Friday, April 30, 2004

Outsourcing and the concentration of wealth

Title: Deloitte Study Finds $356 Billion Outsourcing Trend; India to Benefit Most
Source: SmartPros
Date: April 18, 2004

From the article:
    In a comprehensive survey of their moves offshore, the world's 100 largest financial-services companies indicate they expect to transfer an estimated $356 billion of their operations and two million jobs offshore over the next five years in efforts to reduce their costs significantly.
So, banks will be firing two million workers and saving hundreds of billions of dollars. Will bank fees go down? No...

Instead, there will be a massive concentration of wealth in the bank's executives and shareholders. See this post, this post and this post. Chances are that fees will go up, rather than down, because people have no choice but to pay them -- see this post for an example.

Thursday, April 29, 2004

The iPod and the Cult of the Super Genius

Title: Father of the IPod
Source: Cult of the Mac Blog, Wired, NYTimes
Date: April 26, 2004

One aspect of the CEO's Cult of the Super Genius is the fact that the CEO inexplicably gets credit for the contributions of thousands of employees. For example, in last week's Time Magazine, Steve Jobs is lauded as one of the "Time 100" (The People Who Shape Our World). The article says, "Jobs has been synonymous with the kind of ingenuity that's at the forefront of the tech industry." If you believe that sort of thing about a CEO, then the CEO is worth $75 million.

What Father of the IPod points out is that Jobs had nothing to do with the IPod. From the article:
    "(The iPod) was put together starting in 2001 by hardware designers led by Tony Fadell."
    "Since Mr. Jobs returned to Apple, he has increasingly insisted that the company speak with just the voices of top executives, so Mr. Fadell was not permitted to comment for this article."
This is true in every industry. Do the CEO and shareholders of Pfizer invent, test and manufacture the drugs that Pfizer sells? Of course not. Yet the CEO and shareholders get the lion's share of the money those drugs generate -- billions of dollars. This is a classic scheme for concentrating wealth -- taking credit (and massive amounts of money) for the work of others, while paying those others as little as possible.

The CEOs and shareholders redistribute the wealth generated by thousands of employees to a very small group of extremely wealthy people. That is how the concentration of wealth works.

Tuesday, April 27, 2004

CEO Compensation Database

Title: CEO Compensation - Yahoo! Finance Special Edition
Source: Forbes
Date: April 2004

This article contains a database of CEO compensation for the largest 500 companies in America. The article slices and dices CEOs by pay and performance in several different ways. One of the most interesting things to look at is the pay and performance of the 10 CEOs receiving the highest compensation:
  • Reuben Mark - $148 million
  • George David - $70.5 million
  • Richard Fuld - $67.7 million
  • Henry Silverman - $60 million
  • Dwight Schar - $58.1 million
  • Lawrence Ellison - $40.6 million
  • Richard Kovacevich - $37.8 million
  • Howard Soloman - $36.1 million
  • James Cayne - $33.9 million
  • Todd Nelson - $32.8 million
The average pay for the group is $58.5 million per person, per year. Yet the average "grade" for the group is a C. Out of the group, six receive a C grade, one gets a D, one gets a B, one gets an A and one is ungraded.

One interesting fact: the article gives nine CEOs an A+ grade. Their average compensation is $2.2 million.

Another interesting fact: the CEOs of America's 500 biggest companies earned total compensation of $3.3 billion, for an average of $6.6 million per year.

The $3.3 billion paid to these 500 people came from consumers -- from you and me -- in the form of higher prices. With approximately 100 million households in America, it means that your household paid $33 to fund the extreme salaries of these 500 people.

When you extrapolate out from the CEOs to their "management teams", the numbers magnify significantly. The fact that the CEOs get paid so much means that the "number 2" people get paid a boatload too. So do the "number 3" people, and so on. This article on Enron indicates that a group of 144 top Enron executives in 2001 received an average of $4 million each, for a total of $620 million in a single year. Multiply that sort of extravagance by 500 large companies and you begin to see the magnitude of the problem. As consumers, we all pay hundreds of billions of dollars in inflated prices each year to fund these obscene salaries.

