September 21, 2003
Grasso Resigns: Indictment of Capitalism
It is said that history is a recording of the swing of a pendulum that moves endlessly from left to right and back again. The implication is that social trends gain momentum and expand until they create a growing force to counter the expansion and reverse the social trend that became extreme in its application. It would appear Richard Grasso’s resignation in response to outrage and concerns by large pension fund managers marks such a turning point of the pendulum which has been swinging right since the early days of Ronald Reagan.
Some would argue that the Grasso controversy centers on the relationship between the CEO and the compensation committee being chosen by the CEO. However, such an argument would too narrowly define the issue. Before it was even known that Grasso selected members of the compensation committee, the controversy had already begun based on nothing more than the amount of Grasso's compensation. The $188 million dollar pay package from a company that produces only $27 million a year in profits, is what raised eyebrows, questions and inquiries. Grasso was quick to rescind $48 million of the package, apparently in the hopes of stemming the growing tide of indignation over his labor's worth. Grasso supporters attempted to defend Grasso's pay package based on Grasso's stearing of the New York Stock Exchange (NYSE) through troubled waters in the past. But the amount of the compensation was just too large.
Richard Grasso has only one regret according to the NY Timeswhich states: "Last week, Mr. Grasso said his only regret was that he had deferred much of his pay during the last few years. Had he not, there would have been no headlines about $140 million."
Socialists, supporters of a mixed economy (socialism and capitalism), The Green Party and Democrats have argued since the 1960's that capitalism unfettered by government and regulation results in egregious accumulation of wealth in the hands of a very small number of persons. They argue such accumulation of wealth ultimately damages the society and the economy by creating unequal classes of persons in society and withholding large sums of money from the consumer demand side of the economic equation. Further, they state that disparate classes of citizens and loss of money from the economic equation will create economic slow downs, recessions, and substandard quality of life for millions of people. Capitalist purists argue that the accumulation of wealth is self regulating since competitive forces will dictate compensation according to demand and supply and least cost/highest quality analysis.
The pendulum of history has been swinging toward the Capitalist purists since the early 1970's and is reaching new heights under the Bush administration. Under the guise of “compassionate conservativism” the Republican Party touts free enterprise and capitalism in their rhetoric; yet ironically, find themselves having to bring the weight of government down on the heads of some very big corporations like Enron, Global Crossing, WorldCom, and a host of others.
President Bush is now having to sheepishly rescind his steel tariffs which came back to bite him in increased manufacturing costs for American manufacturers at a time when jobs will decide in part whether the President is reelected or not. The FCC backed by President Bush has tried to move toward monopolization (the ultimate dream of capitalists) of media and hit a brick wall of bipartisan opposition among the electorate and Congress. The pendulum's swing to the right is slowing under its own weight of excesses. Deregulation promised competitively lowered phone costs, energy costs, airline costs, but, have resulted only in increased costs (often through increased taxation) or lowered quality for consumers of each of these industries.
Grasso's resignation (with 140 million pay package intact) seems to have awakened many in the financial and economic arena's to what the middle class have known for many years. The inequities between those who own and run corporations and companies and those who fill the employment rolls of those organizations are becoming obscene. A broker puts in a 50 hour week. Grasso puts in a 60 hour week. The broker makes $100,000 per year and Grasso makes $40 million. This picture is becoming more and more unacceptable to working Americans who have placed their faith and trust in the conservative capitalists to provide jobs and increased standards of living. Those same Americans are awaking to the fact that the recession and unemployment were a breach of that faith and trust. They are awaking to the fact that their parents had more purchasing power per hour worked than they do today.
The growth of the Green Party throughout the world is a direct response to such inequities. So too are dissension and protests at the World Trade Organization and G7 meetings by representatives of third world and mainstream countries. Even the concessions by unions to Corporation's needs is a sign of changing times that represents the rise of a social movement that will turn Democrats into fiscal conservatives, the elderly into activists, and some socialists into heroes.
Since the stock market crash of 1929 America has never been purely capitalist. And since the FDR programs the country too, has never been purely socialist. America has been a mixed economy with capitalism and socialism working together to control the excesses and extremes of each economic system. But the mix has grown too lean on socialism as the baby boom generation faces retirement without social security, as workers make less and less for their hour worked, as health care moves further and further away from 40 million Americans.
The pendulum is slowing but will not reverse course in November of 2004. It would probably be a great thing for America's working people if a Green Party candidate won the Presidency. But, since that is not even remotely possible, Americans will have to settle for the replacement of the current President. This is the most readily accessible change that American working people can bring about in the near future. It will not be until the electorate goes after the Congress in a "throw the bums out" campaign that spreads like wildfire, that America will see the pendulum stop its movement to the right, and begin a downward move back to the left. The roots of the capitalist rich mix in our economy lies in Congress.
