On March 6, 2016, Elias Isquith writes on Salon:
While the fate of the presidential campaign that talks about the issue more than any other remains uncertain, this much is clear: Despite the general public’s mounting anxiety and awareness, the economic inequality that’s done so much to change American society over the past 40 years has not abated. It may, in fact, be getting worse.
For this reason alone, “Runaway Inequality: An Activist’s Guide to Economic Justice,” the new book from Labor Institute executive director and president Les Leopold, would be worth reading. Thankfully, however, the book has many virtues besides its timeliness. And more than most of the other high-profile books on inequality in recent years, “Runaway Inequality” doesn’t just explain where the U.S. economy went wrong; it also explains how American citizens can organize to get it back on track.
Recently, Salon spoke with Leopold over the phone about the book and economic inequality in general. Our conversation has been edited for clarity and length.
There are a lot of books about inequality out there now, especially in the past five or so years. What does your book bring to the conversation that was otherwise lacking?
I think there were three things that I thought would differ from the ongoing conversation. The first one was that runaway inequality was accelerating. It isn’t just there, it’s growing. The fact that 95 percent of all the new income in the current so-called recovery is going to the top 1 percent is indicative of what’s happening. I don’t think that’s ever happened before in American economic history that I can find. There’s no recovery at the bottom, it just keeps going to the top.
The second one, which I think is even more important, was that I saw runaway inequality as a core issue that linked so many diverse issues. I think it’s kind of funny when someone says, “Well, Bernie Sanders is just interested in inequality or Wall Street. It’s just one issue.” I see it quite differently. I see it as the issue that connects so many other issues, and therefore that leads to the third reason.
I thought that connective tissue could be the basis for building an analysis that could help foster a broad-based progressive-populist movement. That if people could see that their issue silos were actually connected to inequality, it could build bridges amongst various progressive groups that have gotten siloed. Much of the last generation’s worth of progressive action has been within an issue category, be it identity politics or education or housing or environment or so on. There has been a fracturing of what could be a more coherent movement, and I thought “Runaway Inequality,” with its focus on Wall Street and the financialization of the economy, could provide that connective tissue. I didn’t see that anywhere else.
How does your analysis differ from some of the other recent work on inequality?
The slant on Runaway Inequality was different from Piketty and others. There tends to be a story that goes something like this: “American workers kind of got lost in the global shuffle. They don’t have the skills that the more elite people have and we don’t need the manual labor, et cetera. It’s kind of a skill problem, a mismatch between skills and jobs.” I just don’t think that’s true. I think, in fact, the deregulation of the financial system is the driving force of runaway inequality.
I think the way to build a coherent, broad-based populist movement is to focus on runway inequality and Wall Street. That’s what I’m hoping to contribute to.
Why is it that so much of the recovery has gone to those at the top?
That’s the question that takes us to the core analysis. In the late ’70s, roughly, a new economic philosophy really caught hold in both political parties. It originally came from the right, from Milton Friedman and the free marketeers. Academics call it neoliberalism; in the book, we call it the “Better Business Climate.”
It basically was kind of a simple model. Cut taxes, cut regulations, cut back social spending so people will be more eager to find work and be less dependent on the government, and basically undermine the power of labor unions so the economy would run more on market principles and have less inefficiencies in it. There would be more investment and profits, and therefore, all boats would rise. It would lead to kind of a boom economy. That was the theory. I was in graduate school when that was going on, and it was pretty strong, even more liberal economists were sort of giving up on Keynesianism and going in this direction.
What they didn’t teach us and what they never discussed is that it’s one thing to deregulate trucking or airlines or telecommunications, but it’s quite another thing to deregulate the financial sector. When they started deregulating the financial sector, it put in motion something that we refer to as “financial strip mining.” It’s an incredible, insidious process. It started with a lot of corporate raids – we know call them hedge funds, takeovers, private equity companies – financiers who use a little bit of their own money, borrow a huge amount of money, and start buying up companies. In the deregulated atmosphere they bought up thousands of them over time. The debt that was accumulated to do that was basically put on the company. It’s a little bit like if you went out and bought a car with a loan, instead of you paying back the loan the car pays back the loan. That’s what they were doing.
How did this practice change the way those companies were run?