This concentration of wealth in these executives is corrupting the political process (through campaign contributions and lobbyists), the legal system (through highly paid lawyers and laws favoring the rich passed by congress), the tax system (through tax breaks for the wealthy and loopholes passed by congress) -- even the complexion of college campuses.

Only the wealthy get to go to college

Title: As Wealthy Fill Top Colleges, New Efforts to Level the Field
Source: NY Times
Date: April 22, 2004

From the article:
    At prestigious universities around the country, from flagship state colleges to the Ivy League, more and more students from upper-income families are edging out those from the middle class, according to university data... More members of this year's freshman class at the University of Michigan have parents making at least $200,000 a year than have parents making less than the national median of about $53,000, according to a survey of Michigan students. At the most selective private universities across the country, more fathers of freshmen are doctors than are hourly workers, teachers, clergy members, farmers or members of the military — combined.
By definition, half the population makes less than the national median income. Fewer than 5% of wage earners make more than $200,000 per year. So the children of the 5% outnumber the children of half of the population.

It is not just "the poor" who are being denied access to college. Now it is "everyone who is not rich." The article points out: "more and more students from upper-income families are edging out those from the middle class" and "[the number of students] from the middle 50 percent fell sharply."

The article is full of statistics that are all saying the same thing: we are rapidly becoming a nation where only the rich get to go to college. Those concentrating wealth have won.

Monday, April 26, 2004

Even when they fail, executives concentrate wealth

Title: What Would He Get Paid If the Stock Had Gone Up?
Source: Forbes
Date: April 22, 2004

From the article:
    When John Zeglis took over AT&T Wireless in 1999, it was the country's premier cell phone company. Its record-setting public offering raised $10.6 billion. Four years later the company was so battered that in February it became a meal for Cingular, a competitor that didn't even exist back then.
The article notes that "on Zeglis' watch the company's market value still fell by $29 billion." In addition, AT&T Wireless lost 367,000 customers in the first quarter of 2004.

What did Zeglis get in return for this massive drop in value?
  • $14 million from stock options that vested immediately
  • A $7.4 million severance package
19 other executives received a combined $39 million from stock and $23 million from severance. These massive payments (even for poor performance) are a key feature of the concentration of wealth.

CEOs and the Cult of the Super-Genius

Title: Why Are CEOs Paid So Much?
Source: Capitalism Magazine
Date: April 16, 2004

The article states the facts about CEO pay in this way:
    In 2003 the average pay for CEOs at 200 of the largest U.S. companies was $11.3 million--but there are a good number whose compensation packages approach the $100 million mark.
You can find numerous examples of this level of compensation by reviewing previous entries in this blog.

The article then asks rhetorically, "Are CEOs worth this much?" And it answers in the affirmative. Yes, according to the article, CEOs are worth this much because every CEO is a Super Genius.

The author states it this way:
    In order to be successful in the long range, the CEO's strategy must encompass countless factors. He must devise a plan to grow the business in the face of competitors, not only from within the United States but from any and every region of today's global economy.

    The CEO calls the plays for a team of tens (and sometimes hundreds) of thousands of workers. All of the actions of every employee and every aspect of the business must be coordinated and integrated to produce the cars, computers or CAT scanners that yield profits to the company.
It sounds impressive, doesn't it? It is, in fact, total illusion. This belief in the omnipotence of CEOs is the Cult of the Super Genius. This cult is one reason why CEO (and all other executive) compensation is spiraling out of control right now.

Are CEOs Super Geniuses? The simple answer is: no. CEOs are normal human beings. And it is easy to prove it. Here are three examples:
  1. If CEOs truly were Super Geniuses... If CEOs really were intimately involved in the coordination of "tens (and sometimes hundreds) of thousands of workers"... If, in reality the "CEO's strategy must encompass countless factors"... then the loss of the CEO would be catastrophic. The loss of such an omnipotent and all-seeing Super Genius would be a crushing blow to any corporation.

