thinkers, Reihan Salam and Rich Lowry, say the antidote is for Republicans to become “the party of work.” As they see it, work “stands for a constellation of values and, like education, is universally honored.” The GOP, they said, “should extol work and demand it.”
Yes, that last phrase — “demand it” — could lead to a darker kind of politics involving the demonization of those who simply can’t find jobs. Thus did Rep. Paul Ryan, R-Wis., get into trouble for mourning “this tailspin of culture, in our inner cities in particular, of men not working and just generations of men not even thinking about working.”
No matter what Ryan was trying to say, he seemed to be emphasizing the flaws of the unemployed themselves rather than the cost of economic injustice. My Post colleague Eugene Robinson captured this well: “Blaming poverty on the mysterious influence of ‘culture’ is a convenient excuse for doing nothing to address the problem.”
Nonetheless, many conservatives really do realize that they need to embrace hardworking Americans. But the question stands: What are they willing to do about it?
This is where Murray comes in. Her bill would rid the tax code of certain disincentives to work. She notes that “the second earner in a household often pays a higher tax rate on his or her earnings than the first.” Her plan would right this by offering a 20 percent deduction on the second earner’s income up to roughly $60,000 a year. (The benefit is focused on lower-income families, so it phases out at about $130,000 in joint annual income.) For a $25,000-a-year second earner in the 25 percent bracket, she says, this would mean $1,250 “back in their pocket for groceries, child care or retirement savings.”
She’d also expand the earned-income tax credit for workers without children and lower the eligibility age from 25 to 21. The changes would increase their maximum benefit from $487 to about $1,400 a year. It’s hardly nirvana. But it’s real money, especially for someone earning around $15,000 a year. The proposal would cover its roughly $15 billion annual cost by closing loopholes already identified as worthy of being scrapped by the GOP’s leading tax reformer, Rep. Dave Camp of Michigan.
You can, of course, look at what Murray is doing as a way of calling the conservatives’ bluff on the matter of work. But that will be true only if the right allows its bluff to be called.
In making their case, Salam and Lowry quoted Abraham Lincoln on the need “to advance the condition of the honest, struggling laboring man.” If conservatives are serious about this (and about the honest, laboring woman, too) they’ll join Murray in raising the minimum wage and in seeking a tax code more in harmony with the dignity of work.
By: E. J. Dionne, Jr., Opinion Writer, The Washington Post, March 30, 2014
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