Over the past few decades, the US economy has undergone a profound change.
This change has helped rich Americans get richer. But it has also contributed to growing income inequality and the decline of the middle class. And, in so doing, it has fueled populist anger across the political spectrum and slowed the growth of the economy as a whole.
What is this change?
The complete embrace of the idea that the only mission of companies is to maximize profit for their shareholders.
Talk to people in the money management business, and they'll proclaim this as a law of capitalism. They'll also cite others, including the idea that employees are "costs" and competent managers should minimize these costs by paying employees as little as possible.
These practices may help boost stock prices, at least temporarily. But they aren't actually laws of capitalism.
They're choices.
And they're choices we should revisit if we want to restore a sense of fairness and opportunity in America to reinvigorate our economy.
Not long ago, America's corporate owners and managers made different choices — choices that were better for average Americans and the economy. They also had a profoundly different understanding of their responsibilities.
"The job of management," proclaimed Frank Abrams, chairman of Standard Oil of New Jersey, in 1951, "is to maintain an equitable and working balance among of the claims of the various directly interested groups… stockholders, employees, customers, and the public at large."
By paying good wages, investing in future products, and generating reasonable (not "maximized") profits, American companies in the 1950s and 1960s created value for all of their constituencies, not just one. As a result, the country and economy boomed.
Over more recent decades, however, this balance has radically shifted.
The stagnation and bear market of the 1970s contributed to the rise of shareholder activism, a trend immortalized in the 1980s by the fictional corporate raider Gordon Gekko in the movie "Wall Street." In that era, American companies had become bloated and complacent, and they needed a kick in the ass. "Greed is good," Gekko declared, firing smug managers and restructuring weak companies. And the nation's beleaguered shareholders justifiably cheered.
But 30 years later, Gekko's shareholder revolution is still going strong, and the pendulum has swung too far the other way. Urged on by a vast and hyper-competitive money management industry, American companies now increasingly serve a single constituency — shareholders –while stiffing employees and cutting investments in future products.
The most salient illustration of this is the divergence between profits and wages.
Corporate profit margins have been rising for 15 years and are now near their highest levels ever. Corporate wages, meanwhile, have been declining for four decades....
http://www.businessinsider.com/time...16-6?utm_source=microsoft&utm_medium=referral
This change has helped rich Americans get richer. But it has also contributed to growing income inequality and the decline of the middle class. And, in so doing, it has fueled populist anger across the political spectrum and slowed the growth of the economy as a whole.
What is this change?
The complete embrace of the idea that the only mission of companies is to maximize profit for their shareholders.
Talk to people in the money management business, and they'll proclaim this as a law of capitalism. They'll also cite others, including the idea that employees are "costs" and competent managers should minimize these costs by paying employees as little as possible.
These practices may help boost stock prices, at least temporarily. But they aren't actually laws of capitalism.
They're choices.
And they're choices we should revisit if we want to restore a sense of fairness and opportunity in America to reinvigorate our economy.
Not long ago, America's corporate owners and managers made different choices — choices that were better for average Americans and the economy. They also had a profoundly different understanding of their responsibilities.
"The job of management," proclaimed Frank Abrams, chairman of Standard Oil of New Jersey, in 1951, "is to maintain an equitable and working balance among of the claims of the various directly interested groups… stockholders, employees, customers, and the public at large."
By paying good wages, investing in future products, and generating reasonable (not "maximized") profits, American companies in the 1950s and 1960s created value for all of their constituencies, not just one. As a result, the country and economy boomed.
Over more recent decades, however, this balance has radically shifted.
The stagnation and bear market of the 1970s contributed to the rise of shareholder activism, a trend immortalized in the 1980s by the fictional corporate raider Gordon Gekko in the movie "Wall Street." In that era, American companies had become bloated and complacent, and they needed a kick in the ass. "Greed is good," Gekko declared, firing smug managers and restructuring weak companies. And the nation's beleaguered shareholders justifiably cheered.
But 30 years later, Gekko's shareholder revolution is still going strong, and the pendulum has swung too far the other way. Urged on by a vast and hyper-competitive money management industry, American companies now increasingly serve a single constituency — shareholders –while stiffing employees and cutting investments in future products.
The most salient illustration of this is the divergence between profits and wages.
Corporate profit margins have been rising for 15 years and are now near their highest levels ever. Corporate wages, meanwhile, have been declining for four decades....
http://www.businessinsider.com/time...16-6?utm_source=microsoft&utm_medium=referral