    That definitely is not the case.

    For example, last week the CEO of McDonald's died of a heart attack. Did the company collapse? Did the restaurants suddenly stop selling hamburgers? Of course not. He was quickly replaced and the company continued selling hamburgers just as it had before.

    Another example can be found in this post. MBNA got tired of its highly overpaid CEO and forced him out. The company was actually better off as a result.

    The same thing is happening at Disney right now, as it tries forcing Michael Eisner out.

    The fact is that any corporate CEO could die tomorrow, and it would have no effect on the business. Would Microsoft detonate if Gates or Balmer died? No. Microsoft would keep writing and selling software. Would Starbucks detonate if Schultz died? No. Starbucks would keep making and selling coffee. Would eBay detonate if Whitman died? No. People would continue to buy and sell Pez dispensers on eBay. In each case, the dead CEO would be replaced and life would go on. In many cases (e.g. MBNA and Disney), life would go on better than it had before.

  2. If CEOs were Super Geniuses, they would not make such stupid mistakes.

    Martha Stewart was a CEO. Is she a Super Genius? If she was a Super Genius, how do you explain her current position?

    What about Jack Welch (former CEO of GE), his highly publicized affair and his subsequent divorce? If he is a Super Genius and a Super Manager, then why could he not manage his marriage and its dissolution?

    Donald Trump is a CEO. Is he a Super Genius? Not according to this article, which says:

      "Consider his gambling business, Trump Hotels & Casino Resorts. It lost $87 million in 2003. In 2002, it settled charges with the Securities and Exchange Commission involving overstated earnings for 1999. The company's stock has been drifting down since 1996, from a peak $34 a share to $2.26 a share on Friday. Trump's auditors have warned that without new financing, the company, which has $1.8 billion in debt, could be flirting with bankruptcy."

    Does that sound like a Super Genius to you?

  3. If CEOs were Super Geniuses, companies would never fail. Look at the huge list of companies brought to their knees by their CEOs and executives in the last three years. Worldcom and Enron are two great examples, and there are dozens of others. The fact is that most fifth graders could have done a better job than the CEOs of Worldcom and Enron. Had these companies been operated by fifth graders instead of corrupt Super Geniuses, these companies would not have suffered such devastating losses.

    What about the hundreds of Internet companies started during the Internet bubble?,,, etc. etc. They all had tens of millions of dollars and Super Genius CEOs -- why did they all crater? Because these guys are not omniscient Super Geniuses. They are normal, fallible human beings.
There is one other thing to consider. In many cases, if a CEO were replaced, the company would do significantly better. Take as an example Steve Jobs of Apple. Is Steve Jobs really worth $75 million? Is Jobs the right person for the job? Could someone else do better?

Think about where Apple was in 1984. In 1984, Apple is selling the top home and educational PC -- the Apple II. IBM has started to invade Apple's space with the IBM PC in 1982. In 1984, Apple stuns the computer world with the release of the Macintosh computer. This is the first mass market GUI machine. It brings windows and mice into the mainstream. Apple is the first mover and has a gigantic lead on the competition. It will be nearly a decade before Microsoft has a product that can successfully compete with the Mac in the GUI space.

Apple today could be a behemoth. It could be as large as Microsoft and Dell combined. The same could be said of IBM -- how did IBM create and then lose the PC marketplace? The same could be said of Microsoft -- why didn't Microsoft see the hardware opportunity and create the equivalent Dell alongside its software offerings? If any Super Genius had actually existed, he/she would have been able to foresee what would happen in the PC/OS marketplace and fully capitalize on all of the value in that marketplace.

Today Apple is a marginal player rather than a behemoth. How much better off could Apple be today if Jobs had died? It is, of course, impossible to say. But the fact is that Apple now holds only 3% of the GUI market it created.

CEOs are not Super Geniuses. They are fallible, replaceable, normal human beings. In any company containing thousands of employees, no single person makes or breaks the company. No single person is indispensable. No single person is worth $100 million, or even $10 million. The easy proof of that assertion is that the CEO of any corporation can die and the corporation will continue (and often do better).

