Robert Frank, a Cornell economist and well respected theologian to the country club circuit, reminds us in his Newsweek column of last week to beware of killing our best and brightest goose, laying our best and brightest golden eggs:
“We are such a rich country in part because our corporations hire the right people most of the time. In managerial jobs, an increment in talent has more impact in a big corporation than in a small one. That's why it's in everyone's interest that the most talented managers run large corporations rather than children's shoe stores. And that's what happens under current arrangements. But those managers would have little reason to seek the most important positions if salaries were the same elsewhere.”
The word has come down from the mountain! Now, of course, the second sentence is a little less than divine. What it seems to mean is that managers at big corporations make decisions that have bigger impacts than the managers at children’s shoe stores. Wow, such wisdom. And the man is one of Cornell’s best and brightest – I believe he is holds the Lickspittle Chair there, named for Arthur C. Lickspittle, who came up with the “rich work harder than you and me’ doctrine. An excellent doctrine! We all saw it unfolding at Bear Stearns, when the management was working hard at a bridge tournament while the company went down.
But those other talents – and Frank can point to how talented they have been in the last year! – have been putting in their years of brightness, and they certainly don’t want their perks cut at such an ugly time. That would be, well, like scaring the vultures away just as they were having a tasty feast. This feast is, of course, on the global working class.
Michael Perelman, an economist who publishes in Challenge, Jeff Madrick’s magazine, reprises an article by David Yermack, Flights of Fancy. It was about the increment of talent getting at little relief from their terrifying work loads and the non-stop brilliance in their heads by being able to relax at their favorite golf courses. Unlike your children’s shoe store, many of them work for corporations that are more than delighted to roll out the private corporate jet, so they can take their incrementally more talented asses to places where they would be appreciated as good putters, too:
Yermack’s paper reported that “more than 30 percent of Fortune 500 CEOs in 2002 were permitted to use company planes for personal travel, up from a frequency below 10 percent a decade earlier.” Since Yermack’s study, the problem has continued to escalate. Between 2004 and 2005, the reported value of personal use of corporate aircraft increased 45 percent, according to government filings of the 100 largest public companies (Fabrikant 2006).
Not surprisingly, Raghuram Rajan, the chief economist of the International Monetary Fund, gallantly came to the defense of the corporations. He suggested, without the slightest hint of humor, that these expenditures may have actually been justified because they encouraged executives to be more efficient (Rajan and Wulf 2004). This justification does not seem particularly credible since Rajan’s study did not bother to distinguish between planes used for business or personal purposes, including use by retired executives.
In fact, the personal use of corporate jets does not seem to be correlated with profitability at all. Of course, some of the firms that supply their executives with corporate jets for personal use are successful, despite such wasteful excesses, but the use of corporate jets is correlated with poor performance. According to Yermack: “Firms that permit personal aircraft use by the CEO underperform market benchmarks by about 4 percent or 400 basis points per year, after controlling for a standard range of risk, size and other factors” (Yermack 2004).”
But never fear – such cruel barbs do not penetrate the establishment, which is just sure that a man making, say, 40 million in compensation per is a mighty, mighty hard worker – 99 percent perspiration, these guys.
Myself, I’m not absolutely convinced about the level of brightness of our oligarchy, in spite of Frank’s vision of their increments of talent making the country (although not the average reader of Newsweek) rich. In fact, I think corporations should be taxed at a phenomenally high rate if they pay their management more than some ratio over the lowest salaried worker. Right now, the average is 300 times. I think 9 times, the 70s average, is about right. As for the money saved – it can go to the lucky workers.
How to make sure it goes to the workers? Crush the speculative market in equities. I’m more and more convinced that Theodore Roosevelt was right – the price of a share of stock should have a one to one ratio with the assets of the company. No more. If you want to buy and trade stock, it would not be in a word in which “market capitalization” differs so wildly from real value.
Sunday photoblogging: Birds at Crosby - [image: Birds at Crosby]
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