The capitalists have taken to the working person's tax dollar the way they have taken to higher returns on investment in foreign based manufacturing. The Congress is using the American public as a credit card. The deficits will peak at about 550 billion but the debt will continue to grow. And so too will the interest rates on that debt. Like a credit card that starts with an introductory 7.9% rate, and goes up as the balance reaches the maximum allowed, so too will the tax burden on lower and middle class Americans begin creeping up as the debt grows from 7 trillion to 12 trillion over the next 10 to 12 years.
Congress is responsible for this growing deferred tax burden on working Americans. But, it will not be until 2008 or beyond that the American public realizes just what this debt is going to cost them. The conservative Congress is bloating the debt with a star wars defense system, and armament for the fourth and fifth world wars, with subsidies to American corporate farmers that stand in stark contradiction to the conservatives "free enterprise" rhetoric. And that debt is growing to secure geographic areas around the globe that American energy companies will need to tap to sustain their carbon based profitability.
Grasso's resignation should be a wake up call to working tax payers that our mixed economy has the wrong blend. To some it is, but, to far too few to make any real difference in 2004. Even if Carol Mosley Braun were to win in 2004, her ultra left-liberal position would be rendered ineffective by the conservative Congress. She could veto bill after bill until her pen ran dry of ink, but, it would not move the country any further toward recapturing the right mix of socialism and capitalism that our parent's generation enjoyed. Until the conservative Congress has a new mix, our economy will continue down its faltering path, and the Pendulum, though slowed, will not stop, and reverse direction. Richard Grasso took the money and ran. American voters should now take the hint and run to the polls in 2004, not for a change in presidency as much as a forceful change in Congress.
Posted by David R. Remer at September 21, 2003 03:06 AMI can claim capitalism as my philosophy and still have an argument against men like this. He’s a leech on society, and he was rewarded for consistent failure, which goes against capitalist creed and strays into socialist boundaries (work according to ability and get paid according to need, except he needs $140m).
If anything, what we have seen is exactly what Ayn Rand warned of… the rise of pull peddlers. Those who manipulate the government system in order to loot America. AKA the Iron Triangle. AKA the Looters. If anything, this should be an indication that the average guy on Wall Street has woken up and is willing to kick these leeches out of power.
Now if only we can get to Halliburton, Carlyle, Boeing, GM, etc.
But your argument against capitalism hold no water with me when what you are witnessing is not even capitalism, but some regurgitation of a dictator mantra applied to corporate finance. Socialism is a poison, and even lowering the dose, it’s still poison and it kills us.
Posted by: Stephen VanDyke at September 21, 2003 04:09 AM“Socialists, supporters of a mixed economy (socialism and capitalism), The Green Party and Democrats have argued since the 1960’s that capitalism unfettered by government and regulation results in egregious accumulation of wealth in the hands of a very small number of persons.”
Are you an advocate of Socialism? Yep I thought so…this is very telling when you read the entire article.
“The inequities between those who own and run corporations and companies and those who fill the employment rolls of those organizations are becoming obscene.”
So it is you who will decide how much money someone should make? I will make whatever I wish to make in a free market. My employees will be well compensated for thier efforts but they will probably not be rich. Why won’t they?
Probably because they do not own the company.
Because My colleagues and I have designed and built the company they work for. That is because we are responsible for it. We are in control of it, and they do not have to work for it.
If they want to create thier own company, so be it. They can get rich….like me, and be an evil bastard who creates jobs for folks.
My guess is that you are unemployed and disgruntled. If you are then perhaps you should spend more time trying to create jobs by starting your own business through sweat, smarts and hard work, and less time attacking obviously corrupt fat cats. I am a capitalist who will be a millionaire by the time I am 50, probably sooner.
This is because I work 16 HRS. a day and every single weekend. EVERY SINGLE WEEKEND! WOOT!
I will achieve my goals by creating jobs for people and not by spending my time writing articles that endict capitalism and point out the singularities of corruption as if they were exclusively conservative in nature.
Perhaps we should LEVEL THE PLAYING FIELD so that everyone can make the same amount of money regardless of how much of thier heart and soul they dedicate to a vision.
This article, when read in its entirety is like Marx and Engels manifesto.
It is personally insulting as well as totally wrong.