The sooner we end the cult of the Super Genius and cut CEO/executive pay by several orders of magnitude, the better off (and more competitive) corporate America will be. Today's CEO compensation is seriously off-track, in part because of the cult of the Super Genius.

Wednesday, April 21, 2004

Cendant and the concentration of wealth

Title: Cendant Chief Takes Pay Cut
Source: NY Times
Date: April 20, 2004

The title of the article is humorous once you read the article. The article mentions that Cendant's CEO, Henry R. Silverman, has received:
  • a $3.3 million salary
  • a $14 million bonus
  • option gains of $37 million
  • $1.025 million in pension fund contributions
  • $4.574 million for a $100 million life insurance policy
  • "$260 million in option gains from 1998 to 2003 and $287 million of unrealized option gains as of Dec. 31, 2003."
  • A $996,000 per year consulting contract for life
  • A huge severance package if fired
All of this adds up to well over half a billion dollars. All of it going to a single person. One can only imagine what the number would be if it included the entire management team at Cendant.

That half a billion dollars has come from consumers. It has come from you each time you buy something from a Cendant company. Multiply this by thousands of immensely overpaid executives and you understand how the concentration of wealth works. Your household is paying over $1,000 per year to support these immensely wealthy individuals. Since these salaries are accelerating, the concentration of wealth is accelerating.

Tuesday, April 20, 2004

Amazing executive raises

Title: Time Warner, Gillette, Citigroup CEO Pay Outpaces Stock Gains
Source: Bloomberg
Date: April 19, 2004

From the article:
    Time Warner Inc. quadrupled the pay of Chief Executive Officer Richard Parsons to $13.9 million last year, while the company's shares failed to recover all the value lost during his tenure.

    At Gillette Co., CEO James Kilts' compensation soared 59 percent to $17.6 million while shares climbed 21 percent.

    CEO pay at 70 of the 100 largest U.S. companies rose to an average $14.1 million last year, according to data compiled by Bloomberg.

    That was 384 years of the average U.S. employee's 2003 pay of $36,764, and 525 years of a production worker's salary of $26,902, according to the Bureau of Labor Statistics.
There is no economic reason for this phenomenon.

Note that this article mentions only CEO pay. However, it is safe to say that all executive compensation is rising at the same pace -- hundreds of executives (CFOs, COOs, CIOs, VPs, directors, etc.) in each company are seeing their pay rising at a remarkable rate.

We are all paying for it. The prices of everything we buy are higher in order to pay for these amazing executive salaries. Meanwhile, the wages of everyone else stagnate or fall. That is how the concentration of wealth works.

Monday, April 19, 2004

The concentration of wealth is bad for the economy

Title: In politics, Wall Street ignores history
Source: Christian Science Monitor
Date: April 12, 2004

From the article:
    While workers have seen incomes rise, corporations have reaped an unusually large share of the wealth, according to a study by the Center for Labor Market Studies at Northeastern University in Boston. In the last two years, GDP increased about $800 billion. Corporations got $325 billion of that sum; employees got $310 billion, the study finds.

    'This is really very disproportionate,' says Paul Harrington, one of the economists who did the study. It's 2.5 times the usual share companies get in an economic recovery in the United States.

    As he sees it, companies have reaped too large a chunk of the 7.3 percent increase in productivity in those two years. Business has relied on job outsourcing and cheaper contract employees to boost the bottom line. Labor, with weak unions and facing high immigration, has been relatively powerless to demand its share of increasing prosperity.
This "very disproportionate" process is the foundation of the concentration of wealth. What is so interesting about the article is that it acknowledges that the process is bad for the economy as a whole. Nonetheless, the process continues, and is rapidly accelerating right now.

Thursday, April 15, 2004

Anthem chief to get merit pay of $42.5 million

Title: Anthem chief to get merit pay of $42.5 million
Source: Indianapolis Star
Date: April 6, 2004

Anthem is a health care provider. According to the article, Anthem's CEO, Larry C. Glasscock, "will receive a $42.5 million stock-and-cash award" on top of his "salary, bonus and other compensation of $3.73 million."