They changed the way the CEOs were paid, so that the CEO acted in behalf of the Wall Street investors. This was really powerful. In 1980, 95 percent of the CEOs’ pay was salary and bonuses, and five percent was stock incentives. Today, it’s virtually reversed. About 85 to 95 percent is stock incentives, and only five percent is salaries and bonuses. So that means the price of the stock is all that matters to the CEO, and of course that’s all that matters to the investors – the hedge funds, the private equity companies. They want to see the stock go up.
It’s a huge change in corporate culture. Now the CEO cares only about raising the stock. What’s the best way to do that? In workshops, we ask working people and community activists this question, and they start talking about, “Well, you’ve got to create a better product, you want to get more market share,” all of the things you would think would lead in that direction. In fact, they did something else.
There was a rule change in 1982, under Reagan. A guy who was the former Head of E.F. Hutton became head of the Securities and Exchange Commission, and he changed the rule about companies buying back their own shares. Before 1982, it was virtually illegal to do that because it was considered stock manipulation. When a company buys back its own shares, it reduces the number of share owners, and therefore every share is worth a little bit more. If you do this, all things being equal, you’re going to boost the share and manipulate the price. The free market’s not doing it, you’re doing it. This guy thought, “Well that’s very efficient. Anyway, competition will even all of that out.”
CEOs and their corporate raider Wall Street partners are thinking, “Oh, this is fantastic. Let’s use the company’s money to raise the price of the share, and then we can cash in on our stock incentives. The outside investors can cash in and leave, ‘pump and dump.’ This is great.”
How prevalent have stock buybacks become, and what are the implications of that?
In 1980, about two percent of a company’s profits were used for stock buybacks. By 2007, 75 percent of all corporate profits were used to buy back their own shares. Forget about R&D, forget about workers’ wages, forget about all that kind of stuff. All that matters to a CEO today is raising the prices of the shares through stock buybacks.
Yesterday, I was at a United Steelworkers meeting and they were very concerned about Carrier moving to Mexico. They’re negotiating and they’ve been making concessions and they still can’t get a deal. It’s a really bad situation. Donald Trump has actually been talking about it as well.
The difference between the negotiations, things are $10 million, $20 million, $30 million dollars. So I quickly go to Google and look up United Technologies, which owns Carrier. In October, United Technologies bought back $9 billion of their own shares. So they’re strip mining the company, and they’re using the worker contracts and the moving to Mexico as a way to generate more cash flow so that they can buy back their own shares. This financial strip mining is phenomenal. The net result is, in 1970 the ratio between a top-100 CEO’s pay and an average worker was 45-to-1. Which is a lot if you think about it this way: if an average worker could afford one car, the CEO could afford 45 cars. Or one home versus 45 homes, or one home that’s 45 times the size of an average worker’s home. We just crunched the numbers again for 2014: it’s 844-to-1. You can’t even conceive of how big that gap is, and it’s a direct result of financial strip mining.
That’s what leads to that acceleration. There’s nothing to stop it now. This is just what they do. When they run out of cash flow to buy back their own shares, they go deeper into debt. They’ll go to the debt market and try to get more money and then turn around and buy back their own shares. This has an incredible effect on virtually every other issue.
How so?
I can just give you one example that really galls me, but it says a lot and shows how many different issues are connected. The Obama administration bailed out the auto industry, and it’s great that they did. The industry was going under due to the Wall Street crash and there was no other reason at all at the time. It was a financial crunch that was taking General Motors under. The guy who negotiated that deal, one of the key negotiators for the Obama administration, left and went to a hedge fund. GM built up a cash cushion because it’s doing better now. I think all of the American people, at the very least, hoped that when GM built up its cash reserves it would do what needed to be done, which is build the best, highest quality, most efficient cars they possibly could for the future generations. This is what we all needed. I think that was the hope.
The problem is rooted in the money system, which MUST change if we are to achieve equal opportunity and economic justice. I address the core problem which has resulted in the subject of this article in my latest article published by The Huffington Post entitled “Bernie Sanders Can Win By Empowering Every Child, Woman, And Man To Become A Productive Capital Asset Owner at http://www.huffingtonpost.com/gary-reber/bernie-sanders-can-win-by_1_b_9441438.html. This article addresses the wealth divide. I believe this article to be significantly timely in light than NONE of the candidates for president are raising the issue of broadening wealth-creating, income-producing capital asset wealth OWNERSHIP in speeches, interviews, press conferences, debates or political ads. This is the issue that can bolster massive support Bernie Sanders during the primaries and the general election.