It’s a damn shame Marx was so good of a writer and an avid follower of Aristotle’s Art of Rhetoric. Because socialism will never, ever, ever, ever work. If you give a man the option of eating without getting anything in return, he will gladly gorge himself on the labor of others… this happens at the bottom AND the top (the fundamentalism of socialism). What you have then is a guilt-ridden man (the loafer), and a resentful man (the toiler). This is socialism, not capitalism.
My only proper response to this anti-capitalism diatribe of yours may need to be a full-length article of my own.
Posted by: Stephen VanDyke at September 21, 2003 04:20 AMNice to see some other night crawlers out there. I take it from the above responses that both of you, Stephen and Pete stand directly opposed to public schools, employer shared pension plans for employees, collective bargaining, social security, Medicare and Medicaid, public works for regional interests like dams and aquaducts, space exploration, FEMA aid that will go to residents hit by the most recent hurricane, etc., etc.
Yep, you all sure are purist capitalists and stand on the fringe of what most Americans believe in. All of the above are socialist programs. As I pointed out, a mixed economy is one which embraces both socialism and capitalism which keep each other in check. It is this mix of socialism and capitalism that took America from the post depression era to the great and powerful status in the world it now holds.
Posted by: David R. Remer at September 21, 2003 05:54 AMI hope you both realize, that nowhere in my article did I state that capitalism is bad for America. What I said was that unfettered and unrestrained capitalism is bad for America. I don’t believe socialism unfettered and unrestrained would fare any better.
If you are both having a phobic reaction to the word socialist, you may want to take a deep breath, relax and reread the article. It is not a socialist manifesto, it is an argument for balance between the interests of lower and middle class workers and profit producers. It is an argument for oversight of capitalists like Grasso. Since the SEC and the NYSE board are making such oversight changes as we speak, it would appear my assertion that capitalism has become too unrestrained is agreed with by members of both those agencies.
I know the cold war created an equation between communism and socialism. But get past it. Socialist programs have been working for the benefit of America and for capitalists for 70 years.
Posted by: David R. Remer at September 21, 2003 06:27 AMSocialism is just one of those loaded, polarizing words. Perhaps if we stuck to “social programs”, we wouldnt get mired in old word associations that derail our intent.I expect most people agree with the concept of the sorts of social programs David cited. Arent they just 20th century imbellishments of the original social contract, wherein we gave up certain freedoms for certain protections or advantages gained by going from individual to group? I believe what we really object to is the winnowing of ethics out of the mix. We love capitalism, we dont love crooks and scoundrels who game the system and find loopholes that defeat the intent of our better laws and regulations. Its abundantly clear that this country is having a bit of an ethics crisis (see Arianna’s “pigs at the trough” for examples) Thats not good for perpetuating capitalism or the country. It strikes at the fundamentals of our Constitution when a CEO can gut a pension plan to create a golden parachute for himself and descimate the futures of countless others through his unbridled greed. Thats a violation of the original social contract and, as Warren Buffet said, there should be a special place in hell for those folks. I think most good people “get” their social obligations- they understand that when they have done really well, at some point, they want to give some back to society. Arent those heavy duty capitalists some of the most philanthropic ?(Gates and co. to name a few) So, my point at long last, whatever the system, if individual ethics arent a part of it, there will be corruption and abuse. I agree that an admixture of capitalism and social programs would seem to be the ticket. Look at Arnold, this poor misguided guy has huge success, but is that enough for him? Noooooo. He has to promote an after school program for kids, and get involved in special olympics, and now, volunteers to be a public servant, because he wants to give back. I believe him, his wife was most eloquent on cnn the other nite. But I digress. How to inculcate the ethics thing so we have more arnolds and fewer degrassos. Thats another story
Posted by: greg smith at September 29, 2003 02:30 AMThe problem with pure capitalism is the underlying premise as put forth by Adam Smith in Wealth of Nations that self interest including greed is the guiding principal and prime mover of truly free enterprise. Adam Smith was not wrong. However, most folks who have read the cliff notes for Wealth of Nations have not read Smith’s previous precursor to Wealth of Nations called, Theory of Moral Sentiments . Here Smith outlines how moral integrity and ethics if you wish for those educated enough to read his works are necessary and mandated by self interest.
But we don’t educate MBA’s in The Theory of Moral Sentiments, only in The Wealth of Nations. Smith would be horrified by this distorted and half educated result from our Ivy league universities.
I have just taken a long way around to agree with greg smith that business education without ethics education will spell doom for the economic system regardless of what you call it. Adam Smith went to great pains to expound on this.
Posted by: David R. Remer at September 29, 2003 07:32 PM