This sort of unbelievable compensation is a primary force driving health care costs up so dramatically. From the article:
    Sidney Bobb, of Plainfield, who is covered by Anthem under a policy earned by his wife, Judy, a retired schoolteacher with Avon Schools, said he's complained to Anthem in e-mails about boosting its executives' pay while raising his annual premiums from $6,000 in 2001 to $8,000 this year. Anthem also raised the couple's co-pay to see a doctor to $25 from $10 a visit, he said.

    'We're the one making that stock double like that,' he said. 'We're the ones paying for all that' money in executive salaries.
This is exactly the case. Consumers pay much higher prices to pay for these immense executive salaries. That is how the concentration of wealth works.

The military and the concentration of wealth

Title: Our soldiers in Iraq aren't heroes
Source: Andy Rooney
Date: April 12, 2004

Andy Rooney offers this perspective on the concentration of wealth:
    Our soldiers in Iraq are people, young men and women, and they behave like people - sometimes good and sometimes bad, sometimes brave, sometimes fearful. It's disingenuous of the rest of us to encourage them to fight this war by idolizing them.

    We pin medals on their chests to keep them going. We speak of them as if they volunteered to risk their lives to save ours, but there isn't much voluntary about what most of them have done. A relatively small number are professional soldiers. During the last few years, when millions of jobs disappeared, many young people, desperate for some income, enlisted in the Army.
The article Military Disparity: A Sign Of The Times? asks this question:
    Is America's war on terror a war being fought by all Americans?

    This is the underlying question raised in an ongoing survey of our military casualties in Iraq. According to a National Public Radio report over the weekend, more than twice as many U.S. war casualties in Iraq come from mostly rural areas as opposed to more urban counties. Casualties are also more likely to come from low-income areas and from areas with low levels of college education.
    But in some cases, it also signals an economic need on the part of the soldiers. This reflects an intriguing disparity not only in our military but in an economically polarized society, as well. Thus, the study is actually an examination of a symptom, not a disease.

    Make no mistake, we all should be grateful for the troops who serve this country and are willing to fight for all of us. But in turn, we must work to create more opportunities for all people in all areas of our nation. A military career should be seen as one option in this land of prosperity, not the only option left for those want more for their lives.
Because of the increasing concentration of wealth, America is beginning to look more like a third world nation, rather than the land of prosperity, to an increasing percentage of her people.

Yahoo and the concentration of wealth

Title: Yahoo chief executive gets hefty stock-option bonus
Source: CNN/Money
Date: April 12, 2004

From the article:
    Yahoo Inc. Chief Executive Terry Semel received a stock option bonus for 900,000 shares as part of his 2003 pay package, which if exercised would net him a profit of more than $13 million.
He received 2 million more options at the same time, and they would be worth approximately $30 million today but are not immediately exercisable. Also:
    The company's Chief Financial Officer Susan Decker received $1.2 million in cash, including an 18 percent increase in her base salary to $500,000 and a 35 percent increase in her cash bonus. She also received 1.8 million shares in restricted stock awards.
The article does not state any conditions on these 1.8 million shares, nor that they are options. They are presumably worth tens of millions of dollars.

See also this post.

