Robert Reich on the Concentration of Wealth

Title: Re-slicing The Pie
Source: Robert Reich on NPR
Date: July 15, 2004

This article contains a remarkably clear statement of how the concentration of wealth works in America today. From the article:

The American economic pie is growing at a solid pace. The odd thing is how the pie is now sliced between the portion going to profits and the portion going to wages. According to the commerce department, the wage slice is now smaller than it's been in 38 years, while the slice going to after-tax corporate profits is bigger than it's been since the government began tracking profits back in 1947. This wage squeeze is hurting middle-class families who, even if they own shares of stock, depend mainly on wages.

To repeat:

•  The wage slice is now smaller than it's been in 38 years
• The profit slice is bigger than it's been since the government began tracking profits back in 1947

The profit slice goes to America's wealthiest. 86 percent of American stock is owned by the richest 10 percent of America's population, so nearly all of the profit (in the form of executive salaries/bonuses and dividends) is going to America's top 10 percent, while wages fall for everyone else.

Why is this acceleration in the concentration of wealth occurring? According to the article:

advances in telecommunications now enable many more companies to outsource to places like India and China, where wages are far lower. Or they can easily substitute computers and software for employees who might otherwise expect a raise. If these trends weren't enough to keep wages down, consider that big corporations are bigger and more powerful than ever. Think of Wal-Mart, now employing more Americans than the entire U.S. auto industry. Employers with this kind of clout can keep wages low just by refusing to raise them.

Add to that the fact that corporations can spend billions of dollars on congressional lobbyists and campaign contributions. Through these forms of well-financed persuasion, Congress has seen to it that the minimum wage has not risen since 1997. In that same period, executive pay has skyrocketed -- for example:

• executive receives $78 million severance package
• executive receives $25 million for 2 month's work
• 10 top executives at New York City's brokerage and financial firms get $231 million
• executive at Lucent gets $44 million
• And do on...

This massive concentration of wealth will only increase as computers and robots get more and more capable. See Robotic Nation for details.

Here is the other important question to ask: Where is all of the money for rising profit coming from? It comes from consumers -- it comes from you and me. We pay for it through highly inflated prices. Take, for example, this article mentioned in the Liberal Hyperbole blog:

Bank of America Profit Up 41 Percent

From the article:

Bank of America Corp., the No. 3 U.S. bank, on Wednesday said quarterly profit rose 41 percent, helped by the purchase of FleetBoston Financial Corp. and higher consumer and commercial lending.

The Charlotte, North Carolina-based company said second-quarter net income rose to $3.85 billion, or $1.86 per share, from $2.74 billion, or $1.80 per share, a year earlier.

$3.85 billion in net income in one quarter is a lot of money. There are approximately 100 million households in America. That works out to $35 per household per quarter, or $140 per household per year, on average. It means that even if your family does not use Bank of America, your household still will pay $140 this year to support the profit of this single corporation. That is $140 that you cannot spend on the things that your family needs. Nearly every bit of your $140 will flow into the pockets of the richest 10 percent of the American population. That is how the concentration of wealth works.

Bank of America is just one bank. See also:

• Wells Fargo's Kovacevich paid $36.4 million
• The juiciest pay bonanzas
• Bank Fees

How do we end the remarkable concentration of wealth that is taking place right now? Robert Reich offers this perspective: The American middle class must demand its fair share of the pie. That is the only way. I would suggest that we do it through a mechanism called Robotic Freedom.