Wednesday, April 14, 2004

How the concentration of wealth gets spent

Title: Lapping up luxury
Source: Knight Ridder
Date: March 27, 2004

It may be the case, as reported in the previous post, that 40 million individuals in the U.S. have no health insurance, 35 million are living below the poverty line and hunger in America's large underclass is causing Americans as a population to shrink. Nonetheless, the other side of the concentration of wealth means that there are quite a few rich people. The article offers a perspective on their spending habits today. For example:
  • "High-end retail sales are surging as the rich take advantage of tax breaks and — for them — good economic times."
  • "If you sell to the wealthy, the economy is booming. Jobs may be going overseas and consumer confidence may be running low, but as the presidential campaign heats up debate on the economy, one thing is certain: It's good to be rich."
  • "Nationally, new boat sales were up 9.5 percent in 2003... 'These people don't even know there's a recession,' said Chan Moser, a yacht broker in Stamford, Conn. 'The interest rates are low. They don't give a damn. You should see what's being built.'"
  • "At the Hinckley Co., whose Maine-made semi-custom boats range from 29 to 70 feet and cost from $300,000 to $5 million, the order backlog is bigger than it's been in years."
  • "There's a lot more after-tax income for higher-income households."
  • "Recent ads in The Wall Street Journal trumpet the advantages of partial private-jet ownership. Costs start at $4,600 a month for one-sixteenth of a jet, plus a $1,760 hourly flight rate and $6,485 in monthly management fees."
  • "Buy a million-dollar yacht with a bank loan and you can deduct the interest you pay on the mortgage — just like you can on your house."
  • "Buy a share of a private airplane and get accelerated depreciation on the expense. Plus, you get to expense the hourly cost of the plane if you use it for business."
  • "Tax breaks are also available to small-business owners of cars that weigh more than 6,000 pounds. So if you have your own business and can afford a Hummer H2 or a Cadillac Escalade, both of which have base prices of more than $50,000, you can write off thousands of dollars from the cost more quickly than on any other type of car. A 2003 tax-code change allows small-business owners to deduct the cost of a vehicle weighing 6,000 pounds or more in gross vehicle weight. It can be fully depreciated in the first year, up to $100,000."
  • "Democrats say the luxury boom signals that the tax code contains special breaks that widen the gap between the rich and everybody else."
That widening gap is the concentration of wealth at work.

The article Robotic Freedom discusses the concept of a central account that disperses money equally to all American citizens, and suggests a number of examples for sources of funding. Example #13 is luxury taxes. Lapping up luxury points out why such taxes are now appropriate.

Monday, April 12, 2004

The concentration of wealth begins to affect the height of Americans

Title: Americans shrinking as junk food takes its toll
Source: The Observer, London
Date: April 4, 2004

From the article:
    Researchers have made a startling discovery: Americans are shrinking. A nation once famed for its strapping, well-nourished youth is gradually diminishing in physical stature. By contrast, the heights of men and women from Europe are increasing inexorably.... At the time of the American Revolution, the average US male was two inches taller than his British counterpart. Today he is almost half an inch shorter.

    This surprising reappraisal of American and European physiques is the work of researcher John Komlos of Munich University. 'Much of the difference is due to the great social inequality that now exists in the United States,' Komlos told The Observer last week. 'In Europe, there is - in most countries - good health service provision for most members of society and plenty of protein in most people's diets. As a result, children do not suffer illnesses that would blight their growth or suffer problems of malnutrition. For that reason, we have continued to grow and grow.

    On the other hand, America has eight million people with no job, 40 million individuals with no health insurance, 35 million living below the poverty line, and a population that exists mainly on junk food. There, the rise in average height that marked its progress as a nation through the 19th and 20th centuries has stopped and has actually reversed - albeit very slightly - in recent years. Many Americans are rich and do well anatomically as a result, but there is a large underclass that is starting to drag the country down the stature charts."
Malnutrition and lack of healthcare -- experienced by a "large underclass" -- are the marks of a third world nation. America is starting to look like a third world nation. When the concentration of wealth begins affecting the stature or an entire population in this way, it is clear that things are seriously out of balance and it is time for change.

See also this post on hunger in America.

Making the middle class pay

Title: The annual American nightmare
Source: The Week
Date: April 16, 2004

From the article:
    The more Byzantine the tax code becomes, the better it is for the wealthy. Between 1995 and 2000, as thousands of pages of tax regulations were added, the 400 richest Americans went from paying 30 cents on the dollar in income taxes to just 22 cents. The reasons for that are simple enough, says New York Times reporter David Cay Johnston, who spent nine years studying the tax system for his book Perfectly Legal. Only the wealthy and corporations have enough money to influence federal lawmakers to write specific exemptions, and to hire the expert attorneys and accountants who know how to lower their taxes to an absolute minimum. A New York tax lawyer, for example, once devised a way for Bill Gates—the richest man in America—to take $200 million in Microsoft stock profits without paying a dime in taxes, even though he theoretically owed $56 million in capital-gains taxes. Dozens of similar loopholes also exist for corporations: Simply by opening a post-office box in Bermuda, Ingersoll-Rand saved itself $40 million in corporate taxes. As the wealthy and corporations exploit the growing number of loopholes, Johnston says, the burden on everyone else necessarily grows.
The concentration of wealth accelerates.

The juiciest pay bonanzas

Title: Who made the biggest bucks
Source: The Wall Street Journal
Date: April 12, 2004

The article discusses the "chief executives who nabbed the juiciest pay bonanzas last year." From the article:
  • Reuben Mark, Colgate-Palmolive Co., total direct compensation of $141.1 million.
  • Steven P. Jobs, Apple Computer Inc., total direct compensation of $74.75 million.
  • George David, United Technologies Corp., total direct compensation of $70.2 million.
  • Henry R. Silverman, Cendant Corp., total direct compensation of $54.3 million.
  • Richard S. Fuld, Jr., Lehman Brothers Holdings Inc., total direct compensation of $52.94 million.
  • Lawrence J. Ellison, Oracle Corp., total direct compensation of $40.5 million.
  • Richard M. Kovacevich, Wells Fargo & Co., total direct compensation of $35.9 million.
These seven people made an amount approaching half a billion dollars in one year. See this post for further discussion.

Sunday, April 11, 2004

Bank fees

Title: Banks' newest fee irks many
Source: Raleigh News and Observer
Date: April 11, 2004

From the article:
    Three banks in the Triangle have begun charging noncustomers $3 to $5 to cash a paycheck written against a payroll account at the bank.
Let's say your employer gives you a paycheck and the check comes from Bank of America. You need the money, so you go to a Bank of America branch to cash your paycheck, and the bank charges you $5.

Where do these fees end up going? As the example mentioned in this post reveals, the CEO of Wells Fargo bank made $36 million last year. This post points out a similar situation at Wachovia bank. Banks are making gigantic amounts of money from all the fees they now charge, and this money is all going to the wealthiest Americans.

The article points out, "the fees bite low-income workers who need the money the most." Low income workers are much more likely to live paycheck-to-paycheck. They need the money from each paycheck for essentials like food, housing and electricity. There is no justification for the fee, but there is nothing to stop banks from charging it. And there is nothing low-income workers can do, if they need cash immediately, except pay the fee -- They are basically at the mercy of the banks. Charging poor people and redistributing the money to wealthy people is a perfect way to concentrate wealth.

Saturday, April 10, 2004

The concentration of wealth and hunger

In last week's Parade magazine, the cover story was about hunger in America. The article contains a number of remarkable statistics:
  • 13 million children in America are classified as "food insecure" by the Department of Agriculture. [According to this USDA report, food security means "access, at all times, to enough food for an active, healthy life for all household members."]
  • When you consider that there are approximately 61 million children in the United States between the ages of 1 and 14 in America [ref], it means that one out of every five children in America is hungry. In states like Oregon the number is higher. "Oregon has one of the nation's highest rates of child hunger. A quarter of the state's children face food insecurity."
  • "Like many of America's emergency medical providers, Dr. Bowen says he is seeing an increase in the number of children suffering from the medical effects of malnutrition, called "failure to thrive" (FTT). These children have trouble concentrating, are unusually vulnerable to illness and suffer developmentally."
Keep in mind that this is what it is like in the richest nation on earth. For poorer nations it is much, much worse.

It is also fascinating that we are hearing so much in the news right now about overweight children. This is a problem, yes, but according to the surgeon general, it is a problem that affects only 13% or so of children. Why would we be hearing this extraordinary amount of news about overweight children, but almost nothing about hungry children in America?

Tuesday, April 06, 2004

The Barbell and the Concentration of Wealth

Title: The Future of Jobs: New Ones Arise, Wage Gap Widens
Source: Wall Street Journal
Date: April 5, 2004

From the article:
    One unpleasant possibility, acknowledged even by those firmly in the trade-is-good camp, is that jobs will proliferate at both ends of the barbell -- and fewer in the middle. The result would be an ever-wider gap between well-paying jobs and poorly paid jobs. That, too, has happened before, as recently as the 1980s when unionized skilled manufacturing jobs evaporated.
    Today, the sophistication of computers and spread of overseas outsourcing threaten many of the jobs that replaced old factory jobs.

    So there is another fork in the road. The low road takes these middle-skilled workers into competition for jobs washing, baby-sitting, serving and nursing the elite educated well-paid classes -- pushing down wages at the bottom. The high road takes them to jobs more skilled than those they lost, the jobs that Chinese and Indians may do someday, but not yet.

    Those who bet on the high road inevitably call for better educating American workers so they have skills to stay one step ahead of jobs that computers and foreign workers do. It is clear that to be a successful middle-skilled worker in the U.S. takes increasingly more schooling.
The problem with spending more and more time on "increasingly more schooling" is that, at any moment, the time you invested in schooling can evaporate. Then you are left with nothing. For example, people who invested in "increasingly more schooling" in the field of computer programming are now finding that their jobs are evaporating because of outsourcing to India. They are now left to spend two to four years retraining, and praying that the new occupation does not evaporate as well. And where does the money for retraining (and for paying the mortgage and feeding the family) come from during the two to four years?

This barbell is the concentration of wealth at work.

Historic concentration of wealth

Title: We're More Productive. Who Gets the Money?
Source: NY Times
Date: April 5, 2004

From the article:
    American workers have been remarkably productive in recent years, but they are getting fewer and fewer of the benefits of this increased productivity. While the economy, as measured by the gross domestic product, has been strong for some time now, ordinary workers have gotten little more than the back of the hand from employers who have pocketed an unprecedented share of the cash from this burst of economic growth.

    What is happening is nothing short of historic. The American workers' share of the increase in national income since November 2001, the end of the last recession, is the lowest on record. Employers took the money and ran. This is extraordinary, but very few people are talking about it, which tells you something about the hold that corporate interests have on the national conversation.

    The situation is summed up in the long, unwieldy but very revealing title of a new study from the Center for Labor Market Studies at Northeastern University: "The Unprecedented Rising Tide of Corporate Profits and the Simultaneous Ebbing of Labor Compensation - Gainers and Losers from the National Economic Recovery in 2002 and 2003."
The article states: "The recent productivity gains have been widely acknowledged. But workers are not being compensated for this. During the past two years, increases in wages and benefits have been very weak, or nonexistent." That is the definition of the concentration of wealth.

Sunday, April 04, 2004

Time Shaving is another way to concentrate wealth

Title: Altering of Worker Time Cards Spurs Growing Number of Suits
Source: NY Times
Date: April 4, 2004

From the article:
    Drew Pooters said he was stunned by what he found his manager doing in the Toys "R" Us store in Albuquerque. Inside a cramped office, he said, his manager was sitting at a computer and altering workers' time records, secretly deleting hours to cut their paychecks and fatten his store's bottom line.
    Experts on compensation say that the illegal doctoring of hourly employees' time records is far more prevalent than most Americans believe. The practice, commonly called shaving time, is easily done and hard to detect — a simple matter of computer keystrokes — and has spurred a growing number of lawsuits and settlements against a wide range of businesses.
Offending companies listed in the article include: Toys "R" Us, Wal-Mart, Taco Bell, Kinko's, Pep Boys, Family Dollar...

It's not enough to pay rank and file employees minimum wage with zero benefits, while the CEO makes $15 million a year and shareholders receive billions in dividends. Now it is also necessary to cheat employees out of their hours worked, so that wealth can concentrate further.